China’s makeover would challenge even Confucius

The Sydney Morning Herald
By Hamish MacDonald, Asia-Pacific Editor

October 5, 2012  (US time)

It’s a testing month ahead for the 80 million members of the Chinese Communist Party, and the country’s more than 1 million millionaires, a largely overlapping list since the former party chief Jiang Zemin gave Marxist-Leninism an innovative twist by including business entrepreneurs in the party base alongside workers and peasants.

November 8 has been set as the date of the party congress in Beijing, with the main event the endorsement of a new national, party and perhaps military leadership for the next 10 years. The event is about three weeks later than expected, suggesting the details of the transition have not been sewn up.

One detail may be a show trial of the ousted party secretary of the huge Chongqing metropolis, Bo Xilai, after the convictions and jail terms recently awarded his wife and former police chief over the murder of the Bo family’s British financial adviser and confidant, Neil Heywood, a year ago.

Bo was formally expelled from the party last week, and according to the official Xinhua newsagency handed over to prosecutors for investigation of disciplinary violations and corruption through his career , with allegations of ”improper sexual relationships with a number of women” thrown in for good measure.

The day after Bo’s expulsion, an internal warning went out through the party to watch themselves. ”Discipline during the transition is like a high-voltage cable,” it said. ”Please do not under any circumstances commit a violation.” Instead, obey the ”Five Strictly-Prohibiteds”, the ”17 Forbiddens” and the ”Five Without-Exceptions”.

The delicacy is that the practices banned in these categories – ranging from selling offices, rigging votes, bribery and use of personal connections – are the very essence of political life and business sidelines among the communist elites. Don’t get caught, and don’t be on the wrong side is the message many will take to heart.

And as the party moves to stage what will be its biggest show trial since the Gang of Four went in the dock in 1981 over the Cultural Revolution, the Chinese internet is alive with embarrassing questions. Two researchers on the Tea Leaf Nation e-magazine, Liz Carter and David Wertime, found nearly 7 million posts about Bo Xilai on the Chinese version of Twitter, Sina Weibo, the day after he was purged.

The most difficult theme for the party is: How different is Bo Xilai from anybody else at the top? [Note from FOFG editor:  There is evidence that Bo Xilai is is one of the culprits in the horrific crimes of forced organ harvesting in China.  Innumerable prisoners of conscience, particularly Falun Gong practitioners, have been murdered for their organs.] The Xinhua report said prosecutors were finding violations right back through Bo’s quarter-century career, including his reputation-making stint as mayor of the Dalian naval port in the north-east. How could Bo get as far as he did – close to elevation to the Politburo standing committee, the peak body in the party – without anyone noticing his offences?

Until the Heywood murder, the Bo family were just one of communist China’s great families, estimated at about 14 in number by Harvard University’s William Kirby, who are descendants of early 20th century revolutionary giants (by contrast, Kirby writes in his blog, nationalist China under Chiang Kai-shek had only four great families).

”[Bo’s] career, his aspirations, and his demise remind us that the Chinese still live in a dynastic system dominated by conquering families, in which princes vie for the throne when it becomes vacant,” Kirby wrote.

All these big families have murky entourages involved in money-making and excessive living. The outgoing party secretary and state president Hu Jintao was embarrassed earlier this year when the son of his main numbers man, Ling Jihua, died in the crash of a Ferrari in the company of two models.

The incoming successor, Xi Jinping, is regarded as an honest figure who was sent in to clean up regional administrations in the coastal industrial centres of Zhejiang and Shanghai after big corruption scandals. In one of those postings, he warned officials: ”Rein in your spouses, children, relatives, friends and staff, and vow not to use power for personal gain.”

Although a Bloomberg investigation in June found that no assets could be found in the name of Xi, his wife (a popular singer) or their daughter, his siblings and other relatives had built up company investments and property holdings that appear far excess, in total, to the $US136 million attributed to Bo Xilai and his wife. Bloomberg websites were blocked in China after the report.

All this might be quite bridgeable for a party propaganda apparatus oblivious to hypocrisy and a Chinese public long grown cynical about political power, if the glue holding the system together was not starting to weaken at the same time.

In the second quarter of this year, China recorded its first balance of payments deficit for 14 years. Growth in its vast foreign reserves has slowed markedly. The yuan is depreciating, not rising. Capital is leaving the country, through approved overseas investments or through the Macau casino route. A survey by the Hurun wealth report and Bain & Co consultants found more than half China’s millionaires were applying to emigrate or considering it.

This suggests more than just a broadening of perspectives as the world opens up to Chinese businessmen, but a pessimism about China’s long-term prospects and worries about insecure ownership of assets and being caught up in political campaigns against ill-gotten wealth. Victor Shih, a China specialist at America’s Northwestern University, has pointed out that so concentrated is wealth, a relatively small number of Chinese deciding to get their money out could trigger a system-shaking capital flight.

Even with a lesser capital outflow, the process that has long been pumping liquidity into China’s domestic economy and holding down the exchange rate – the ”sterilising” of fast-growing foreign currency reserves by printing yuan to buy the dollars earned by exporters – will be turned off, subduing economic activity just when stimulus is needed.

The new leadership could find the ”Beijing Consensus” – acceptance of the party’s controls and mythology, in return for rising prosperity and lifestyle choice – a lot harder to maintain through its decade in power.

Original article