New Leaders Begin the Search for Economic Reform

Signaling Change: New Leaders Begin the Search for Economic Reform Barry Naughton Xi Jinping and Li Keqiang are now the two top leaders in China. Both have moved quickly to break with the Hu-Wen Administration and signal their support for dramatic new economic reforms. The structure of the new Politburo Standing Committee appears to support their aspirations. Neither Xi nor Li has yet committed to specific reform measures, and the obstacles to reform are formidable. However, both Xi and Li have committed to a process that will lead to the creation of a reform program by late 2013. From the standpoint of economic reform policy, the outcome of the 18th Party Congress was clear and unambiguous. The two top leaders, Xi Jinping and Li Keqiang, emerged from the Congress with a substantial degree of room to maneuver. Both leaders quickly displayed their willingness to break with what had become business as usual under Hu Jintao and Wen Jiabao. Xi and Li, each in his own way, moved quickly to express their intention to support a revitalized program of economic reform. Xi Jinping has received most of the attention, which is certainly appropriate. Xi has brought a more direct and personal style to the top job, a refreshing change of pace that has generally been welcomed both in China and abroad, and has shown that he intends to keep an eye on economics. Li Keqiang has also begun to signal his intentions. Although Li’s approach is more understated—in part because he will not actually step in as Premier until the March National People’s Congress meetings—his comments merit close attention. In this piece, I examine the signals that both Xi and Li are sending; the nature of the power they have to follow up on those signals; and the limitations in what we have seen so far. I predicted in earlier issues of China Leadership Monitor that Xi, having indicated his desire for more intensive reforms and a “top level design” for reform, would move quickly to establish momentum for the economic reform process after his assumption of power. In fact, this is exactly what has happened.1 Xi Jinping’s Signals on Economic Reform While it should not be confused with actual policy-making, the signaling process is extremely important. This can be seen in an analysis of the signals that Hu Jintao sent exactly ten years ago, when he took over the top leadership position in December 2002, and the signals Xi Jinping is sending today. In his first trip out of Beijing, Hu took the entire Party Secretariat to visit Xibaipo (西柏坡) in Hebei, the last headquarters of the Communist Party in 1949 before they seized power in Beijing. Hu read large portions of Mao Zedong’s speech in Xibaipo, stressing the need to maintain the Party’s style of honesty and plain living in the face of the arduous challenges to come after the seizure of power.2 In retrospect, we can see that Hu’s signal in 2002 was an excellent guide to at Naughton, China Leadership Monitor, no. 40 least one strand of the policy direction he was to take over the next ten years: the re- emphasis on Communist Party history and continuity, and the re-assertion of ideological orthodoxy. Indeed, to a certain extent, the speech heralded a shift to the left in overall government policy, which entailed an emphasis on redistributive social policy, government guidance of the economy, and what turned eventually into an across-the- board stagnation of the market reform process. Although outside observers harbored hopes that Hu Jintao was a closet reformer, he clearly signaled that he was not. In the aftermath of the 18th Party Congress, Xi Jinping has sent signals that are almost completely opposite to those sent by Hu Jintao in 2002. During his first public trip out of Beijing, from December 7 through 11, Xi visited the Shenzhen and Zhuhai Special Economic Zones and the cities of Foshan and Guangzhou, in Guangdong.3 The broad symbolism of the trip was impossible to miss: Xi essentially recapitulated Deng Xiaoping’s famous “Southern Tour” of 1992, which kicked off the intense and ultimately successful round of economic reforms that transformed China during the 1990s. Xi laid a wreath in front of Deng Xiaoping’s statue in a park in Shenzhen and planted a tree nearby, all the while accompanied by retired officials who had also accompanied Deng. Deng’s Southern Tour marked an end to the 1989-1991 retreat from economic reform that occurred during the post-Tiananmen Leftist reaction. Implicitly, Xi would also mark an end to a decade of reform stagnation. Newsstands in Beijing displayed magazine covers highlighting the significance and parallelism of the trips, including at least one Photoshopped cover showing Xi and Deng striding firmly towards each other. Just in case anybody missed the Dengist associations, Xi visited the village Deng Xiaoping had visited in 1984 when he reaffirmed the Shenzhen experience and pointedly dropped in on a wealthy private business.4 In fact, the symbolism of Xi’s trip to Shenzhen extends well beyond the mere recapitulation of a dramatic episode from China’s Dengist past. Deng’s Southern Tour was already being discussed—it occurred exactly 20 years ago this spring—and its significance was being reconsidered. Hu Shuli has recently published a long and detailed account of the events around the 1992 Southern Tour, with the telling title “How were reforms restarted?”5 The essential intent of this piece was to see what lessons can be learned from a careful reconsideration of a period in China’s recent past that has direct bearing on the present. An important pro-reform article was contributed by Zhou Ruijin, who as the main Shanghai author behind the pseudonym Huang Fuping, played an important role in forcing Deng’s hand in 1991-92 by enthusiastically propagating remarks that Deng had made in small meetings.6 In the current article, Zhou emphasizes the pro-reform significance of Xi’s trip, and even argues that the wording of the 18th Party Congress Communique breaks new ideological ground.7 More important from the standpoint of signaling, the Guangdong trip develops and reinforces the signals Xi began during the 18th Congress. The remark that Xi reiterates most often is that “empty talk endangers the nation; only hard work achieves national revival (空谈误国, 实干兴邦),” This remark is implicitly critical of Hu Jintao and his administration, and perhaps for this reason is officially translated as "Empty talk is useless, only hard work can achieve the revival of a nation" which sounds smoother but 2 Naughton, China Leadership Monitor, no. 40 has less bite than the literal translation. Xi made this comment at the 18th Party Congress, during his meeting with the Shanghai delegation, and repeated it when he took the new Standing Committee on an outing to see the exhibit on national revival at the National History Museum on November 30. But it turns out that the line itself is a quote from Deng Xiaoping, made on his Southern Tour, as Xi noted when he repeated the slogan in Guangdong.8 Deng used it in the context of his consistent view that theoretical discussions and disputes over principles should be minimized. Deng’s comment was subsequently erected on a welcoming billboard at the Shekou Industrial Zone, the pioneering district of the whole Shenzhen Special Economic Zone.9 Xi has now more or less adopted Deng’s phrase as the signifier of his own personal brand. The Guangdong trip also served as an occasion for Xi Jinping to demonstrate that he would follow the principles of “plain living” that he laid out earlier in the month. At the first publicized Politburo meeting after the 18th Congress, on December 4, Xi laid out “Eight Regulations” for the behavior of Party officials, explicitly beginning with Politburo members themselves. The striking thing about these regulations is how concrete they are: even in summary they include such things as: roads should not be closed to the public for the convenience of official limousines during meetings; officials should not stay in luxury hotels; delegations should not see people off at airports, etc., etc. Because the regulations are concrete and related activity is apparent to the public, it is easy for outsiders to monitor whether the new standards are being followed.10 Of course, Xi’s behavior in Guangdong fit with the new rules, giving the official media a chance to comment on the modest vehicles used, the lack of excess ceremony, and so forth. There was also a striking photo of Xi sitting in a farmhouse with traditional Chinese religious pictures on the wall.11 All of this clearly fit the image Xi was trying to project. Xi’s signals during the first two months of his administration have been both well orchestrated and well executed. Xi has signaled a new policy direction; he has clearly differentiated himself from the Hu-Wen administration, and indeed implicitly leveled rather severe criticism at the Hu-Wen era. Moreover, the direction of change is unambiguous: more economic reform, more practical measures, and less bureaucratic pomp and ceremony. Finally, Xi has managed to do this while taking steps to build his own personal credibility and the credibility of his commitment to reform and change. The signals are clear, and were successfully transmitted. Xi’s Signals: Caveats and Qualifications At the same time, it is important to look at the limitations apparent in what we have seen in the first two months of the Xi administration. Xi had plenty of time to think about his first couple of months, and all of this was doubtless well thought out for maximum impact.

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