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Session 7
Yang, Dali, “China in 2002: Leadership Transition and the Political Economy
of Governance,” Asian Survey, vol. XLIII, No. 1, Jan/Feb 2003
This article is literally a review of policy trends in China in 2002, with emphasis on the 16 th National
Congress of the Chinese Communist Party. The overall theme was that, despite the transition from
Jiang Zemin to Hu Jintao as Party General Secretary, there was general calm and stability in China
and no indication of marked policy change among Chinese leadership. At the national congress
leaders emphasized unity and stability. Despite some political jockeying, it appears that Hu Jintao
and the Chinese leadership will continue the combination of economic liberalization and political
authoritarianism, based on the belief that a “well-off society” will provide social stability needed
perpetuate the Communist Party’s rule in China.
In broad strokes, China continued to enact economic reforms that promote growth and will continue
the phenomenal trend of nearly double-digit growth per annum. However, the involved industrial
restructuring and integration into the world economy has led to increased inequality and thus
worker restiveness. China has attempted to stabilize this trend in 2002 by enacting a number of
populist-oriented social programs, and policies that crush political dissent.
National Party Congress and Leadership Succession
The 16th Communist Party National Congress convened on November 8, 2002, and witnessed the
first peaceful leadership succession since the Communist takeover in 1949. Jiang Zemin retired
from his post of Party General Secretary and was replaced by Hu Jintao. However, Jiang retained
strong influence by remaining chairman of the party’s Central Military Commission, and thus will
continue to oversee China’s military and foreign policy. Old Political Bureau Standing Committee
members retired and were replaced by party functionaries—five of the nine members are Jiang’s
trusted followers. Also, Hu pledged to seek the instruction and views of Jiang. There is the
widespread belief that there will not be fundamental changes in China’s reform era policies of
economic liberalization and political authoritarianism.
The Political Report from the Congress emphasized China’s need to keep pace with the times, and
promote development and reform to build a “well-off society” (Yang refers to this as the Chinese
version of a middle class). Jiang cited the goal of quadrupling China’s GDP between 2000 and
2020. Stability was described as “of overriding importance” and there was little to suggest political
liberalization.
The Struggle for Political Correctness
To create the “right” atmosphere for the congress, the party apparatus tightened control of media in
2002. Publications are tightly controlled and prevented from publishing material critical of the party,
but control of the Internet has proved problematic, and pirated banned books are available on the
street. The Falungong sect is particularly tenacious in its use of technology to reach the Chinese
population, through Internet and hacking into cable broadcast networks in several cities. In
August/September 2002, authorities actually blocked Google and Altavista, which caused an
uproar in international media and among Chinese internet users. The blocks were lifted but
sophisticated technology is now being used to filter Internet traffic including Google caches. In
2002, authorities closed more than 80,000 of nearly 200,000 commercial internet cafes.
Economic Governance
Some policy reforms, such as the plan to sell state-owned shares in firms, were stalled due to the
poor performance of the stock market globally. However, in China much was achieved in WTO
membership compliance, reorganization of industry and regulation, reform of the banking system,
fiscal reforms, and rural fee and tax reforms.
WTO Compliance and Domestic Responses
Despite skepticism, China largely fulfilled its pledges for compliance in its first year after WTO
accession. It cut tariffs to 12% and revised many laws and regulations. There were some
international complaints of slow implementation of reforms to stall entry of competing foreign firms
into the market, but by fall most of these issues were being addressed. WTO membership led to
significant changes at the corporate level—for example, Chinese automakers cut prices and
increased advertising dramatically in anticipation of ending import quotas.
Industrial Reorganization and Regulatory Reforms
As in the past, China’s policymakers continued to regulate competition. They broke up
monopolies, specifically telecom, electric power, and railway industries to increase competition.
They also facilitated mergers and consolidations in the oil, petrochemical, and airline industries to
moderate excessive competition. Several industrial sectors were reorganized so that industry
regulators no longer simultaneously act as owners of the state enterprises, which led to them
typically becoming champions of producer interests over consumer interests.
Restructuring, Protest, and Social Welfare
Industrial reorganization and restructuring to cut costs and improve efficiency has led to major job
cuts across China. According to the State Statistical Bureau, state sector jobs dropped by 30.8%
between 1997 and 2001 (a loss of approximately 35 million jobs), leading to increased urban
unemployment and poverty rates. High-profile protests in many large cities have fed into Chinese
leadership’s perennial worries about social unrest, and a number of policies were enacted to
ameliorate it. Reemployment of laid off workers has been difficult, but policymakers allowed the
number of people receiving livelihood support to increase from 11.7 million in 2001 to 19.6 million
in 2002, and have made efforts to reduce wage and pension arrears. This was combined with
rhetoric promoting social stability, reform, and development. Local authorities began to offer tax
breaks to companies who hire laid-off workers. The central government enacted reforms to
reorganize and improve education and to lower rural power prices.
Fiscal Reforms and the Fight Against Tax Evasion
In a major fiscal reform, central leadership reapportioned corporate and personal income taxes and
made efforts to boost revenue collection. The tax administration also cracked down on tax evasion
among wealthy entrepreneurs, designed to carry a populist message to a broader audience that
the wealthy would be held accountable. Yang says that more Chinese have begun to see
themselves as taxpayers and demand greater services from government in return.
International Relations
China’s foreign affairs were much calmer in 2002 than 2001. Yang notes that Chinese leaders are
increasingly looking for “win-win” arrangements in foreign relations (WTO, security, etc.), which
conveys a greater pragmatism and maturity than in past zero-sum foreign policy stances.
China has cooperated with the US on the war on terrorism since Sept. 11, and many aspects of
their policies reflected that cooperation. The government promulgated regulations governing
export of missile technology and dual-use biological agents. China has been sharing intelligence
with the US to combat terrorism and international crime. Some Uighur separatists trained in Al
Qaeda camps were captured by the US government, and the US placed the East Turkestan Islamic
Movement on its list of terrorist groups. Hu Jintao visited President Bush in the United States and
“pragmatism prevailed” in their discussions of military exchanges and human rights. In regard to
potential invasion of Iraq, China took a position squarely in the middle between US/UK and
Russia/France positions. In turn, Bush reiterated that the US does not support Taiwanese
independence. However, Hu and Jiang traveled extensively to build relationships with countries
beyond the United States.
North Korea was the most difficult foreign policy issue in 2002, particularly regarding refugees that
enter China from North Korea. Although traditionally allies, China allowed over 100 refugees from
North Korea to enter South Korea from China via third countries, straining relations.