China Policy Institute

Briefing Series – Issue 14

CHINA’S POLITICAL TRANSITION

Professor Yongnian ZHENG

© Copyright China Policy Institute

13 November 2006

China House University of Nottingham University Park Nottingham NG7 2RD United Kingdom Tel: +44 (0)115 846 7769 Fax: +44 (0)115 846 7900 Email: [email protected] Website: www.chinapolicyinstitute.com

The China Policy Institute was set up to analyse critical policy challenges faced by China in its rapid development. Its goals are to help expand the knowledge and understanding of contemporary China in Britain, Europe and worldwide, to help build a more informed dialogue between China and the UK and Europe, and to contribute to government and business strategies. China’s Political Transition

by Yongnian ZHENG *

In the past quarter of a century, China has achieved rapid socio­economic transformation, with its economy growing at an annual rate of more than 9%. China’s per capita GDP in 2004 had reached US$1,200, approaching the level of mid­income countries. An increasingly open economy has created conditions for the development of a more open society: by 2003, China had surpassed the USA as the world’s largest telephone market; China’s registered Internet users had surpassed 120 million to form the world’s second largest “web population” after the USA early this year, and it is expected that China will become the largest at the end of this year.

In Russia and East Europe, the rule of the communist parties did not survive the reforms. In contrast, despite undergoing the transformation into an open economy and an open society, China retains its authoritarian political system. Will China’s political system be able to survive its rapid socio­economic transformation? This is the key concern among proponents of “China uncertainties” which have developed outside China recently. Some would argue that the futures of India, Russia, or even Indonesia, can be charted with more certainty since these countries have established a democratic political framework.

All big transformations bring about uncertainties. China’s current transformation is unprecedented in the history of modern states, and its associated uncertainties are understandable. The question is: Can China overcome all these uncertainties?

Political transition is the key. Political transition can be understood as transformation from authoritarianism toward an uncertain “something else.” That “something else” can be the installation of a political democracy, or even perhaps the restoration of a new, and possibly more severe, form of authoritarian rule. I believe that most people would agree that a meaningful political transition in China must involve the former scenario, that is, a transition from the existing authoritarian structure to one with a higher degree of political democracy. I also believe that after more than two decades of economic reforms, it is unlikely for China to return to either a Maoist or any other type of totalitarianism.

Will China become democratic? I would argue that democratization is one of the goals of China’s transition, but not the only goal. China’s political transition at this stage of development is more about state­building. To date, China is still in a process of becoming a modern state. Without developing a set of modern state institutions, democratization will not help China to resolve all uncertainties resulting from rapid socio­economic transformation.

How can political democratization take place in China? Theoretically, there are many paths towards democracy. But empirically, China seems to be following the path that takes it first through economic reform, then social reform, and eventually political reform. The country is now entering the second stage of this path.

This path does not mean that China ignores all forms of political reform that are necessary for its economic or social reforms. But it is reasonable to argue that political reform so far has been secondary to other reforms.

* Yongnian Zheng is Professor and Head of Research at the China Policy Institute of the University of Nottingham, United Kingdom. This paper was presented to a conference on "China: Towards an Innovative Society ­­ the risk, the opportunities" at Wilton Park on 13 November 2006.

2 I disagree with the popular notion that China’s reform strategy was characterized by “economic reform without political reform.” As occurred in Russia and other Eastern European countries, China has also experienced simultaneous economic and political reforms. The difference is that China’s reform has been gradual. It is divided into different stages. In the first stage, China’s leadership placed overwhelming emphasis on economic reforms. In the on­going second stage, the emphasis is now on social reforms. Although some political reforms have been carried out, these are to supplement either economic reforms or social reforms. China has yet to enter a third stage where political reforms become the central theme.

Economic Reforms

First, allow me to take a brief look at China’s first stage of reform, that is, the economic reforms. This stage can be further subdivided into two different phases. The first phase (from the late 1970s and the middle 1990s) was characterized by intergovernmental decentralization. During this period, economic decision­making authority was shifted to local governments. Local governments became de facto owners of state enterprises. They were highly interventionist, and became what the scholarly community called local ‘developmental states’.

While intergovernmental decentralization was successful in promoting local economic growth, it had weakened the central government’s capacity to macro­manage China’s economy. Around the mid 1990s, the Chinese leadership began to engage the second wave of economic reforms through selective recentralization. Selective recentralization involved the establishment of key state institutions that allowed the central government to play a more active role in managing the national economy. Selective recentralization was centered on two major reforms, i.e., taxation reforms and central banking system reforms. In 1994, the central government implemented a new taxation system, i.e., the tax­division system, otherwise known as a federal style taxation system. In 1998, the central government began to reform China’s financial system: all provincial branches of the central bank were eliminated and nine cross­provincial or regional branches established. These two reforms have strengthened central economic power greatly.

Social Reforms

In the last few years after the Hu Jintao­Wen Jiabao leadership came into being, China’s reform curve has turned towards social issues. In China’s context, social reforms are responses to the negative social consequences resulting from its economic boom. In the 1980s, the Chinese leadership operated under Deng Xiaoping’s principle of ‘get­rich­first’. The state of the poor became a secondary priority among leadership agendas, embodied by the slogan, ‘to get rich is glorious’. Then under Jiang Zemin, Deng’s directives were pushed to an extreme. It was under Jiang that GDP growth became the single most important performance indicator for local government officials – and under Jiang when the capitalists were invited to the CCP party membership and when private property was granted constitutional protection.

But after more than a decade of the ruthless, single­minded pursuit of GDP growth, the Chinese leadership is finding it necessary to step back from its previous mode of economic development. Undesirable consequences, like income disparities and environmental degradation, are today affecting not only economic growth itself, but also social stability. Hu Jintao began to turn the wheels of China’s economic growth in a different direction when he first rose to power.

Evidence of this change is the subtle replacement of Jiang’s time­table to ‘build a well­off society’ (xiaokang shehui) with Hu’s aim to ‘build a harmonious society’ (hexie shehui). The new approach of the so­called ‘scientific development’ is to ‘strike a balance’ in

3 Beijing’s various policies. More specifically, it raises the importance of social justice in the pursuit of China’s long­term development, in terms of more even distribution between different regions and different social groups and in terms of economic, legal and political rights.

Therefore, the Chinese leadership is now giving priority to social reforms, such as welfare, medical care, education, public transportation, and others. The government is trying to transform itself from an agent of economic development to a public service provider. Social reforms also include measures to provide more institutionalized mechanisms for wider participation in both political and economic processes, as well as to allow different social groups to share the fruits of China’s growth.

Following the recent call to build a harmonious society, two new plans are under discussion. The first is the plan to expand public feedback mechanisms. China currently does not have in place extensive, open, transparent and institutionalized feedback mechanisms (e.g. direct elections) that allow different social groups – especially less privileged ones such as farmers, rural workers, and urban workers – to articulate and aggregate their interests. As social grievances run high following the leadership’s long period of negligence, the task of expanding the public feedback mechanisms becomes imminent. Similar to the policy of making administrative procedures more transparent, public feedback channels are set to undergo changes.

More social participation is encouraged through the expansion of current democratic institutions at the local level and more petitions (xinfang) will be allowed via more institutionalized means. These policies aim to improve accountability and build better governance. While not quite as ideal a solution as more institutionalized and nation­wide feedback methods would be, the expansion will help to temporarily address current failings by translating more public opinion into proper political action.

The second major development is the new pledge to suppress the activities of the so­called ‘special interest groups’ (teshu liyi jituan). These ‘special interest groups’ mainly refer to the state­owned enterprises (SOEs) that were formed under the strategy of ‘zhuada fangxiao’ or ‘nurturing the big SOEs into giant conglomerates while letting the small ones face the forces of the market’, implemented during Zhu Rongji’s administration from 1998 to 2002.

Over the years, many of these enterprises have outgrown their original scope and size. Owing to their powerful economic capacity, and the lack of effective corporate governance, these enterprises end up forming huge monopolies in the Chinese economy. In their own closed market setting, these conglomerates operate according to their own rules, which are hardly in line with market principles. Price­fixing is a major concern, and this affects social and economic equity both at the consumers’ as well as the producers’ ends. Prices are often inflated to feed the needs of the employees of these monopolies; whereas a graduate in a major coastal city earns an average of about 2000RMB per month, a highway toll collector working for a monopoly earns as much as 8000RMB. This adds to the disparities that China faces today.

Corruption, cronyism, and profiteering activities have greatly exposed the need for more monitoring and accountability. Corporate social responsibilities need to be enforced, and a sense of ‘fairness’ instilled. To take a wider view, these activities took place within the context of the ongoing debate on developing methods of ‘good governance’, which the Chinese leadership is keenly in favor of. As ideological dogma becomes less convincing, the sustainability of the CCP regime will now have to depend on an institutionalized, and thus reliable, governance structure, legitimated in one way or another.

To a great degree, social reforms also mean empowering the society. The reforms help to build up the social infrastructures that are necessary for future political changes. Take the development of NGOs in China for example. The number of Chinese NGOs has increased

4 steadily over the years. Statistics provided by the Ministry of Civil Affairs (MCA), which is in charge of NGO registration, show that before 1978 there had been only about 100 national social organizations in China. By the end of 2003 their number had reached 1,736.

The development of NGOs in different sectors has been uneven. In the economic sphere, the Chinese government tries to reduce its direct management role by establishing intermediary organizations such as trade associations and chambers of commerce to perform sectoral coordination and regulatory functions. In the social welfare sphere, the government wants to foster NGOs to which it can offload some burden as a public service provider. Social development­wise, the government wants NGOs to mobilize societal resources to supplement its own spending. These NGOs will have to tag along the line of the government, which is, playing the role of a helping hand that is hardly independent.

Due to the lack of autonomy, the political influences of China’s NGOs vary widely between themselves, and across different areas. Some NGOs are more powerful than others. Most commercial organizations are extremely powerful at influencing the government’s policy making process. It is common to find business people sitting in the People’s Congress and the Chinese People’s Political Consultative Conference at all levels of the government. But workers and farmers are still not allowed to organize themselves. Meanwhile, NGOs are encouraged to play greater roles in areas such as poverty reduction, charity and environmental issues. But NGOs are virtually absent in others such as religious issues, ethnicity, and human rights.

Again, China is in an early stage of economic development whereby development is given higher priority than political participation. Social groups might be able to play a more important role with further economic progress. Take trade unions as an example. The Chinese government’s attitude towards workers’ rights is changing. Today, even the government­dominated All­China Federation of Trade Unions (ACFTU) has recognized the need to take a more activist approach to workers’ rights. As China now faces a rising tide of labor disputes, which could potentially destabilize Chinese society and undermine the political legitimacy of the CCP, there is a need for employers to better understand and honor their obligations under China’s labor laws. Hence, at its annual congress in 2003, the Federation made a direct appeal to the multinational retail corporation Wal­Mart Stores, Inc to allow its workers to establish trade unions.

Chinese politics in the future

Today, the Chinese leadership is giving the highest priority to social reforms, and continues to exercise tight political control. However, the question of democratization cannot be avoided forever; in the long run, the leadership will have to address this issue somehow or another. For me, it is not the prospects but processes of China’s democratization that are a bigger concern.

In the foreseeable future, the current authoritarian political structure will not simply disappear, though with continuous social reforms, a mixed regime will slowly materialize. Internally, the ruling communist party will have to accommodate those newly­emerging social and political forces. The regime will hopefully become more transparent and accountable. Democratic institutions will, and should, grow, but democracy will develop unevenly among different regions and different levels of government. By then, the central government will probably still be strong enough to keep localism under control, and China will either maintain its current de facto federal system or develop a federal state system similar to the USA. Maturing social and economic infrastructure will lay the foundation for China’s third stage of reforms, that is, the stage of political reforms. New social forces will push for political changes, with economic wealth and a vibrant civil society providing a sound socio­economic infrastructure for democratic politics. This is our best hope.

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