New leaders, new chance

As China’s new president takes power, the US has a rare window to redraw the relationship
November 14, 2012

Xi Jinping kicks a ball during a visit to Dublin's Croke Park Stadium in February (Photo: Reuters/David Moir)

On 8th November, as the 18th Party Congress gathered in Beijing to anoint a new president, China entered a new era. The past three and a half decades have been defined by the influence of Deng Xiaoping. Deng, who came to power in 1978, opened up the diplomatic door between China and the world—and the economic door, too. A generation ago, China had an economy about the size of Argentina’s; by 2020, judged by sheer output, it could have the largest in the world. But Deng also emphasised the primacy of the Communist party; there was no other competition for domestic policy making.

We are now entering the Xi Jinping era. As I saw during my time as US ambassador to China between 2009 and 2011, Xi faces a very different list of issues to his predecessors—and he will have to tackle them immediately. He will have to address the reality of China’s role on the world stage, including the need for it to deal directly with the United States. He will have to confront head-on the fact that China is less open than in years past. For 10 years, there has been very little movement—indeed, there has been backsliding on human rights and civil society. Meanwhile, China has become more assertive in the region, with the growth of its military spending and its claims to disputed islands.

He will also have to confront the rise of powerful special economic interests. He is one of the few people in China who can deal with the state-owned enterprises, which have been able to write their own script for the past 10 years; he will have to get tough on their abuse of intellectual property rights.

What will he do? It will take him six months to a year to consolidate power. But he has reform in his DNA; he has been exposed to the most economically forward-looking parts of China, in Fujian and Zhejiang provinces and in Shanghai. I’ve seen over the last five years that he’s a very adept operator in the rough and tumble of high-level Chinese politics—a pretty tough business. He’s worked the party—and the “princeling” class (the influential descendants of senior Communist party officials). He is 59, confident, personable—and humble and serene in his approach to problem solving, in the Confucian tradition. In all my interaction with him, when he was vice-president, he was engaging and on top of his brief.

He will also have a little more operational flexibility than Hu Jintao has had, as the Politiburo Standing Committee will probably shrink from nine members to seven. Hu had few allies, was very hemmed-in and had to rule by consensus.

Xi’s instincts will be to preserve the party. But that will mean giving more flexibility, on the internet for a start. China is not yet at boiling point—212 degrees Fahrenheit, as we say in the US—but it is pretty damn close. I look out at 600m to 700m internet users, and 90m bloggers, some with an audience of 100m, making hard-hitting comments about corruption. You’ve got to imagine that there’s a lot of discontent building. Xi understands that. China is going to have to recognise that the internet is a tool for communication, for education, and so far, they haven’t.

Xi is taking power at a point of slowing economic growth. The figure that China declares for growth in 2012 is bound to be over 7 per cent; Hu couldn’t turn over power with a number less than seven. But next year the Chinese leadership will face the reality that their four trillion yuan ($640bn) economic stimulus went partly on “roads to nowhere.” Non-performing loans will begin to show up in the banks, both the state banks and the underground lenders known as “black banks,” which prefer to work on projects with the princelings. The balance sheet is strong enough for them to muddle through the next few years, but they’re aware of the fragility.

The things that would break the party in the long term are low growth, inflation, and economic uncertainty. So, in regional affairs, while Xi will remind the party that sovereignty is still a guiding principle, there will be red lines that they won’t cross. There is no economic gain from entering a conflict over the Spratly Islands (in the South China sea, claimed by China).

The Obama administration has kept up a good, consistent level of engagement. But the Chinese read our economic weakness here at home as something they can use at the negotiating table, and we need to repair that. The US-China relationship is now of global significance; it isn’t an ordinary bilateral relationship. The only way to manage it is directly between the heads of state.

But all kinds of commercial and cultural ties are helpful. My wife and I are both Chinese speakers, and our daughter, now 13, whom we adopted from China, was well known through the Chinese media when we were living there, along with our six other children, another of whom we adopted from India. It was helpful, as a bridge, in putting across a positive story about relations between the US and China.

The good news is that we have a rare opening to redraw the relationship between our countries. They have a new leader, and we have a re-elected president. We haven’t updated the relationship since the 1979 Taiwan Relations Act. We’ve now got two or three years to do that.