The US And China: Two Leadership Selections And The Fate Of The World

This is a highly significant week for the world. On Tuesday, November 6, American voters will elect a new president, who will serve from January 2013 to January 2017. Two days later, the Communist Party of China (CPC) will formally begin selecting the country’s ‘fifth generation’ of leaders, who will run the country – barring major political upheaval – for two five-year terms, taking China into the 2020s. Given that the US and China are the world’s two biggest economies and most powerful nations, how they are run will be of overwhelming significance to policymakers and investors.

US Elections: Less At Stake Than Meets The Eye?

In many ways, there is arguably less at stake in the US election than in the CPC congress. The US president has less power at home than the CPC general secretary, and the role of the US government in the American economy is far less than the role of the CPC/Chinese government in the Chinese economy. The US economy is largely driven by market forces and private consumption, whereas China’s economy is still heavily driven by fixed-asset investment and state-owned companies. Therefore, a serious policy misstep by the Chinese government would have far more of an impact at home than a similar misstep by the White House in the US.

Meanwhile, although US President Barack Obama and Republican challenger Mitt Romney have held several debates in which they have argued over various policies, the US economy does not appear to be facing any dramatic political and economic choices over the coming years. Neither candidate is proposing a radical restructuring or ideological shift in the American economy. There is a broad consensus on the way things are heading – although it is fair to say that Obama and Romney have different approaches to the economy.

Chinese Leaders Face Much Bigger Structural Questions

By contrast, the incoming Chinese leadership faces much bigger challenges than the US. Although China has never in absolute terms been as rich and powerful as it is today, it is evident that the Chinese economy is slowing rapidly after 30 years of almost non-stop breakneck expansion. The new leadership must preside over the delicate ‘rebalancing’ away from an investment- and export-driven growth model to one driven by private consumption and services. This will not be easy, and will probably take many years. In addition, it must address the side effects of recent rapid growth, such as rising socioeconomic inequalities, regional developmental imbalances, environmental degradation, high levels of corruption, and wider social change. Although China’s problems are not unique to China by any means, and are experienced by many countries as they industrialise and urbanise, in China they are on a scale never seen before. This gives them a qualitative dimension, too.

And these are just the economic issues. China will also need to decide if its one-party CPC-dominated political system is flexible enough to respond to or initiate the kind of economic changes that are required.

Opacity Of Chinese Political System Problematic

This is where it is useful to contrast the United States’ democratic political system with China’s authoritarian one. The US political system is generally transparent and competitive. The election campaign lasts many months, during which candidates for the presidency, congress, and governorships are heavily scrutinised, and forced to outline and debate their policies. True, many candidates discard or change their policies once elected, but we at least get some indication of what they stand for. The passage of legislation is also heavily covered by the media.

By contrast, Chinese leaders are not elected, and not obliged to outline their policies on anything when manoeuvring into high office. The CPC congress will culminate in the election of a new Politburo Standing Committee – the highest decision-making body in the country – headed by incoming leader Xi Jinping, but the views of its members will not be widely known to the public. The method of selection of leaders is also highly unclear. Xi Jinping has been heir-apparent for at least five years, but his views are still relatively unknown to the outside world.

That is not to say that there is no serious debate within the CPC. There is reportedly considerable debate, and there are several factions within the party, with some advocating more neoliberal market reforms while others favour a statist approach, but any debate is kept behind closed doors so that the unity of the CPC can be maintained, at least in public. The trouble for investors is that this opacity makes it difficult to assess policy direction.

China’s political system does have one advantage over America’s. Precisely because they do not need to respond to opinion polls or stand for election, Chinese leaders can undertake unpopular decisions with long-term goals in mind. This probably explains why China has achieved far more economic progress than democratic India over the last 30 years. However, the limitations of China’s system will surely outweigh the benefits very soon, if this has not happened already.

Democratisation Remains A Big Unknown

Against this backdrop, the biggest question facing China over the coming decade is whether the one-party CPC dominated system can survive, or whether the country will face growing popular pressure for democratisation, as was the case in Brazil, Chile, Mexico, Poland, Russia, South Korea, and Taiwan in the late 1980s. And if pressure for democratisation emerges, the question becomes whether the CPC will respond by managing an orderly transition to a pluralistic political system, like in South Korea, or whether its refusal to do so will lead to ‘bottom up’ uprisings, as we saw in the Arab Spring of 2011. These are questions we deal with in our long-term political forecast for China, which is available to subscribers at Business Monitor Online.

This blog is tagged to:
Sector: Country Risk
Geography: Asia, China

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