The People’s Republic Turns 60: A New Era for China?

The celebration of Communist China’s 60th anniversary, which marks a full cycle in the Chinese calendar, will highlight the country’s rising economic and geopolitical status. China’s modernizing army will parade the nation’s growing geopolitical clout before the world, and the sheer scale of the spectacle (imagine a militarized version of the Olympic opening ceremony) will leave little doubt about its economic recovery.  But while the world will be watching, the show is really for a domestic audience.

Vice President Xi Jinping, tapped by the Chinese Communist Party (CCP) to replace President Hu Jintao after the 18th Party Congress scheduled for late 2012, is charged with organizing the anniversary celebrations.  Xi was not Hu’s first choice within the “fifth generation” of leaders to succeed him. Rather, Xi emerged as the compromise candidate in 2007 because he was acceptable to all three main factions within the Chinese Communist Party:  the “prince-lings” with strong family connections within the party, the populists tied to the Chinese Communist Youth League, and the weakened but still powerful “Shanghai Gang,” a group which owes its status to the retired former President Jiang Zemin.

While the deliberations of China’s senior leadership remains opaque, evidence suggests Xi’s position within the party may still be weak. Significantly, the party’s Central Committee plenary session earlier this month failed to elevate Xi onto the Central Military Commission, a position which previously has gone hand-in-hand with a rise to China’s top leadership position. His elevation had been widely expected, and whether it was Hu or military leaders that vetoed the promotion, Xi apparently needs to shore up his base.  Xi’s handling of the anniversary parade should help to build his reputation within the party, but also with the Chinese population as a whole, which is beginning to gain more influence over party policies in some areas.

During its 60 years in power the Chinese Communist Party has evolved from a cult of personality built around Mao Zedong to more of a less ideological meritocracy in which various factions compete.  Ideas are expected to be passed up to the top leaders, but orders are expected to be followed all the way back down, and challenging the party’s monopoly on political power still lands many in jail.  The more open competition, however, has helped to expand the size and diversity of the party (if winning a debate within the party proved impossible, the losing faction would try to expand the party to bring in new members).  Currently China is run by engineers, but social scientists and lawyers are expected to gain power after 2012.

The growth of the CCP accelerated after the fallout from the Tiananmen Square massacre and now is estimated to have about 75 million members. Post-Tiananmen, the party’s base shifted: Whereas peasants previously dominated the party, now elites and technocrats are in charge and they are more responsive to the emerging middle class.  With the middle class now benefiting the most from CCP rule (or at least with the most to lose from its demise), the prospect of a true democratic opening in Beijing looks even less likely.  (See Joshua Kurlantzick’s take on Thailand’s slip from democracy for an example of a similar dynamic.)  Still, even if the anniversary celebrations don’t auger a move toward democracy, they do highlight China’s transition toward greater political transparency in some aspects, with small but important steps taken to curb political corruption.

For foreign observers, the main highlight of the parade will be missile technology, on which the U.S. is keeping a close eye.  Earlier this year, the world saw China’s naval power at its 60th anniversary celebration and was clearly impressed.  India, which shares a disputed border with China, has set out to counter what it perceives as a Chinese strategy to build up naval bases in the Indian Ocean.  Australia’s latest defense white paper called for the country to pull back from its activist regional policies in order to better focus on a rising China.  Vietnam, which fought a brief war with China in 1979, ordered six new submarines from Russia after the Chinese naval review. 

The parade will also show off China’s economic might.  Where else but Beijing would a celebration of this scale be possible when the world is still digging out from the financial crisis?  But just as the parade marks the end of one cycle in China’s lunar calendar, might this also be end of an economic era?

China grew its economy by exporting to the U.S., Europe and Japan, but consumption may never recover to its previous growth rates in these countries.  Chinese officials have taken steps to encourage domestic demand, with healthcare and pension reforms for example, but so far in 2009 domestic investment accounted for about 75% of economic growth.  It may take a long time, and come with the cost of lower growth rates, but China clearly needs to do more to encourage domestic consumption.

The Chinese renminbi might also be at another cross road of sorts.  This year, China has pushed forward with steps to internationalize the renminbi, including RMB-denominated sovereign bond sales starting this week in Hong Kong.  But if the renminbi is truly going to be internationalized, and perhaps one day make up some of the world’s reserves, it will need to be convertible.  This means letting the RMB float, a prospect that looks politically impossible right now because of weak exports.  Beyond that, the lack of currency hedging tools would probably discourage its use in trade settlement if its value was not credibly pegged to the U.S. dollar for now.  How it gets there might not be clear yet, but expect to see an internationalized renminbi in the future. 

China may be at the dawn of a new era politically, economically and geopolitically, but for now China’s leaders are focused on the party.  Beijing’s pigeons are stowed away, the streets are cleared, the army is fed and the school children are drilled, and even Tibet won’t be able to disrupt the celebration.  After the parade clears, China’s leaders will have to d
ecide what to make of the new cycle.