In 2013, as soon as Xi Jinping came to power, he tried to tackle the reform of the state- owned-enterprises (SOEs). Their inefficiency was dragging down China’s overall economic performance, and their slush funds were corrupting the whole political system on behalf of a few retired and semi-retired party veterans, ruling the country almost like “power-lords.”
His idea was simple: Inject private capital into the SOEs so that private entrepreneurs could keep the state management in check. The opposite happened to SOEs with robust political backing. They bullied private investors and treated their money as some kind of donation to the state company. As a result, private investors refused to finance SOEs and SOEs kept on going with their inefficiency; only the anti-corruption campaign kept graft in check.
Xi then looked to private companies to turn around the economy.
But large private companies mainly owed their fortunes to the patronage of this or that power-lord. In a culture that for centuries had prized strong personal loyalty, none basically would be willing to turn against their old mentors. Besides, if they turned against their mentors, could they really trust the new bosses to be there forever for them? Once a traitor, always a traitor.
Moreover, these entrepreneurs had made money in a system of patronage and cutting corners. Would they perform just as well in an open, fair market?
Meanwhile, outside pressure came from America, which wanted full access to China’s market and full convertibility of the RMB. These measures would open China to a massive inflow of foreign capital, and investors would be enthusiastic about the prospect of the country’s innumerable possibilities. But it would also expose China to the risky sudden outflow of capital at any given downturn. This would cause a market crash, then social turmoil and, thus, political upheaval.
The consequence of the 1998 Asian financial crisis was that a decades-old dictatorship in Indonesia was wiped out and other Asian governments were shaken as the local currency plummeted. Inflation impoverished most people and left them with nothing to lose but their wretched lives. China remembered that well and didn’t want to go down that rabbit hole two decades later.
Then Xi was left to his own devices. He could get the support of a middle class happy to be rid of excessive corruption and seeing a more assertive China rising.
But without the assistance of the money makers, who feel excluded, and begrudged by hundreds, if not thousands, of senior cadres with fingers and connections all over the country, Xi may have a growing issue. Also for this, he advocates for an increased concentration of power in the latest incarnation of the 1988 theory of neo-authoritarianism.
That theory emerged in autumn 1988, after then party secretary Zhao Ziyang had been stripped in August of his economic portfolio. Zhao had tried early in the summer to launch a comprehensive price liberalization effort. In a few weeks, this emptied all shops of any goods and created inflation unprecedented in the history of the People’s Republic.
The party panicked, and Zhao was replaced as economic czar by premier Li Peng, with the backing of veteran Chen Yun. Zhao didn’t give up. He promoted young Turks who claimed China needed to cut all cumbersome power structures and concentrate power in one man who could then push the necessary reforms to their bitter end. Then there would be an open, free market. Eventually, there could also be a democratic China.
Back to 1989
Between late 1988 and early 1989 the young Turks advocated a concentration of power in the hands of one man. Also, they were looking at the experience in Taiwan, where almighty President Chiang Ching-kuo opened the government and turned the local dictatorship into a democracy in just those years.
Incidentally, the theory divided the liberal camp that at the time was firmly behind Zhao. Many wondered: If Zhao gets all the power, will he give it back? Chiang had done it; would Zhao really do it?
The situation eventually led to the Tiananmen protest, when Zhao pushed against the old guard and was finally toppled.
Perhaps we are back to a pre-Tiananmen situation, minus the mass protests that have become almost impossible presently, but with a different background. Xi, like Zhao, is pitted against the veterans. Unlike 33 years ago, Xi now has all the power—in theory. Now, formal power distribution is clearer, but real power is different.
Then, officials had just come out of the Cultural Revolution, which white-washed all power bases, so nobody was entrenched enough to drag his feet against the top leadership. The officials were also disillusioned and dispirited, recently having been punished just for being loyal communist cadres. Thus they were willing and eager to go along with any new idea or proposal.
Now officials come from four decades of growing clout and welfare. Their position is highly entrenched. Each of them has complex networks of people, each network with its own power base and connections.
Thus, if Xi issues an order, the officials below are careful to avoid mistakes. First they want to cover their backs. Thus, they do not take risks; they become sticklers for dotting every i and crossing every t. They have little incentive to take risks. People can no longer grease their palms, which in the past was the most significant incentive for an official initiative. Promotions are hard anyway and depend on the favor of the top boss. In view of the downside, who, without the prospect of promotions and personal gain, would try to take an initiative?
Thirty-three years ago Zhao had the veterans against him – but lower officials, disillusioned about their past and their present, would have followed him. Xi may have marginalized the veterans, but lower officials have everything to lose in following him.
Moreover, China’s idealistic liberals, part of the national soul, were backing Zhao in 1989 – despite his dubious neo-authoritarianism – and dreaming of democracy. Now the democratic horizon is far hazier, as a growing disillusionment in the party as the situation of the United States shows China that the West is no longer an ideal to aspire to.
In fact, Zhao had international backing. The West would have supported his reforms. Xi has few or no friends in the West, which conversely see him and the system of his country as hostile to the West and the current global order. Indeed, Xi’s enemies, the veterans and the middle-ranking party cadres, have friends and support in the West. They complain about Xi day in and day out, claiming that if China gets rid of him its problems with the world will be over.
Xi’s friends are people he can buy with direct or indirect financial incentives. But who makes a persuasive, cogent argument for Xi’s efforts for China, as the supporters of Zhao or Deng did for them?
Who are Xi’s friends in and out of China? What can he do? These are the questions for China’s paramount leader. But they are also issues that concern the rest of the world, which is worried about the country’s situation.