The Dragon’s Metamorphosis

2014-03-07Il Sole 24 ORE

When comparing the immediacy of armed soldiers’ violence and street fighting, underway for days in the Ukraine, with the possibilty of a new cold war between Russia and the West, the baroque rituality, the convoluted language and the esoteric organization of the Chinese parliament really seem to be out of place.

Yet, quite possibly, the most important consequences for the planet’s politics and economy will come exactly from there: the National People’s Congress (NCP, the Chinese parliament) underway these days in Beijing (as incomprehensible as it is to most people just like a cardinals’ conclave).

With a 2014 GDP growth objective set at 7.5 (after having reached 7.7 last year) China will probably give the largest contribution to global growth. This development rate will take the country up to a 10 trillion dollars in GDP by December (almost five times larger than the Italian one), almost two thirds of the American one which, by the end of the year, should be equal to 17 trillion dollars, with a growth rate of about 2 percent.

The possibility—more revolutionary, politically and economically, than any new cold war in Europe—of a Chinese overtake of America within ten years is becoming much more real. This is the point and the profound objective of the new Chinese leadership: how will the Chinese economic structure be ten years from now? Will it be ready to continue to grow or be on the brink of an abyss and therefore ready to collapse?

Premier Li Keqiang, who last Wednesday, for the first time, presented the country’s programmatic plan was answering this exact question.

Unlike his predecessors, who sounded more like economy ministers than heads of government, Li presented a reforms program ranging from agriculture to police all the way to measures to make life easier for private businesses. According to the plan, private businesses will have more access to the capital of pubic ones, will be able to open financial institutions and, most important, they will be exempt from the annual burden of bureaucratic reviews—which are often chances for corrupt officials to extort bribes.

Thus the very model of growth will have to change. There will be a passage from a kind of development supported by enormous public investments, to one that will increasingly rely on the business capacity of private companies, which have been—by the way—the main engine of national growth over the last thirty years.

These new, dynamic, innovative, competitive businesses will have to be able to compete on the global market and therefore create a healthier domestic market which should keep expanding even after the American overtaking, even without direct help form the State. In this sense, the gradual yet constant increase of wages, the expansion of a healthcare system and the promise of a progressive future for China are widening domestic consumption which should substitute exports as the main push for growth.

This plan has many traps and question marks. The domestic debt is the first hurdle. Limitlessly bloated after the expansive economic maneuver of 2009 (passed in order to overcome the global economic crisis of 2008), it should have been brought under control by now. The premier has not mentioned any numbers but he announced that it was clearly accounted for and that the issuing of local bonds is in the works as is the introduction of very tight limits to public spending in order to have public budgets in order.

The second unknown is about the international environment where the country’s tumultuous development causes growing anxieties. In this case, the 12 percent increase of the military is also used as an intimidation tool to intimidate neighbors—and non-neighbors as well—and discourage them from any temptation of applying inappropriate pressure on the country

Yet the main trap of the government plan is an internal one. The heads of ministries and of State businesses—large and small—had built large personal fortunes by exploiting public monopolies to benefit private interests. These interests will be demolished, rapidly more or less, by the growth of dynamic private businesses that are, today, supported by the top brass.

This system of privileges, systemic corruption and parasite-like practices will eventually collapse, therefore, it is opposing in any way it can to the new wind of change. And from here came the strongest political sign. The Premier and the ministers who are speaking, these days, underline the fact that decisions are made “under the leadership of president Xi Jinping.”

It is a new, very strong formula that indicates the power of Xi as unprecedented since the days of Mao. This also means that whoever opposes the leadership’s decision does it at his or her own risk and that the influence of many other former officials who are used to pulling the strings in the backstage is finally over.

During these days, rumors in Beijing are spreading—rumors about the next public trial against former head of Chinese security Zhou Yongkang. Zohu is the first former member of the restricted Politburo (the head of the top brass) to end up as a defendant in a trial since the times of the ‘Band of Four,’ at the end of the 1970s. He is formally accused of corruption along with his entire family and dozens of aides.

But his worse fault is having tried to oppose the reforms of Xi and creating and protecting a power structure, de facto very different from the pyramid summit. Hence, the destiny of the great Zhou becomes an example for many other potential little ‘Zhous’: if they do not adapt to the new course they will know what to expect.

It is therefore almost a question of life or death for the parties involved. Many formerly strong powers know that they will lose everything—or almost everything—if they do not oppose; the government knows that it risks losing the country if it does not go all the way down the path of reforms. Thus, the war on corruption is not over and could have new great surprises in store while an historic phase of China, with officials transformed into local bosses on the way and the new course, the face of which still remains to be seen.  (2014-03-07 Il Sole 24 ORE)


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