Article

China’s War of the Oligarchs

Published

23rd April 2012

The death of an Englishman in Chongqing has acquired all the intrigue of a John le Carré novel with none of its charms. Despite the occasionally romantic descriptions of the disgraced leader Bo Xilai as a charismatic man of the people challenging the prerogatives of Beijing’s bureaucratic leadership, this is a story without heroes, in which no one’s hands are clean. For all the elements of murder, mystery and missing fortunes occupying the Western press, in China today the focus of the country’s political and economic leaders is on the cascading power struggle that is in progress and what it holds for the future management of the world’s second-largest economy.

A year of leadership change that should have been defined by a smooth, almost seamless transition is instead shaping up to be a turning point in the direction – and ownership – of the political economy of China. Two years of plotting, positioning and maneuvering on the part of tens of thousands of party officials have been thrown into disarray by Bo’s fall, with few now confident of where their allies and masters will find themselves at the conclusion of this upheaval. Combine this with the unresolved elite debate about the cause of China’s economic miracle – the process of reform and liberalization, on the one hand; or, on the other, the still-powerful grip of the state on the means of production – and what you have are all the elements of a perfect storm for the Chinese Communist Party.

Beneath the past month’s surface impression of a resilient party able to manage with speed – and unprecedented candor – the exit of one of its princelings, two visions of China’s future are battling it out more fiercely than ever, in Beijing and throughout the provincial capitals. On one side is a movement, often but inaccurately described as “neo-Maoist,” led by Bo Xilai’s faction and dedicated to maintaining the dominance of the party in the service of the masses left behind by the rapid growth in the major cities. On the other, closely identified with outgoing Premier Wen Jiabao, is the faction dedicated to accelerating economic and political reform designed to ensure long-term sustainable growth. What they share, rhetorically, is a commitment to addressing rapidly widening income inequality. What the factions share, equally, is a reputation for corruption and family privilege of immense proportions at their leadership levels.

What to date has distinguished China’s rise from, say, Russia’s, has been a generation-long elite social compact where the wider interests of the state enjoyed at least equal priority with the personal financial interests of those guiding it. The danger is that an oligarchy – however discreet, distinctive and still grounded in the party’s program – will tip the balance of decision making decisively toward an irreversibly corrupted political economy. It is one thing for technocratic managers faced with the immense challenge of guiding China toward a consumption-based economy to make errors of capital allocation in good faith. It is quite another if, for example, the 10th commercial airport in Shanghai is built because a princeling member of the leadership stands to gain a personal fortune from the investment.

To this pivotal question, the answer does not lie in which faction of the Politburo – Wen’s or Bo’s – prevails. Yes, China must continue to integrate itself carefully into the global economy. What will matter far more, however, is to prevent the capture of the state by leaders devoted more to their own and their families’ interests than those of the hundreds of millions of Chinese still living in poverty. In the meantime, the struggle for power is paralyzing decision making across a vast range of centers – even to the extent that some observers now believe it to be contributing to the economic slowdown in ways that are outside central control.

China’s leaders know what they don’t want – Western-style liberal democracy. They remain profoundly unresolved about they do want by way of a central organizing principle for their state. In the absence of decisive leadership, the vacuum is in danger of being filled by the acquisition of oligarchical power that will be extremely difficult to reverse.

A deeply consequential reordering of Chinese politics has begun – and the path to a new equilibrium will be defined by a struggle for personal power and privilege as the vision of the ultimate destination. For investors, diplomats and analysts accustomed to weighing endlessly the quantitative evidence of a hard or soft landing for China’s growth story, this is the “landing” that ultimately will matter.

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