JayAtl
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The Great Fall of China - Businessweek
Qi hu nan xia, goes a Chinese proverb: When one rides a tiger, it is difficult to dismount. For the leaders of Chinas 1.3 billion people, the import is clear. Stay on the tigers back, issue commands, and hope like hell the beast doesnt turn on you. Over the last quarter-century that approach has served the mandarins of the Communist Party well. China became an economic marvel and staked a claim as the worlds next superpower. Civil liberties, social development, environmental husbandry, and political transparency were subordinate to the imperatives of growth. Increasing complaints about the avarice and gangsterism of government officials could be dismissed as local problems as long as an enlightened elite was thought to be guiding the state with a steady hand. Even when under pressure to reform, Chinas leaders could reassure themselves that their grip on power remained secure.
Not anymore. The Communist Party faces the most serious threat to its authority since the Tiananmen Square uprising of 1989. The case of Bo Xilai alarms Chinas leadership precisely because it weakens the impression of strength and competence they have labored so hard to maintain. A tough-on-crime princeling about to be welcomed into the ruling elite is suddenly accused of being corrupt; his wife is implicated in the murder of a British business associate; the familys fortune, totaling over a hundred million dollars, exposes the wealth high-ranking bureaucrats have amassed at the publics expense.
These episodes have revealed to the worldand to a sizable portion of the Chinese peoplea culture of greed, violence, and deceit at the highest levels of government. The Communists power is not in imminent danger, but their legitimacy is.
Already on the defensive, Chinas leadership was left sputtering with indignation on May 2 after a blind dissident, Chen Guangcheng, left the protection of the U.S. Embassy in the company of Ambassador Gary Locke. Chen has suffered years of persecution for challenging forced abortions and sterilization. In another era Chen might have disappeared the moment he left the embassy, where he sought refuge a week earlier. The circumstances of his departure from U.S. custody remain murky, and its impossible to know whether Chen and his family will be protected from harassment in the future. But China is in the spotlight now. Secretary of State Hillary Rodham Clinton, visiting Beijing for the the annual Strategic and Economic Dialogue, announced that China had committed to let Chen pursue higher education in a safe environment.
For Chinas partners in commerce, this is a time of confusion and riskand also opportunity. Western companies such as Hewlett-Packard (HPQ), Caterpillar (CAT), General Motors (GM), and Siemens (SI) have bet big on the continuation of Chinas economic miracle. No sensible CEO dares to kick the Chinese leaders when theyre down. With the outcome still uncertain, no one wants to pick sides, either.
Finesse is called for, along with a clear focus on what really matters. Western governments and businesses benefit if China moves in the direction of free markets and democracy. They lose if Chinas leaders try vainly to keep the lid on the pressure cooker. While Western leaders dont have much influence over what happens next, they can at least keep the lines of communication open while quietly appealing to the enlightened self-interest of Chinas would-be reformers. Thinking people understand the need for change, says Duncan Clark, chairman of Beijing-based consulting group BDA China. China is the Pragmatic Republic of China; ultimately pragmatism drives everything.
All of which is to say that its a mistake to stop doing business with China. Just as its a mistake to think this is business as usual.
The Bo Xilai case is rocking China and shaking the West because it has revealed the breakdown of a contract between the leaders and people of China. The unspoken deal is that the colorless chiefs of the Communist Party will deliver prosperity, keep low-level graft under control, and ensure a smooth transition of power every 10 years. In return, the Chinese people will work hard and tolerate their lack of say in how their country functions.
Until recently the skids appeared well greased. This fall the 18th Party Congress is expected to name the reform-minded Vice President Xi Jinping, 58, as president and Party secretary. Li Keqiang, 56, executive vice premier in charge of the economy, is in line to be premier. Those appointments are still on track. Whats now in play is who else will sit on the nine-member Politburo Standing Committee, the group that collectively runs China. Bo wont get his once-expected seat. Who ascends is the subject of a multi-directional struggle among forces including those of current President Hu Jintao and of his 85-year-old predecessor, the still-active Jiang Zemin. The 2,000 or so delegates who will vote are being selected now in backroom bargaining thats undoubtedly brutal
Bos disgrace has thrown into question the leaderships ability to groom its successors, a key aspect of its promise to the people. For Chinas rulers, the scandal comes at a bad time. Touting their stewardship of the economy, the sine qua non of Party legitimacy, is no longer an easy sale. Theyre caught between trying to deflate a real estate bubble and trying to prop up the real economy, whose 8.1 percent rate of growth in the first quarter was the slowest since 2009. Even after a recent rally, the Shanghai Composite stock index remains 60 percent below its frothy 2007 high. (Americas Dow Jones industrial average is just 6 percent off its 2007 high.)
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