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Oct 19, 2017 | 07:17 GMT

4 mins read

China: Entering a Not-So-New Era

Forecast Update

In Stratfor's 2017 Fourth-Quarter Forecast, we noted that the Communist Party Congress will signal the lengths to which Chinese President Xi Jinping will go to secure the political compromises he seeks to stabilize China's political and economic system. In his opening remarks, the president did just that, though it remains to be seen if Xi will emerge from the party congress with the political capital needed to see his visions through.

China has "entered a new era," according to Chinese President Xi Jinping. During his speech kicking off the Communist Party Congress on Oct. 18, Xi hailed the country's progress on socio-economic and diplomatic fronts over the past five years, including urbanization, developments in agriculture and infrastructure, regional rebalance, the commencement of the Belt and Road initiative and island reclamation in the South China Sea. Xi laid out key reform priorities for the coming years as well, calling for more market-based reforms on interest rates and currencies, and continued reforms on state-owned sectors, among others.

But the president also underscored "severe challenges" awaiting the Chinese Communist Party. Besides grandiose calls for unification with Taiwan, continued control over Macau and Hong Kong and long-term modernization, Xi made particular note of the fact that the "Principal Contradiction" facing China has changed. (The concept of Principal Contradiction is how the Party defines its core tasks and the challenges facing the country.) Of course, it's changed several times since the founding of the Party, from the focus on politically-rooted class conflicts in its early history to the need to meet "ever-growing material and cultural needs of the people," which formed the ideological foundation of Deng Xiaoping's reform policies and China's pro-growth economic model for 30 years starting in the 1980s. According to Xi, the concept has now evolved into "the contradiction between unbalanced and inadequate development and the people's ever-growing needs for a better life."

Though the wording may be new, the redefined Principal Contradiction still reflects the socio-economic paradigm in China that has been slowly evolving for a decade since the 2008 global financial crisis. Xi is simply setting tasks for the Communist Party — to create a more homogeneous society of regional and social equalities, to establish sustainable and quality socio-economic development with a slower growth rate, and to create a more coherent nation under the leadership of the Communist Party. Xi is also calling on the Party to be prepared and able to adapt to the opportunities and risks associated with these tasks.

Turning these words into action will come with massive resource and wealth redistribution: from the previously prioritized coastal and urban regions to the inland and underdeveloped rural provinces, and from the upper and middle classes of around 400 million people to the still relatively underrepresented lower classes of 900 million people. The process will lead to institutional, political and economic transformations. Infrastructure priorities, investment and fiscal allocation from the central government will all be redirected. Land reforms, inland urbanization, and tax structures, just to name a few, will be readjusted, too. On top of that, the distribution of political power in the interior provinces and their ties with the central government will need to change.

But again, none of these reforms are exactly new. In fact, most are underway, having begun years before Xi even took power back in 2012. Nonetheless, coastal business interests and bureaucratic patronage networks will resist the implementation of Xi's reforms, as they did Jiang Zemin's "Go West" and Hu Jintao's "inland development" initiatives. Xi's efforts to consolidate the central government’s power and take back political authority from the provinces, regions, businesses and bureaucracies will be difficult: He's breaking the political system in an effort to save it.

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