2012 promises to be a year of important transitions for China. Even as the country grapples with deep social and economic challenges, its Communist Party leaders will be busy jockeying for political advantage ahead of a crucial leadership reshuffling in October, a tense but mostly invisible process that will in many ways define the year.
Some Chinese — most notably Premier Wen Jiabao (温家宝) — have argued that China’s current challenges demand invigorated discussion of political reform. The fact remains, though, that substantive discussion of institutional change, however necessary, remains highly sensitive.
CMP will offer regular coverage this year of the upcoming 18th Party Congress and relevant issues. We would like to inaugurate this transitional year with a recent editorial in China Newsweekly magazine by Wu Jinglian (吴敬琏), one of China’s best known economists. In the editorial, Wu addresses a range of issues, including corruption and the rising gap between rich and poor in China.
Invoking Deng Xiaoping’s statement in the 1980s, at the outset of economic reforms, about the important relationship between economic reform and political reform, Wu suggests that China must find a way to move forward with a program of political reform. And that must begin, he says, by creating an environment in which all Chinese can feel free to talk about it.

“Reform Must Allow People to Seek Prosperity, and Give Them the Courage to Speak“
By Wu Jinglian
The progress of China’s economy over the past thirty years can be illustrated in three areas. The first is rapid economic growth, with annual growth of around 10 percent. The second is a clear rise in the standard of living of Chinese. The third is real achievement in terms of poverty reduction. According to the standards of the World Bank, China has brought 350 million people out of poverty since economic reforms began, and [China] has risen substantially as well on the human development index.
But “poverty reduction” is not the same as “poverty elimination” (灭贫), and even less does it suggest that the general population is already prospering. In fact, poverty remains the problem in most urgent need of attention. Even as China’s economy has made major achievements, it faces serious challenges.
What drives the gap between rich and poor? I believe there are two things, the first being corruption and the second being the monopolization [of riches, resources and opportunity]. Both of these have to do with government power. The type of monopoly we have [in China] is not the outcome of free economic competition but has been generated instead by political power. Chen Tonghai (陈同海), the former CEO of Sinopec Corp, China’s most profitable enterprise in 2009, was subsequently arrested for taking bribes, and it was later found that he had on average personally used 40,000 yuan (US$6,350) of public funds a day. This should not happen according to economic reforms as they were originally intended. But inadequate reforms created this situation.
In recent years there has been a tendency in thinking that easily misleads the public, and that is that the polarization of rich and poor has resulted from the market economy. But the root of resentment against the rich (仇富) is in fact anger over corruption (仇腐). I believe entirely that certain people have willfully redirected the target, deflecting the disgust people feel toward corruption onto the shoulders of run-of-the-mill rich. Some who are rich have amassed their wealth through diligence and hard work, because they are good at what they do. Others have relied on power and position, turning public power to private advantage. Diverting public anger onto the shoulders of the wealthy not only does a disservice to general prosperity, but also has serious social consequences.
Directly ahead of us once again looms the question of what direction China must go. Do we turn back to old institutions, or do we move in the direction of a democratic and harmonious modern nation? The answer must be the latter. But how can this be achieved? We must first allow ordinary Chinese to seek prosperity.
Low incomes are the root reason for insufficient consumption among ordinary Chinese (and even among professionals). Relying on investment to drive growth can only result in increases in capital income, and increases in capital income take only two forms in China. The first of these is state capital. State capital can only create state revenues, an increase in revenue among state-owned enterprises. The second form [of capital income growth] relies on the investment capital of the super-rich, and if this portion is increased it can only result in increased income for the super-rich.
Therefore, it is impossible to rely on investment increases to increase the incomes of ordinary Chinese. If we want to resolve problems in the long term, the answer is transforming our pattern of [economic] growth, driving the process of industrial upgrading. We are a great manufacturing nation. But our massive manufacturing sector has to transition toward development on both ends of the “smile curve.” Traditionally, these two ends point to the service sector, to design and development on one end, and to marketing and branding, channel management and after-sales service on the other. Developing on both ends [of the “smile curve”] would mean that some segments of the service sector [in China] would develop into independent industries.
If we want to allow ordinary Chinese to prosper, moving the country in the direction of democracy, civilization (文明) and harmony means relying on economic reform, but also on political reform. We must realize the proposals made by Comrade [Deng] Xiaoping, who said in the 1980s: “Political reform and economic reform should be interdependent and coordinated. If we seek economic reforms but do not seek political reforms, then economic reforms will not work out.”
Further, I would like to emphasize the importance of building a nation of rule of law. This issue has come up against certain difficulties of late, whether one is talking about the legislative side or the judicial side. On the question of democracy and constitutionalism, we must find a path forward. The first order of business on this front is enabling a fair environment for discussion. Not only do we need to allow ordinary Chinese to seek prosperity — we must also give ordinary Chinese the courage to speak.