China: Increased Risks From Zhou Yongkang Investigation

China faces considerable political risks from the Communist Party of China (CPC)'s official investigation into former Politburo Standing Committee member Zhou Yongkang, the party's highest-profile target in more than three decades. The corruption investigation suggests that President Xi Jinping's ongoing political purge has further to go.

Zhou has had a remarkable fall from grace. As recently as 2012, he was among the five most powerful politicians in China. Zhou served as Minister of Public Security and security tsar during the 2000s. He has been under fire from the top echelons of the CPC since at least mid-2013, and has not been seen in public since October of last year. Zhou will be the first current or former member of the Politburo Standing Committee (the highest decision-making body in China) to be subjected to such an investigation. Previously, China's top leadership has generally been immune from such campaigns.

Proving the allegations of widespread corruption ('serious disciplinary violations', in CPC parlance) against Zhou will be a virtually foregone conclusion, as reports indicate that the government has already seized nearly USD15bn in assets from Zhou's family and close associates. More broadly, the case against Zhou is a very bold move by President Xi in his ongoing political purge. The rift between Xi and Zhou has been well documented, and Zhou's fallen protégé, Bo Xilai, was seen as a potential challenger in 2012 to Xi's authority.

Xi's ability to marshall the CPC's forces against Zhou corroborates our view that Xi is on his way to becoming a significantly more powerful leader than his predecessor, Hu Jintao. Earlier this year, reports emerged that former presidents Hu and Jiang Zemin had both discouraged Xi from pushing further with the investigation into Zhou out of fear that the prosecution of such a high-profile figure could be destabilising for the party.

Now that Xi has succeeded in launching an official investigation against Zhou, it is likely that he will continue his purge in order to further consolidate his power, as well as burnish his anti-corruption credentials, which are integral to his goal of restoring the credibility of the CPC in the eyes of the public.

The breadth and depth of Xi's campaign suggests that he is committed to implementing the broad economic reform agenda outlined at last year's Third Plenary Session of the CPC. However, the controversy surrounding the Zhou Yongkang case, as well as the considerable amount of time that it has taken to bring an official investigation against him, suggest that Xi is still in the process of clearing the party of vested interests that might stand in the way of hard-hitting and controversial economic reforms, such as a restructuring of China's bloated and inefficient state-owned enterprises (SOEs), as well as its financial sector.

For this reason, as well as the potentially negative implications for economic growth, the government is likely to take its time with the implementation of substantive economic reforms.

This blog is tagged to:
Sector: Country Risk
Geography: China
Tags: China, Zhou Yongkang, political risk, power struggle, Xi Jinping

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