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In late January this year, 18 U.S. business associations penned a joint letter to the Chinese authorities complaining about a new rule requiring that they replace their banking technologies with "secure and controllable" ones produced in China. Adopted ostensibly for national security purposes after Edward Snowden revealed the presence of spying equipment in the existing banking technologies, the guidelines actually cater to Chinese industrial policy by potentially requiring foreign companies to reveal source code and other commercial secrets.
Although it is not uncommon for U.S. industry to lobby the Chinese government, particularly when the stakes are high, in this case, the businesses chose to bypass the government and address the letter directly to the Chinese Communist Party (CCP) Central Leading Group for Cyberspace Affairs rather than the government’s Cyberspace Administration of China. The standard practice is to engage government officials up and down the hierarchy, from the lowliest section chief up to the minister and beyond. Business lobbyists even interact with critical decision-makers who hold key party positions on a government rather than a party level. (The exception is local investment deals, where the local party secretary has the ultimate say and can influence the bureaucracy’s decision.)
In any case, soon after registering their complaint, representatives from U.S. businesses received face-to-face meetings with Chinese officials, and in late March, China announced it would suspend implementation of the banking-technology regulations. Fearing that China would attempt to quietly implement the policy anyway, the group sent a second letter in early April to the same party agency, asking that it issue a written edict to ensure the suspension would truly hold. A few days later, the party complied once more.
This unexpected victory not only reveals how U.S. industry has figured out how to pull the levers of power in China but also points to a substantial change in how China is governed. In the past, there was at least some separation between party and government roles, but it seems that the line is blurring dramatically. The CCP and its ruling Politburo Standing Committee have always been the ones in charge, but they have been amassing greater control over policymaking and even implementation. It leaves one wondering: Does the Chinese government matter anymore?
BEHIND THE CURTAIN
The Chinese Communist Party has always had a love-hate relationship with its own government, needing it for legitimacy and governance but keen to uphold the party's own prerogatives. The CCP has maintained full control of the country since Mao Zedong strode atop the Gate of Heavenly Peace to declare the founding of the People's Republic of China on October 1, 1949. But in the early 1950s, the party, in order to manage the day-to-day running of the country, constructed an elaborate central government and multiple layers of administration down to the village level. Mao was known as "Chairman" of the PRC for five years during the 1950s, but from the Great Leap Forward on, he held no government title. He often chafed at the inefficiency of the bureaucratic system, and during the Cultural Revolution he helped create tripartite "revolutionary committees" composed of Red Guard organizations, People's Liberation Army (PLA) units, and the CCP. The revolutionary committees ruled much of the country for almost two years during 1967–69. But they began to gain too much control and so the PLA forcibly stepped in and handed power squarely back to the party. After that, the government agencies resumed their previous functions.
Under Xi Jinping, not only has the notion of separation of party and government been categorically rejected, but the party itself is taking a more direct role in policy formulation—and even implementation.
When Deng Xiaoping took over in the late 1970s, one of his chief goals was to imbue the government with more authority than it had under Mao. Hence, revisions to the constitution in 1982 strengthened the role of premier and the State Council (China's cabinet), expanded and reformed ministries and other agencies, and gave more tasks to the National People's Congress and local legislatures. Deng also promoted a more meritocratic civil service system and instituted mandatory retirement for officials, now set at age 70 for senior leaders. And since Jiang Zemin, Deng's successor, every Chinese general secretary has also officially been known as the country’s president. That designation ascribes some authority and additional legitimacy to the government. These efforts reflected Deng's desire to "separate the party and government" (dangzheng fenkai), a concept that was eventually included in a political work report issued during the 1987 13th Party Congress, the high-water mark for political reform during the Deng era.
The 1989 Tiananmen crackdown, however, ensured that Deng’s goal was never fully realized. The party became more uncertain of its hold on power and more suspicious of any notions of Western-style separation of powers. In fact, the top leadership arguably never wholeheartedly supported the idea of separating the party and government because it would have meant constraining the party's authority. Still, under Jiang and his successor, Hu Jintao, the CCP still implemented its policies through the government, even though they were deliberated behind closed doors. For example, key decisions are made at the party's annual summer beachside retreat at Beidaihe, but there have never been any official reports about this top-secret gathering, and nonparty members are kept at a far distance. In terms of representation, the CCP still dominates government bodies. In 2003, 73 percent of the National People's Congress deputies were CCP members; today, the figure is 72 percent. Almost every minister since the 1970s has been a party member (the only current exception is Wan Gang, the minister of science and technology). And every province is ruled by both a CCP secretary and a governor. And for added insurance, governors must also be party members.
Under Xi Jinping, not only has the notion of separation of party and government been categorically rejected, but the party itself is taking a more direct role in policy formulation—and even implementation. The reason is that the problems of an entrenched bureaucracy have only grown since Mao's days. Under Hu, policy discussions lacked forceful direction from the top and descended into extended debates involving too many actors. The result was policy drift, corruption, and a seeming unwillingness to make hard choices. Central and local officials sought to protect their fiefdoms, and state-owned enterprises sought to maintain their protected status. Xi's answer to this slide toward gridlock and declining economic performance has been a radical centralization of power and a much greater governance role for the CCP itself.
Xi has achieved this by moving a much larger proportion of decision-making across all policy areas into CCP bodies directly managed by the top leadership. These bodies include 18 central "leading small groups," seven of which are headed by Xi himself. There are also at least 21 other leading small groups and similar coordinating bodies, five of which are led by Premier Li Keqiang and fall under the purview of the government. Leading small groups date to the 1950s and provide the leadership with a comprehensive view of policy, which is not visible from within any single bureaucracy. But the current leading small groups clearly do more. They help define problems, help set priorities, and determine the proper sequencing of policies across a wide range of areas. They are also not “small” but contain a sizable staff organized into committees and managed by permanent offices. There are now more leading groups than there are government ministries. In fact, it appears that the CCP is reorienting the small group system to focus on narrower policy issues.
The most important new leading small group, created by Xi, is dedicated to "Comprehensively Deepening Reform." With six committees—each headed by a senior Politburo member—it covers everything from keeping China's economy from falling into a "middle-income trap" to reforming China's governance institutions and developing rule of law. The group had its first meeting in January 2014, and it now has outposts in party units within every bureaucratic department at both national and provincial levels. Headed by Xi and with 22 other top officials serving as members, this small group may be China's de facto cabinet, not the State Council led by Li Keqiang. The group is run by Politburo member Wang Huning, a former Fudan University international relations professor who has gradually risen in the party hierarchy and was a close adviser to both Jiang and Hu. As the longtime head of the Politburo’s think tank, the CCP Policy Research Office, he has well-established credentials as the party’s “ideas man.” The small group’s economic reform department is run by Liu He, who also heads the office for the long-standing Leading Small Group on Economics and Finance. Liu's government title is deputy director of the National Development and Reform Commission (NDRC), the government's top economic planning agency, but his real job is overseeing these party offices and the development of China's economic policy writ large. Not only is the role of the State Council being constrained, it appears that the NDRC—long the undisputed kingpin of state planning and economic management—has amazingly become an agency that primarily implements, rather than sets, policy.
Before Xi became general secretary of the party in late 2012, Chinese media almost never identified the members of leading small groups, let alone reported on their activities. The official press now covers their meetings as standard practice. This shift did not signal a breakthrough in transparency. Rather, it showed that power had shifted. It is clear that these small groups are eclipsing the government and serving as the new centers of policymaking and coordination. The Leading Small Group on Comprehensively Deepening Reform held its 12th meeting in early May. It issued plans for promoting technology innovation and a pilot project for public interest litigation. And at its June meeting, the group issued decisions on strengthening the role of the party in state-owned enterprises and preventing the loss of their assets through corruption.
Apart from the leading small groups, Xi also relies heavily on an informal "kitchen cabinet" of advisers who are located in different areas of the party hierarchy but engage with him directly on all areas of policy, such as the economy, foreign affairs, and national security.
The party is extending its reach in other ways, big and small. Central CCP organs, such as the Propaganda Department, have traditionally been tight-lipped but have recently begun holding press conferences. In March 2015, a top official of the Leading Small Group on One Belt, One Road, China's massive initiative to revive and modernize the "Silk Road" linking the country to the rest of Eurasia, issued his own Q&A on the plans. The Organization Department, the party's human resources division, does not step out in public often, but it is reportedly playing a much more active role in appointing and rotating the top leadership of China's central state–owned enterprises. Already in charge of top personnel for China's 53 largest firms, it has boosted its influence by the anticorruption campaign and a weakened State-Owned Assets Supervision and Administration Commission, which, as of this writing, remains leaderless following the downfall of its previous head, Jiang Jiemin, on corruption charges.
The party has also taken a more direct approach to diplomacy. Its International Liaison Department has interacted with political parties from many countries around the globe for decades to exchange views and build relationships, but now it and other parts of the CCP meet face-to-face with foreign government officials. As part of its "Sky Net" campaign, the Central Commission for Discipline Inspection, the party’s anti-graft watchdog, has been directly lobbying foreign nations to help round up and return corrupt officials who live abroad. Party officials were in Washington in March to demand the return of corrupt Chinese officials and to negotiate a potential visit by the commission's secretary, Politburo Standing Committee member Wang Qishan. Wang has no government title and hence no U.S. counterpart, but China designated him because an official from the Ministry of Supervision or the Supreme People’s Procuratorate (China's office of the attorney general) would merely be a messenger, not a key decision-maker. The meeting was later canceled, but only because Wang did not get what he wanted on the repatriation of allegedly corrupt officials.
By handing more governing responsibility to the party, Xi has overcome resistance on a range of policy initiatives that had languished under his predecessors. His anticorruption campaign has taken down thousands of “flies” (mid- and low-ranking party cadres) and a growing number of “tigers” (high-level party cadres). Interest rates are moving toward full liberalization. Local government debt is being restructured by the issuance of trillions in municipal bonds. Utility prices are undergoing liberalization. Environmental regulations are being implemented more forcefully. And finally, the heads of state-owned enterprises are being rotated or let go in preparation for potentially major reforms of the state sector. China's foreign policy may be more concerning to the West, but there's no doubt it is more coherent and active, with an array of initiatives such as the Asian Infrastructure Investment Bank, the development of a new version of the Silk Road, and greater assertiveness in the East and South China Seas.
Yet for all of these short-term benefits, the party’s centralization of policymaking has significant costs. Gridlock has not been eliminated, just pushed further down the system. Companies, foreign officials, and other observers have noticed that government officials are not only hesitant to carry out new party orders but also occasionally unsure what the official policy is. Hence, they are becoming more risk averse, not less. One consequence is that China's economic slowdown is deeper and broader than it ought to be. Yes, debt overhang, overcapacity, and structural imbalances in the economy bear much of the blame, but widespread fear among officials has slowed down policy implementation across the board. As a result, the central bank and the NDRC are being forced to provide a greater economic stimulus—by reducing interest rates, providing tax breaks, and other means—than would otherwise be needed. This inevitably muddies the leadership's core message that structural reforms are more important than the rate of economic growth. This may mean more economic volatility, as we have witnessed with the stock market gyrations.
The political consequences are even more complex. Direct CCP management of day-to-day affairs may undermine the government's influence and authority, as well as generate skepticism about the ability of China's basic institutions to operate effectively. It may also further erode independent sources of accountability that would support effective governance, including the media, public opinion surveys, minority shareholders, nongovernmental organizations (NGOs), credit-rating agencies, independent courts, and anticorruption investigators. It is equally unclear how the party's consolidation of power squares with its effort to promote comprehensive "rule of law." This raises the age-old question of whether the CCP can be fully accountable to itself. Hu tentatively tried limited experiments of intraparty democracy, which involved the election of leaders in certain offices, but nothing like that seems to be on the agenda these days.
By handing more governing responsibility to the party, Xi has overcome resistance on a range of policy initiatives that had languished under his predecessors...Yet for all of these short-term benefits, the party’s centralization of policymaking has significant costs. Gridlock has not been eliminated, just pushed further down the system.
If the CCP is indeed playing a more central and direct role in governance, the most obvious issue is its capacity to do so. The growth of leading small groups and an aggressive anticorruption campaign may remove the most obvious policy roadblocks, but it is unclear whether these are viable long-term governance strategies. Take, for example, the fact that both external observers and internal voices are constantly questioning the sustainability of Xi’s anti-graft drive. The top leadership has even said that the Leading Small Group on Comprehensively Deepening Reform should stand down after 2020.
Relatedly, with the exception of its recent meetings with U.S. business associations over the technology-banking regulations, the party has been hesitant to directly engage with stakeholders, particularly foreign ones. It fears potential policy capture by lobbyists, but it fails to realize that these interchanges can provide critical information on how social actors view problems and can lead to better solutions. For example, China recently issued a draft law that restricts the operation of foreign NGOs. Even though the legislation contains a clarity and forcefulness that reflect a unified voice rather than the product of endless debate and compromise, the limited consultation during early drafting led to a mountain of criticism and opposition of the publicized text that could have been avoided had greater feedback been sought earlier on.
Given the Chinese Communist Party’s more direct role in governance, China's political system appears to have shifted from what experts have called "fragmented authoritarianism" to just plain authoritarianism. This trend is unmistakable, but there is still much to learn about how this evolving system operates in practice across different policy spaces and regions.
The United States can respond in a number of ways. One option is to nudge governance in China back toward the government. Washington could warn Chinese officialdom of the dangers of hollowing out its government institutions and inhibiting sufficient consultation across the bureaucracy. And it could continue its old habit of engaging Chinese officials only in their government capacity, although that may be inadequate for learning about official policy.
Another option would be to engage and promote the further development of nonstate actors that deliver public goods and offer accountability, such as NGOs. It is hard to see how China can avoid the middle-income trap and achieve social stability without creating a favorable environment for these groups to mature.
Although continuing to engage and support the Chinese government and encouraging a modern nonprofit sector are worthwhile, there is also value in being clear-eyed and practical. Governments, business, and other stakeholders may have no choice but to engage the system as it works instead of how they would like it to work. Along these lines, the recent critiques of the party and predictions of its imminent doom are misguided. Decriers have attacked the CCP for, in effect, being itself. They seem to miss the simple but foundational truth of Xi’s message that “it’s the party, stupid.” This means that everyone with a stake in China’s forward trajectory may have to expend more effort in understanding the evolving role of the party and find ways to interact with it as fully and widely as possible. To do otherwise would mean to put one's head in the sand and miss the party.