Jiang Zemin's era finally over

September 19, 2004

Those of you really interested might have noticed when Jiang Zemin retired as President of China (March '03) and General Secretary of the CCP (2002). Yet, for 18 months afterwards, he was spoken of as the leader of China, when in fact Hu Jintao held the two top posts. The reason, of course, was that true power was believed to lie with the post of chairman of the Central Military Commissions (PRC/CCP). Deng Xiaoping was leader of China from 1977 to 1990 without ever being president or general secretary. Now Jiang Zemin has stepped down as chair of both military commissions. As when he retired as president of the PRC and as general secretary of the Communist Party, Jiang is being succeeded by Hu Jintao.

What exactly does this mean? Gen. Secr. Hu Jintao is generally regarded as a "reformist" acolyte of Jiang; Vice-President Zeng Qingkong has traditionally been an exceptionally zealous partisan of Jiang. Your humble correspondent believes that Jiang's main ideological legacy is the cultivation of a nationalistic, corporate Chinese state. Deng Xiaoping's contribution was the liberalization of a heretofore unmanagebly rigid economy; but the boom created tensions in the political system. China required a new cohort of highly educated administrators, lawyers, and educators—in other words, a huge cohort of younger Chinese trained in liberal arts or social sciences, rather than the gerenotocracy of engineers and agronomists. This led to the pro-Democracy Movement and its debacle in Tienanmen Square. But Deng's transformation of China also meant the need for larger, more complex industrial organizations. Contemporary Western commentary on China assumed that Deng's reforms were simply going to lead to a plethora of tiny, wildcat enterprises churning out jeans and fresh lettuce. Instead, China developed corporations as a form of financial speculation, then as a type of governence for the country's unwieldy, idiosyncratic chains of enterprises (such as PLA holdings). Corporations, however, represented a rival locus of power from the CCP and the PLA—even when controlled by them. The evolution of China's economic organization was racing out of the control of either Chinese revolutionary ideas, or of the paternalistic petty capitalism encouraged by Deng.

The solution, predictable enough to observers of European and US history, was nationalism; this new nationalist narrative glorified the new managerial elites as conventional patriots of China, who would win respect through China's burgeoning diplomatic clout. This was the essence of the "Three 'Represents'" [*], but it required a very tight management of the corporate development of China. The reason for this is that China's corporations do not yet represent a rational structure for managing enterprise in the country. There has been astonishing progress, but unlike the history of economically developing Western nations, in China the corporation developed first with medium-sized business, and has yet to spead to big ones. In contrast, Western nations used the corporation to develop big industry, and partnerships or LLC's to develop medium enterprise. As a result, in China there is a capital market and an advanced industrial sector, which do not have anything to do with each other.

Jiang's legacy seems to reflect a disastrous focus on the urban development of China at the expense of rural development. The use of the space program, a German-built maglev train between Beijing and Shanghai, and the Houston-esque urban development of Shanghai itself, led to a boom in industrial productivity just at a time when the nation needed to supply jobs to an explosion of displaced rural laborers. China seems to face a reverse of the "Great Leap Forward"—a torrent of productivity, massive GDP growth, and labor displacement to the cities. At the same time that productivity has displaced farm workers on individual farming collectives, there is a shortfall in grain production as farming land is paved over en masse (China People's Daily).

The battle lines in Chinese politics are no longer around "reform"; China's economy is no longer something that can be "reformed" by ending restrictions on commerce. Those restrictions are either gone, or remain to hold together social fabric. Likewise, "reform" in the sense of fighting corruption, is something that tends to pit the petty bourgeois and middle managers against the small holders in the rural prefectures; it's no longer a clear-cut political campaign involving mass executions in stadiums. Now the real issue is the development of corporations to manage Chinese industrial enterprise, integrate that enterprise in world capital markets, and retain the nationalist loyalty of an otherwise-liberalizing urban population.