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Alan Kohler is one of Australia’s most experienced commentators and journalists. Alan is the founder of Eureka Report, Australia’s most successful investment newsletter, and Business Spectator, a 24-hour free business news and commentary website. He also hosts Inside Business, a half-hour Sunday programme on the ABC, is the finance presenter on the ABC News - and producer of the nightly graph (or two).
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China wavers between party and progress

John Lee6 Mar, 7:09 AM

Beijing must cede more control to move China towards a stronger and fairer economic model, based on private consumption. Wen Jiabao’s last major speech as Premier suggested courage may still be lacking.

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The current National People’s Congress will formally confirm Xi Jinping and Li Keqiang as the incoming president and premier respectively when it concludes on March 17.

Meanwhile, the interest was on outgoing Premier Wen Jiabao’s Report on the Work of the Government that was delivered on Tuesday morning – the closest thing China has to the Presidential State of the Union Address in the American Congress. One might argue that the report will always be issued by an outgoing premier keen to defend his policy record over the past decade. There was some of that. But it is also about informing the country about policy of the new generation of leaders in the year ahead and beyond.

If so, the fact that Wen’s 2012 address is little different to the 2013 version is an indication that the incoming generation of economic managers are stuck with muddling along rather than dramatic change.
In his 2012 speech, Premier Wen lowered the growth target to 7.5 per cent, the first time declaratory policy had installed a growth target of below 8 per cent for a decade. Having previously warned several times that the Chinese economy was "unbalanced, uncoordinated, unstable and unsustainable", the lower growth target was there to reflect a determination to rein in credit growth fuelling fixed investment – even if that reduced growth in the short run – and adopt a number of measures to increase domestic demand. As the premier indicated one year ago, expanding domestic consumption was the government’s highest priority for 2012.

The 2013 speech yesterday was little different. The growth target was left unchanged at 7.5 per cent and a prescriptive inflation ceiling set at 3.5 per cent. Premier Wen outlined modest initiatives to increase spending on social safety nets such as government housing, healthcare and pensions. As in previous speeches in 2012 and before that, there were no details about how the government would wind back the growth of the state corporate sector, and offer more capital and opportunity for the millions of struggling private sector firms.

As this column has consistently argued, only by ‘privatising’ opportunity will across-the-board incomes rise in China (China can’t grow out of its problems, February 6). Indeed, the same viewpoint has been expressed multiple times by Chinese Central Bank Governor Zhou Xiaochuan who is one of the country’s pre-eminent voices for economic and financial reform. While Zhou’s likely reappointment is a positive light for the country’s future, there was little in the wording or temperament of Premier Wen’s speech which suggested any significant change in fundamental direction.

While there is little evidence of imminent policy changes ahead, it is clear that the top echelons of the Chinese Communist Party realise that China cannot simply grow its way out of its social problems. The media-management of the lead-up to the 2013 version was noteworthy and savvy compared to previous years. Over the previous weekend, incoming president Xi made a high profile visit to several poor villages in Gansu province in China’s less developed northwest. Recalling his own tough teenage years in rural China during the Cultural Revolution when his father was imprisoned, Xi’s visit included the sharing of a simple meal with one of the elderly villagers and he spoke convincingly of his personal memories of rural hardship and poverty.

Around the same time, Premier Wen visited a community forum in Beijing. Residents were encouraged to ask questions and voice complaints about healthcare, education and the increase in prices of basic goods such as pork and lamb. Like Xi’s visit to Gansu province, questions and responses were not scripted. Wen was even recorded blaming himself for not having done better for ordinary citizens during his tenure.

Indeed, Wen and Xi are the CCP's best two politicians when it comes to connecting with the country’s citizens. Unlike the vast majority of CCP central leaders, Wen and Xi do not struggle to offer convincing and compassionate responses when removed from the staged environments of CCP political events. Whereas the party's leaders resort to awkward phrases such as ‘development under harmonious conditions’ to describe government policy, Xi has simply said that the CCP will "implement policies that benefit the majority rather than the minority". In other words, China’s best two communicators were on show in the lead-up to the rubber-stamping but still important meeting (in terms of symbolism) which is the NPC.

Even if Premier Wen’s heart is in the right place, he nevertheless oversaw the dramatic expansion of state-owned-enterprises in every major sector from this century onwards – and the resulting shrinking of the private sector. The gap between the growth in GDP growth and median disposable household income has increased by more during Premier Wen’s tenure than during any other period since reforms began in 1979. Within the one generation, China has gone from being the most equal to the least equal country in all of Asia. The great beneficiaries of economic growth have been SOEs rather than ordinary households. If the mild-mannered premier failed in these respects, many are hoping that Xi – who has personal experience of economic hardship – will make a better fist out of raising across-the-board household incomes and therefore the domestic consumption base throughout the country.

As the almost 100-year history of the CCP reaffirms, keeping oneself and one’s party in power tends to triumph all other considerations. The early indication is that Xi is no different. During a message to Guangdong Province party members in mid-December last year, Xi urged his colleagues to heed the "deeply profound" lessons of the fall of the Soviet Union. In comments that have been widely circulated amongst hundreds of officials, Xi warned against the "political rot, ideological heresy and military disloyalty" that brought down the former Soviet Union. In demanding a return to traditional Leninist style discipline, reforms that diluted the party’s power – political, economic or social – were to be resisted or else carefully contained.

That Xi made the speech in Guangdong Province, which is a poster child for private sector and free-market economic dynamism in contrast to state-led capitalism, is highly significant. As Xi reminded his colleagues, once party ideals and conviction lapse in the name of rapid reform, "all it took was one quiet word from Gorbachev to declare the dissolution of the Soviet Communist Party, and a great party was gone". As Xi is quoted to have concluded, "in the end nobody was a real man, nobody came out to resist".

The next generation of leaders recognise that officials enriching themselves at the expense of the people, cronyism and inequality could bring down the party. But they also realise that the solution – getting the party to loosen the reins and levers of economic power, and placing officials under the same rules and laws as ordinary citizens – could eventually disempower the CCP and make the once dominant party less and less relevant to China’s success.

Xi and the incoming Premier Li Keqiang have emphasised frequently that reform must be "piecemeal" rather than rapid. Current President Hu Jintao and Premier Wen consistently used the same language. If their record is anything to go by, the truer interpretation of 'piecemeal' is that any reform threatening the power and privilege of the CCP is likely to be shelved. In Tuesday’s speech and in others over the past year, Premier Wen appears to be a man leaving the post with a number of deep and genuine regrets – judging by his words and demeanour.

The new team have five and probably 10 years to avoid the same mistakes. But Xi linking genuine economic reform with the plight of the hapless Mikhail Gorbachev and his beloved but doomed Soviet Union is not an encouraging sign.

Dr John Lee is the Michael Hintze Fellow and adjunct associate professor at the Centre for International Security Studies, Sydney University. He is also a non-resident senior scholar at the Hudson Institute in Washington DC and a director of the Kokoda Foundation in Canberra.

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