Party of the Century: How China is Reorganizing for the Future

Eric X. Li

November 2013, the Chinese Communist Party (CCP) held its much-anticipated Third Plenum of its 18th Congress. Third Plenums, which are usually held a year after a party congress, have generally been used to set the policy agenda for a new administration. More than 30 years ago, Deng Xiaoping famously launched his groundbreaking economic reforms at the Third Plenum of the party’s 11th Congress -- a meeting that changed the trajectory of China and, thereby, the world. Coming just a year after China’s latest leadership transition, the November Plenum offered the most concrete look at how the country’s top leader, General Secretary Xi Jinping, intends to lead.

Most analysts have focused on the meeting’s wide-ranging economic reform agenda. No wonder; the announced economic changes are more sweeping than most people expected and, if implemented, could usher in yet another run of sustained economic growth. The reforms include allowing private ownership stakes in state companies, reducing regulatory hurdles for commercial enterprises, handing rural residents greater control over their land, liberalizing the financial sector, and much more.

Yet even as the world has applauded the economic reforms, it has criticized China’s new leadership for omitting much-hoped-for political reforms from its agenda. Some critics have pointed out, correctly, that the party’s leadership has actually strengthened its grip on power. Media outlets such as The Wall Street Journal, CNN, and The Economist have characterized the development as essentially the party’s turning right on economics and left on politics. But such views are misplaced.

The plenum did launch significant and, in some cases, unprecedented political reforms that will fundamentally alter how the world’s largest nation is governed. They include re-engineering the relationship between central and local authorities and restructuring the party’s disciplinary inspection regime and the state’s legal system. The plenum also resulted in the most significant reorganization of the party’s decision-making structures in the history of the People’s Republic.

The plenum launched significant and, in some cases, unprecedented political reforms that will fundamentally alter how the world’s largest nation is governed.

REBALANCING ACT

For centuries, one of imperial China’s most vexing political problems was the balance of power between central and local authorities. Successes and failures of governance depended in large part on how this relationship was managed. A healthy balance underwrote long periods of prosperity and stability. The opposite led to coups and counter-coups -- and sometimes the demise of dynasties.

Contemporary China is no exception. In its 64-year history, the relationship between central and local authorities has gone through at least three phases. The first, between 1949 and 1956, was a period of Soviet-style centralization. Driven by the need to consolidate political power and resuscitate a paralyzed economy, the party imported the Soviet model and Beijing reigned supreme.

But beginning in the late 1950s, Mao Zedong oversaw an across-the-board decentralization of power. At the time, economic and social conditions varied significantly across regions. Moreover, the complete lack of political power at local levels had resulted in mismanagement by the central bureaucracy and general stagnation. Mao argued that decentralization would unleash economic productivity and revitalize local politics. This process intensified through the end of the Cultural Revolution in the late 1970s. By then, regional authorities had asserted significant control over tax collection, state-owned enterprises, and even the management structure of the military. The remnants of that period survived into the first phase of Deng Xiaoping’s reforms at the end of the 1970s. Throughout the 1980s, the central government was at times so strapped for cash that it had to demand financial support from provincial capitals.

It was not until the early 1990s that the party began to rebalance power between the center and the regions. Former Premier Zhu Rongji formalized this process in 1994 by shifting taxing authority back to Beijing, but nearly three decades of decentralization was not easy to reverse. By the time the latest plenum began, only half of the central government’s 20 trillion renminbi in annual tax revenues went to the national fiscal budget that Beijing controls.

The most recent plenum completely revamped this structure. In what was perhaps the biggest reform to Chinese political governance in decades, party leaders announced that China would now have a single national budget, unifying revenue and spending firmly under Beijing’s control. Under this new system, the central government will assume almost complete authority over national spending. Administrative responsibilities as overseeing infrastructure projects and providing health care will be more clearly delineated between Beijing and regional and local governments. Rules on transfer payments between the central and local governments will be standardized. And Beijing will take over direct management of local government debts.

These changes will prove critical to China’s long-term development. The new tax system and debt control mechanism will help prevent local governments from misusing resources to reach short-term economic targets. And with its new spending power, the central government can finance needed social policies for years to come.

Take urbanization: over the next 20 years, 13 million people a year will move to China’s existing and future cities. The rural-urban divide and urbanizing migrant populations have long posed persistent problems for China’s development model. Rural residents lack access to the health care and educational benefits enjoyed by their urban peers and, therefore, are tied to their land -- leading to imbalanced development favoring the cities. The problem is especially acute for migrant workers, who have moved to the cities to live and work but remain classified as rural residents. They are caught in a kind of limbo -- far away from their land but without urban benefits. Now Beijing will be able to allocate more national resources to public goods such as health care, welfare, and education, enabling rural residents to become full-fledged urban dwellers.

The most widely reported item put forth at the plenum was the principle that the market should be a decisive factor in the allocation of economic resources. Some have claimed that the rebalancing of political power to the center runs counter to that stated goal. Not so. Thirty years of decentralized development has led to local protectionism and a lack of standardized rules for commercial activities. Both of these hamper the development of China’s market economy. Companies regularly use their alliances with local governments to block competitors from entering the market. And disparate rules and regulations across provinces make it difficult for companies to operate outside of their home territories.

The centralization policies launched by the Third Plenum will thus strengthen China’s vibrant market economy. And centralization could also have other positive effects, besides. The central government can better protect the environment and food safety, for example, when it has national standards to enforce.

AFTER BO

Official corruption has concerned the CCP since the earliest stages of its development. The party’s first internal inspection agency, then called the Central Inspection Commission, was established in 1927, barely six years after its founding and 22 years before it actually gained political power. Although the power and relevance of the commission has risen and fallen over the years, its guiding principle has remained the same.

From 1927 to the present, the party modeled its anti-corruption efforts on the Soviet Communist Party’s internal inspection organization. In theory, the Disciplinary Inspection Commission (DIC) at each level of government falls under the authority of the DIC at the next highest level. All of them report to the Central Disciplinary Inspection Commission (CDIC). In practice, however, that system breaks down. The person in charge of checking official corruption generally works under the influence of, and often owes his career to, the head of the party committee-led bureaucracy he is tasked to discipline. Take the example of Bo Xilai, the disgraced party secretary of Chongqing. Bo, convicted of corruption last year, was a member of the Politburo, China’s highest ruling body. The head of Chongqing’s anti-corruption commission, however, was not even a member of the Central Committee, placing him at least two levels of rank below Bo. The official was therefore unable to discipline Bo at any point during his reign. Needless to say, such a regime, although successful in punishing low-level offenses, cannot check the abuse of power at higher levels.

The recent plenum drastically re-engineered the inspection regime’s structure, turning the Central Disciplinary Inspection Commission into a vertical agency with decision-making authorities separate from those of the party committees. Each DIC will now ultimately report to the Central Commission in Beijing. The CDIC will also have full authority over the appointment of anti-corruption officials at all levels nationwide and the initiation and investigation of all cases. As if to demonstrate the immediate effect of this restructuring, at the closing of the plenum, Beijing appointed Hou Kai, an influential party official from the capital, to head the Shanghai Disciplinary Inspection Commission.

To mirror the reform of the party’s internal inspection regime, the plenum similarly restructured the state’s legal system. Now, court systems at each jurisdiction will be held accountable not to its parallel government but, instead, to the next highest court.

One cannot overstate the significance of these reforms to China’s future governance -- they are the most qualitative change in the distribution and provision of power for the party in decades. China is a vast country with a complex government. The introduction of an independent watchdog at every level of government could help the party curb corruption and increase efficiency in ways it never could before.

THE END OF THE THREE CARRIAGES

Perhaps the most noticeable political reform to come out of the plenum was the establishment of the National Security Committee and the Central Reform Leading Group, which will guide national security and economic policy. Both bodies will operate under the authority of the party’s Politburo and its standing committee and, therefore, resolve a contradiction in China’s political structure that has troubled the country for decades.

When the party established the People’s Republic in 1949, it modeled its government on the so-called three-carriages model from the Soviet Union. In form, three parallel bodies share power: the National Congress, a legislature headed by a chairperson; the State Council, a cabinet run by a premier; and the CCP Politburo led by the general secretary, of which the chairperson and premier are also members. (In recent decades, the general secretary of the party has also served as head of state.) At the end of the day, however, the constitution holds the party’s leadership above all else.

This pretense of separation has created damaging institutional complexity and uncertainty. Ever since the early days of the People’s Republic, debates have broken out about the degree of integration, or separation, between the party, which is led by the Central Committee and its Politburo, and the government, which is run by the State Council. During the first 30 years under Mao, the “great helmsman” alternated between only leading the party and asserting direct control over the entire government. Such institutional conflicts, exacerbated by the strong personalities involved, could have dire consequences. In the mid-1960s, the political differences between Mao, then leading the CCP, and Liu Shaoqi, then heading the government, played no small role in igniting the disaster that was the Cultural Revolution.

With the creation of the National Security Committee and the Central Reform Leading Group, the Third Plenum initiated the most significant departure from the old three carriages model. The party has now moved firmly to the front and center of political governance, further cementing its constitutional authority. The National Security Committee’s responsibilities will cover all aspects of China’s domestic and international security policies, from the police force to the foreign ministry. The Central Reform Leading Group will spearhead the nation’s economic strategy. And both are now under the firm control of the party’s Politburo. In a practical sense, the Chinese system has, in some respects, moved closer to the semi-presidential system of countries such as France.

The reform should help stabilize governance and may also signal a major political breakthrough: in effect, the CCP is finally acknowledging that it is a governing organization, not a political party. China imported modern political parties from the West more than a hundred years ago. But in Western countries the establishment of the nation-state came first and the parties came later, representing “parts” of the population in the political system. In China, this process occurred in reverse; the party came first and, after 28 years, it founded the People’s Republic. From day one, the CCP claimed to represent a plurality of the Chinese nation.

By formally ending the Soviet-style three carriages model and structurally fusing the party with the government, the Third Plenum marked an important inflection point for the party as a maturing governing institution. In the long run, China’s governance will likely be qualitatively different from the model currently employed by most countries, in which multiple parties compete to represent different interest groups through elections. The CCP is evolving into a governing organization that would embody the entirety of Chinese society, not altogether dissimilar to the centuries-old Mandarin class of the Chinese dynasties. The future of Chinese political governance, then, will depend on whether the CCP’s institutional capabilities can continue to adapt to a rapidly changing society.

SYSTEMIC SUCCESS

In the wake of the plenum, commentators from virtually all of the major Western media outlets and think tanks downplayed the CCP’s political reforms on the grounds that they did not set China on the path to multi-party electoral democracy. But when it comes to China, the term “political reform” has been ideologically hijacked. It is usually taken to mean Western-style democratization. Any changes that are not consistent with that end, no matter how significant, are dismissed. Yet such views reflect an immature, if not outright harmful, understanding of China.

Most scholars of contemporary China divide the party's leadership of the largest nation in the world into two 30-year periods. The first lasted from 1949 to 1979, under Mao; the second began with Deng’s reforms in 1979 and extends to today. Some have characterized the second 30-year period as a departure from or even a betrayal of the first. They are wrong. Although the first and second epochs seemed to project starkly contrasting ideological outlooks, the second was an outgrowth of the first. Without the accomplishments of the first -- national independence and the building of basic modern industrial and human infrastructure -- the second would have been impossible.

If the new political reforms are carried out, this plenum will have begun a third era--one that will synthesize the first two and create a new narrative for modern China, embracing a model of governance driven not by elections but effectiveness. By being forced to reckon with new checks and balances, the government will emerge more competent, responsive, and agile.

Today, crises of governance are plaguing nations around the world. From paralyzing partisanship in the United States to byzantine elitism in Europe, the developed world is steeped in stagnating malaise. In much of the developing world, from Thailand to South Sudan, electoral regimes are either failing to deliver or have altogether lost legitimacy.

Although it faces myriad challenges and growing pains, China stands apart in many dimensions -- economic development, poverty alleviation, and general social cohesion, to name just a few. On Xi’s watch, China will become the world’s largest economy. And at its current trajectory, China will become a true great power -- economically, politically, and militarily -- by the middle of this century. But that potential could not be realized without a coherent and mature system of political governance suitable to the country. What happened last November in Beijing, then, may prove to be more consequential than most people in the world have recognized.

Source: FOREIGN AFFAIRS, January 10, 2014

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