U.S. Sees Divisions Within Chinese Politburo Leadership Over Economic Reform

Pro-Market communists pitted against go-slow ideologues

Hu Jintao, Xi Jinping / AP

U.S. intelligence agencies recently reported divisions emerging within the secretive Chinese communist leadership over economic reforms, as leaders appear split between those favoring more capitalist-oriented change and more ideological advocates backing tight government control over the economy.

The differences, although slight, are considered significant for the closed communist system.

The divisions were expected to be the main topic of discussion during the secret gathering of China’s leaders in Beijing that began over the past weekend as part of a major Party conference.

Some 370 members of the Communist Party Central Committee are taking part in the major meeting called the Third Plenum with the announced theme of "deepening reform."

China’s Global Times announced Monday that comprehensive economic reform decisions from the meeting would be announced Tuesday at the close of the plenum.

No details of the conference have been published in state media so far.

However, behind the scenes China’s leaders were expected to fiercely debate the differing views. The outcome could determine the future course for China’s state-controlled economy, which experts say is showing signs of slowing after decades of large-scale growth.

Disclosure of the internal divisions also comes as supporters of imprisoned former Politburo member Bo Xilai, the neo-Maoist and populist Chinese leader in Chongqing, announced the formation of a new political party supporting his views.

According to U.S. officials familiar with intelligence reports, the policy differences among Chinese leaders fall into two categories: Those advocating less state economic control and those demanding continued socialist controls and a more gradual approach to resolving growing income disparities and poverty in rural China, where half the country’s 1.3 billion people, who have not benefited from current policies as much as those in China’s large prospering cities, live.

The debate between those pushing for expanded market economic reforms and gradualists who want slower reforms has played out over the past several months in the main Communist Party newspaper, the People’s Daily. The paper is a key window on what U.S. intelligence agencies call the "hard target" of internal decision-making among Chinese leaders.

According to U.S. officials, the divisions were outlined in careful analyses of authoritative "commentator articles" published in the People’s Daily. The articles signal the views of ruling Politburo members or factions but are not considered consensus views of the entire leadership, currently headed by Party Secretary Xi Jinping.

A majority of the party daily’s articles on economic reform during the past several months have called for loosening market forces and allowing them to play a greater role in the Chinese economy. U.S. officials said publication of this trend indicates some Politburo leaders want to increase the speed of economic reforms in China’s economy.

These pro-market advocates are critical of what is termed the "visible hand" of the government in the economy. And they argue for allowing the capitalists’ so-called "invisible hand" to lead the free market approach.

For example, on Oct. 22, a key People’s Daily article said the Chinese government’s role in controlling the economy should be restricted in order to "unleash" development. "When the government does less, the market becomes more invigorated," the article said.

The pro-market faction also stresses quality over quantity and is critical of the current policy of pursuing rapid growth, noting it has produced low quality and low performance.

In unusually harsh criticism for state-controlled press, a Nov. 5 report attacked specific cement companies in Sichuan for overproduction. The report said excess capacity in the southern city exemplified the major problem of China’s current economy.

On the other side of the policy debate are the cautious Chinese leaders—dubbed gradualists—who are followers of the late Chinese reform leader and architect of China’s current reform, Deng Xiaoping.

This faction’s views are said to be captured in Deng’s phrase for slow economic reform, "crossing the river by feeling for stones," signifying gradual reform.

The gradualists’ views were published in August and argued for economic policies designed mainly to address problems caused by China’s economic modernization. They echo policies under Xi’s predecessor Hu Jintao and indicate Hu’s supporters remain powerful inside the upper reaches of the ruling Politburo.

The gradualists’ catch phase calls for improving "people’s livelihood" by addressing income differences, regional development that has favored eastern cities over rural states, and dealing with the growing problem of poverty in China’s countryside.

At the center of the internal debate is current Party general secretary, Xi Jinping, who officials said embodies the two sides. Xi is part of China’s so-called "princeling" caste, the sons and daughters of communist elders who have benefited most from China’s modernization and who have a stake in preserving the status quo.

Xi is also considered more of a communist ideologue than his predecessors. His doctorate was in "scientific socialism," a euphemism for communism.

The current system in China has been described by analysts as a combination of Soviet-style political controls combined with an economic system of authoritarian state capitalism.

On the new political party, Bo supporters announced Nov. 6 the launching of the Zhi Xian or Supreme Authority of the Constitution Party—a direct challenge to Beijing that since 1949 has recognized only one party in power.

Bo, the former Party leader in Chongqing, a large city in south central China, was imprisoned for life in September after being charged with corruption.

The new party will be headed by Bo and will seek to promote what its supporters say is "common prosperity" for China. It is viewed as a more radical version of the "people’s livelihood" faction in the Politburo that is opposing pro-market, capitalist economic reforms.

Under Bo, mass rallies were held to extol Maoism and nationalism in what analysts are calling a return to the radical communism of Mao Zedong, whose communist Cultural Revolution of the 1970s crippled China for a generation.

Josef Joffe, a Hoover Institution expert, wrote in a new book that China’s economy is showing signs of decline and is not the juggernaut that many experts predict would overtake the United States in several decades.

Among other factors, an aging population and lack of freedom will eventually doom China, Joffe wrote in The Myth of America's Decline.

"China is brilliant at appropriating foreign technology, but the Internet remains tightly controlled, and the free exchange of knowledge is rigorously rationed," he wrote. "The children of state ownership are collusion, fraud, and corruption, the scourges of China past and present."

"The next step, historically, has been democracy, but participation and the diffusion of power, shifting resources from the state to society, do not coexist with double-digit growth, as East Asia and Western Europe show," he said. "It is a double bind, no matter which way the Party turns. A slowdown lurks on either side. So good-bye to spectacular growth, whether it is revolt and repression or the vindication of the Liberal faith in a nation that has known only emperors and oligarchies, be they by divine, dynastic, or revolutionary right."

Kevin D. Freeman said he agrees there are divisions among opposing leadership factions. They include proponents of a slow, peaceful rise based on reform measures and eventual integration with a global free market economy over time.

A more militant faction views economic activity as an element of "unrestricted warfare" in China’s advance toward global domination.

The factions have created major problems for U.S. intelligence agencies trying to monitor China, Freeman said.

"Most analysts seem to focus on the reformers and thus downplay any [People’s Liberation Army] belligerence and dismiss the unrestricted warfare philosophy as being non-reflective of Chinese policy," Freeman said.

That has led to U.S. policies advocating Chinese economic interdependence while missing the threat posed by military control within the Chinese system.

"The PLA has their own funds, front companies and the like," he said. "They understand that the PLA can and does act independently when it desires with strong Politburo support. Clearly, the reformers would not advocate ongoing cyber attacks and other methodologies of unrestricted warfare. Yet, these continue under PLA control."

Freeman also warned that reform could be a subterfuge to disguise more sinister intentions by Chinese leaders. "We have seen evidence of this in writings where a pro-west position is taken in one chapter and then a very threatening position is promoted in the next," he said.

Former State Department China expert John Tkacik also said he is wary of official claims of coming economic reform in China.

"Be careful, and skeptical," Tkacik said of China’s Party machinations based on published reports.

"The so-called ‘reform' wing is not advocating so much for ‘market forces' as for more autonomy to the non-state sector that has its power bases in the provincial and local party committees," Tkacik said.

"Consequently, the party plenum will not announce any real ‘reforms.' There could be a shift in the amount of flexibility there'll be in currency policy, but it will certainly be one which keeps the party center with firm authority over capital markets should things get out of hand."