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China’s Dream Team

by | November 19th, 2012 | 09:01 am
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The 18th PSC Brings Their Regional Experiences to the National Stage

Last Thursday, China officially welcomed a new line up of leaders to form the 18th Politburo Standing Committee (PSC) of the Chinese Communist Party. The new recruits come from a variety of different backgrounds (economic policy, finance, state-asset management, propaganda, industrial planning, the oil industry) but one thing they all share is some degree of provincial leadership experience.

Six out of the seven members of the 18th PSC served as provincial party secretaries. The one member without this experience, Liu Yunshan, still had experience as deputy secretary. And thus by looking at their provincial track records we can get a small taste for the economic management style favored by the new leadership.

There are a few things to keep in mind when evaluating the performance of the new members of the 18th PSC based on their region performance. First, the amount of time they have spent as provincial leaders varies quite considerably: from one year to twelve years. Those only in office for short period of time may have only had a minimal impact on the economic structure and GDP growth. Second, it is also important to keep in mind that regional economic policies may be heavily influence by broader national policies. For instance, many of the leadership with longer track records may have a weaker record on rebalancing simply because rebalancing was not national policy until the 10th Five Year Plan (2002–07).  Finally, although provincial statistics are often useful for comparison, the quality of provincial statistics are variable. At times even the National Bureau of Statistics is suspicious of provincial data.

Keeping these concerns in mind, looking at provincial performance data does reveal an interesting portrait of China’s new leaders.  The image reveals a group of leaders that will now bring very different economic management styles—forged in battling diverse regional challenges—to the national stage.

* Liu Yunshan was Deputy Secretary of the CPC Autonomous Regional Committee for Inner Mongolia (199293); Wang Qishan was Mayor of Beijing (200407) and Secretary of the CPC Provincial Committee for Hainan (200203); Zhang Gaoli was Secretary of the CPC Provincial Committee for Shandong (200207) and Tianjin (2007present); Xi Jinping was Secretary of the CPC Provincial Committee for Zhejiang (200307); Li Keqiang was Secretary of the CPC Provincial Committee for Liaoning (200507) and Henan (200204); Zhang Dejiang was Secretary of the CPC Provincial Committee for Guangdong (200207), Zhejiang (19982002), and Jilin (19951998); Yu Zhengsheng was Secretary of the CPC Provincial Committee for Shanghai (2007present) and Hebei (200102).

In recent decades, the more developed coastal provinces (such as Zhejiang and Shanghai) have begun to rebalance away from fixed capital investment towards household consumption growth. In contrast, many interior provinces are still building up infrastructure to support industrialization and urbanization.The new members of the 18th PSC have experience grappling with both these issues.

Of both regions, the members of the 18th PSC have the most experience managing rapid growth in coastal provinces, which in more recent years has meant tackling the challenge of rebalancing. Xi Jinping and Yu Zhengsheng  were the most successful at managing a smooth rebalancing in Zhejiang (2003–07) and Shanghai (2007–present), respectively. They managed to offset a fall in the share of fixed capital investment in GDP almost exactly with a rise in household consumption—perhaps the ideal for rebalancing.

A smooth rebalancing strategy was more difficult for Wang Qishan in Bejing (as Mayor from 2004–07). Although Wang managed to offset a rapid decline in Beijing’s fixed capital investment as a share of GDP in the lead up to the olympics with a rise in consumption, it was dominated by government consumption rather than household consumption. In fact, household consumption continued to fall over the period of Wang Qishan’s leadership, down 2.2 percent as a share of GDP, even as Beijing experienced a rapid rise in net exports as a component of GDP (faster than Shanghai and Zhejiang over the periods mentioned above).

However, rebalancing coastal provinces was not always the priority for the new members of the 18th PSC. Zhang Gaoli spent his entire career managing coastal provinces, but on average, household consumption fell by 3 percent of GDP over his 9 years as provincial secretary in Tianjin and Shandong. The lack of rebalancing may reflect a more investment-focused style. In his most recent post in Tianjin, Gaoli managed to achieve 16.5 percent real GDP growth (perhaps improving his performance record) but almost entirely due to a large boom in fixed investment, while household consumption and net exports fell.

Zhang Dejiang does not have as much of an investment fueled approach as Zhang Gaoli but still did not emphasize rebalancing during his nine years in managing coastal provinces. More recently during his time in Guangdong, the province experienced rapid growth in net exports as a component of GDP but instead of using this as a cushion for supporting consumption, household consumption fell, supporting a rise in fixed capital investment. In contrast, Xi Jinping managed to rebalance the export economy of Zhejiang at the same time Zhang Dejiang emphasized the role of fixed investment in export-driven Guangdong.

A few members of the 18th PSC have also had experience managing the economies of less developed provinces. Soon to be China’s next premier, Li Keqiang failed to deliver on rebalancing when he supported a fixed investment boom in the northeast province of Liaoning (fixed investment reached 56.4 percent of GDP by the end of his time in office), but his more moderate fixed investment strategy in Henan may have been just what the doctor ordered for a the relatively underdeveloped interior province. Liu Yunshan also had a brief stint overseeing a ramp up in Inner Mongolia’s investment-led growth in the early 1990s, while Zhang Dejiang began his career in the late 90s grappling with state-owned enterprise (SOE) reform and the toll it was taking on his heavily industrialized Jilin province.

If there is anything we can take away from the provincial leadership experiences shared by the 18th PSC it is that the current leadership has a great variety of on-the-ground experiences and approaches to economic growth and rebalancing. Although some may see the fixed investment bubble created by Zhang Gaoli in Tianjin as negative indicator for rebalancing, his record is countered with the rebalancing work employed by Xi Jinping and Yu Zhengsheng in Zhejiang and Shanghai. Such a mix certainly has the potential to create bottlenecks in policy formulation as some fear, but it could also serve to create better policies that fully exploit the diverse experiences of this group of new leaders.