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China's Elite Aims for Stability

By boosting democracy and market forces, the country's leaders seek to raise living standards among the rural poorand avoid potential upheaval

(This is the second in a two-part series on how China's senior analysts and leaders think about the future of their country. The first part looked at forecasts by researchers (BusinessWeek.com, 10/16/07) at the Institute of Quantitative & Technical Economics of the Chinese Academy of Social Sciences, an official Chinese government think tank housing more than 3,000 scholars and researchers.)

Government forecasters reflect one part of China's vision of its own future; political leaders reflect the other part. Senior officials voice a common, two-part refrain: The first stresses the country's vast rural population, some 800 million to 900 million farmers and peasants (roughly two-thirds of the country) whose incomes and standards of living lag far behind urban residents. Thus, China's income gap can threaten social stability. So China's leaders have set a goal: Within two decades, perhaps even by 2020, China should become a "moderately well-off [xiaokang] society" for all its citizens, something like Portugal is today. The mechanisms to achieve this, leaders say virtually in unison, are as complex in practice as they are simple in theory.

The second expression of senior leaders' common refrain is that no matter how strong China becomes, it will never threaten other countries. Leaders point to China's nonexpansionist history in trying to defuse the "China Threat." argument. They make the pragmatic point that China requires international harmony and a stable global economic order if it is to have the time and conditions to improve the standards of living of the country's vast rural population. China's leaders claim to focus on mitigating the income gap at home, not on expanding the country's power abroad.

Developing Its Own Kind of Democracy

To understand China's vision of its own future, one need appreciate two concepts—stability and pride—which China's senior leaders reflect in diverse forms. Stability is the watchword of the large majority of the Chinese people, not just of leaders and officials. The self-immolating Cultural Revolution, during which, for a full decade (1966-76), the entire country was in chaotic thrall to Mao Zedong's political extremism, remains an ever-present symbol of what never to let happen again.

China's leaders go out of their way to describe the kind of political reform that, while not embracing Western-style democracy, does include increasing transparency in government, collective decision-making that makes dictatorship and irrational leadership impossible, more representative selections (if not elections) of Communist Party officials, increasing powers of the National People's Congress, and the like. These trends of political reform, they say, will continue until "China develops its own kind of democracy consistent with the historical, cultural, economic, and social needs of 1.3 billion Chinese people."

Pride expresses the visceral feelings of a people whose civilization of culture and technology led the world for centuries, only to be humiliated and oppressed by foreign invaders and stymied and scourged by domestic tyrants. Now that China has regained its position at the high table of the great nations of the world, and it is involved in every important aspect of economic and international affairs, the Chinese people are proud of their renaissance.

The Private Sector Drives the Future

In every sphere of human endeavor, from business to culture, Olympic athletes to space taikonauts, music and art to modern science and ancient philosophy, China seeks its fair share of world leaders. For example, in every industry of importance, China's senior leaders expect its corporations to become among the largest and most successful in the world. When Haier CEO Zhang Ruimin stated in the mid-1990s that Haier's goal was to become a leading global company, foreign analysts barely noticed. Today, Haier is the world's second-largest manufacturer of refrigerators (after Whirlpool (WHR)), among the top 1,000 manufacturers in the world, and its brand name has just joined the prestigious list of the World's 100 Most Recognizable Brands. China is proud that the market capitalizations of its companies in energy, telecommunications, and banking are among the largest in the world.

Regarding the private sector, a patriotic high official put it this way: "We don't stress this publicly but we all know that the private sector drives China's future, already generating more than half of China's GDP [gross domestic product]. We're not sure how much more than half—we're standardizing the data—but we are sure that its percentage will continue to increase during the early stages of our socialist market economy. The private sector produces roughly 60% of new patents (75% of high tech's), consumes 60% of investments, and creates 80% of new jobs. All of us support the overall sector with favorable policies and assist individual companies with targeted programs. We've amended rules to remove restrictions. for example, private companies can now do some defense-related business. Entrepreneurs—business owners—have become like a virtual party in China, second only to the Communist Party in real power. We listen to entrepreneurs. We are attentive to their needs."

Optimized Solutions to Complex Problems

President Hu Jintao's overarching goal is to build a "harmonious society." In Hu's words, "A harmonious society should feature democracy, the rule of law, equity, justice, sincerity, amity, and vitality." Such a society, he says, will give full scope to people's talent and creativity, enable all the people to share the wealth brought by reform and development, and forge an ever-closer bond between the people and government.

Hu's mechanism to achieve a harmonious society is by means of a "scientific development perspective," his all-encompassing guiding philosophy (or "theory") that rejects economic growth as China's sole objective but seeks integrated sets of optimized solutions to complex problems (i.e., recognizing the vital importance of balanced and fair distribution of income, environmental protection, and sustainable development, while still promoting economic growth as China's primary objective).

In a special amendment passed at the just-concluded 17th National Congress of the Communist Party, Hu's scientific development perspective was added to the Party Constitution, a crowning recognition that conveys deep meaning in China.

In his "Work Report" to the Party Congress, held every five years, President Hu mentioned "democracy" 61 times. Though not giving the word the same one-person-one-vote meaning that it holds in the West, Hu and China's senior leadership are serious in bringing about gradual, careful political reform, including "inner-party democracy" (i.e., meaningful voting within the party in the selection of officials and the establishment of laws) and increasingly accountable government at all levels.

Encouraging Traditional Chinese Philosophy

Underappreciated (and often counterproductively ridiculed) in the West, Hu's enhanced call for democracy continues the long, sensitive process of converting the country from an authoritarian state into what I (not Chinese leaders) call a "democracy of the elite" (the elite, of course, being the party). Assuming no severe economic dislocations, which could trigger chaos and crackdown, Hu's "democratic vision" augurs well for the progressive development of Chinese society.

Spiritual values will play a larger role in society. The official encouragement of traditional Chinese philosophy and teachings, but not religions deemed a threat to stability or security, is a dramatic break from traditional Communism's official disparagement of religion. China now praises its indigenous religion, Daoism, and extols the timeless wisdom of Daoism's holy scriptures, the Daodejing. Four reasons motivate this historic change: 1) increasing respect for individual rights of citizens; 2) mitigating the appeal or impact of inimical religions; 3) facilitating a harmonious society in light of income disparities and social tensions; 4) enhancing China's "soft power" internationally as a counterweight to Western culture and religion.

It is in the arena of science and technology that China seeks to shine. President Hu Jintao calls for creativity and innovation to be hallmarks of the country's educational and industrial future, and as such to empower his Scientific Development Perspective as the guiding theory in restructuring and rebalancing the country.

Economic Growth Is Still a Priority

What about nationalism? Is there not emergent jingoism in China? Some senior leaders dismiss the notion, others admit concern (especially among young people). Most counter the question by asserting that controlling such nationalistic tendencies is another reason the party must, for the foreseeable future, continue to rule China and thereby continue to guide the country into responsible statecraft.

What about pollution, an increasingly devastating scourge? A senior leader put it this way: "We seek balance, optimizing economic growth with environmental protection, but when we must choose, we must still choose growth, because it is just not fair to comfort well-off urban residents by protecting their environment, while condemning disadvantaged rural residents to more generations of continuing poverty."

Economic growth is still prioritized, but now other factors, such as pollution and income imbalances (i.e., fairness), are also considered. For example, in Jiangsu Province, Party Secretary Li Yuanchao rejected making the city of Taizhou into a major cement center. Although it would have generated high growth, the plan also would have created high pollution. Instead, he devised a long-term strategy to establish Taizhou as a major pharmaceutical and biomedical center featuring 100 world-class specialty hospitals. (It does not escape our notice that future-oriented Taizhou is President Hu's hometown.)

What New Leadership Will Bring

Finally, there can be no better bellwether of China's future than to assess the background and orientation of the two just-designated leaders of China's next generation, Xi Jinping and Li Keqiang, both this week appointed to the standing committee of the Politburo, the highest ruling body of the Chinese government. As so-called Fifth Generation leaders (after Mao Zedong, Deng Xiaoping, Jiang Zemin, and Hu Jintao), Xi Jinping and Li Keqiang are now odds-on favorites to assume the two pinnacle-of-power positions for consecutive five-year terms commencing in 2012 and concluding in 2022. Xi is in line to become general secretary of the Communist Party, president of China, and chairman of the Central Military Commission, while Li is the prime candidate for premier.

Both new senior leaders have PhDs (earned while on the job): Xi in law (from prestigious Tsinghua University, where his undergraduate degree was in chemical engineering) and Li in economics (from equally prestigious Beijing University, where his undergraduate degree was in law). Both have run two large provinces (Xi having recently taken charge of Shanghai after a political scandal). Both are proudly pro-business and show great sensitivity to President Hu's scientific development perspective. Both foster accountability in government. Both are energetic and innovative and like to make things happen.

In meeting Xi Jinping when he was party secretary of eastern China's Zhejiang Province—where the private business sector accounted for 70% of total output value, paid 60% of local taxes, and provided 90% of all jobs—I learned that one of his primary concerns was to maintain harmony between business owners and workers. Such harmony, he said, was the only way that economic development of the country and social well-being of the masses could both be advanced.

Key Player in Northeast Revitalization

In meeting Li Keqiang when he was party secretary of northeastern China's Liaoning Province, I learned that one of his primary challenges was to animate the then-new national policy of revitalizing the Northeast, the region that had been China's industrial center in the 1950s and 1960s but had fallen far behind other parts of the country during China's transformation from a planned to a market economy. The key, Li said, was to find market-sensitive ways to restructure large-scale, state-owned enterprises while at the same time creating a healthy environment for private business to flourish.

So, pulling it all together, how does China see China's future? How to sift the data of government forecasters and the ideas of senior leaders? As a Chinese minister said, "Everyone always exaggerates China. In the past, when the world thought us weak, we weren't so weak, and now, when the world thinks us strong, we aren't so strong."

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