China’s ‘$2.7 Billion Problem’ Says Everything
Savvy investors eyeing the next big thing in China should consider cigarettes, nicotine gum and cancer-treatment providers.
That is the upshot of a new Brookings Institution report that raises burning questions about the family of Li Keqiang. He is expected to be named China’s next premier at a Communist Party congress that begins on Thursday. Li’s brother, Li Keming, is deputy director at China’s State Tobacco Monopoly Administration, which dominates an industry that some health officials estimate will kill 3.5 million people each year in the country by 2030.
The conflicts of interest Li may carry to the top of Chinese power is a microcosm of what is wrong with the most- populous nation. They are endemic to almost every challenge facing China’s next leaders as they confront the weakest economy in 30 years.
Is it really plausible to think China’s No. 2 official, the man charged with public-health affairs, will clamp down on an industry in which his brother plays such a pivotal role? To answer “yes” ignores the all-in-the-family dynamic imperiling China’s future. One place where there is a different response is the blogosphere, which keeps referring to China’s “$2.7 billion problem,” or “2.7B” to get around government censors frantically trying to prevent people from reading an Oct. 25 New York Times article about Li Keqiang’s predecessor, Wen Jiabao.
Wen’s carefully honed persona is that of a simple man. The government’s favored depiction is “Grandpa Wen” -- a caring, committed and selfless public servant. The Times piece described a darker scenario, one in which Wen’s family came to control assets of at least $2.7 billion. China’s response was as quick as it was defensive, dismissing the story as a politically motivated bid to provoke instability. The Wen article followed a June 29 Bloomberg News report on the accumulated wealth of the family of Vice President Xi Jinping, who is likely to be installed as party general secretary this week.
China should pay equal attention to the causes of the cancer eating away at its political system and economy, not just the symptoms. Longtime Asia hands know that blaming foreign media often is a smokescreen or, worse, a sign of desperation.
Try as it may, China is having trouble controlling the narrative, especially in cyberspace. Barring Twitter, Facebook and YouTube only energizes activists and social-media outlets to beat restrictions on expression and dissent. If only Chinese industry displayed the same entrepreneurial energy in attacking the government’s insistence on censorship.
The thing is, this story is out in the open. The scandal surrounding Chongqing politician Bo Xilai was tantalizing enough when it only focused on his wife murdering a British businessman. It became dangerous, though, once public attention turned to the massive wealth amassed by Bo’s family -- and how it was emblematic of the vast riches swelling bank accounts of leaders who are communist in name only.
Bloomberg’s website has been unavailable in China since the June story about the family riches of Xi. The interests of Xi’s extended family, the article said, include investments in companies with total assets of $376 million.
That brings us back to Xi’s likely right-hand man, Li Keqiang. Brookings senior fellow Cheng Li (no relation to the Li brothers) argues that Li’s brother should be removed from his post at China’s tobacco monopoly. The thinking is, if you believe China took a light touch to regulating cigarettes during the past 10 years, just wait until the next 10. That hardly bodes well for the interests, or health, of China’s people.
China’s new leaders must do what Wen and President Hu Jintao failed to: rebalance an economy powered by a shaky mix of exports, cheap labor and overinvestment; learn to grow without choking amid climate change; narrow a dangerous gap between rich and poor; rein in North Korea’s worst impulses; revisit the one- child policy to address a fast-aging population; head off an unsustainable preference for boys that feeds a frightening gender gap; assuage Asian neighbors fearful of China’s rise and expanding territorial claims; ease state control of banks; improve the education system; find a use for $3.3 trillion of currency reserves; and achieve some semblance of domestic food security.
None of these changes is possible unless China does two things. First, it must sort out how to hand over power to a new generation of elites without the behind-the-scenes infighting that distracts attention from enacting vital reforms. Second, China must tackle the toxic relationship between money and power and the inevitable corruption it breeds.
Few countries, especially those with closed political systems under single-party control, have managed to cut this Gordian knot. The effects are obvious not only in China, but developing countries around the world that tolerate huge income inequality and growth that passes by the masses. The difference is that China aspires to global primacy. It makes you wonder what kind of example this country will set for the rest of the world.
(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)
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