When skimming the news over the past week, it has been remarkably easy to find articles on China hemmed with photos of stern looking Chinese security officials scanning public squares. These photos contribute to the often two-dimensional discourse regarding a dynamic country going though a complex leadership transition at the highest levels of the Communist Party of China (CPC). The increased media focus is a result of the significant economic and political weight China carries, much more than it did ten years ago during the last transition. The world is well aware that the newly elected governing body, which will be in power for at least the next five years, will influence affairs well outside the Asia Pacific region.
The National Congress of the CPC just concluded its week-long session and announced that former Vice President Xi Jinping will serve as General Secretary and President, and former First Vice Premier Li Keqiang will be the new Premier. These two men will lead the seven member Standing Committee of the Political Bureau that presides over the state party. The question now becomes. what will these new leaders do as they assume power and how will it impact the international community? The answers are difficult to gauge. Bruce Dickson, political science professor at George Washington University, summarized how Chinese politicians often operate: "Chinese leaders don't rise to the top telegraphing what changes they'll do. They rise to the top showing how loyal they are to the incumbent. What they'll do when they rise to the top — that's the big question."
With this in mind, the world will watch as President Xi Jinping and Premier Li Keqiang have a difficult task ahead in leading China through significant political and economic tensions.
Politically, the ruling communist government has a substantial divide between the “left”—officials who support policies rooted in traditional Chinese socialism — and the “right” — those that support more economic and political reform. According to China expert Cheng Li of the Brookings Institute, now former General Secretary Hu Jintao, was reluctant to pursue economic reforms but was more open to political reform; combating internal corruption has been a consistent talking point for Hu over the past year. During the opening remarks of the 18thNational Congress, Hu delivered a speech in which he stated, “Neither will we follow the old path of closed door and ossified politics, nor will we take to the evil way of changing our flags and banners.” In his final speech as president, Hu decided to call both for an end to political corruption and the strengthening of the Communist Party. Now President Xi has the choice to act on this call for political reform, as recent scandals have caused discontent among many across China.
Economic reform is another key issue that both the CPC and international investors will focus on in the short and long term. Past economic reforms, implemented under the leadership of Deng Xiaoping and Zhao Ziyang in the 1980s and 1990s, led to explosive growth. The former party leaders decentralized aspects of the state economy in favor of market forces, which led to the growth of consumer-focused industries and the entrance of foreign trade and investment. Under this economic practice, known as “socialism with Chinese characteristics,” the Chinese economy has quadrupled in size since Hu Jintao was elected in 2002. The Chinese government supported its GDP with a centrally driven economy that funded massive and widespread infrastructure projects and lowered bank reserves to promote lending.
In addition, this growth is in large part due to China’s rise from the world’s fifth leading exporter to its first, leveraging its competitive advantage of inexpensive labor and manufacturing. However, this facet of Chinese strength has waned relative to past years. Labor is becoming more expensive and the renminbi has slowly risen in value against the dollar. Though China’s economic clout is uncontested as second only to the U.S., the uncertain growth outlook could damage the stuttering global economy.
The government realizes the need to increase domestic consumption to bolster China’s GDP. The resolution of the Central Committee explicitly states that one of the primary goals is to develop domestic demand by emphasizing, “a modern service industry and strategic emerging industries.” The 12th Five Year Plan calls for certain financial reforms, but the document does not put a timeline on its implementation, allowing the government to prioritize restructuring as it sees fit.
The CPC still has the ability to maintain its current model, albeit temporarily, by pumping state-investments into second, third, and fourth tier cities as rural Chinese continue to migrate into the cities. Thus under President Xi in the near term, economic reforms will continue to be measured in cautious terms: fractions of percentage point decreases in bank reserve ratios, slight increases in the controlled value of the renminbi relative to its fixed base rate, and incremental liberalization measures of interest rates.
How will these possible changes impact the rest of the world? These economic measures, should they be continued, are aimed to nourish the growth of the middle class and a powerful Chinese middle class will encourage the expansion of foreign investment. Research indicates that consumer spending is particularly strong for Western luxury goods yet the introduction of other foreign products into the market is sure to increase. In addition, a stronger renminbi will increase demand for inexpensive manufacturing elsewhere: Mexico, Malaysia, and India. This will drive China to become competitive in other markets.
While the impact the new leadership will have is unknown, Xi, in his first address as president, alluded to a simple yet important aspect of Chinese relations. Xi stated, "just as China needs to learn more about the world, so does the world need to learn more about China." This requires an increase in dialogue, a step in which recent U.S.-Sino relations have encouragingly taken.