By Wen Xin Lim

China’s Lianghui 2016: Expectations and Challenges - Interview with Yongnian Zheng

Mar. 29, 2016  |     |  0 comments

The annual Chinese Lianghui of 2016, or plenary meetings of China's top legislative and consultative organs, the National People's Congress (NPC) and the National People's Consultative Conference (CPPCC), was convened on March 3, 2016. This annual session is significant for the observation of China’s political, economic and social trends.

Of late, China’s politics and economy has sent out confusing and alarming signals. In particular, there have been heated discussions on China’s ideological direction and considerable economic slowdown. While the annual NPC and CPPCC meetings are still ongoing, IPP Review has interviewed Professor Yongnian Zheng, Director of East Asian Institute at the National University of Singapore, to address questions related to the meetings.

IPP Review: The annual Chinese Lianghui of 2016 has begun. In your opinion, what could be the highlights of the 2016 Lianghui and what are the immediate tasks of the Chinese Communist Party (CCP) this time round?

The annual NPC and CPPCC meetings of 2016 are important. It has been four years since Xi Jinping came to power. These meetings are politically significant and important to the CCP because the 19th Party Congress will be held next year. In addition, the 13th Five-Year Plan has been approved by the 18th CCP Central Committee in the Fifth Plenary Session in 2015.

According to China’s political procedure, the Fifth Plenary Session in 2015 has decided the themes to be discussed in the 2016 Lianghui. The CCP set out its planning and vision in the Fifth Plenary Session and through the NPC and CPPCC in 2016, it will transform the party’s planning into the state’s planning. Lianghui in the Chinese context is a state affair, not a party affair. Some Western scholars have reckoned Lianghui as a rubber stamp legislature to carry out pre-ordained decisions by the CCP. That is not really the case. While a lot has been discussed during the 2015 Fifth Plenary Session, the NPC and CPPCC involve the participation of different social groups. As such, the discussion base of Lianghui is much larger than the 2015 Fifth Plenary Session even though both have a consistent theme. In that sense, Lianghui is important.

The purpose of Lianghui is to discuss China’s social and economic issues. That is why people regard Lianghui as the platform of the Chinese Premier, and the National Congress of the Chinese Communist Party as the platform of the Chinese President who is concurrently the General Secretary of the CCP Central Committee.

There are a number of important issues to be discussed in the Lianghui of 2016. First, the building of a moderately prosperous society or what China calls xiaokang society had been proposed last year. The 13th Five-Year Plan has defined clearly the concept of a “moderately prosperous society,” which is to increase China’s per capita GDP from US$7,800 today to US$12,000 by 2020. In order to achieve this goal, annual GDP expansion should be no less than 6.5 percent in 2016-2020.

The second task proposed in the 13th Five-Year Plan is to reduce poverty. Despite being the world’s second largest economy today, China has around 70 million and 10 million people living below the poverty line of US$1 in its rural and urban areas. If we calculate according to the international standard, China has 300 million people living under the poverty line (below US$1.25). According to the 13th Five-Year Plan, China aims to lift 10 million people out of poverty every year from 2016 to 2020, achieving the 2020 poverty relief target.

These two goals are mapped out under the pressure of fulfilling the “two centenary goals.” The first centenary goal marks the 100th anniversary of the CCP's founding in 1921, while the second centenary goal commemorates the 100th anniversary of the founding of the People's Republic of China in 1949. The first centenary goal to complete the building of a moderately prosperous society is an immediate task for Xi Jinping during his reign. It could be critical for both China and Xi’s personal standing in the Chinese history. Xi is under pressure to realize the first centenary goal and so has made it a planned and must-be accomplished task.

Moreover, China is facing an economic slowdown. I recalled that before the 18th Party Congress, people had spent almost two years discussing the possibility of China falling into the dreaded middle income trap. Recently, due to economic downward pressure, people have started to discuss this topic again. It will be troublesome if China falls into the middle income trap. Take East Asian economies for example, Japan and Asia’s Four Little Dragons successfully avoided falling into the middle income trap and become high-income economies. On the other hand, Malaysia, Thailand, the Philippines, and others failed to escape the middle-income trap and experienced stagnation in terms of per capita GDP. Empirically speaking, a society that successfully avoids falling into the middle-income trap and attains sustainable economic growth is one that is able to establish a clean government and an open society. However, once it slips into the middle-income trap, problems such as corruption, social instability, and environmental problem will surface.

China is currently facing substantial downward economic pressures. The 2015 financial market turmoil triggered by the stock market crash was due to failed financial market reforms. Of late, the unprecedented Chinese housing boom has also caused fear among many Chinese people. The middle income trap, poverty, and the financial crisis are the aspects which concern the people the most and would have to be discussed in the Lianghui.

IPP Review: What are your view on the anti-corruption campaign and Xi’s initiative on building the “rule of law”?

The anti-corruption campaign is significant for Chinese politics and the economy since the widespread corruption undermines the legitimacy of the CCP. However, the people’s perceptions of the campaign have changed. While people seemed to be supportive of the anti-corruption campaign at the beginning, they might start questioning what they have gained from it. The large-scale anti-corruption campaign has caused bureaucrats to become paranoid and inactive, resulting in inefficiency of the government sector, causing inconvenience to the general public. Businessmen are also wary of the political situation and face difficulties doing business in China. As a result, the popularity of the anti-corruption campaign is starting to dwindle away.

Also, in the West, criticism and concerns have abounded as China has been perceived to have cracked down on human rights’ lawyers and NGOs. Ultimately, can the anti-corruption campaign and crackdowns lead to the building of the “rule of law” which has been emphasized since the Fourth Plenary Session two years ago? What kind of institution is the party intending to construct? That is what concerns Chinese people the most. The party should try to address these concerns.

IPP Review: China revealed on Friday, March 5, 2016, that its military spending will grow by 7.6 percent in 2016, the smallest increase in six years and a lower figure than many experts had expected due to a slowing economy How do you anticipate the direction of China’s foreign policy?

During Deng’s era, China embraced the “keep a low profile” policy and maintained its military spending at a lower rate. As China emerges as a world economy, it has experienced rapid military modernization with an increasingly larger military budget. This is in particular with regard to Xi’s extensive military reforms proposed last year and people are starting to question if the military budget will increase along with the military reforms. Apart from that, militarization in the South China Sea has been a contentious issue especially between the United States and China. It is likely that people will associate the increase in China’s military budget with military conflict in the South China Sea.

The 7.6 percentage growth is the lowest in six years. In my opinion, the increase of military spending on certain aspect would be inevitable. As a country evolves to become economically strong, it is inevitable that it will push forward its national defence and military modernization. The problem is whether China’s military modernization will lead to “imperialism” and “aggression” as deemed by the West. While some have exaggerated China’s military modernization, others believe that it is mainly for China’s self-defence and deterrent purposes, not for offensive purposes. The proportional growth of China’s military spending is much less than the US’ absolute spending amount on military defence.

Some in the West have perceived China’s actions in the East China Sea and South China Sea as aggressive. However, from China’s perspective, it is a defensive and reactive response. We should view this objectively. China is being reactive in both the East China Sea and South China Sea issues. For example, it was the Japanese government which attempted to nationalize the Diaoyu/Senkaku Island that caused a stir in the East China Sea. China was merely reacting to Japan’s action in the East China Sea. In term of the criticism on China’s construction and reclamation of islands in the South China Sea, both Vietnam and Philippines have long constructed islands in the South China Sea. Indeed, China can be viewed as a late-comer to the construction of islands in these contested waterways. However, due to China’s state capacity, China is able to complete the building of islands at a larger scale and within a shorter time as compared to the other claimant countries. This has drawn strong international criticism.

The US is aware of this situation but it has reprimanded China for being a bully of small nations in the South China Sea. China on the other hand would argue that while a big country is not supposed to bully small nations, small nations should not be challenging big countries at will either.

The Chinese government is facing a dilemma between rationalism and nationalism. Xi Jinping, in my opinion, is more of a rationalist. On one hand, he covets a “new type of major power relations” with the US to avoid falling into the Thucydides trap and unnecessary conflict. On the other hand, he needs to tackle rising domestic nationalism. He has to strike a balance between rationalism and nationalism. If he does not respond to the East China Sea or South China Sea issues, he will face rising tension from the domestic front.  However, overreaction to the issues will deteriorate relations between China and the US. Overall, Xi is able to maintain an equilibrium between the two. China’s and the US’ concerns over the South China Sea are not necessarily in conflict. What the US is concerned with the most is freedom of navigation in the South China Sea. Similarly, freedom of navigation is the biggest national interest of China. In fact, the South China Sea is far more important to China than to the US. More than 85 percent of China’s trade goes through the South China Sea, and so if anything happens to the South China Sea, it is likely that it will affect China’s entire national economy. Thus, China and the US have a common interest in term of freedom of navigation.

The Chinese government is facing a dilemma between rationalism and nationalism. Overall, Xi is able to maintain an equilibrium between the two.

While China has promised to safeguard freedom of navigation in the South China Sea, the issue of asymmetric power between big country and small nations remains unsolved. The US might side with the Philippines and Vietnam, but both could have different takes on the South China Sea issue. Small nations like the ASEAN countries would like to establish an amicable relationship with China. The joint statement of the 2016 ASEAN-US Summit did not include Washington’s assertive pursuit of territory in the South China Sea. Many of China’s neighboring countries prefer not have a confrontational relationship with China. China too, despite reclaiming land and constructing islands in the South China Sea, does not intend to turn hostile to the ASEAN countries.

For instance, amid growing political tensions between China and the Philippines, economic and trade development between the two countries has been vigorous. This is similar to Vietnam, where both countries have resorted to party-to-party (i.e. between their two communist parties) relations to stabilize their bilateral relations. Basically, we can see efforts from both sides in thawing political relations. China is hoping that the incoming President of the Philippines can help improve their bilateral relations too. All three countries—China, Vietnam, and the Philippines—are looking for opportunities to normalize their political relations.

It is impossible for China as a rising power to give up the South China Sea. It is likely that this issue will have to be resolved through negotiation. In my opinion, China, the US and the ASEAN claimant countries have restrained themselves in the South China Sea dispute, and so overall it should not be a big problem. In view of China’s slowing economy, China will continue to regard maintaining a peaceful international environment as its top priority.

Furthermore, there is a lot of common ground between China and the US, for instance, in tackling the issue of North Korea. China has also been cooperating with the US and other major powers to address the issue of Iran. Overall, China’s foreign policy will not be confrontational and it will focus on promoting stability.

IPP Review: What are the major challenges that are currently faced by Xi Jinping and Li Keqiang? Just last month, China’s cyberspace watchdog closed the microblog account of a former property tycoon, Ren Zhiqiang. The West and other critics regard this as China’s attempt to impose ideological control and enforce party loyalty. What is your opinion on this issue?

China today is very different from the China of Deng’s era. Today, China’s society is pluralistic and overflowing with a myriad of social ideologies. One can find any “-ism”—i.e. liberalism, democratism, nationalism, Maoism, Marxism—in Chinese society today. This has beset the CCP under the leadership of Xi.

It is a pity that the CCP has yet to develop its own ideology after so many years. The official ideology, Marxism, has seen a decline in popularity and people are losing faith in it. In order for the CCP to achieve sustainable development, two conditions need to be fulfilled—an effective organizational system and an effective ideology. For many years, the CCP has made progress in reforming its organization/system, but encountered problems in producing an effective ideology. After the 18th Party Congress, Xi has taken action in party reform, including the large-scale anti-corruption campaign and the tightening of party discipline and rules. But the CCP still does not have an effective ideology.

In the ideological front, the party has become an “opportunist” since Deng adopted the ideology of pragmatism. Different ideologies have been adopted to cater to the party’s interests. As Xi tries to call for ideological control, he is facing big challenges. Traditional Marxism is no longer in good standing. With globalization, it is harder to control the flow and influx of ideologies. Even if the CCP is able to carry out ideological control, it is difficult to remake a unique ideology of its own. The new ideology remains an unknown even to the CCP. This is the first challenge that the CCP is encountering.

The second challenge is the slowing of China’s economy. Despite huge efforts made in the past, China has not fully adjusted to its structural reform, to transform from an investment and export driven economy to a consumer-driven economy. Domestic consumption is not rising as fast as we have expected. Instead, Chinese people are spending extravagantly overseas (Japan, Europe, etc.) for quality products, boosting external consumption.

After China has weaned itself off the investment-driven growth model, what should be the new sources of economic growth? If China cannot achieve the 6.5 percent growth target, it will not become a moderately prosperous society by 2020. China’s large scale infrastructure building and housing boom in the past have resulted in severe overcapacity. In order to achieve 6.5 percent growth, a number of reform plans have been unveiled, including supply-side reform to reduce overcapacity. The main problems lie in how China combats with its overcapacity. For example, the city of Shenyang is unveiling an unorthodox plan to ease its property glut to expand its pool of home buyers by removing the down payment requirement for fresh college graduates. Such policies are risky and people are starting to worry if they could lead to a sub-prime mortgage crisis. China is also trying to export its excess capital through the One Belt One Road (OBOR) initiative. However, the OBOR initiative is facing a lot of impediments. China’s attempt to export its excess capital to developing countries for massive and vital infrastructure building is regarded as politically sensitive. Myanmar, Sri Lanka and other countries have raised concerns about national security and have choked off a few Chinese mega projects. The absence of rule of law in these countries could lead to bumpy OBOR projects with hidden political risks awaiting China. Hence, it is questionable whether the OBOR initiative is able to fully digest China’s excess capacity.

In fact, there is room for absorption of overcapacity in the domestic market. As Xi has proposed to turn China from a quantity economy to a quality economy, China should focus on industrial upgrading and technological innovation. The recent Chinese spending craze in Japan has seen Chinese consumers purchasing Japanese electric rice-cookers, smart-toilets, and medical products in bulk. In order to boost domestic consumption, China should push ahead with technological advancement and industrial upgrading, to make progress in product innovation, so as to cater to the consumption patterns of local Chinese.

Second, a new wave of investment can help resuscitate the economy, and we should not ignore the importance of investment. While the stimulus plan to inject RMB 4 trillion into the economy in 2008 has distorted the Chinese economy, investment will continue to be an important source for growth. There is still room for investment in China. For example, urban redevelopment, sewage management, car-park buildings and environmental protection projects are all in need of capital. Most importantly, China should encourage what I called “social investment.” The concept of “social investment” has not been deployed. China categorized social security, medical welfare, public housing, etc. as consumption, but this should be regarded as social investment. The construction of hospitals, elderly care centers, kindergartens, and parking lots alone should be able to digest a large proportion of China’s overcapacity. Unlike the nation-wide stimulus package introduced in 2008, China should place emphasis on the second and third tier cities for better infrastructure building. By allowing local governments to come up with their own stimulus packages, of course this should be under the supervision of the central government, there is ample room for China’s social investment.

Third, an inactive bureaucracy has exacerbated the slowdown of China’s economy. Four actors—the state, local government, the private sector, and foreign capital—have played instrumental roles in driving China’s economy in the past. The anti-corruption drive and centralization program have caused local government and the public sector to become inactive; the private and foreign sectors have also been affected by the rise of left-wing ideology. Without the practice of “rule of law,” ideological change has become the most important factor for entrepreneurs to judge the stability of Chinese politics. The rise of Maoism has caused an outflow of capital especially private and foreign capital.

Politically, China is in the post strongman age, and thus should reduce populism. Populism may be a legacy of the strong statesmen of the past, but it will not be effective in solving problems. Instead, the Chinese leadership should pay attention to motivating the bureaucracy, as populism will only scare domestic and foreign investors off.

Foreign policy is the third challenge for the CCP. Domestically, the CCP should restrain populism; externally, it should restrain nationalism. As a big power, nationalism is somehow inevitable. Chinese nationalism is however not a state mobilized nationalism as deemed by the West. The major source of Chinese nationalism today is due to the economic rise of China. While excessive nationalism on the international platform could generate negative impact, a stable external environment is crucial for China as it still has a long way to go with its current per capita GDP at US$7,800. Moreover, China is now part of the global economy, and any changes on its domestic front could easily affect the external environment and vice-versa. Hence, the Chinese leadership should take into consideration both internal and external developments.

IPP Review: After the 2008 global financial crisis, China made great contributions to the world economy. Today, with its economic slowdown, will China be able to continue to do so?

China’s contribution to the world economy has been significant. In the 80s and 90s, China’s efforts in reducing poverty contributed positively to the world economy. In the following years, China’s participation in the WTO generated positive impacts on the world economy. After 2008, due to the financial crisis in the West, China introduced a RMB 4 trillion stimulus package to bolster economic expansion and sustain global growth. In that sense, China should continue to contribute to the world economy. Among all, China’s stable economic development itself is an important contribution. Second, the internationalization of the RMB, financial reform, and increasing the transparency of financial institutions, will help to bridge the gap between China and the rest of the world. Third, OBOR and the Asian Infrastructure Investment Bank (AIIB) can introduce new economic dynamism to the region and the world. With the founding of the AIIB, an action plan to identify potential projects will be carried out.

This interview was conducted by Wen Xin Lim.

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