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Divisions Emerge Among China’s Leaders

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China Power

Divisions Emerge Among China’s Leaders

Amid slowing growth rates, growing dissent appears to afflict parts of government.

Amid slowing growth, there are a number of signs of dissent among China’s leadership over a number of economic and political issues.

The most visible sign of division among top leaders in Beijing was the mix signals sent last week over what the floor to China’s economic slowdown would be. The debate began when Chinese Finance Minister Lou Jiwei, in Washington for the Strategic and Economic Dialogue last week, told reporters that Beijing was willing to accept a slowdown to 7 or even 6.5 percent this year.

“We don’t think 6.5 percent or 7 percent will be a big problem,” FM Lou said, Bloomberg News reported. This was down considerably from the 7.5 percent annual growth rate the government forecast in March of this year.

Originally, China’s state media reported his 7 percent comment accurately, although downplaying it in the scope of the story and not reporting on the 6.5 percent figure.

“China’s expected GDP growth rate this year is seven percent…. There is no doubt that China can achieve the growth target, though the seven-percent goal should not be considered as the bottom line,” Xinhua wrote according to a screenshot of the original article taken by Bill Bishop.

The next day the article was mysteriously amended with the reference to the 7 percent growth rate removed. Instead the article merely said, “There is no doubt that China can achieve this year's growth target of 7.5 percent.”

Needless to say, the different figures being floated sparked a firestorm of speculation and confused investors wondering at what point the government would intervene to arrest the slowdown with a stimulus package of some kind.

For the record, on Monday China announced its economy grew 7.5 percent in the second quarter year-on-year. This was the slowest growth rate in 23 years, foreign media noted, and 0.2 percent slower than the 7.7 percent growth rate posted in the first quarter of this year. China has also posted a slower grate rate in nine of the last ten economic quarters.

But the floor for the slowdown appears to be only the most obvious issue that is being hotly debated within the upper echelons of the Communist Party and Chinese government.

Indeed, South China Morning Post reported on Monday that Premier Li Keqiang encountered stiff resistance from inside the government when pushing through his Shanghai Free Trade Zone this year.

Premier Li pushed hard for the FTZ following a March trip to Shanghai, his first domestic trip since taking his current position as the head of the government. As such, one government source told SCMP that “the Shanghai free-trade zone is like Li's baby,” while another noted that the premier would now lose face if the experiment fails.

But, according to three sources with “first-hand knowledge of high-level government meetings,” both the China Banking Regulatory Commission (CBRC) and China Securities Regulatory Commission (CSRC) openly opposed certain initiatives proposed by Li’s office. The CSRC, for instance, opposed Li’s suggestion that foreign commodities exchanges be allowed to set up future deliveries warehouses in China, while the CBRC objected to a proposal to allow certain banks within the FTZ to engage in offshore banking services.

This dissent, presented in feedback memos to Li’s initial proposal, prompted the premier to slam his fists against a table in frustration, and tell a meeting that this opinion feedback was not acceptable. Li’s office also responded to both objections in memos, according to SCMP.

Meanwhile, others have been objecting to Xi Jinping’s “mass line” campaign, a revival of a Maoist crusade that urges Communist Party officials to communicate regularly with the masses. Xi has also used the campaign to target corruption and railed against the CCP to rid itself of “formalism, bureaucratism and hedonism and extravagance."

But the campaign, announced in April but only officially unveiled last month, is already coming under fire. Most notably, last week Study Times, a newspaper run by the Central Party School, published an article criticizing the concept.

“The mass line is not an effective substitute that can realize the function of democracy,” the article said, SCMP reported. The article also implied the campaign was out-of-date, a feeling many in China have been expressing.

The article is attributed to Li Haiqing, a historian at the Central Party School. However, some political analysts have speculated that its appearance in a Communist Party publication reflects support for its ideas among higher level CCP officials.

Similarly, Sinocism translated an article that appeared in Beijing News this week, which called for embracing democracy as the only sustainable political system over the long run. The article is written by Yu Keping, deputy director of the Central Compilation and Translation Bureau of the Central Committee of the CCP, a long-time advocate of democracy. While not directly challenging Xi's mass line, the article's timing is interesting.

Yu also argues in the article that “It isn’t a matter of whether or not one likes democracy: Democracy is a trend that cannot be impeded.”

These apparent divisions within the Chinese leadership, while perhaps minor in and of themselves, are emblematic of some of the difficulties that Chinese leaders will face as they try to rebalance the economy away from one built on exports and investment to one geared towards domestic consumption. Many powerful individuals and organizations benefit immensely from the old model and therefore have much to lose in this economic rebalancing.

Especially if slower growth results in broader unrest in China, these dissatisfied elites could successfully thwart the reforms, and Xi and Li's power with them. This is a potentially perilous scenario not just for Xi and Li, but the CCP as a whole: as countless historical cases in China and elsewhere have demonstrated, fractures within the political elite are nearly a prerequisite for effective political changes. Combined with wide-scale unrest among the masses, this can often take the form of revolutionary change.

Ensuring unity and subordination among the Party faithful has and will remain a top priority for Xi and Li moving forward.