Are the governance challenges facing China’s new leadership really that different from other countries?
for Project Firefly, February 10, 2013 (not published). Submitted under the ‘Emerging Leaders’ essay competition.
Setting the stage
Just like any other newly minted administration, China’s new leadership faces a host of governance challenges. Given its population of 1.4 billion, growing worldwide interconnectedness with the information age, and a gradually rationalizing people, China no doubt has to grapple with a unique, complicated set of challenges in governance.
As compared to other countries, the impending examination on China’s government shows a few distinct characteristics:
- China faces its challenges at a time of worldwide uncertainty. And that uncertainty does not revolve only around economy, but increasingly, geopolitics and information technology as well. Other developed nations didn’t have to face such a world order in the last century.
- Almost all possible forms of challenges are coming towards China now – business competitiveness, economic growth, social media issues, information protection, eldercare, strife within the CCP, et cetera. Probably no nation had to grapple with that many hurdles simultaneously.
- With such a large population, it is inevitable that policy formulation will be more convoluted than countries with relatively small numbers. One cannot simply parallel the decision frameworks of China and, say, Japan, not just because of varying socio-political and economic landscapes, but due to the intricacies of managing the far more citizens at once.
It is indeed evident that China’s new leadership may just not be minted in the best of times. The world waits to see how they can take up this extraordinary set of policy and governance challenges.
One major facet of the myriad challenges facing Xi Jinping and his administration is the economic legacy their predecessors left behind. Hu Jintao’s leadership focused largely on manufacturing- export based industries and strong financial regulation, which brought about, since 2001 the following to the economy: 
- A rapid economic growth not dipping below 8% every year. China’s GDP expanded from $1.3 trillion in 2001 to $5.9 trillion ten years later.
- Increasingly higher inflation rates beyond 6% since 2007, except for a negative year due to the worldwide crisis. Inflation was previously relatively healthy, though.
- Across a decade, a six-fold increment in net foreign direct investment (FDI) inflows from $44 billion to $243 billion.
- Trade reliance hovers around 50% of GDP, peaking at 64% 2006. For many other economies, a huge consumer base usually doesn’t entail such trade slant.
- Not just an economic issue, but a social one as well – the widening income gap forming a rich/poor and even rural/urban divide across the country.
These results act collectively as a two-edged sword. Xi’s leadership will have the fortune of riding on their predecessor’s successes, yet must resolve the underlying issues from these outcomes. Seldom has another First World country experienced all these economic phenomena acting in tandem, nor has the previous leaderships of China faced such situations in an increasingly panicky, every-nation-for-itself world.
In a time when faced with that many tests and a pessimistic world outlook, China’s policy options must be aimed at a few key thrusts – regulating economic growth, stabilizing the pivot on FDI and trade, narrowing the income gap, and interacting effectively with the worldwide community. This would inevitably involve some of the following:
- The forced and direct monetary cooling of the overheating economy. Policies must revolve around areas like interest and exchange rates control, fiscal spending, financial in attempts to slow growth and prevent runaway inflation. 
- The engagement of the middle class, beyond tapping on their consuming power, is imperative. This dynamic class of skilled labour is essential to the professional, management, and executive (PME) workforce to create productivity, which the economy urgently needs.
- China’s explosive growth period is probably over. Productivity is central to sustaining true and longer term economic growth without feeling the backlashes such as hyperinflation and income inequality. Education reform is also a must.
These policy options and their relevant challenges seem rather generic in nature, and that any other country may use it. Indeed, this is a stage that Korea has just gone through, Mexico is going through, and India is going to go through soon. However, to face it with complex situations at home and abroad makes it special. I content that the trickiest areas would be closing the socioeconomic gap and managing peers on the diplomatic ground.
In addition, the new government needs to manage Sino-American debt, trade, and politics effectively, another impending challenge in time to come. Besides US themselves, no other country has came to worldwide political and economic power like China’s rise.
In theory, the economy works two-way. Yet we can never have a hypothetically efficient market in actuality, and it is therefore vital to note these factors of consideration, given further the intricacies of managing a really vast economy.
The Chinese Communist Party, which has been in sole dominant power since 1949, has long been known, like many other communist parties, for their tight party discipline governing its members and officials. Yet, in recent years, there has been a rise in graft, corruption, and crime within the CCP. Some recent cases include:
- The arrest and expulsion of Bo Xilai, and wife, for the murder of Briton Neil Haywood in early 2012. Bo was the mayor and party chief of Chongqing, and a member of the Politburo Standing Committee, one of the highest offices in China. 
- Liu Zhijun, former Railway Minister, who was expelled from the CCP and political office for being found with illegitimate business relationships, causing inefficiency in the system; and the intent to bribe himself into the Central Committee of the CCP. 
- The laxity in building standards of schools and buildings in the affected disaster zone of the Sichuan Earthquake in May 2008 revealed that constructors and authorities kept a blind eye to safety and cut corners, in order to pocket the balance. 
The new leadership faces an uphill task in keeping graft within the party and government at bay. China ranks 80th out of 176th on the Corruptions Perception Index, which leaves the party with a lot of work to do.  Letting the uptrend continue would inevitably stumble development and seamless governance.
Unlike many other countries in Asia and sub-Saharan Africa, China’s proliferation in corruption comes at a time when its officials are raring for more and its people are getting more well-informed, simultaneously. There can no longer be cover-ups for most scandals, and that poses an immense challenge for the new leadership of the party.
Xi’s administration also operates in a tense regional environment with numerous multilateral territorial disputes, such as over the Senkaku Islands that escalated in mid-2012. Many of these conflicts involved the military. 
China’s military pivot – including the burgeoning military spending (which hit $106 billion in 2012) and the acquisition of an aircraft carrier in late 2012, has become a cause of concern for Western powers operating in the Far East.  The new leadership must exercise sharp foreign policy and take on leading roles in regional and international military issues. That might pose some difficulty for a usually laid-back diplomatic team.
Society vs. media
The usage of the Internet is allowing the people more space, freedom, knowledge, and information, yet it is taking away the undeserved state privacy from the CCP. New media in China is gradually claiming importance, and its people are eager to embrace the information age.
China’s Internet revolution involves extensive blogging and discussions on topics such as national issues, world and regional events, international disputes, political scandals, and party officials’ personal lives. Sina Weibo, the most popular and celebrated microblogging wbsite, has 368 million registered users.  That slant shows just how articulate the Chinese have become since they are equipped with the World Wide Web. Being oppressed for sixty years or so, it is finally time for some freedom of speech, albeit virtually and not fully liberal.
We all know that China censors Facebook and Twitter, and provide their own versions in place. They also regulate and repress certain local websites and content, spotting any trace of anti-CCP sentiment. While this totalitarian method is being frowned upon, we do have to appreciate that the Internet can bring good in the form of healthy interactions, and bring bad through the possibility of organized crime (including political crime which further destabilizes its political position).
China is rather unique in this aspect – they can never compromise political stability, unlike most democratic nations around the world which are mostly running a free-Internet policy. This just explains the challenge that all CCP leaderships face in keeping themselves in power, and hence the country secure.
A strong administration and sound policies are always key to good governance, and any relevant challenges can always be overcome. Should we content that China’s aims with the new leadership are a sustainable economy, political stability, social inclusivity, and becoming a responsible world player, a competent leadership is required.
China’s governance challenges, however, comes under varying situations compared to their counterparts, and that calls for even stronger and tighter policymaking processes.
References and Notes
 Chinese economic data extracted from World Bank online database: http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true&ispopular=country&pid=1
 China has used extensive expansionary monetary policy to create proper business conditions, largely through controlling interest and exchange rates, and money supply expansion, also known plainly as ‘money printing’.
 The first outbreak of the news of the Bo Xilai case on The Guardian (online version), “China ousts Bo Xilai as Chongqing party boss”, March 15, 2012. http://www.guardian.co.uk/world/2012/mar/15/china-ousts-bo-xilai-chongqing
 Liu was removed from office in 2011 and subsequently expelled from the CCP the following year. “China ex-rail minister expelled from party amid corruption claims”, The Guardian (online), May 28, 2012 http://www.guardian.co.uk/world/2012/may/28/china-rail-transport
 “China Angers Over ‘Shoddy Schools’”, BBC News (online), May 15, 2008. http://news.bbc.co.uk/2/hi/asia-pacific/7400524.stm
 Transparency International’s Corruptions Perceptions Index (CPI).
 “China sends patrol ships to islands at center of dispute with Japan”, CNN (online), September 11, 2012. http://edition.cnn.com/2012/09/11/world/asia/china-japan-islands-dispute
 “China Raising 2012 Defense Spending to Cope With Unfriendly ‘Neighborhood’”, Bloomberg News (online), March 5, 2012. http://www.bloomberg.com/news/2012-03-04/china-says-defense-spending-will-increase-11-2-to-106-4-billion-in-2012.html
 “China navy takes delivery of first aircraft carrier”, AFP News (hosted on Google), September 23, 2012. http://www.google.com/hostednews/afp/article/ALeqM5gSrxMrCkrSKB3TmfZLaxRtk7OMhQ?docId=CNG.120f8ada7f83c4fd3321ff305b92c6ba.331
 ‘Weibo’ literally means micro-blog. Sina is not the largest and only microblog hosting website in China, but it has gained much ground that it has come to be known as ‘China’s Twitter’. Article: “China’s forgotten third Twitter clone hits 260 million users”, Millward, S., TechInAsia, October 22, 2012. http://www.techinasia.com/netease-weibo-260-million-users-numbers/
A friend, Arif, and I had a short conversation over Facebook two days back, about the fiscal cliff. Here’s the dialogue:
A: The deadline to the fiscal cliff has been postponed to the end of February and around the same period, slightly earlier, the discussion on the debt limit will be brought surfaced.
The fiscal cliff will result in an increase in tax cuts, increase in taxes basically, and also a reduction in government spending. Given that the US economy is still in a recession, with unemployment rate at around 8%,
1. What would be the impact of this issue if the automatic cuts and reductions happen and if the US is limited to borrowing more money?
2. How likely will the government allow the fiscal cliff scenario to be played out? Would they just extend the duration of the impending deadline and raise the debt limit to avoid the pain?
K: Background information: The US government dived into Keynesian-based stimulation by direct injections throughout the past decade. Throughout the course of it, they dried up reserves and accumulated debts used to service state welfare that would be otherwise funded by these rescue funds.
The fiscal cliff occurs when these policies, and Bush’s tax cuts of 2001 and 03, aimed at boosting an otherwise faltering economy, expire. The huge debt and fiscal deficit will be cut with the reverting of tax rates to normal if nothing is done.
1. An economy in crisis would inevitably benefit from fiscal injections, or the G function, from time to time. That’s partially, I suppose, what the US government aimed to do when it refused to solve the gridlock in healthcare (garnering huge criticisms).
Yet the government cannot forever provide and provide. The economy must find resilience within itself and build on the fiscal funds to improve its own productivity and efficiency.
Obviously, GDP will fall as G fall (in AD/AS analysis). In order for growth to stay constant and jobs to be effectively created, the economy cannot sit there and wait for a silver spoon. It has to get working.
The answer apparently is that given the shape US industries are in now, a recline is unavoidable should injections stop. They have reverted into a dependent state, thanks to poor regulation.
2. Debt is always a sooner-or-later thing. The pain will not be felt on the reserves, but on the economy. The impetus here is that they have to regulate the pain that will send chills and slowdowns throughout the whole economy.
That goes philosophical. How much pain, at what time, and how frequent, can the government ethically allow the economy to feel? What does the government’s caretaker role of the economy exactly encompass – does it include consciously allowing slowdowns to happen?
Industries that ride on fiscal debt (i.e. the govt bonds resale industry) are the only ones bound to benefit from a better debt rating of the US government. The rest, with lesser injections and higher taxes (though Obama promised minimal, doubt that will happen if Medicare is to sustain), are bound to feel the shock.
A: The outlook doesn’t look that good then. Since the repayment inevitable. But, history background, the US has been in debt for more than 30 years and they never paid it in full ever since. Why cant they just let the debt continue?
Also, what are the likelihood that the US will allow some of the policies to be passed. Like you said, they have to balance the effect of the “pain” thus are you saying that they wont let the fall be a “sharp one?” What I mean is that will they be more likely to dampen things and not cause a drastic shock to the economy?
K: You’re tempting me to go philosophical again friend. For instance, it’s tempting to owe me incremental amounts of money for as long as you want at this age, but when you have dependents (i.e. spouse and children), you realise that you cannot carry on such habits. You have to repay. Your wife must spend less. Your kids must play less. They feel the pinch.
I’m not exactly sure why the US government doesn’t want to continue accumulating debt. The only reason I could probably smoke out is that they have come to realisation about the imbalances they are causing around the world due to their debt. To stay in power (or rather regain power) as the de facto world leader, they have to appear to do something beneficial to the larger world economic ecosystem.
The dampening like you mentioned is only an ideal. In actual fact, the impending general downward pattern would not be as beautiful as we work them out in frameworks. There are myriad microeconomic factors in play too, that affect to a large extent the entire economy’s behaviour and outcome. Regulation, especially for international financial institutions (IFIs), is paramount, I believe.
While I am an advocate for Keynesian-backed stimuli, which includes the availability of credit and ease of investment, and a big-government kind of political economy, here are some unconventional and rhetorical ideas for building a stronger economy. Not to be taken seriously.
1. Bank lottery
In a bid to raise propensities to save and hence allow for more credit available to consumers and investors alike, banks must think of ways to entice account holders to save more. One crazy method would be to put up a lucky draw in which the winner gets his balance multiplied by 50 times, the runner-up 40 times, a few others 10, 20 or 30 times, and so on – something along those lines. That would inevitably evoke the gambler inside each account holder – we are all implicitly lottery-crazy – to save even more in banks, causing fluid credit to be more available for luxury goods loans and fixed capital formation.
We of course recognise that this method would simultaneously drive down consumption on the open market, and that it could only be used when consumer confidence is low. If the outlook for buying from stores and shelves doesn’t look good, the banks ought to play their part in not just being the lending, but stimulating, institution of economy. This crazy, but only idealistic, method would entail a direct translation of confidence, and actual capital, from consumers to investors.
2. Keynes’ money-digging industry
What we have came to known as Keynesian-style stimuli means fundamentally the government injecting money into the economy to spur its growth. The fiscal sector plays a very, very proactive role in Keynes’ ideal. He once suggested that if the government can’t think of anything more creative than building roads and schools, they could print banknotes and stuff them into bottles before burying them in the ground. [see note] That would create an industry of money-digging – it is a second order stimulus as it creates investment above the direct injections these bottles of cash provide.
Ethical, moral, and psychological concerns of such a possibility aside, withdrawals are of slightly larger concern. Keynesian based policy actions pride themselves on fiscal leadership, direct or indirect, and this leadership must be effective. This whole package must have a multiplier effect of more than 1, an indicator which has become the darling of modern-day Keynesian economists. That means such an action must ensure that for every $1 from the reserve, the economy grows by more than $1. Let’s not point to any specific economy, for it simply inevitably varies.
3. Single-firm economies
In light of multiple countermeasures against under- and over-utilisation, externalities, and market failure, a government might want to state-own a for-profit single monopolist firm to do basically everything and anything for each or a few industries. Monopolies are known to be exploiting, and that would force the market to equilibrium (that is assuming reverse mechanism takes place) for income equality. Monopolies, on the other hand, are quantitatively able of maximising welfare by a simple plotting of the cost-revenue curves.
This somewhat resembles the East India companies of the 18th and 19th centuries established by European colonists in the Far East, mainly in territories in South India, the Indochina Peninsula, and the Malayan Archipelago. These companies controlled exports and imports in a time when entrepot trade was thriving, and sometimes distribute spices, clothing, rice (non-exhaustive) in the colonies they operate in. Yes, people were generally poor, but that was because of the social fabric of a colony. Anyway, that was just a crazy idea.
Note: John Maynard Keynes wrote in the 1936 book The General Theory of Employment, Interest, and Money (book III, page 129) about this hypothetical idea.
Looking back in retrospect, 2012 has been a rather eventful year for world economics and politics. There are lots of policy lessons to take away from those incidents and occurrences, surely. Here’s a summary of them, and a look forward as well. Note: I might have missed out some, though. Do remind me if I do.
1. Grexit and the Eurozone crisis
There is apparently still no clear and decisive resolution reached, despite some forced austerity measures on Greece. The economy, however, requires a large deal of confidence, and that has to come from within Europe and individual societies themselves. It has been a turbulent year for Europe, and a year in which they suffered unnecessary consequences. Should there be no clear action taken, this crisis will likely grow even bigger out of central banks (it already has), and continue to plague the continent.
2. Senkaku disputes
Seldom can there be straightforward, one-off solutions to international disputes like this. If it was economic, there can be some give-and-take due to the ease of quantification but political disputes are often all-or-nothing. We must ensure tensions do not rise, and the United States and other countries in the region must stay objective to prevent an outbreak, and if it is inevitable between Asia’s two most powerful militaries, be vigilant and prepare for it.
3. Arab Spring aggravation
Rationalisation is good. But nothing can be good when it turns violent and lives are at stake or taken. Inept governments must be overthrown the correct way, and foreign powers, more advanced in not just firepower but lawmaking as well, should impart knowledge in the latter aspect rather than assist proponents in the former. Internal strife is often uncalled for, and can be averted with sound opposition, and if that fails, proper foreign assistance before resorting to arms.
4. The Fiscal Cliff
As I am writing this, all fears of the past year are finally calmed as the House of Representatives have decided to avoid the fiscal cliff by passing a Bill that would save just $600 billion in 10 years (considering the United States’ $16 trillion of fiscal debt which is still burgeoning). That’s reducing that unsightly yet increasing figure by just about 0.4% a year. Yes, I’m not for austerity, but an unhealthy debt number needs to be solved quickly through a stronger debt reducing measure that similarly doesn’t compromise welfare the US has always prided itself upon.
5. Re-election of Barack Obama
In 2012, Obama has, as it seems, adequately did his job well despite failing in ambiguous campaign promises, which made way for his successful re-election. At least American economic growth rates and unemployment figures look healthy enough. In 2013, Obama, or America will face the same challenges, probably tougher, on technology, terrorism, economics, finance, regulation, foreign policy, and more importantly, an increasingly unhappy American people. Time waits to tell how we would muster a strong team of policymakers to execute sound and effective legislation for America and for the world.
6. Appointment of Xi Jinping
China’s 2012 has seen the economy still going relatively strong, but with the ever-widening income gap and appreciable failure to move away from manufacturing. Net-savvy Chinese citizens are also gradually taking to the forums and blogs on issues from poverty to the CCP or corruption to society. Acquiring its first aircraft carrier also signifies China’s changing role in international relations. Little hard fact is known about the new Chairman appointed late in the year at the People’s Congress, but whatever the case, the next 10 years will be testament to whether China can face up to internal and external challenges, which inevitably includes a larger portion of world leadership. On a side note, the Congress has also displayed some extent of power still wielded by former Chairman Jiang Zemin (1993-2002) – a sign of likely little Party influence available to Xi with two mentors before him.
7. The Israel Issue
With the exception of arms dealers, I suppose no one ever loves war. Even the rational human minds of gun sellers face ethical crises when a war ensues. Back to topic, some proclaim Israel’s war on Palestine as a hotheaded one, while others find some logical reason in it. Whatever the case, the war has gone to show two things: the volatility of Middle Eastern stability (if there is any to begin with), and Israel being a force to be reckoned with. Its Jewish majority encapsulated among Islamic states has actually gave rise to its strong military – very much like the situation in Singapore. Thankfully, Southeast Asia is peaceful.
8. North Korea’s rocket launch and ‘first lady’
Save the Westernised wife of Kim Jong-un, save whatever cultural impacts she might bring to North Korea. The fact still remains, regardless, that The Reclusive State will likely still be the hardest entity in the world to face, probably more challenging than foiling Taliban missions and keeping Iran’s similar programme at bay. The stubborn government of North Korea would likely continue with its rocket building and tests unfazed, keeping neighbours, stakeholders and world leaders in for another year of trepidation.
Title: The Coming Jobs War (ISBN: 9781595620552)
Author: Jim Clifton, Chairman, Gallup Organization
Publisher: Gallup Press, New York, 2011
Jim Clifton, being at the forefront of global opinion polls, has a rather wide range of perspectives to offer – many of those prove conventional wisdom wrong. In what is more like a management insight, the Gallup Chairman highlights that the one thing everyone on this planet needs and wants is a good job, and guides us through simple writing the paths to attain that aim for individuals and organisations alike.
Clifton’s main focus in this book is for America to , but I believe starts with a few chapters introducing the new world order, one in which America has created its own miracle and fallen back. The point it is trying to put forth is similar to that of Thomas Friedman’s and Michael Mandelbaum’s That Used to be US - that the United States no longer enjoys the global edge it used to, and urgently needs to reinvent itself, which is a fact, unfortunately, oblivious to its people and leaders.
Speaking of leaders, Clifton also touched on the importance of leaders digging in the right places and solving America’s inherent problems from the roots. He moved on to write about the various areas that needed urgent reform – education, health, development, culture, etc., and how they must start from communal and local levels.
He however debunked classical economics (which he defined as all types of economics less those which involved human behaviour) in favour of behavioural economics. No doubt he has a point there, and I do agree that getting to that is getting to the root of the problem, but there are indispensable contributions that economics, less behavioural, has made to society, which one should not simply overlook.
What Clifton has pointed out saliently applies not just to the United States, but I believe, can be used extensively in public policy in any other developed or newly industrialised country. There are, for instance, shocking similarities to Europe’s current debt problem, which wasn’t as bloated at the time of writing, to the US’s healthcare costs debacle. “Life is too short to make all the mistakes, so learn from those of others.”
Verdict: 6.0/10. Not a really useful book for those who’re more advanced and looking for technicalities, but however, is informative enough for all – with clear and simple language that offers fresh insights and sometimes demeans the intellectual but progressively guides the common folk. All in all, like the tagline, it encapsulates what not just national and local leaders, but everyone must know about the future of economics and society.