CHINAS BRITTLE STRENGTH-China is becoming too rigid to address its economic and political problems

http://www.wsj.com/articles/beijings-brittle-strength-1476118154 Under Xi Jinping, China is becoming too rigid to address its economic and political problems. SEBASTIAN HEILMANN Oct. 10, 2016 Xi Jinping has been called China’s most powerful leader since Mao Zedong, and the comparison is certainly tempting. He presents the image of a strongman who has tightened the Communist Party’s domestic grip over state and society. What’s more, he is the first Chinese leader after Mao to openly challenge U.S. leadership in the Asia-Pacific and to position his country in a systemic competition with the West. Yet China’s strength masks weakness within its political and economic systems. Mr. Xi’s power play could end up backfiring at home and abroad. That means Western policy makers must prepare for the possibility of a weaker and a stronger China. Mr. Xi seemingly built a different China in his four years as Party and state leader. He centralized decision making and tightened the Party’s control over the economy and society. The Central Committee plenum on Oct. 26-29 will be an important test of whether he can consolidate his power ahead of next year’s Party Congress. Projecting Chinese strength abroad depends as much on Mr. Xi’s internal strength as on the weakness of the West. As centrifugal forces threaten to unravel the basic consensus in the West, Mr. Xi is creating a hierarchical order with disciplined top-down leadership. He centralized political decision making to an extent not seen since the Mao era. He is enforcing discipline and fighting corruption within the party and has set out to control the media and cyberspace. The main advantage of China’s leadership is its capacity for unified action and long-term planning. As the U.S. is busy listening to Hillary Clinton and Donald Trump trade insults on the campaign trail, and Europeans debate the details of implementing Britain’s exit from the European Union, China’s leadership is mapping out the future of technological innovation, challenging the current geopolitical balance and spreading its own ideological narrative at the West’s expense. China’s ambitious industrial-policy agenda, “Made in China 2025,” is a master plan for accessing technology in order to build up China’s future national and global champions. We may treat every Chinese acquisition of a Western high-tech company as a single case, but Beijing views these state-driven purchases as part of a strategy to replace Western companies in China’s market and position Chinese firms to conquer global markets instead. Beijing is expanding its world-wide influence by forcefully combining diplomatic, financial and engineering resources. The “One Belt, One Road” initiative to create economic corridors and trade hubs across Eurasia and along the coasts down to Africa poses a difficult challenge for Western policy makers. They lack the large-scale planning and funding instruments to match China’s courtship of investment-hungry countries long neglected by Western diplomacy. In light of these new challenges, it’s easy to forget that the rigid Chinese system has significant shortcomings, which may have been exacerbated by Mr. Xi. Chinese data and official statements on local policy implementation show that the excessive degree of centralization has stifled local initiative. There is also evidence that Mr. Xi’s trademark “top-level design” lacks the flexibility in policy making needed to deal with China’s acute economic problems. The country lacks new drivers of growth to replace the former export—and investment—driven model. Real and hidden unemployment raise the potential for social tensions. At the same time, the government’s capacity to support struggling industries is shrinking as China’s rapidly growing debt problem presents increasing risks to the country’s financial stability. Meanwhile start-up industries are caught between the imperative to innovate and stricter requirements to cooperate with the state. Yet instead of allowing for local solutions, the current system punishes bottom-up initiatives, which has led to paralysis further down the chain of command. The exploratory governance of past decades, which yielded productive results as provincial and local governments were given leeway to experiment with new policies, has effectively come to a halt. The problems of this centralized rigidity extend to China’s foreign relations. While it may be able to co-opt other authoritarian elites and buy support through economic aid, China doesn’t have real allies who share its vision or bolster its foreign-policy or security initiatives. Beijing’s diplomatic and military grandstanding, for instance in the South China Sea territorial disputes, has alienated the populations in neighboring states and created distrust even among China-friendly elites. The Chinese system could quickly lose its attractiveness as these systemic flaws become evident. Mr. Xi is taking big gambles and may have overreached. If China’s economic difficulties worsen, a domestic backlash within both the Party and society at large becomes likely. Still, betting against China’s success is hardly a smart solution. The West cannot be a bystander as Beijing attempts to change the rules of the game. The U.S. and the EU must find consistent and unified responses to politically motivated Chinese foreign investment, to China’s disregard of international law in the South China Sea and to its global ideological offensive. Western leaders will have to respect China and engage with it to build the future world order without capitulating before its outwardly impressive yet inherently brittle political and economic system. Let’s not allow Western weakness to make China stronger than it is.