Graft Threatens Communist Party Rule: Xi

If China is to fight corruption, it must reduce the state’s role in the economy.

China’s new leader, Xi Jinping, warned on Sunday that abuse of power and corruption within the ruling Communist Party undermines public trust in the government and could ultimately imperil its single party rule. If he is to seriously reduce graft, however, Xi may end up eroding the party’s grip on power by himself.

Xi, who is expected to take over the reins of state power from outgoing president Hu Jintao at this month’s annual full session of parliament, said in a speech, “Only if the capabilities of all party members unceasingly continue to strengthen can the goal of ‘two one hundred years’ and the dream of the great rejuvenation of the Chinese people be realized.”

“Two one hundred years” refers to both the party’s and the People’s Republic of China’s centennial in 2021.

A scandal rocked China last year ahead of the leadership transition when Chongqing party chief Bo Xilai was ousted. Bo’s top lieutenant and police chief had reportedly revealed details of a British businessman’s death and subsequent cover-up to the United States Consulate in Chengdu, an incident that somehow involved Bo’s wife.

The details of Bo’s purge and the events that preceded it remain unclear but may have been politically motivated as he championed a more leftist and populist economic and social policy that defied the liberal consensus in Beijing.

The majority of Chinese leaders who were elevated to the Politburo Standing Committee, the country’s highest decisionmaking body, in November, including Xi, were seen as protégés of former president Jiang Zemin’s who oversaw gradual economic reforms as paramount leader in the 1990s.

The World Bank warned China last year that it should enact even deeper reforms if it is to avoid falling into a “middle income trap” after decades of rapid economic expansion. While China’s growth rate still far exceeds those of industrialized nations, it slowed to a thirteen year low in 2012.

China pumped $635 billion in its economy at the height of the international financial crisis in 2008 in an attempt to sustain growth, a stimulus package thrice the size of the United States’ relative to its gross domestic product. Late last year, it announced another $150 billion worth of infrastructure spending.

Such stimulus measures may inflate growth in the short term but also encourage nepotism. Money is poured into politically favored industries that therefore have little incentive to improve their competitiveness relative to foreign competitors.

Nor have they significantly lifted internal demand which China’s leaders recognize must increase as it threatens to lose its cheap labor advantage to other Asian nations and won’t be able to rely on exports alone for growth in the near future.

A further slowdown in economic expansion could undermine the Communist Party’s monopoly on power. China’s burgeoning middle class has largely accepted the lack of political freedoms while the economy was booming. Yet for China’s leaders to maintain high growth rates, they may have to relax their grip on power.

The main impediment to economic development in years to come is the state’s heavy hand in industry. Behemoth state-owned enterprises, central planning, a weak judiciary, insufficient protection of private property and intellectual copyrights stand in the way of a freer market economy which the party seems unable to decide if it really wants.

The most efficient way for Xi to simultaneously improve the accountability of Chinese politicians and the country’s long-term economic growth prospects is further liberalization, including privatizations, but that is a political, not to mention ideological, challenge that could take him years to mount.