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  • Super-Rich Chinese Leaders: A Dangerous Development

    The New York Times has laid out a portrait of a Chinese billionaire family, and it’s a fairly worrisome one. Premier Wen Jiabao’s extended family, including his brother-in-law, are said to be worth $2.7 billion. Average income in China last year was less than $6,000.

    The Wens aren’t alone. Bloomberg previously uncovered hundreds of millions of dollars in assets belonging to the family of incoming Communist Party General Secretary Xi Jinping. The Financial Times documented the financial success of the families of seven top Chinese leaders. The family wealth of the top-Party cadre is both a major impediment to economic reform and fuel for any spark of social unrest.

    The economic impediment stems from China’s re-embrace of state-led development. It is slowly being recognized that China started to move away from market-led development well before the financial crisis struck. In fact, the shift back to the state began in late 2002, when the current government of Hu Jintao and economic boss Wen Jiabao (and apparently their families) took over.

    For example, China’s economy was balanced between investment and consumption in 2001. That balance has progressively tilted in favor of investment every year since then, a trend that is ultimately unsustainable.

    Why has it persisted? Consumption is driven primarily by people; investment is driven primarily by companies. In China, companies are ultimately responsible to the Communist Party—which blocks competition, controls credit, and owns all land. State-owned firms in particular are directly run by Party officials. The system is rigged in favor of Party-backed firms, which has enriched the cadre and their families.

    This situation would be volatile under the best of circumstances, most prominently if the Chinese economy were as vibrant as it was in 2004. But for corruption and nepotism to be so prominent in a period of economic weakness creates a witch’s brew of potential instability.

    The protests leading to the 1989 Tiananmen crackdown began not with a call for democracy but in reaction to growing inflation combined with the perception of rampant corruption. The calls for democracy ensued from a belief that the Party was unable or unwilling to enforce needed rules upon its own cadre. And this occurred when Deng Xiaoping, a revolution-era leader, was clearly in charge and the gap between rich and poor in China was far smaller.

    Unlike Hu and his predecessor Jiang Zemin, the incoming leadership was not picked by Deng. An attempt now to genuinely curtail corruption and nepotism would be extremely difficult. Previously, Deng could be used to break deadlocks, even after his death through those he personally anointed. The new group will have to painstakingly negotiate change with the natural tendency to compromise, delay, and muddle through. In an environment of cadre wealth and a weaker economy, this may not be enough to mollify popular sentiment.

    The Party will select its new leadership November 8. Early next year, a new government will be formed. The new regime, headed by Xi Jinping, is supposed to be in charge for 10 years.

    There has been intense speculation over whether the new regime will re-embrace economic reform and move back toward the market. The wealth accumulated at the top of the Party indicates that any such move will be angrily opposed. This is worrisome enough. It is also possible that, over the course of the next decade, the Party could be unable to respond effectively to rising social unrest.

    Posted in Security [slideshow_deploy]

    8 Responses to Super-Rich Chinese Leaders: A Dangerous Development

    1. Super-rich Chinese leaders are called a "dangerous development" …. but super-rich Americans are celebrated for being "job creators" and examples of "American Exceptionalism."

      • Sue says:

        Idiot. The super-rich Chinese own/control the state companies. American companies are either privately owned or by the public via shares in the company. The government doesn't own all American companies, yet, with the exception of Government Motors, et al. And yes, Virginia, are wealthy Americans do create jobs. Be careful for what you wish for, comrade.

      • jdahunt says:

        You see no difference between the Chinese leaders becoming billiionaires while being able to pick winners and losers while the average income is less than 10k and rich americans who did it on their own….really….really….wow….you are messed up.

        • Kahr50 says:

          Unti Obama, no government administration in the United STates EVER took over an industry. He has taken over or atttemopted to destroy at least 5. Insurance / Health Care, Automotove, Energy prodiction, Green Energy (a total bust) and student loans. All in 4 years.

          In China, all industry is owned and controlled by the governemnt – thius de facto, these billionaires and 100 milionaires are dicatators in a comuinist society.

          That is so much different than all administrations prior to Obama – but not so much any more.

          If only I could create a new country without liberals – then you could all live together in disfunctional harmony and I could live without you.

        • CforUS says:

          Wait a minute. Government chronies picking winners and losers? Where have I heard of that before? Hmmmmm.

    2. Erik Osbun says:

      The Communist Party bosses in China enrich themselves using capitalistic methods to the detriment of the Chinese people. It's an oligarchic tyranny that calls itself Communist and operates with the market outside of China in a capitalistic manner and using inside China their captive, collectivized, underpaid proletariat as essentially slave labor.

    3. Blair Franconia, NH says:

      If the President of the United States, and members of Congress, were making the salaries of Third World leaders, and were raking in more than 100 LARGE to 400 LARGE, they'd be considered corrupt. Even if this
      country was a Third World country, which it's gradually turning into.

    4. C Bennett says:

      We lived in China from 1988 through July of '89 and had many opportunities to speak with ordinary Chinese people. At that time, the Communist party assigned people to jobs. One man we knew was assigned to run a Chinese company. He said that if he made a profit, none of the profit was his. However, if he failed to make a profit, all of the debt was his. Further, there was a building about five blocks from where we worked. In that five story building were locked many Chinese. They were slave labor, never to get out of these prisons. Many people spoke to us by ones and twos, both before the massacre and after. Their accounts align under the article above. The article above makes good sense to us, as does the comment by Eric Osbun.

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