… there are several ways that China can evolve

… there are several ways that China can evolve. The future will undoubtedly merge and mix and match combinations of these scenarios, but they are likely to provide the main themes.

Consolidation First Term, Economic Reform Second Term, Political Reform Later

It has become customary, although not constitutionally required, that Chinese top leaders get two five-year terms. The scenario that many Chinese are hoping for is that Xi Jinping spends his first five-year term consolidating power and his second term using that power to ram through decisive economic reforms. While there is already extensive disappointment that reform has not moved faster, China is so large and complex that it can indeed take five years to consolidate power. (It takes 18 months for a US president to consolidate a new administration, and China is proportionately bigger and more complex.) The center of gravity of Chinese opinion is to give him great leeway to consolidate power and then decisively enact reform in the period 2018– 2022. If he were to follow this scenario, popular support for the anti-corruption campaign would carry him through his first term and then a critical mass of top elite support plus some popular support for economic reform would carry him through his second term. Then anxiety about the economy would pass and his successor would have to come up with a clear plan for managing the new era of political complexity.

A successfully reforming, confident China would have the domestic authority to clean up the environment, deleverage the country’s debt, and undertake the great tax/ fiscal reform that is required. Such a China would be a steadier negotiating partner on difficult international issues. Domestic politics would be less likely to force the leadership to act tough on key international issues because of domestic vulnerability, as with Hu Jintao, or because of desperate need for military support of reform, as in Xi Jinping’s first term. That does not mean it would back off easily from issues where it disagrees with the United States, but it would be a predictable force in international affairs with a strong interest in the overall stability of the international system. Note that this conclusion is the opposite of the widespread assumption, particularly in military circles and among political science advocates of inexorable conflict between rising powers and established powers, that a more successful China will be a more difficult China.

A reform success would enable China to become a global leader, in the mode of Japan and (post-Trump) probably well ahead of the United States, in addressing climate change and environmental problems. This is in China’s self-interest to do, because China itself is so much more vulnerable than the United States both to climate change and to further deterioration in the sea, the air, and the soil. Likewise a reform success would make the Belt and Road Initiative feasible and begin to curtail the economic woes that have made Central Asia, the Middle East, and North Africa the most unstable parts of the world. China would then be an acknowledged leader of globalization and a force for stability in what are currently the world’s most unstable areas.

Successful economic reform does not make subsequent political reform inevitable, but political issues will eventually have to be on the agenda. They will either get much better or much worse. As we have seen with Taiwan and South Korea, this kind of economic success creates the social prerequisites to make a more liberal society work – without in any way guaranteeing that a liberal option will be tried. Xi Jinping is sitting on the lid of a boiling kettle. If economic progress seems good in the face of severe problems, the boiling kettle will not explode in the short term. But if the political repression does not seem to be buying successful economic reform, then the mood will shift, possibly quite suddenly. Similarly, if, later, the debt crisis and the transition to a new model of growth seem to have been largely resolved, then pressures will grow to address the political structure. As noted above, the paradox of repressive reform is that either economic failure or economic success will eventually bring political modernization to the top of the agenda.

Again it is useful to emphasize that most leaders of the Chinese Communist Party acknowledge their political structure to be a developing story. Every reform administration has been drastically different from its predecessor. The Western public and commentariat generally do not understand this, except as technical details, because so many in the West see political structures in Manichean terms: good democracies and bad dictatorships, with communist dictatorships being the worst kind. But I write these words a day after attending a brilliant lecture by planners reporting to the State Council, who passed out a chart of developments between 2017 and 2050, with a goal of (undefined) democracy by 2050. The previous month a leading administrator from Peking University gave an impassioned lecture at Harvard about the need for democracy and the rule of law; the Party leaders know his views and he keeps his job. Future progress is in no way guaranteed, but neither is continued regression locked in.

As of 2017, the prospects for the positive scenario of successful consolidation of power, then successful economic reform followed by political reform later (under Xi or someone else) are both dimmer and more urgent than they seemed at the beginning of Xi Jinping’s tenure. The pushback against reform from most power elites is strong. The trend of increased political repression is even stronger.

Xi was allocated great powers in order to implement great reforms, but his personal political base was never strong. What the Party gives, the Party can take away. Xi Jinping has so far been far more effective at eliminating competitors than at implementing decisive reforms. Moreover, Prime Minister Li Keqiang has been severely weakened, first by Xi Jinping’s overriding decisions but also by the failure to move decisively on SOE reforms and the mishandling of stock market volatility. The administration has the full panoply of titles and positions and propaganda, but it is at risk if it does not deliver decisively in 2018– 2019 on reforms and growth.

Reform Failure/ Japan Scenario

Economic reform success is not assured. Resistance is widespread, and each quarter that passes enables resistance to become more and more organized behind the scenes. It is therefore conceivable for Xi Jinping to maintain power and stability throughout his first term, while propping up the economy with fiscal and monetary stimulus, but rather than consolidating reformist power he could prove unable to move his reform agenda forward decisively. This scenario delivers higher growth in the short run, but much lower growth in the longer term. This China would be slow-growing for the same reason that Japan grows slowly – reactionary interest groups controlling the political system and inhibiting competitive change in the economic structure. The shift to a consumer- and services-driven economy would slow, the great infrastructure-building programs would slow, and the resources available to the Belt and Road Initiative and the military would decline at the margin. In this scenario, unlike Japan, interest group power would inhibit or block critical environmental reforms.

In such a scenario China’s growth would not be as slow as Japan’s, but the slowing would come at a time when China remains much poorer than Japan and has just begun the immense task of funding its pension, medical insurance, unemployment, and other social programs. Thus the burden of caring for an aging population would weigh more heavily than it does in Japan. Because Chinese are so aware of conditions in the rest of the world, the expectations for improvement in standards of living would be much higher than in already-wealthy Japan. Political discontent at the decline of great hopes would not be as easily assuaged, so movements would emerge demanding a different economic and political model.

In this scenario, Chinese leaders would be more vulnerable to criticism for failure of the great international ambitions that have been announced in the early Xi Jinping years, and they would be under even more pressure to show their toughness. Since the beginning of the twentieth century, whenever they were discontented with their own leaders, Chinese students have expressed discontent by mounting demonstrations against Japan, because it is safer than demonstrating against their own leaders. A pattern of increasingly vigorous anti-Japanese and anti-American movements, muted during the 1994– 2014 period of university-based support for the leadership, would likely arise in this scenario. Chinese leaders fear these movements, and would react in part by acting toughly toward the United States and particularly Japan.

A scenario of economic reform failure combined with highly repressive politics of the kind that has emerged under Xi Jinping might well lead to earlier domestic political unrest. That in turn could lead to increasing use of the military to ensure domestic stability and to a much bigger role for the military in China’s governance. Military units could well start taking dangerous initiatives without clear mandates from civilian authority, or with support from particular Party factions, or with the acquiescence of intimidated Party leaders. This is one of two particularly dangerous scenarios for regional peace. As Susan Shirk has educated us in China: Fragile Superpower, 1 contrary to conventional wisdom, the dangers of a confrontational China come more from leadership weakness than from strength.

Leadership Fracture

If Xi Jinping imposes the high degree of repression that has already occurred, without being able to implement decisive economic reforms, sustain belief in a long-term rapid rise of living standards, and institutionalize the anti-corruption campaign, he will lose the support of the “masses,” which currently give him overwhelming popular support. If he frightens, and damages the economic interests of, every major interest group in China in the name of reform and anti-corruption, without actually making rapid progress on economic reform in the early years of his second term, the leadership could fracture, and that fracture would coincide with a shift in popular sentiment to what I called above the second dynamic, a dynamic focused on the family, on comfort, on freedom. If under these conditions he attempts to remain the top leader even after serving the conventional two terms, both popular and leadership support would likely dwindle.

China could then return to the kind of split it saw between conservative leaders like Li Peng and reformist leaders like Zhao Ziyang in the late 1980s. Under Jiang Zemin in the 1990s, the Party leader kept the peace between Zhu Rongji, who was undertaking stressful market reforms, and Li Peng, who remained more of a traditional bureaucratic socialist. Under Xi Jinping nobody is performing such a balancing faction. One force, Xi Jinping, is in charge, holding most of the key titles and taking all the initiatives, while others ponder their resentments and quietly organize resistance – very strong albeit not public resistance. In this situation, a credible allegation of failure could bring powerful antagonisms into the open. An early indicator will be the negotiations over who will be promoted to the Politburo Standing Committee for Xi’s second term, but the open split could come later, if the new team does not seem to be making rapid progress.

Signs of potential leadership fracture abound, in relatively mild protests at the annual National People’s Congress (NPC) meeting, in accounts of the intense hostility and fear that is endemic in Beijing, and even in high-level rumors about assassination attempts. In 2017 the political atmosphere in Beijing is extraordinarily tense. Investment outside the housing sector is collapsing. As previously noted, the rate of increase of private investment has collapsed. China’s wealthy and much of the middle class want their money and their children relocated outside of China. The strong popular support that the administration received as a result of its anti-corruption campaign could reverse very quickly if the economic reform seems permanently stalled, if spending to keep the economy growing fast creates a severe financial problem, or if the anti-corruption campaign comes to be seen as largely self-serving. Opposition to Xi is dispersed, fearful, and offset by widespread hopes that his implementation of policies will prove as impressive as his destruction of adversaries. But it is intense among groups that are well-organized, well-funded, articulate and respected. If Xi disappoints, opposition could suddenly coalesce.

An open leadership fracture would likely be particularly intense for several reasons. The groups whose interests have been hurt are exceptionally numerous and powerful. The individuals whose careers have been destroyed are exceptionally powerful and still have powerful backers. National security issues would quickly come to the forefront. One consequence of repressive domestic politics is that negative feelings toward Beijing’s leadership have broadened and consolidated in Taiwan and Hong Kong. For the foreseeable future peaceful rapprochement with Taiwan under a single flag has become impossible, meaning that there is no chance of unification short of war. Moreover, because of the way China has handled the maritime disputes, countries that once were sympathetic to China’s claims over Taiwan now are likely to see any kind of unification as a security threat to themselves. So the question “Who lost Taiwan?” will be at the forefront of domestic politics, and the question of whether to use force against Taiwan will emerge at the forefront of national security debates.

Such an open split would be dangerous for China and might well make foreign policy even more of a domestic political football than it has been. If internecine elite conflict persisted indefinitely, it could slow the economy even more than in the Japan scenario, and it could begin to erode the legitimacy of the Communist Party.

This scenario would be the worst for China and the worst for the rest of the world. Aside from the negative economic impact on the rest of the world, Chinese foreign and security policies would become unpredictable and foreign powers might get drawn into the domestic Chinese conflicts.

At the same time it could lead to the kind of deep reflections about China’s political response to its new social structure that parallel the brilliant economic plans developed in response to that same new social structure. That is what happened in South Korea in 1979 and afterward: a political and economic crisis led to President Park’s downfall and inaugurated a process – a very bumpy process that included years of dictatorship – toward a more responsive political system.

Gradual Democratization, Likely a Variant of the Japan Political Model

The new political complexity of China must eventually be faced. If there is an indefinitely long effort to sit on the boiling pot, trying to use force to repress the emergence of a new politics, then some combination of instability, leadership fracture, and military rule seems virtually inevitable. All Asian miracle economies have had to confront the political consequences of a more complex, more mobilized society by undertaking transformative evolution of their political system. The social changes are objectively enormous; they demand a response.

That response need not necessarily be detailed emulation of US- or EU-style democracy. China has shown that it can transcend many Western economic shibboleths on the way to economic success. Perhaps it can do so on the political side too. Anyway, the detailed institutions of Western representative government are increasingly stressed. In polls the US Congress barely attracts double-digit levels of support, and in 2016 US candidates for the presidency were without exception regarded with net public disdain. Citizens increasingly express their concerns in the street, not by writing to their Congressmen. Both in the United States and in Europe the representativeness of existing forms of representative democracy is widely questioned. Nobody has a good alternative, but Americans don’t think their Congressmen really represent them, British people reject the representativeness of Europoliticians and Eurocrats, and Scottish people doubt the representativeness of the UK parliament. In Europe as a whole, antipathy to the EU is becoming a majority view, and anti-elitist movements are disturbing individual countries. In the United States, of all the major national institutions, only the military is held in high regard. Anyone with a sense of history recognizes that as an ominous development in a democracy. Change is afoot; history has not ended. China’s challenges are an order of magnitude greater – hence far more threatening but also perhaps a greater inspiration to creativity.

Everywhere, including China, the ideal of “democracy” – outside the West a vague term signifying some degree of popular input and governance in the common good – remains preeminent. To Chinese, the idea of “democratization” at some very abstract level has always been a goal and remains attractive. But within China the case for Western-style democracy has weakened. The social and economic failings of poor-country democracies like the Philippines, Thailand, and India are much more vivid for Chinese than they are for Washington and Brussels. The great Western financial crisis of 2008 has weakened admiration for the Western model in general. The United Kingdom’s Brexit, the election of Trump in the United States, and the EU’s ongoing economic and populist crisis diminish respect for Western democracy. The catastrophic results of post-Soviet Russia’s effort at shock therapy democratization and marketization frighten many Chinese who might otherwise advocate Western-style democracy. Above all, US military efforts to encircle and contain China, along with the constant pillorying and subversion of China by two anti-China Congressional commissions, Radio Free Asia, the National Endowment for Democracy, and much else, and fear of Western-inspired color revolutions, mean that adoption of a Western political model would come across as a humiliating national defeat in the eyes of most Chinese. Ironically, few things support autocratic forces in China more than the constant pro-democracy propaganda and military pressure out of Washington.

Nonetheless, China’s dilemma remains. For China any solution must be some analogue of a market for aggregating interests in a way that does not require the leadership or the central bureaucracy to impose decisions on each of a myriad of issues. People want to feel that their voices are heard. Awareness of rights, as defined in Chinese law or in Western ideas, is pervasive in China. The society must come to terms with the contradiction between betting the economic future on globalization and trying to constrict the information link between the Chinese people and the rest of the globe.

The rest of the world has so far found only two reliable mechanisms for managing the complexity revolution. For areas where there is a high degree of stability in beliefs about what is right, and where high stability is needed for economic agreements to prosper, rule under law is the mechanism that provides automatic decision-making without the constant intervention of political leaders. For areas where society’s needs change and groups’ preferences change, some kind of representative democracy aggregates social demands through a process that leads to widely accepted outcomes without imposition by top leaders or violent strife.

For decades China’s leaders and thought leaders have been pondering the need for a more sophisticated way to handle political issues. This is the last phase of China’s century-long debate about how to adapt to the challenge of modernization that came from the West in the middle of the nineteenth century. In both China and Japan, that debate began with minimalism: acquire Western weapons while retaining traditional institutions and culture. The subsequent gambit was to acquire Western technology while retaining traditional Chinese institutions and culture. 2 All such limited strategies proved inadequate, so, over the course of more than a century China has adopted and adapted aspects of Western weaponry, civilian technology, government administrative systems, civilian management systems, constitution, monetary and fiscal management, law, finance, competition, innovation systems, university structures, educational curricula, intellectual property, most Western established norms of trade and international investment, and the principal establishment institutions (the WTO, IMF, and World Bank) – along with much else.

Western, particularly US, commentary about China has tended to take the successful adaptations for granted and to focus on relatively marginal continuing frictions. It is easy to forget how ridiculous it would have seemed only a generation ago for someone in Washington to have suggested that China would one day accept enforcement of WTO trade rulings. The extent to which the post-World War II system was able to accommodate China’s needs is an extraordinary tribute to the Western, largely US and UK, founders of that system. The extent to which China has been able to dovetail its own needs with that system is an extraordinary tribute to China’s post-1979 leadership.

In some cases China’s adoption has been partial (the idea of a constitution) or incomplete (the evolving legal system, protection of intellectual property) or a synthesis of traditional and Western (Confucian bureaucracy, Western bureaucracy, the Communist Party as an evolution of the dynastic Censorate). Some of the adaptations have been more efficient than their Western counterparts, most notably the overall economic development strategy, which emulated South Korea and Taiwan while rejecting core Western shibboleths. Some aspects have been uniquely Chinese, most notably the one country, two systems, one sector, two systems, and one company, two systems transition strategies. Overall, this process has so far led to a remarkable, and remarkably successful, synthesis. But there is as yet no political synthesis and nothing like a domestic political consensus. Moreover, the lack of a political synthesis is now interfering with economic reform, with the tension between political control and market efficiency in the ten areas I identified earlier and more.

There is always a debate going on inside China, at high levels, about political reform as well as economic reform. There was rapid political reform during the years 1980– 2002, and even under the stasis of the Hu Jintao era there have been efforts to refine the system of elections within the Party and to demand that officials expecting promotion display a “democratic” mentality. Currently most of the debate is repressed and invisible to outsiders, but it continues and cannot be stopped. 3 Xi Jinping has made it risky to express creative thoughts, and the United States’ confrontational posture has made advocating Western-style democracy unpatriotic. For the time being, that has put the Taiwan model, of starting elections at the bottom and gradually moving them up the political ladder, off the table; not so long ago it was very much on the table. Invigoration of the NPC has made significant progress, but it remains a part-time reviewer of legislation and auditor of government performance, not an institution that authoritatively aggregates all the conflicting interests of Chinese society. Elections within the Party have made a great deal of progress, now receding somewhat, but moving toward the Japanese model, where public elections modify the balance of factions within a dominant party, would require open factions within the Communist Party and a mechanism for the public to influence the balance of those factions.

The concept of democracy (as opposed to the specific institutions of Western democracy), which is currently embodied in village elections, accountability reviews and occasional outspokenness in the NPC, and a variety of elections inside the Party, remains legitimate and acceptable in all parts of Chinese society. Some influential political leaders find the Japanese dominant-party system highly attractive and are studying it carefully. Singapore remains the most admired model, but it is very hard to scale up, and Singapore is being forced by internal pressures to evolve in ways (more acceptance of opposition legislators and diverse opinions, less use of imported foreigners even if they have superior expertise) that Xi Jinping seemingly would find unacceptable. Either a crisis or a successful economic reform followed by the advent of a new administration in 2023 could lead to a revival of open advocacy of liberalizing political reform. If that seems ludicrous given the heightening authoritarianism under Xi, one must recall how decisively China has changed each time it has transitioned from one leadership to the next.

Which of these scenarios is more likely? The scenario of a relatively smooth consolidation in the first term and a relatively smooth implementation of economic reforms in Xi’s second term remains possible, but it will fade quickly if there seems to be no decisive progress immediately following the choice of a new Politburo Standing Committee in the autumn of 2017.

The other scenarios are not mutually exclusive. We may see them in some sequence. One way to have indicators of direction is to compare today’s China with the other Asian miracle economies as they hit the era of complexity revolution. Xi Jinping is definitely not following the pragmatic political adjustments of Jiang Jingguo’s Taiwan or the longer-delayed ones of contemporary Singapore. Like Park Chung Hee in the late 1970s, he is doubling down on the old approach of political repression.

Does this mean that China today is like South Korea in 1979? The simultaneous buildup of financial problems and political repression is certainly analogous. (China’s debt is local rather than foreign, and inflation is controlled, but even so the financial risks are rising.) China has a much more inspiring economic plan than Park did, and widespread support for Xi’s anti-corruption campaign, but a lot more resistance to implementing a new economic direction than South Korea’s government had. Elite questioning of the administration’s direction in China in 2017 is perhaps similar to South Korea in 1979, but popular Chinese enthusiasm for Xi’s anti-corruption campaign and reformist agenda had no counterpart in South Korea at the end of the Park era. Xi’s problem is that, if the anti-corruption campaign and the economic reforms seem to be failing to achieve their results, the popular support could reverse overnight. Already there are early signs of youth restlessness, shown most prominently in the rise of youth populism on the internet. The risks of a Japanese-style stalemate with the interest groups, or of an open split within the leadership, are serious and rising.

If either of those happens, the inclination of most of the leadership would be to leave Xi in place but take the papers off his desk. Although it is dangerous to rule out any scenario in a crisis, the institutionalized Chinese system is not inclined toward military coups, assassinations, or sudden public repudiation of a leader. China is not Thailand or Egypt. But passions are high, and Xi’s tough actions toward his opponents have raised the stakes in elite conflict.

Xi Jinping has chosen the most risky political strategy of any leader of a serious country today. If one looks for examples of leaders who have taken on every major interest group simultaneously, one comes up with a very short list: the Shah of Iran in the late 1970s, the Polish leadership at the beginning of 1980, a few others. To escape their fate, he very much needs that economic plan to begin to show fruit visibly and soon. He needs to show that the anti-corruption plan is not a broom pushing back the tide.

Foreign risks magnify the domestic risks. On top of the domestic risks, Xi is simultaneously taking on the foreign business community and challenging the US Navy. His technological plans require high levels of foreign investment from the most sophisticated economies, but US, Japanese, and Taiwanese investments are declining just when they are most needed. The growth of the Chinese military is rapid and impressive, but it remains quite vulnerable and rests on the foundation of the economy’s fragile finances. All the big countries are conducting themselves in ways intended to minimize the risks of major international conflict, but the risk of maritime escalation is there. The only likely outcome of an unexpectedly escalating major power conflict would be a humiliating, massively more mutually destructive, analogue of the Opium War. No power wants this, but then no leader in 1914 wanted a big war. No major bank wanted an escalating financial crisis in 2008. Banking leaders took big risks and assumed that, because they deemed themselves wise, the risks would not materialize. Nonetheless World War I happened and the Global Financial Crisis happened.

China is on the cusp of greatness, stagnation or tragedy, and the risks are so high that small, unexpected events could make the difference. That is the defining quality of China’s crisis of success.

Overholt, William H.. China's Crisis of Success (Kindle location 6292-6539). Cambridge University Press. Kindle edition.