China at the crossroads: are the reformers winning the argument?

China has reached a crossroads. After years of political stability and enviable economic growth, the regime has been facing a stark choice about how the country should move forward. But two crucial recent political events have turned Chinese politics on its head, and are forcing it to decide whether to regress or reform.

Over the last year villagers in Wukan, in Guangdong province, rose up and ousted their corrupt local leaders after months of protest. Meanwhile, Bo Xilai, the Communist Party secretary in Chongqing, who used Maoist rhetoric and violence to push his vision of economic development, was ousted from his post in March.

In a new ECFR essay, ‘China at the crossroads’, François Godement argues that these two events signal that the Chinese government may be choosing the path of legal and political reform, promoting sustainable growth to reduce macroeconomic imbalances and overreliance on the dollar. François argues that:

• With seven of the nine Politburo Standing Committee members due to be replaced this year, there has been a battle for influence with reformers warning that China is facing a ‘success trap’ of an economic and political model unsuited to the current stage of development, and capture by vested interests.
• The Wukan uprising and Bo Xilai’s fall have been followed by a resurgence in debate about economic liberalisation and censorship of nationalist, populist and conservative websites and spokesmen.
• Chinese economic policy began to change from the summer of 2011. Beijing has started to sell US Treasury holdings, cool inflation and slow down investment. Its trade surplus became a $31 billion monthly deficit in February 2012. These figures suggest the voice of reformers is gaining ground. 

Click here for a PDF of ‘China at the crossroads’

Click here for a PDF of ‘China analysis: one or two Chinese models’ (2011) which examined the debate over Chinese economic development.

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“If the reformers get the upper hand, this may prompt a conservative backlash. But if China does not move quickly forward it will regress to a planned economy run by crony capitalism and Maoism.”François Godement

• Vested interests opposed to reform include the military industrial complex that is used to double-digit budget increases, state-owned enterprises that have formed monopolies, family clans, local bureaucrats and the security/propaganda apparatus.
• The growth of an educated and affluent middle class who demand rights and better social protection has added to calls for reform.
• China has around 550 million internet users and 350 million social media users, who have shown their influence after events such as the Sichuan earthquake and the Wenzhou train crash.
• Between 1978 and 2012 China’s per capita income rose from $278 to $6200 (World Bank).
• Between 1980 and 2010 the number of Chinese below the poverty line (defined as $1.25 a day in purchasing power parity terms) fell from 2/3 of the population to 13%
• For the first time since 1998, from July to December 2011 China started selling US Treasury holdings, bringing the total amount down by 13% from its record high of $1.315 trillion.

This paper, like all ECFR publications, represents the views of its author, not the collective position of ECFR or its Council Members.