Reform In China Will Have To Wait

Broad consensus amongst Western economists maintains that China’s era of low-cost, export-driven growth is over. If the nation is to continue to achieve a high level of growth, reforms need to be put in place to liberalize the economy and increase domestic consumption.

However, the composition of China’s new leadership committee suggests that major reforms are unlikely to take place.

As we’ve mentioned before, there has been a behind-the-scenes power struggle between the outgoing General Secretary Hu Jintao and former General Secretary Jiang Zemin prior to the leadership transition. Though both ruled as technocrats, Jiang favors a preservation of the status quo which placates the “Iron Quadrangle” – the monopoly interests of state-owned enterprises, the internal security apparatus, the People’s Liberation Army and the political interests of the Communist Party. Those special interests are essentially "the powers that be" in China. While they retain primacy, the institution of reforms to liberalize the economy – and the society – will remain evasive.

Forbes reports that between four and six members of the seven-man committee are conservatives – evidence that Jiang’s influence reigns supreme. The South China Morning Post went further with a headline that declares “Jiang Zemin Faction Wins in China’s Game of Thrones,” a reference to the popular HBO show.

In particular, the two ‘Zhangs’ on the new committee are staunch Jiang loyalists. Zhang Dejiang, China’s No. 3, has been a long-time follower of the former President – his name literally means “Jiang’s virtue.” Zhang was educated at Kim Il Sung University in North Korea, making it unlikely that he will break up any of the Chinese state-owned enterprises which operate as monopolies, starving competition and innovation. Zhang Gaoli, who will also handle economic affairs, once staged an elaborate ceremony to honor Jiang in which he was carried to Mount Tai in a manner described as “the procession of an ancient emperor.” 

A changing of the guard in China may be five years away, when five of the seven committee members reach the mandatory requirement age. Xi Jinping, the incoming General Secretary, and Li Keqiang, the only known reformer on the committee, are the only two expected to remain past 2017.

For now, their ability to reform China  – which the new leader's rhetoric seems to suggest is on the table – is severely curbed by the conservative elements that continue to dominate the ruling committee.

SEE ALSO: China's Tectonic Power Shift - The Complete Guide >



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