/ 17 August 2012

China’s battle for the future

Gu Kailai's trial has eclipsed the deeper political drama.
Gu Kailai's trial has eclipsed the deeper political drama.

The murder trial of Gu Kailai and the downfall of her husband Bo Xilai has lurched from Shakespearean tragedy to Victorian melodrama. All the essential elements are there: overweening ambition, a poisoning, a sink of corruption, treachery and blackmail.

Add in the alleged British spy Neil Heywood's rendezvous with death at the Lucky Holiday Hotel in Chongqing and Gu's reported comment to investigators to "write up anything they'd like" she couldn't remember for her confession, and China's greatest political scandal for a generation seems like a cross between an airport thriller and a Stalinist show trial.

There is no reason to believe we will be any the wiser about what actually happened when the court gives its verdict and sentence – or if Bo himself, sacked as Chongqing's Communist Party secretary, is put on trial for "serious disciplinary violations".

The evidence suggests at least that Bo's family, like those of other Chinese leaders, enriched themselves on the back of his position – and that Heywood was up to his neck in that. What is much clearer is that the fall of Bo, who attempted to use his left-leaning Chongqing administration to secure a commanding place in the party's Beijing leadership, has been seized on to change China's political direction.

As the scandal erupted earlier this year, powerful forces out for full-scale privatisation made a concerted bid for decisive "reform". In February, a World Bank report, backed by elements in the government, demanded sweeping deregulation and a "complete transition to a market economy". The call was taken up at the National People's Congress. Corporate interests, which had chafed against a system in which they claimed "the state advances, the private sector retreats", launched a neoliberal offensive.

As the Chongqing crisis came to a head in April, Premier Wen Jiabao declared that the state banks' monopoly had to be "broken".

After Bo's police chief tried to defect to the United States embassy, the backlash intensified. Wen linked Chongqing with the taboo Cultural Revolution and a string of Maoist and leftist websites were banned.

Politicisation of a scandal
The basis for the politicisation of the scandal is not hard to find. Bo himself was a populist politician on the make, not a Maoist. But the policies he championed gelled into a Chongqing model that appealed to China's "new left" and created a political pole for those looking to overcome the ballooning wealth gap and social costs of China's breakneck development.

His "sing red" revival of revolutionary songs and culture and "smash black" campaign against organised crime grabbed the most attention, and have now been closed down. But it was the huge expansion of low-cost housing and welfare provision from the profits of a burgeoning state-owned economy, combined with three million hukou urban residence permits handed out to migrant workers, that explains why Bo remains popular in Chongqing even after his disgrace.

Chongqing's departure from government policy can be exaggerated – its private sector has expanded even faster than the public sector and foreign investment boomed. But the gap between Chongqing and the Guangdong model – where party secretary Wang Yang has hailed the role of the private enterprise and growth rather than distribution, under the slogan "small government, big society" – is clear enough.

In the aftermath of Bo's fall, the triumph of Guangdong was duly declared. But, as Kevin Lu of the World Bank's foreign investment agency argues in Foreign Policy magazine, "the Chongqing model worked", by mobilising state resources to boost collective consumption.

And it is the decisive role of publicly owned banks and companies in China's hybrid economy that has delivered the fastest growth per head of any major economy in history over the past decade, the most rapid consumption growth and the largest-scale poverty reduction programme ever.

Speculative bubbles
In particular, the Chinese government's ability to instruct state banks and enterprises to drive up investment during the global crisis is the main reason why its economy has grown by 40% over the past four years, whereas the US's grew by 1%, the European Union's shrank by 1.5% and Britain's by 4.3%.

Within that expansion there have been inefficiencies and speculative bubbles, not to mention the ­environmental degradation, corruption and gross inequality that have disfigured China's rise.

Nevertheless, as West­ern economies continue to stagnate, or worse, it is hardly the time to hand over the reins to the private sector, as demanded by China's corporate class and the US government  – US treasury secretary Tim Geithner grumbles that Chinese state enterprises have an unfair advantage because they don't pay "market-based dividends".

But in the climate of "reform" and liberalisation earlier this year, the Chinese government held back from the kind of direct investment needed to offset stagnating global markets, and the private sector failed to respond.

The result has been falling growth, and Beijing is now again having to shift back to a state-driven stimulus.

In the next few weeks, China's highest level leaders will be chosen for the next decade. What course they take will not just be settled by what goes on behind closed doors but also by what happens on the ground in a country where there are now 180000 "collective protest incidents" a year.

Resistance to neo­liberal pressure is "very strong in both society and government", Tsinghua University's Professor Wang Hui argues.

But how the political struggle over the lessons of Chongqing and Guang­dong is resolved will help to determine China's future. – © Guardian News & Media 2012