China's pol­icy-mak­ing echo cham­ber

If China’s ex­ec­u­tive branch con­tin­ues to ex­er­cise unchecked power, it may spell eco­nomic dis­as­ter

The Myanmar Times - - Front Page - VIC­TOR C SHIH news­room@mm­

THE lat­est plenum in China fur­ther shored up Pres­i­dent Xi Jin­ping’s per­sonal au­thor­ity in the party by la­belling him the “core” of the cen­tral lead­er­ship. Fur­ther­more, the plenum called on all party mem­bers to “raise their core aware­ness and aware­ness for unity” – es­sen­tially that ev­ery­one in the rul­ing party should act strictly in ac­cor­dance to the in­struc­tions of Xi Jin­ping. But is that nec­es­sar­ily good for pol­icy-mak­ing in to­day’s China?

Dur­ing the pre­vi­ous Hu Jin­tao ad­min­is­tra­tion, al­though Pre­mier Wen Ji­abao had ju­ris­dic­tion over eco­nomic af­fairs, he al­ways had to be mind­ful of other mem­bers of the Polit­buro Stand­ing Com­mit­tee, who were at least his equal, crit­i­cis­ing his poli­cies. This power dy­namic pro­vided in­cen­tives for the tech­nocrats in the State Coun­cil to pro­pose a va­ri­ety of pol­icy “ob­jec­tives”, as well as poli­cies.

As a re­sult, pol­icy dis­cus­sions were lively as tech­nocrats and ex­perts from the var­i­ous min­istries and think tanks ap­pealed to dif­fer­ent elite au­di­ences. To be sure, the de­bates likely de­layed de­ci­sions in some cases, but the more de­cen­tralised de­ci­sion-mak­ing model also led to a greater va­ri­ety of ideas, as well as an im­por­tant self-cor­rec­tion mech­a­nism. When bad out­comes emerged from a given pol­icy, a sub­set of tech­nocrats quickly pointed out the mis­take, even if it meant of­fend­ing Pre­mier Wen. Be­cause Wen was checked by other elites and be­cause he did not have uni­lat­eral au­thor­ity over mid- and high-level ap­point­ments, even more ju­nior tech­nocrats dared to crit­i­cise his poli­cies in the be­lief that the high­er­level elites could shield them from any re­tal­ia­tory ac­tion.

With Xi’s con­sol­i­da­tion of power and the ex­ten­sion of his ju­ris­dic­tion to in­clude eco­nomic af­fairs through his chair­ing of the Lead­ing Group on Com­pre­hen­sively Deep­en­ing Re­form (LGCDR), the pol­icy-mak­ing en­vi­ron­ment has changed com­pletely.

A grow­ing num­ber of pol­icy ideas now come from the LGCDR, which lower-level tech­nocrats would hes­i­tate to chal­lenge, not know­ing whether or not they came di­rectly from Xi. And no one can af­ford to of­fend Xi be­cause, un­like Wen Ji­abao, he is in­creas­ingly unchecked by other high-level elites in the regime.

As a re­sult of this, on the one hand, the speed of pol­icy-mak­ing has in­creased. Ev­ery meet­ing of the LGCDR now sees the pro­mul­ga­tion of at least half a dozen new de­crees. On the other hand, fewer al­ter­na­tives are ex­plored be­fore a pol­icy is adopted, and even if pol­icy out­comes are less than ideal, fewer ac­tors within the sys­tem dare crit­i­cise a pol­icy. With­out know­ing whether any­one in the Polit­buro Stand­ing Com­mit­tee can check Xi, mid-level tech­nocrats would run enor­mous ca­reer risks in chal­leng­ing poli­cies cham­pi­oned by the Pres­i­dent.

Xi’s call for the re­al­i­sa­tion of the China Dream may be cre­at­ing this echo cham­ber of a pol­icy en­vi­ron­ment. In or­der to re­alise this am­bi­tion, China has to main­tain rel­a­tively high growth of 6 per­cent or above for the fore­see­able fu­ture. The state me­dia re­ported Xi’s re­marks that “the re­al­is­ing of the China Dream of the great re­vi­tal­i­sa­tion of the Chi­nese peo­ple means that the state must be strong and rich, the na­tion must be pros­per­ous, and the peo­ple must live well”.

Be­cause Xi has put such a heavy em­pha­sis on this ob­jec­tive, China’s tech­nocrats can­not chal­lenge it out­right, forc­ing them in­stead to ac­cel­er­ate growth even as the pri­vate sec­tor acts to slow it down. As debt mounts in the econ­omy, in­debted firms are less able to in­vest, which slows growth. Know­ing that most firms and the gov­ern­ment are in­debted and are un­able to spend much, even firms unen­cum­bered with debt will not want to in­vest as heav­ily. This process has driven real pri­vate sec­tor in­vest­ment growth down to nearly zero.

How­ever, such a mar­ket-driven out­come is un­ac­cept­able to China’s tech­nocrats, who are fear­ful of dis­ap­point­ing Xi. In­stead of chal­leng­ing the growth ob­jec­tive, as ad­vised by the IMF, they are pulling out all stops to ac­cel­er­ate state-backed in­vest­ment in or­der to re­place fall­ing pri­vate sec­tor in­vest­ment. Lo­cal gov­ern­ments are tak­ing on in­creas­ing lev­els of debt in or­der to main­tain growth. This will cre­ate even more un­ser­vice­able debt down the track be­cause in­vest­ment by state-owned en­ter­prises and lo­cal gov­ern­ments will con­tinue to gen­er­ate smaller cash flows and fewer eco­nomic ben­e­fits than the ini­tial in­vest­ment.

The com­bi­na­tion of Xi’s ris­ing power and his strong pref­er­ence for growth will con­tinue to force the Chi­nese econ­omy to greater lever­ag­ing, mak­ing the county’s po­si­tion more pre­car­i­ous, and iron­i­cally, im­per­illing the very dream it seeks to achieve.

Photo: EPA

Jour­nal­ists wait out­side the Great Hall of the Peo­ple be­fore the clos­ing cer­e­mony of the 18th Com­mu­nist Party Congress in Bei­jing, China, on Novem­ber 14, 2012.

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