Jeremy Page, Bob Davis and Lingling Wei
The Wall Street Journal
March 3, 2013
China begins a Parliament meeting this week that will unveil the final personnel changes of a once-a-decade leadership transition and provide some clues about the new administration’s commitment to address mounting social, economic and environmental problems that many Communist Party insiders fear are eroding its grip on power.
Xi Jinping, who succeeded Hu Jintao as Communist Party leader and military chief at the start of the succession process in November, will assume his third, largely ceremonial post as state president during the meeting of the National People’s Congress, or NPC, which begins on Tuesday and is seen lasting about 10 days.
Li Keqiang, who ranks No. 2 in the new Party hierarchy, is due to succeed Wen Jiabao as premier and chief steward of the world’s second-largest economy, and will face questions from local and foreign reporters for the first time in that role during a news conference at the end of the Parliament meeting.
The roughly 3,000 deputies to the rubber-stamp Parliament are also expected to approve the merger of some ministries, a GDP growth target of 7.5% for 2013, a substantial expansion of the military budget and appointments to dozens of top state and government posts, according to analysts and diplomats. On Sunday, a parallel meeting of a consultative body to Parliament convened after delegates from arrived in Beijing from around the country.
Mr. Xi has moved quickly to consolidate his support among the armed forces, stressing combat readiness on visits to military units and taking direct charge of an escalation of military and civilian operations over disputed islands controlled by Japan in the East China Sea.
In doing so, analysts say, he is setting himself apart from Mr. Hu, who was popularly seen as weak and uncharismatic. Mr. Xi immediately took over as military chairman, unlike Mr. Hu, who was forced to wait several years before adding that title.
Among other key personnel changes, Zhang Gaoli, another member of the Party’s seven-man Politburo Standing Committee—its top decision-making body—is expected to become executive vice premier and an influential figure on the new economic team, according to one party insider with direct knowledge of the matter.
That person also said Mr. Xi’s successor as vice president was expected to be Li Yuanchao, the current head of the Party’s powerful Organization Department who has overseen experiments with limited political overhauls within the party, but who missed out on a place on the new Politburo Standing Committee. Mr. Li’s promotion to a position that normally commands a seat in the Standing Committee will raise his international profile and make him a front-runner for elevation to the top governing body in 2017.
Wang Yang, another person with a track record of relatively liberal economic and political change who missed out on a Standing Committee slot last year, is expected to join the economic team as a vice premier, although it remains unclear if he will be in charge of finance, industry or agriculture, according to the party insider.
The Parliament meeting will be an early gauge of the new leaders’ commitment to carrying out broad changes in China’s economy that Messrs. Hu and Wen talked about for years, but did little to accomplish—remaking the economy so it relies more on domestic demand and less on investment in capital-intensive industries at home and demand for Chinese exports abroad.
Mr. Xi has raised public expectations of overhauls since November with a series of strong statements on corruption and government waste, and by using his first official trip to go to the southern city of Shenzhen, where former leader Deng Xiaoping famously relaunched market overhauls in 1992 after the political turmoil of 1989.
As part of an austerity and efficiency drive launched by Mr. Xi, delegates to the NPC have been instructed to eschew banquets, welcoming ceremonies and wordy speeches. Police have been ordered to minimize traffic controls in the capital.
But the new leadership has so far given few details of its economic-overhaul agenda, or how it plans to address other issues of growing public concern—especially severe air, soil and water pollution and rampant abuse of power within the party, which was highlighted last year by the scandal surrounding former Party highflier Bo Xilai.
One major change that Parliament is expected to approve is a plan to streamline the State Council—or cabinet—by, among other things, merging the Railways Ministry into the Ministry of Transport, a move that many analysts believe is linked to a high-speed train crash in 2011, and the dismissal the same year of the railways minister, Liu Zhijun, on corruption charges.
Agencies monitoring food safety—another issue of huge public concern following a string of scandals in recent years—may also be merged, and greater powers given to the State Oceanic Administration, the agency responsible for maritime patrols around disputed islands in the South China Sea and East China Sea, according to Chinese academics familiar with the plans.
Chinese experts say the restructuring is designed to cut down red tape, enhance interdepartmental coordination and break apart vested interests in the bureaucracy. But many analysts are skeptical, arguing that more fundamental changes are needed, such as forcing all officials to declare their financial assets publicly, to enhance government transparency and accountability.
The restructuring is expected to be less aggressive than an earlier plan that could have affected the economic planning, energy and information technology bureaucracies as well. “It is most likely not going to be the supercharged overhaul that some were floating a few months back,” said Damien Ma, a China expert at the Paulson Institute, a nonpartisan thank tank.
On the economic front, analysts are looking for specific proposals that could lift the incomes of ordinary Chinese, an essential ingredient in rebalancing the economy.
Such proposals could include easing restrictions on migrants that make it tough for them to get pensions and children’s education, raising dividend payments by state-owned enterprises and using the money for social-welfare payments, and changing fiscal policy so localities rely less on income from the sale of land seized from farmers.
“The new administration will likely decide whether the current growth model can last for long,” said a Citigroup C +0.33% analysis.
In many ways, the policy direction is already set by China’s current five-year plan which covers 2011 to 2015 and broadly endorses the rebalancing goal. Messrs Xi and Li were members of the previous Politburo Standing committee that approved the document.
Liu He, a Party economist who helped write the plan and is expected to be a senior economic adviser to Mr. Xi, wrote that the “logic” of the plan involves boosting domestic demand as export demand wanes—a transformation that is difficult to choreograph.
The 2013 GDP growth target of 7.5% isn’t a forecast. China has grown faster than the target for the past 18 years at least—and often by a wide margin. Rather, the target is meant to signal provincial leaders that the era of double-digit economic growth has passed and that they need to depend less on big investment projects.
There is mixed evidence about whether the message is getting through. On the one hand, local governments have reduced their 2013 growth targets by an average of 0.5 percentage points from 2012, according to a Nomura analysis. On the other hand, the governments continue to rely on infrastructure spending to boost growth, rather than taking steps to boost consumer spending, such as cutting taxes.
A 7.5% growth rate “is not a bad rate to give the economy room to make adjustments,” said Andrew Sheng, president of the Fung Global Institute, a Hong Kong think tank. Last year, China’s GDP grew 7.8% and is widely expected to grow somewhat faster this year.
Another question that may get a clearer answer is what Mr. Li means when he advocates further “urbanization”—a catchall phrase that he uses in many of speeches. About half of China’s population now lives in cities, where incomes are much higher than in rural areas. A further increase in the urban population could put more money in the pockets of China’s migrants to spend on cars, televisions, appliances, real estate and the other accouterments of middle-class life.
To encourage further urban settlement, China needs to change restrictions on migrants, say China economists, including issuing them residence permits to live in the cities where they work. Only then are the migrants entitled to the pensions, health care and public education for their children that encourages them to spend more freely. But few Chinese cities are ready to pay for additional social spending.
“There may be more concrete announcements than before on policies needed to ensure more balanced urbanization by expanding the provision of public services and affordable housing to migrants,” said RBS economist Louis Kuijs, a former World Bank China expert.
But Mr. Li’s talk of urbanization may have deepened other economic problems, including risking a re-emergence of a real-estate bubble as developers and buyers prepare for a big increase in the urban population.
In January, prices of apartments in Shanghai increased 35%, compared with the year earlier period, following a 36% increase in December, year-to-year. On Friday, China’s government announced a number of policies to curb real-estate-price increases, including stricter enforcement of a 20% capital-gains tax on apartment sales.
The plans released at the NPC are part of a process in which the new leadership develops its economic policies. More detailed proposals are expected by an October Communist Party gathering.
