Empowering China’s new miracle workers

As the Chinese Communist Party’s 19th National Congress has unfolded,much of the focus has been on who will occupy the key positions inPresident Xi Jinping’s administration for the next five years. ButChina’s future trajectory depends crucially on another group of leaders,who have received far less attention: the technocrats who will carryout the specific tasks associated with China’s economic reform andtransformation.Over the last four decades, China’s technocrats have collectivelyengineered a miraculous transformation. The current generation, a giftedgroup of policymakers, will step down in or around March 2018, passingthe baton to a new generation. That generation – highly educated,experienced, and, for the most part, successful on their own merits – isprepared to carry China’s economic and social progress forward withgreat skill and dedication. The question is whether they will have anopen field on which to run.One thing is certain: the next generation of technocrats will face verydifferent conditions from those confronted by their predecessors. Chinahas reached a moment of significant uncertainty. Beyond the questionsinherent in the process of generational turnover, there has been adramatic shift in China’s dominant policy framework under Xi.Under Deng Xiaoping – the leader who initiated China’s radical “reformand opening up” in 1978 – the singular policy goal was domestic economictransformation and growth, to be achieved with a collaborativedecision-making model that included vigorous internal debate. Dengexplicitly ruled out a broader international agenda for China – adictate that China’s policymakers followed for more than three decades.Since taking power in 2012, Xi has changed this policy framework inseveral key ways. For starters, he tackled the endemic corruption thathad been undermining the credibility of the CCP (and, by extension,China’s governance model), by launching an unprecedented anti-graftcampaign that reached the highest levels of the Party’s leadership.Many expected Xi’s anti-corruption campaign to be a temporaryinitiative, intended to pave the way for implementation of theaggressive economic reforms announced at the Third Plenary Session ofthe 18th Central Committee in 2013. Instead, the campaign has becomeessentially a permanent feature of Xi’s administration.Xi believes that a government’s legitimacy is mainly a function ofconsistently delivered values, together with economic and socialprogress, with strict commitment to the public interest takingprecedence over the form of governance. While few Western observers havefully recognised this perspective, developments in the West over thelast ten years – the 2008 financial crisis, widening income and wealthinequality, and intensifying political polarisation – have reinforcedthis mindset.As a result, Chinese leaders and citizens are more convinced than everthat government by a strong single party is an essential pillar ofstability and growth. The focus in the West on the form of governance,as opposed to inclusive economic and social outcomes, is misguided, theybelieve, because both democratic and autocratic systems can becorrupted.Moreover, China’s economic agenda under Xi has expanded beyond itsnarrow focus on domestic growth and development to include a concertedeffort to expand Chinese influence in the global economy, especially inthe developing world. This broad and expanding external agenda generatesclaims on resources – you can’t be the dominant external investor inAfrica and Central Asia without spending a lot of money – whileinfluencing policy choices. For example, state-owned enterprises,including banks, may respond more flexibly than purely privateenterprises to a variable mix of public and private incentives andinvestment returns.Finally, in recent years, China’s policy frameworks have increasinglyreflected the inherent tension between the long-standing imperative ofensuring social and political stability and the more modern objective ofmarket liberalisation. China’s leadership remains steadfastly committedto protecting the Party’s interests, which it views as coterminous withthose of society. For that reason, the CCP continues to focus onupholding order and instilling values in all aspects of Chinese life,maintaining an active presence not only in policy debates, but also inprivate-sector activities and social affairs.At the same time, the government is seeking to give markets a moredecisive role in the economy, unleash the power of entrepreneurship andinnovation, and respond more effectively to the needs and desires of ayoung, educated, and fast-growing middle class. And for good reason:these are the internal engines that have enabled China to achieve 6-7%annual GDP growth amid a difficult structural shift and middle-incometransition, carried out in a relatively weak global economy.It is hard to say for sure whether these two objectives are in directconflict with each other. But there is reason for concern. The kind ofdynamic competition that leads to innovation is, after all, far from acentrally guided process, though public-sector choices in areas likebasic research do have a substantial impact.Moreover, in both policymaking and academia, active debate isindispensable to sorting good ideas from bad ones. Yet while the Chinesesystem has proved its capacity for high-level internal policy debateamong highly trained and experienced participants whose loyalty is notin question, and then act quickly and decisively, China’s leaders remainsuspicious of unfettered public debate and commentary. But many complexpolicy choices – for example, about financial-sector reform and openingup – would benefit from the winnowing process that greater opennessaffords.Over the next five years, China’s success will depend largely on howwell the government’s complex agenda, and the tensions it entails, aremanaged. To achieve their objectives, China’s leaders will need tostrike a delicate balance between a muscular, disciplined, andubiquitous Party, setting standards and protecting the public interest,and innovative, empowered, and potent markets, driving the economy intothe future. – Project Syndicate* Michael Spence, a Nobel laureate in economics, is Professor ofEconomics at New York University’s Stern School of Business and SeniorFellow at the Hoover Institution.