How Chinese Reform Is Confounding Critics

04/06/2015 03:26 pm ET | Updated Jun 06, 2015
GREG BAKER via Getty Images


HONG KONG -- Respected China scholar David Shambaugh recently set off a firestorm among other China specialists when he predicted the collapse of China's ruling Communist Party in an op-ed for The Wall Street Journal. Beneath many of the arguments in his defense was the assumption that China's Communist Party, bent on maintaining control, would fail to implement necessary political reforms and would therefore eventually lose legitimacy.

But they may be wrong. The Chinese government has just announced significant economic and political reforms that indicate it is serious about fundamentally reshaping itself. After years of caution and conservatism that seemed to suggest a lack of stomach for critical reforms, the CCP has taken meaningful steps toward putting in place a government that is more decentralized and flexible, and yet also more disciplined and accountable to Party leadership.

The annual meetings of the National People's Congress and Chinese People's Political Consultative Conference, China's highest legislative and political advisory bodies, respectively, have just recently ended. In those meetings it was decided that the country's leadership will delegate power to local governments to snap the system out of the political sclerosis and economic inefficiency that is a byproduct of central planning.

Observers ask, very fairly, "Great, but will the CCP stick with its plans?" Historically, the Party's instinct has been to roll back liberalizing reforms when their popularity seems to threaten the Party's grip. Not this time -- the NPC's reform package is part of a wider effort to reshape and improve China's government and has been set up for success.

In China, the fundamental political relationship is not between the individual and the state, but between the local governments and Beijing. The success of China's federal system ultimately determines whether the Party can maintain its track record on development and competent governance.

"Local power has been too great in the past, leading to the rampant corruption and official abuses."

On the one hand, local power has been too great in the past, leading to the rampant corruption and official abuses that currently threaten the health of the CCP. On the other, the central government, keen to ensure that laws and policy initiatives flow from the top down, has frustrated the local flexibility and experimentation.

The NPC plans to address the second problem through three main initiatives.

First, it amended the Legislation Law to increase the number of cities able to pass their own laws from 49 to 288. The objective is to ensure local laws are responsive to those most affected by them and is likely to affect legislation in the areas of "rural and urban development and management, environmental protection, and preservation of historical heritage and cultural values," according to the bill.

Second, Chinese Premier Li Keqiang mandated that bureaucratic approvals be eliminated where they are not required by law and delegated as much as possible to local authorities where they are. This will likely mean, just to name a few examples, that policies on government fees, staffing, and price controls both for protected industries, many of which are state-owned enterprises, and for public utilities will be determined at the local level.

Finally, Beijing has decided to keep a long leash on local spending despite a lowered growth forecast of 7 percent, compared to 7.5 percent in 2014 and 8 percent for many years before that. The budget deficit allocated to the local level will increase by 20 percent (compared to roughly 18 percent at the national level) to support 1.6 trillion yuan in infrastructure projects. Given that the Finance Ministry also announced earlier this month that it would swap 1 trillion yuan in municipal bonds for local debt, it appears the central government is not tugging on local purse strings just yet.

All are positive moves, but they had been discussed many times before. Will the CCP stay the course? Party behavior is difficult to predict. But a strong indication that it has put itself into a position to succeed is that it has already begun curbing aspects of local power to balance the liberalizing effect of these reforms.

Xi Jinping's aggressive anti-corruption and rule of law campaigns are geared towards claiming more authority for Beijing over local governments. Party members and interested observers check the Central Commission for Discipline Inspection website to the tune of 2 million views a day to see which colleagues or famous officials have fallen. Those who have escaped the CCDI hammer so far are keen to follow Party rules, fearing they will be next. Since 2012, 33 high-ranking government and state company officials have been investigated. Disappearing into the black box that is a CCDI investigation means the end of a career, and usually much worse.

In addition, the CCP realizes that establishing the rule of law, one of its top priorities, requires an independent legal system, one that can take corrupt, ineffective officials to task. To that end, the Supreme People's Court's current Five Year Plan includes rearranging legal jurisdictions so that local governments will no longer have authority over the same areas as local courts. Personnel for lower courts will also be appointed at the provincial level. Currently, local officials exercise considerable political influence over legal proceedings, a main source of judicial corruption.

On fiscal policy, the government is trying to achieve a delicate equilibrium. While increasing budgets, Finance Minister Lou Jiwei announced during the NPC meeting that he would ban financing firms set up by local governments for additional funds, forcing them to borrow up to a set amount from a common pool. He has also encouraged private capital to invest more in public infrastructure, relieving the burden on public coffers.

The CCP ultimately wants to make China's local authorities more accountable while giving them enough freedom to meet growth goals in ways best suited to local conditions. And it has set the many pieces in motion necessary to realize this elusive compromise.

Whether the Party ultimately succeeds depends on how well local governments respond to both the carrot and the stick and implement wider reforms on their own. For example, one of Beijing's major goals is to slim down the vast (and wasteful) bureaucracy that runs the country. Local officials had largely ignored Premier Li's exhortations to carry out these reforms. The NPC put a two-year timetable in place for provinces and municipalities to perform an audit of their powers so that they may be efficiently streamlined. It is encouraging that the central government's insurance policy is not to tighten the screws in case local governments drag their feet, but to get the public to monitor their officials based on the results of these audits.

In the long run, however, it may not be enough to make local government more accountable only to Beijing. After all, the central government's inability to police everything is a key motivator for its devolution of power. The Chinese people must be able to hold their local officials accountable as well.

"The central government's inability to police local officials is a key motivator for its devolution of power."

Local governments will need to more widely solicit citizen input on policies, a practice selectively used in Guangdong, Zhejiang, Wuhan, and Fujian provinces, among many others, since 1998. In a 2005 national survey, an estimated total number of 453,000 meetings between citizens and officials to discuss local policy were held at the village level.

These gatherings are popular with local officials mostly because they are an effective and face-saving outlet for citizen unrest. Beijing is getting more comfortable with citizen input at the national level, soliciting online suggestions for its healthcare reforms in 2009. Given that it invites feedback without binding the government to anything, this sort of participation should be considered non-threatening and become a regular feature of local political life.

One thing at a time, but deliberative democracy -- where citizen opinion, exposed to expert advice, is actively solicited -- is a next step to fulfilling the promise of local government as the linchpin of China's political system and a guarantor of its legitimacy.