By Kerry Brown

The era of the Fourth Generation of Chinese Communist Party leadership is coming to an end. Hu Jintao as Party Secretary and President, and Wen Jiabao as Premier, have presided over an era in which China's economy has increased in size by 40 per cent. As a factory of growth, the People's Republic of China of President Hu and Priemier Wen has been one of the marvels of the world.

Hu Jintao's contribution has been to maintain consensus within the Party elite at a time of great social change. To have maintained a unified Party line despite the CCP's history of fractures and infighting is no mean achievement.

On the negative side, the outgoing leadership has not managed to repair the deep inequalities in modern China. This is a country with 35 dollar billionaires, but 150 million people living below the poverty line of $2 a day, and 24 million people malnourished. Despite making the reduction of inequality a priority when they came to power in 2002, China is, according to the Gini coefficient - an internationally accepted measure of inequality - a more unequal society today than it was in 1984.

In terms of politics, this has been an era in which little meaningful reform has taken place. Village elections have not been developed to township level; there are still limited means by which people can participate in decision-making, and the Party remains opaque and controlling.

Whoever gets promoted at the Communist Party Congress in October, the process needs to produce three things: it has to appear well-planned and seamless; it has to build a group of leaders who are able to work together, whatever their private differences; and it has to give these leaders domestic and international legitimacy.

Chinese leaders are marked off in generations, with Mao Zedong leading the first, Deng Xiaoping the second and Jiang Zemin the third. This, the transition to the Fifth Generation, is the first time that a leadership change has happened in China without the involvement of a political strong man. Hu Jintao, for instance, was widely seen before 2002 as being Deng Xiaoping's choice despite the fact that the patriarch had died in 1997. This time, there is no commanding figure whose support carries real weight.

For a system in which risk and uncertainty are unwelcome, this leadership transition involves more variables than previous ones. Hence the care with which the Party is preparing for the Congress, and the cautious nature of policymaking and political behaviour in Beijing at the moment.

Candidates for power

The people well placed to be promoted at the 18th Congress in October have some common characteristics which set them apart from their predecessors. They are less dominated by technocrats, with more social scientists, lawyers and political scientists among them: Li Keqiang, for instance, who is likely to be the next premier, has a degree in law; Xi Jinping, who is the front runner to be party secretary and replace Hu, has a PhD in social sciences; and there are also literature and language graduates.

They have no strong military links. None has served in the army, and only one, Xi Jinping, has connections to the armed forces through his work as the private secretary of a senior military leader in the 1980s. They are highly educated, with many having doctorates or at least master's degrees. Despite this, very few of them have studied or lived abroad. They are better communicators than most of the current Standing Committee of the Party's Politburo, and they are far less likely to remember the trauma of the Cultural Revolution, when China nearly imploded, and which left such a mark on Hu Jintao and the people around him.

In addition to this, they have all been through a long training process, either as leaders of provinces, or central ministries. Their mindset has been framed by a China that has only been getting wealthier and stronger. They have far less political capital than their predecessors. And around each contender for a leadership position there are networks, emanating from their family, organisations they have been associated with, provinces they have worked in and state-owned enterprises in which they have been active. It is through the strength of their networks that they have attained a position from which they can be elevated to the highest levels of party power.

The pressure for reform

This year marks a potential sea change in policymaking priorities. Since 1978, the objective stated by every leader has been economic growth. This is the area in which the party gets judged. The Fourth Generation of leaders has maintained this, placing stability and the building of a more prosperous society as their key goals. However, since 2001 Chinese society has grown increasingly contentious. There were nine million petitions to the central government in 2009. Some estimates in China say that there are as many as 180,000 mass incidents each year. Disputes about land rights and the payment of pensions have caused much of this unrest. China is currently in ferment, with huge social complexity.

We are likely to see in the future a leadership having to deal with far thornier issues of social reform and change. While the overarching macro-economic policy framework is set out in the 12th Five-Year programme that will run from 2011 to 2015, there is likely to be a shift in the handling of legal reform in order to deal with social unrest more efficiently. The role of civil society, which is becoming increasingly important in delivering the services that government once dealt with, needs clarifying and to be given proper legal status. And there needs to be reform of the Communist Party's own internal governance.

We will see an era in which, as China becomes a middle-income country by 2020, it will need to deliver social and political structures to stave off internal instability. In 2010, the Chinese government said that it spent $93 billion on internal security - $1 billion more than its publicly stated national defence budget. This level of spending suggests a state often at odds with its own people.

In terms of specific policies, the new leadership will have to look at possible fiscal rebalancing between the centre, which raises most taxes, and provinces, which are spending them. The current arrangement maintains power in the centre, but means that decisions about the healthcare and education budgets of provinces thousands of miles from Beijing are decided by the central bureaucracy with little knowledge of local conditions.

With an ageing population, fewer people of working age, and a highly fragmented national system, pensions are another area in need of reform. Social welfare is also critical to reassure the rising middle class about access to healthcare and education, so they can become western-style consumers rather than perpetual savers.

A final issue is tax reform. Most of central tax comes from state-owned enterprises, with private individuals contributing only six per cent of the tax take. The development of an economy in which Chinese people become taxpayers will have a profound impact on people's views of their citizen status.

Three future scenarios

There are three broad scenarios for the future. The first, which is preferred by the Party, is gradualism, in which China over 20 to 30 years develops its economy to such an extent that it is able to deal with the challenges outlined above.

The second is crisis-led change, something that has occurred many times in China's history, with explosions of revolt and widespread chaos. Certainly Chinese leaders take the threat of crisis seriously.

Finally, there is the scenario in which the new leadership, within two to three years, undertakes quick and bold reforms. We have to remember that in 1978 not a single western commentator foresaw the changes the Chinese government was about to make in its Reform and Opening Up policy. Perhaps we are about to see a new leadership make similar bold strides.

Of course, the risk of this going wrong in a society as complex and large as China's cannot be overlooked. But from many directions, Chinese policymakers are talking about the need for reform. The question for the new leadership as it settles in is: does it have the political will to approach these complex issues, many of which will involve profound changes in society?

How the new leadership is chosen

The transition to a Fifth Generation of leaders started in 2007 when new figures were promoted into the Standing Committee of the CCP, with the clear intention of grooming them for the highest slots at the next Congress. The new members include Xi Jinping, who is expected to be the next party leader, and Li Keqian, who is likely to be premier.

One of the functions of the Party Congress is to vote in a new 350-strong Central Committee, which in turn votes in a full Politburo of about 24 members, and the Standing Committee. This currently has nine members but could increase to 11 in October.

For this year's Congress, seven of the current nine members of the Standing Committee are to stand down, as they are aged 68 or over, the standard retirement age. In the central leadership, we are likely to see a 70 per cent turnover in all key positions.

The changes agreed at the Congress will be followed by government appointments announced at the annual National People's Congress, China's parliament, next spring. Military and provincial government changes will take place over the next two years. This leadership transition is a long process, taking up to three years to complete.

80 million Party members

350 Central Committee

24 Politburo

9 Standing Committee

(Kerry Brown is head of the Asia programme at Chatham House.)


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