Any change at the top of the ladder in Beijing could mean huge shifts in policy for the second-largest economy on Earth, so it bears watching, writes MoneyShow editor-at-large Howard R. Gold.
What may be the most important event of the year for investors will not come from the Federal Reserve or the European Central Bank. It won’t even be the US presidential election.
It will occur at the 18th National Congress of the Chinese Communist Party this fall, when nine people step onto the platform at the Great Hall of the People in Beijing. These nine will comprise the Standing Committee of the Politburo, the most powerful political body in China, and they will rule the world’s second largest economy for the next decade.
Xi Jinping will almost certainly emerge first as the anointed successor to President Hu Jintao. Premier designate Li Keqiang will likely be second.
But the other slots will be the subject of intense interest, as the much-prized orderly transition of power has been torn asunder by China’s nastiest purge since the Tiananmen Square massacre 23 years ago.
The power struggle has made the front pages of The Wall Street Journal, The New York Times, and the Financial Times. It has lit up microblogging sites in China and mesmerized overseas Chinese for weeks.
At stake is how much China is ready to reform, both economically and politically. That will affect us all as China’s growth engine has powered the world in recent years.
It’s also the stuff of a John le Carré or Robert Ludlum novel, involving a powerful family, the mysterious death of a British businessman, and a renegade police chief who knew literally where all the bodies were buried.
So, settle into your favorite easy chair, break out the popcorn, and read on.
The antihero is Bo Xilai (pronounced Bo Zhee-lie), a charismatic party boss, and his successful attorney wife, Gu Kailai. For the key characters, consult this handy guide from the BBC.
Bo, 62, is a “princeling,” a son of the revolutionary generation that rose to power alongside Mao Zedong. His father, Bo Yibo, participated in the Long March with the Chairman, but was imprisoned during the Cultural Revolution. Later, Bo senior helped Deng Xiaoping carry out the reforms that transformed China.
In 2007, Bo Xilai took over as party head in Chongqing (Chong-ching), a rapidly growing metropolis in southwestern China. There he launched a ruthless campaign against “organized crime” (which happened to include ordinary businessmen and Bo’s political opponents) and wooed the city’s poor with “chicken-in-every-hotpot” populism. He also encouraged citizens to sing songs from the Cultural Revolution and recite slogans from Mao’s silly Little Red Book.
Bo sought to parlay his “success” in Chongqing to a seat on the elite Standing Committee. But his flamboyance and nostalgia for the red old days ruffled many a feather in Beijing.
One day in February, Bo’s police chief, Wang Lijun, walked into the US consulate in Chengdu, 200 miles from Chongqing, and requested political asylum. He stayed there for a day, providing ample documentation about the party’s internal struggles and the brutal tactics Bo used in his anti-crime campaign.
He also told of the death of a British businessman, Neil Heywood, in a Chongqing hotel room last November, and shockingly accused Bo’s wife of poisoning him. Heywood’s body was cremated shortly after he died.
It was heady stuff for mid-level officials at a backwater US consulate, especially since the building was surrounded by Chinese troops. Wang was denied US asylum, and is now reportedly in detention in Beijing.
Soon afterwards, Bo was stripped of his party posts and detained. His wife is being investigated on “suspicion of homicide.”
|pagebreak|Heywood, 41, had reportedly helped Bo’s party-animal son get into Harrow and Oxford. He was one of the many expat “fixers” who introduce foreign businesses to key officials in China.
There were reports he and Bo’s wife had had an extramarital affair. There also are rumors Heywood helped Bo and Gu get a lot of money out of China into overseas bank accounts.
So, Bo’s career is over, Heywood is dead, and the British government is demanding explanations. But what else does this mean?
A lot, it turns out.
I contacted old China hand Jonathan Fenby, former editor of the South China Morning Post. He’s a managing director of the China team at research firm Trusted Sources and wrote an indispensable history, Modern China. He’s also published a new book, Tiger Head, Snake Tails, which lucidly and comprehensively lays out the challenges facing this rising superpower.
In a phone interview and follow-up e-mail, Fenby said Bo’s downfall is part of an epic power struggle between two factions: the aristocratic princelings, like Bo and new president Xi Jinping, and those who came out of the Communist Party Youth League.
The latter include the presumptive new premier, Li Keqiang, and the party boss of Guangdong province, Wang Yang. They tend to be reformers, backing improvements in public housing and health care.
Wang Yang is a key figure, said Fenby. He’s also backed by the godfather of reformers, outgoing premier Wen Jiabao.
Wang, “who was set against Bo as one of the ‘two big cannons’ among figures aiming for elevation to the Standing Committee…later this year emerges relatively strengthened from his rival’s fall,” Fenby wrote in an e-mail.
Wang has pushed for more modernization of the already prosperous economy of Guangdong, which includes Shenzhen and Guangzhou. Late last year, when villagers in Wukan protested corruption and threw out party officials, the Guangdong party didn’t level the town, but actually authorized a local election with secret ballots—a huge step.
Wang’s mentor Wen openly criticized the party and government of Chongqing and warned against the recurrence of “such a historical tragedy as the Cultural Revolution,” blatant swipes at Bo only hours before the princeling’s downfall.
But Wen has bigger fish to fry, calling for “political structural reform.” So, as of now, Bo’s purge looks like a victory for the reformers.
Cheng Li of the Brookings Institution called the incident “a serious challenge to the whole party” and told the FT “we may see really bold constitutional and political reforms as the party tries to repair its image.”
Fenby expects change, too, but more incrementally. He thinks the last 30 years of economic reform “may turn out to have been the easy part.” He’s looking for slower growth—below the magic 8% a year—and a move from a focus on infrastructure and real estate to investment in machinery “as factories pursue productivity to offset wage rises.”
“But never underestimate the power of the status quo,” he e-mailed me. In his new book, he emphasized the continuity of Chinese political culture over thousands of years.
“For all the disruption over the centuries, the leadership—whether Imperial, Nationalist, or Communist—has been loath to embrace reform of the ruling system, and successive regimes have borne considerable similarities stretching back to the First Emperor,” he wrote.
“Power preservation, often in crude forms, has been the watchword…On the rare occasions when reform raised its head, reaction soon set in.”
So, let’s hope this purge and power struggle result in real reform, which would be good for everybody. But let’s not get our hopes too high. In China, the more things change, the more they stay the same.
Howard R. Gold is editor at large for MoneyShow.com and a columnist for MarketWatch. You can follow him on Twitter @howardrgold and read his political commentary at www.independentagenda.com.
