If global economists are distraught over the gloomy numbers coming out of China, imagine how Xi Jinping must feel.

China’s president, officially in the post for barely a month, is still consolidating his power. At home, he confronts a widening rich-poor gap and endemic pollution, not to mention bird flu and rivers overrun with dead pigs. Abroad, China’s erstwhile ally North Korea is looking increasingly unhinged. Now Xi faces intense pressure to retool the Chinese economy if he wants to build on gains the Communist Party has delivered over the last 30 years.

Xi could be excused for feeling a tad bitter. He’s in this awkward position largely because of the failings of his predecessor, Hu Jintao. That may sound like an odd way to characterize Hu’s tenure. During his decade in office, China grew at rates of more than 10 percent, surpassed Japan to become the world’s No. 2 economy and matured into a key diplomatic actor.

Hu and his premier, Wen Jiabao, should have used this time to wean the Chinese economy off its obsessive reliance on exports and investment. Yet too many well-placed figures were getting too rich. Modestly paid politicians mysteriously became multimillionaires. Local governments amassed mountains of debt for boondoggle projects. Hu and Wen presided over a robber-baron era that would have made Cornelius Vanderbilt and JPMorgan blush.

By contrast, Xi has been saying all the right things about revamping the economy so that domestic demand, not sweatshop labor, drives growth. He talks about the need to attack chronic graft and to preserve the environment. He has made noises about increasing spending on research and development, and has promised to institute a more inclusive urbanization strategy.

One of the most tantalizing questions in economics is whether Xi has the courage to oversee such an ambitious rewriting of China’s model. Yet the real question is this: Will the vested interests getting obscenely rich in Beijing let him?

However difficult it might have been for Hu to challenge these robber barons, Xi faces an even tougher task. He and his premier, Li Keqiang, must revolutionize the Chinese economy just as it’s slowing dramatically. China is now in its longest streak of expansion of less than 8 percent in at least 20 years. The World Bank says the growth rate might dwindle to 6 percent a year by the end of the decade.

We are a year or more away from knowing what Xi and Li and will do and just how much gross domestic product they are willing to forgo in pursuit of their goals. It’s easy to talk, as Xi has, of national rejuvenation and weaving a new “China Dream.” The test will be whether he is ready to challenge the politicians, businessmen, and their assorted relatives who prospered during the boom years from dodgy land grabs, insider trading and old-fashioned rent seeking. Xi’s own extended family, according to a Bloomberg News expose last year, is worth an estimated $376 million.

Xi’s “China Dream” sits uneasily beside the “Three Represents” philosophy propounded by his political mentor, Jiang Zemin, who served as president from 1993 to 2003. Jiang’s clumsily named program justifies the party’s grip on China’s government, arguing it represents the interests of all members of society. That conviction makes it almost impossible for major political reform to accompany steps to upgrade the economy.

For China, any economic reforms will mean very little unless accompanied by political change and greater openness. Above all, the government needs to reduce the state’s outsized role in banking, finance and industry. That’s what has created multiplying opportunities for corruption and has inflated dangerous bubbles in property and investment.

Xi, like Hu and Jiang before him, says he understands the need to root out corruption from within. The catch, of course, is that only top Communist Party officials are trusted to lead this fight; ordinary citizens aren’t. Average Chinese who call for leaders to disclose their assets are detained. Journalists who do lifestyle checks on key politicians to find out how their families amassed hundreds of millions of dollars are regarded as subversive. This, by the way, is why Bloomberg.com is down in China indefinitely.

Communist Party officials profess deep confidence in the way China is moving and in its system of leadership. But it’s this very system that has created imbalances in the economy. If Xi doesn’t change course, his “China Dream” is going to prove little more than a mirage. 

By William Pesek
 
William Pesek is a Bloomberg View columnist. The opinions expressed are his own. ― Ed.

(Bloomberg)