Grand reform is for 'real men', says Xi

EXACTLY this time last year, at the annual meeting of the National People's Congress, China's colourless and secretive politburo broke into spectacular ideological warfare. Bo Xilai, wounded by a shock defection from his inner circle, defiantly held himself out as the saviour of Chinese socialism. "If a new capitalist class is created, then we'll really have turned onto a wrong road," said Bo, making eye contact with journalists who had packed into the room, while hundreds more were locked outside. "Dare to fight for the high ground with these devils," he said, reciting a Mao-era poem. "Never give an inch to the overlords."

And then China's only other truly popular politician, Premier Wen Jiabao, gave an equally spell-binding press conference performance in which he twisted his knife into Bo's political career. Wen revealed Bo was under investigation and likened his mass politics in Chongqing to the most lawless moment of China's Maoist past. "Reform has reached a critical stage," said Wen. "Without the success of political reform, economic reforms cannot be carried out. The results that we have achieved may be lost. A historical tragedy like the Cultural Revolution may occur again."

Both men diagnosed the same afflictions of inequality, corruption and bureaucratic decay but gave opposing ideological prescriptions. Bo held out the need for a powerful state as the solution, while Wen said excessive state power was in fact the problem.

One year on, Premier Wen is retiring from political life, tainted by revelations of his family's hidden wealth. And Bo is sitting in a secret prison cell waiting for the party to find the courage required to commence his prosecution. Bo stands accused of myriad crimes including massive corruption and an involvement in his wife's murder of an Englishman.

Next week, as the two-week congress draws to a close, Wen will hand over to the Deputy Premier, Li Keqiang, and Xi Jinping will add the nominal title of "president" to the posts of general secretary of the Communist Party and chairman of the Central Military Commission that he acquired from Hu Jintao in November.

With the party's ideological warriors vacating the stage it is Xi's job to pull the party enterprise back together and chart a new and sustainable direction.

Xi, the son of an esteemed and courageous revolutionary veteran, has surprised many with the speed with which he has assumed authority over the military in a system where power still "grows from the barrel of a gun", as Mao once put it. In four frenetic months Xi has billed himself as a strongman-style leader who is at ease with the people, which is not unlike the princeling rival he helped destroy, Bo Xilai.

"To forge steel one must first be strong," said Xi, setting the tone in his November 15 acceptance speech. The Soviet Union collapsed because it lacked "a real man" to fight and defend the regime, he said in December.

In January, Xi was "fighting tigers" as well as "flies" in an anti-corruption crusade. He has elevated the historical status of the early Mao-era, quoted Mao's poems and implored his cadres to have "confidence" in China's one-party system. The nod to the ideological left has united broad sections of the "red aristocracy" - his core political constituency - after a year of bitter divisions.

The new administration has "corrected" the party's course at its "critical moment of life and death", said one party stalwart, Hu Muying, at a recent Spring Festival gathering of children of revolutionary leaders. "There is hope in the snake year now the party leadership has shown us the content and direction of socialism with Chinese characteristics."

"Deng's success was, after all, the result of his close relations with so many groups in the leadership and the party rather than any inflexible ideological or intellectual position," says David Goodman, author of Deng Xiaoping and the Chinese Revolution.

He says Xi could have the makings of China's strongest leader since Deng Xiaoping. But unlike in Deng's time, says Goodman, there is no consensus on how to move forward and Xi risks being trapped by the disparate groups that brought him to power.

"In practical future politics and policy terms, he has yet to commit himself or his leadership to anything beyond rhetoric," says Professor Goodman, academic director at the University of Sydney's China Studies Centre.

While exploiting Maoist symbolism, and articulating opposing liberal positions, including constitutionalism and rule of law, Xi wants to bury the battles of ideology that split the party last year.

"It's not about old talk of 'the east wind prevailing over the west wind' said one of Xi's closest and usually secretive advisers, Shi Zhihong, in a meeting during the congress that was shown by Hong Kong's Phoenix TV. "The struggle between left and right in today's China is actually like the blind man touching the elephant."

The Xi administration does not want to be seen turning left, or right, but it knows the status quo is not sustainable.

China's immobilising fusion of wealth and political power is on display at the congress, where the richest 90 delegates have combined wealth of 637 billion yuan ($A98 billion), according to a Bloomberg analysis of data compiled by the Hurun Report.

That list, however, merely tells the story of entrepreneurs who have been

co-opted into the state system.

Behind the giant hammer and sickle that hangs behind the Great Hall's stage is an opaque world of ministers, executives, patrons, secretaries and relatives who command the greatest amalgam of state power and profit the world has ever seen.

China's state-owned companies reported 2.2 trillion yuan in profits last year, despite a softening economy. They are crowding out more efficient private players and have thus far proven to be more powerful than the regulators who ostensibly control them.

But officials are not thrilled about the kinds of market, administrative and legal reforms that would erode their power and channels of private "grey income".

Data from GK Dragonomics shows there has been no progress in reducing the number of central government-owned companies or their employees since 2007, after a decade of spectacular (and disruptive) reforms that opened space for the more dynamic private sector.

Two years ago regulators asked state-owned companies to get out of the ultra-profitable real estate trade - which runs on kickbacks and connections - and stick to their core businesses. And yet all eight commercial land plots sold in Beijing in January were sold to state-owned enterprises, according to Caixin magazine.

Economists are broadly convinced that China's state-driven "hyper-development" model of appropriating private land and building things people don't necessarily need is reaching its limits.

A March 5 report by China's powerful economic planning agency, the National Development and Reform Commission, said heavy industries were "plagued by overcapacity" and "the problems of various kinds of wastefulness are staggering".

On the same day, Wen Jiabao said "unbalanced, unco-ordinated and unsustainable development remains a prominent problem", repeating the exact same warning that he has used each year since 2007.

Wen added that "downward pressure on economic growth" was occurring at a time of worsening environmental degradation and a marked increase in social problems.

Economic planners are still relying on the inexorable forces of urbanisation but are yet to find ways to alleviate the costs. A senior security official reported that pollution has now overtaken land disputes as the major trigger of mass unrest, according to Reuters.

Chen Xiwen, head of the Office of Central Rural Work Leading Group, told reporters at the congress of a dangerous cycle in which local governments are appropriating land to finance earlier investments without regard to household interests. "If the urbanisation process becomes a process of depriving and harming farmers' interests, it cannot be sustained and society cannot maintain stability," Chen said.

Li Yining, an economist at Peking University, warned that spending associated with wanton urbanisation could trigger a financial crisis.

The fact of Xi's emergence as a confident and seemingly powerful leader has been enough to restore some of the economic confidence that evaporated during last year's political infighting and uncertainty.

Bankers and advisers report that investors are tentatively returning to the marketplace. In January, China reported its single biggest month of capital inflows after last year recording the first net outflow since 1998, according to a report this week by the central bank.

In the longer run, however, nobody knows whether any leader can disentangle the amalgam of state power, weak legal protections and kickbacks that has conspired to prevent the economic "restructuring" that China's economic leaders have long been seeking.

Xi Jinping was radiating confidence and poise, as usual, when he dropped in on a meeting in the Great Hall's Shanghai room on the opening day of the congress. He unleashed a barrage of metaphors - a soldier, a hungry dog, a maritime adventurer - signalling determination to move from consolidating political power to spending it on reform.

Pressing ahead with market-oriented economic reform was akin to "storming a fortification", he said. "We must have the courage, like gnawing at a hard bone and wading through a dangerous shoal."

But the challenges ahead of him are huge. "Now it is coming close to decision time," says Kerry Brown, executive director of the China Studies Centre at the University of Sydney. "That will involve smashing some of the vested interest that has flourished around the party in the last three decades," he says. "The fat years of Hu Jintao are over."