Zachary Keck
The Diplomat
November 12, 2013
Beijing must control local leaders if it is to pass vital economic reforms. It won’t be easy.
No story out of China over the last year and a half has received as much attention as the Bo Xilai case. Much of what intrigued people about the Bo case was unique to it, including Bo’s flamboyant personality and the Hollywood-like drama of his downfall. Yet one aspect of his case, though largely ignored by foreign press accounts, had deep roots in Chinese history: namely, the rise of the local strongman.
A reoccurring theme in Chinese history, captured in the proverb “The mountains [heavens] are high, and the emperor is far away,” has been the struggles of the central government to maintain control over the vast territory it nominally ruled. Time and again in China, regional strongmen have established local power bases from which they have mounted challenges to the central government, with often devastating consequences for the country as a whole.
This history has had a profound impact of the evolution of the People’s Republic of China since its inception. Indeed, after taking the mainland, Mao Zedong immediately turned to consolidating Communist control over the entire country. As one historian reflected, “Through neighborhood committees and informants the state found its way into all parts of life…. Regions of the country that had not seen much central state presence for a hundred years found themselves regimented.” To this day, China differs from similarly large countries like the U.S. and India in being a unitary state, at least in theory.
As Bo demonstrated, center-local power struggles also continue to plague contemporary China. In fact, many of the major initiatives that Xi Jinping launched during his first year in office should be seen in the context of trying to establish greater authority over local officials. While this is partly due to the Bo case, it also reflects the fact that local governments will be major obstacles to nearly every reform he intends to undertake.
As is usually the case with Chinese politics, Xi’s first year in power has often times baffled Western observers seeking to understand his actions. This is partly due to Westerners’ strong tendency to see economic and political liberalization as inseparable, which has clashed with Xi’s eager embrace of economic reform, even as he cracked down politically.
But Xi has been remarkably forthcoming about his goals, particularly as the year progressed. From the start, both Xi and Premier Li Keqiang have signaled that they understand the imperative of rebalancing China’s economic model to avoid the so-called middle income trap.
They have also noted the importance of central government control for achieving this task. For example, Xi has stressed the importance of ensuring “that [Beijing’s] policies and directives are smoothly followed.” Elsewhere he has proclaimed, “We must resolutely remain in the highest degree of unison with the central authorities and resolutely uphold the central authorities.” Other leaders have echoed these views, including Beijing party secretary Guo Jinlong, who demanded that officials under his command must “always maintain a high degree of unison in terms of ideas and action with the party central authorities with comrade Xi Jinping as General Secretary…. We must self-consciously protect the authority of the central authorities.”
Xi’s actions have been consistent with this rhetoric. Although in certain instances, such as the online rumor campaign, Xi’s first year has seen a crackdown on civil society, most of his efforts thus far have been directed at the party itself.
Some of this has occurred through rather mundane but important personnel and administrative decisions. For example, the Politburo Standing Committee (PBSC) has increased the powers of the Secretariat and State Council, and consolidated the Party’s control over the latter.
The second element of this has been strengthening central control over local party leaders. One of the key ways the CCP has sought to maintain control over local officials is by controlling personnel decisions. For example, the Party regularly reassigns provincial and military leaders to prevent them from establishing deep roots and local power bases.
But Xi has gone further than most in using personnel decisions to extend the center’s power and influence over the local governments. In reshuffling provincial leaders earlier this year, half of the twenty-two governors that were appointed came from jobs in Beijing. According to the South China Morning Post, that was the first time this had happened in three decades. The personnel reshuffling after the 17th Party Congress, by contrast, only saw two of the twenty-two appointees come from Beijing.
Besides personnel decisions, Xi has sought to gain control over local governments by launching a couple of high-profile initiatives, such as the anti-graft and mass line campaigns. While Xi’s anti-graft campaign is partly meant to appease public opinion, it has become quite clear that it is intended to empower the central government as well. The reality is that almost any CCP official is guilty of corruption in some form or another. Indeed, corruption is built into the fabric of the government system by, among other things, providing meager official salaries.
Thus, under the guise of anti-corruption, a cause that is widely popular with the masses, Xi has empowered the central leadership to remove almost any official that stands in the way of reform. To reinforce this point, the central leadership has deployed inspectors from the Central Commission for Discipline Inspection to the provinces to keep a watchful eye on local leaders. But for most local leaders, just knowing that they could become the next target of the anti-corruptive drive will make them more compliant. And, as discussed below, this compliance is crucial for implementing the anticipated economic reforms.
The mass line campaign’s relevance to imposing party discipline is more obvious. Still, the direction it has evolved in is telling. One of the more recent phases has seen Xi demand that regional and local officials hold public self-criticism sessions. At times, Xi Jinping himself has traveled to the localities to oversee the self-criticisms in person. More frequently, he has sent representatives from the Central Committee to monitor the local authorities.
Similarly, Xi recently gathered together provincial, propaganda and media leaders to extol them on the importance of maintaining a coherent and unified message. Among other parts of the address, Xi said that the leaders “must resolutely maintain unity with the Communist Party Central Committee and resolutely safeguard the authority of the party’s Central Committee.”
Another mass line initiative that began this month and will continue through June 2014 consists of the Central Committee’s Organization Department, in charge of personnel decisions, holding seven workshops in Beijing for ministerial and provincial officials. At the workshops, these local officials will be further educated on Xi’s speeches since becoming general secretary of the Communist Party. That’s because, as Propaganda Chief and PBSC member Liu Yunshan explained, Xi’s speeches serve as the basic guidelines for the Party to realize its goals. “There is an urgent need to understand and implement Xi’s ideas as Party members need to straighten up their minds and find the right direction,” the Global Times summarized Liu as saying at the first workshop.
Indeed, Xi and the central Party’s authority over local leaders will go a long way toward determining the scope and extent of the economic reforms China undertakes in the years ahead. Xi and Li have both made it clear that they understand the nature of reforms China needs to sustain growth. Their ability to act on this understanding is a different matter entirely. Although they will face stiff resistance from many segments of society, local leaders are notable in that they are involved in nearly every major area of reform.
For example, Li has identified accelerated urbanization as a crucial element of rebalancing China’s economic model. Achieving this will require doing away with the hukou system of household registration that denies rural migrants the government services native urban residents enjoy. But city governments vehemently oppose removing hukou restrictions because of the huge burden it would add on their already strained balance sheets. Similarly, land reform that gave rural residents formal rights to their land would also facilitate urbanization. If rural residents could sell their land for profit, they’d have a greater motivation to move to cities. But rural governments oppose land reform as they currently profit from land sales.
Local governments will also be a major obstacle to reforming state-owned enterprises (SOEs). Xi and the central leadership have signaled that they understand the need to increase the role of private enterprises inside China, which will require lowering the barriers to entry in certain industries. But local governments own the overwhelming majority of the SOEs. Indeed, as of 2006, 82 percent of SOEs were run by local governments, and the number of local SOEs as a percentage of the total has been treading upwards.
Although the provincial and local SOEs are much smaller than central SOEs, they are also believed to be some of the biggest sources of over-capacity in the Chinese economy, owing to competition between SOEs run by different local governments. The solar industry is an excellent example of this. Indeed, in a speech at the Third Plenum this week, Li told local governments not to set up their own businesses, and noted that “local protectionism” is one of the biggest impediments to a market economy.
Still, actually reforming local SOEs is likely to prove difficult. Whatever their size compared to central SOEs, local SOEs are important sources of employment and tax revenue for the governments that own them. This is particularly true in poorer regions of the country. Thus, local officials will be loath to downsize these SOEs roles in the economy. Getting local leaders to act on Li’s demands will thus prove difficult. After all, the mountains are high and the emperor is far away.
Partly because of their control over SOEs, local governments also have a vested interest in preventing financial reform. Through things like restricting the flow of capital, deposit rate ceilings and preferential lending, China’s financial system operates as a subsidy from ordinary Chinese households to SOEs and politically connected entities. To build a more demand-driven economy, the Chinese leadership will need to reduce this subsidy. Local governments and their SOEs would be the primary losers of this reform, as their access to cheap loans would be threatened, and their competition empowered.
More generally, local governments will be one of the main obstacles to rebalancing away from China’s investment-driven growth model. As exports have foundered in recent years amid the global financial crisis, China’s impressive growth rates have been sustained primarily by ramping up state-driven investment, particularly in infrastructure. This was facilitated in part by the distortions in China’s financial system.
Local governments have been at the heart of this investment drive. When the central government announced a huge stimulus package in anticipation of the drop in exports, it ordered banks to loan to local governments who would be in charge of deciding how to invest this money. Many turned to infrastructure, but regardless of what they invested in, these projects have helped them sustain employment and growth.
By reining in investment, the central government will thus be threatening local governments’ ability to keep employment and growth high in their jurisdictions. Additionally, because of overheated investment, many of the projects local governments funded have not delivered the expected returns. By reining in the cheap credit available to local governments, the central government will be leaving them unable to take out new loans to meet their existing obligations. Naturally, then, local governments will want to nix this plan altogether. So far, the central government seems to still be trying to wrap its head around the extent of the problem, as evidenced by the audit it recently carried out.
Thus, overcoming local government resistance will be a crucial part of Xi’s ability to undertake the necessary economic reforms. Xi and the central leadership seem to understand this given their year-long effort to consolidate their control over provincial and other local leaders.
However, if they are successful in these reforms – and that is a big if – the longstanding challenge of local strongmen will not disappear. In fact, this issue is likely to grow worse as the anticipated reforms will ultimately empower local government. For example, greater urbanization will further concentrate population, giving the party chiefs in some Chinese cities control over a GDP the size of many countries.
Meanwhile, one of Xi and Li’s goals is to expand China’s economic miracle to more and more parts of the country. Since the initial reforms of the Deng Xiaoping era empowered coastal regions, China’s current leaders hope to now expand growth to the interior, including the far western parts of the country. This will potentially pose two issues for China’s central leadership. First, focusing on the interior will naturally come at the expense of the coastal regions, the leaders of which are likely to resist having to build up the country’s interior. Since these are China’s most economically prosperous and (in many cases) most populated provinces, their leaders are also the most powerful and able to challenge the central government’s authority. It’s also possible, as was often the case during China’s century of humiliation, that leaders of coastal regions seeking to resist the central government’s orders will turn to their many foreign partners for help.
Even if China is successful in building up the interior, this in itself will make governing China much more difficult. For one thing, building up the interior will mean there will be more economically powerful localities to control. But many of the interior regions will be harder to manage from Beijing, simply because of the tyranny of distance. Again, the old proverb: “The mountains are high, and the emperor is far away.” Indeed, it was no accident that the latest local strongman to challenge China’s central government was based out of Chongqing, an immense interior city in the southwestern part of the country.
Zachary Keck is Associate Editor at The Diplomat.
