Xi’s Reappearance Shows Risks in China Leadership Change

Chinese Vice President Xi Jinping appeared in public for the first time in two weeks, ending an absence that fueled speculation about his health and prospects for succeeding Hu Jintao as the nation’s leader.

Chinese Vice President Xi Jinping’s emergence from a two-week absence without any official explanation highlights the uncertainty caused by the opaque way in which the world’s second-biggest economy changes leaders.

Xi’s Sept. 15 visit to China Agricultural University in Beijing, his first public appearance since Sept. 1, was covered by state television, radio and the official Xinhua News Agency. None mentioned that his disappearance had sparked speculation about his health and his prospects for ascending to China’s top leadership position this year at a Communist Party congress, for which a date has yet to be announced.

The lack of information prompted concern about what might happen and who would take China’s top job if the man groomed as the country’s next leader couldn’t serve. The once-a-decade power handover, already clouded by the ouster of Politburo member Bo Xilai, coincides with increasing challenges for policy makers, from a widening wealth gap and slowing economic growth to escalating territorial disputes with neighbors.

“Flash forward three or 20 years, when China’s renminbi is internationalized and used as a reserve currency,” said Douglas Paal, vice president for studies at the Carnegie Endowment for International Peace in Washington. “What would happen to its value if the leader disappears like this? China needs a succession that is publicly understandable and that keeps people with interests -- economic, social, security -- informed as to who the present decision maker is.”

Speculation about Xi’s condition began after he canceled his Sept. 5 meetings with U.S. Secretary Hillary Clinton and Singaporean Prime Minister Lee Hsien Loong. The Wall Street Journal reported he injured his back swimming and the Hong Kong- based Apple Daily said he suffered a heart attack.

Government Silence

The government and state media remained silent. A spokesman at China’s daily Foreign Ministry press briefing -- the only regular opportunity for reporters to ask any question they want of the government -- repeatedly said he had no information on Xi’s condition. State media didn’t mention Xi until the Guangxi Daily reported Sept. 13 that he had sent condolences to the family of an elderly party cadre who died on Sept. 6.

Uncertainty about Xi’s condition hasn’t been reflected in financial markets. The Shanghai Composite Index (SHCOMP) has risen more than 2 percent this month and the cost of insuring Chinese sovereign bonds against default fell to the lowest in more than a year on Sept. 14, according to data provider CMA.

Mark Mobius, the executive chairman of Templeton Emerging Markets Group, which manages about $40 billion in assets, said that a Chinese leadership uniformly focused on carrying out economic plans will make it easier to pick new leaders.

Collective Leadership

“You must remember it’s a collective leadership and they’re able to have a transfer pretty easily I think,” Mobius said in a Sept. 13 interview. “There are enough candidates around to fill that spot, so I don’t think it’s a big problem.”

Footage of Xi wearing a dark jacket with light shirt at Agriculture University on Sept. 15 was broadcast that evening on China Central Television’s national news program. He was shown examining two ears of corn at an exhibit and observing children conducting laboratory experiments.

China National Radio aired a clip of Xi telling children to develop good dietary habits and exhorting them to conduct more scientific experiments. Xinhua reported that he was accompanied by officials including Wang Zhaoguo and Han Qide, vice chairmen of China’s top lawmaking body, and Liu Yunshan, head of the Communist Party’s publicity department.

Bo Xilai

An exit by Xi, who has been groomed for the job since 2007, would have upset years of negotiations among Communist Party interests seeking to avoid a repeat of changeovers in 1976 and 1989 that were marked by purges and arrests.

This year’s leadership transition has already been complicated by the downfall of Bo Xilai, who had been a candidate for appointment as one of China’s top leaders before he was removed as party chief of the municipality of Chongqing and suspended from the Politburo on allegations of disciplinary violations. Bo’s wife, Gu Kailai, was convicted last month of murdering British businessman Neil Heywood.

“If there is a real problem with Xi, the consequences would be terrible, given that it occurs at such a delicate moment, in a troubled transition,” said Dean Cheng, who analyzes Chinese politics at the Heritage Foundation in Washington. Concerns were “overblown” partly due to the lack of openness, Cheng said after Xi’s reappearance.

Jiang Zemin came to power in 1989 amid the chaos of the crackdown on students in Tiananmen Square when the previous party chief, Zhao Ziyang, was kicked out of the leadership and put under house arrest for much of his remaining 16 years of life after he sympathized with protesting students.

Standing Committee

China’s Communist Party may reduce the number of people in its top leadership group, cutting the size of the Politburo Standing Committee to seven members from the current nine, according to 15 of 22 analysts in a Bloomberg News survey. That announcement is set to come at this year’s 18th Communist Party congress, for which a date has yet to be given.

That new group of leaders will need to address economic growth that’s slowed for six consecutive quarters as the European debt crisis erodes demand for exports and a campaign to rein in home prices moderates domestic consumption. A widening wealth gap, pollution and government corruption have also fueled social unrest.

Internationally, China has been embroiled in territorial disputes in the South China Sea with neighboring countries including Vietnam and the Philippines as a result of competing claims of sovereignty over islands there.

Tensions with Japan stemming from a similar dispute over islands in the East China Sea prompted protests in Beijing, Shanghai, Shenzhen and other cities across China during the weekend. Fires were reported at a Toyota Motor Corp. (7203) dealership in the city of Qingdao and at a Panasonic Corp. (6752) factory in the port city, according to the companies.

To contact Bloomberg News staff for this story: John Liu in Beijing at jliu42@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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