Slouching tiger: Xi Jinping needs bold 2015 as China's economy slows

For much of the last two millennia China was the largest economy in the world, and at the end of 2014 it retook its place at the top, surpassing the United States years before almost anyone expected.

To achieve this extraordinary growth, China’s Communist Party effectively abandoned communism years ago, and with it an ideology that it had used to legitimize its rule. To retain its authority today, China’s single-party state relies on its tacit promise to keep improving the lives of its citizens.

And for years it has.

Over a 30-year period starting in 1979, China averaged nearly 10 percent annual gross domestic product (GDP) growth, pulling hundreds of millions of people out of abject poverty. In 2014, growth has slowed but is expected to officially remain near a healthy 7.5 percent.

But China’s rapid economic growth belies what may be the most difficult set of challenges in its modern history: an economy skewed toward exports, widening wealth inequality, corruption at all levels of government, rising manufacturing costs and an aging population.

To continue its growth, many China experts agree that Beijing needs to do nothing less than transform its entire economy — through measures that are often at the expense of an entrenched elite benefiting from the current system. But in any authoritarian state (and 2014 showed China to be more authoritarian than ever), change creates risk.

Chinese President Xi Jinping has spent much of the last two years building his power base. He is simultaneously president, head of the Communist Party and chairman of the military. In a bid to tighten his control of the latter, Xi reshuffled more than 40 generals in 2014, according to a list cited by the South China Morning Post newspaper.

In 2014, Xi showed that he is not a “first among equals” — as his last two predecessors, Jiang Zemin and Hu Jintao, were often descibed — but rather the first “paramount leader” since Deng Xiaoping, the man who led China from 1978 to 1992. President Barack Obama made that comparison in December, saying Xi “has consolidated power faster and more comprehensively than probably anybody since Deng Xiaoping.”

And the newly powerful Xi, as Elizabeth Economy wrote in Foreign Affairs, has a simple and compelling vision: “the rejuvenation of the Chinese nation.”

All signs suggest that Xi realizes the formidable task ahead of him and understands its urgency. To rebalance the economy, China will need to transfer wealth from state-owned businesses to Chinese consumers, who will have the purchasing power to by more Chinese products. In 2013, the government announced an ambitious economic reform plan that included trying to make state-owned enterprises more efficient, letting the market allocate resources and liberalizing the household registration system known as “hukou.”

While Xi made some progress on property reform in 2014, China has a long way to go toward rebalancing the economy.

Standing in Xi’s way are venal members of the government, military and state-owned enterprises who will fight retain their privileged positions in the system. Xi's push for reforms made enemies in 2014, and in 2015 there's no telling how many people are waiting for him to make a misstep.

In 2014, Xi accelerated his anti-corruption campaign, and many China experts still assume it's just another way for him to consolidate power as he uses graft accusations to expel members of the party loyal to the previous Chinese presidents, who remain powerful adversaries of Xi.

For example, on Dec. 22 the Chinese Communist Party announced a corruption investigation of a one-time senior aide to former President Hu Jintao. Earlier in the year allies of another former president, Jiang Zemin, were targeted, including the security czar, Zhou Yongkang.

But to say Xi’s campaign is only a power grab is to underestimate it. The campaign has gone after both what Xi calls “tigers,” some of China’s most powerful individuals, and “flies,” the low-level bureaucrats that Chinese citizens deal with on a regular basis.

China's corruption watchdog agency, the Central Commission for Discipline Inspection, appears to be instilling a degree of fear in many government leaders. Professor Cai Xia of the Central Party School's Party Construction Education and Research Department told Chinese business magazine Caixin, "The shock created by the anti-corruption campaign inside and outside the party is unprecedented. The shock and deterrence it has exerted on the thinking of cadres is also unprecedented.”

With Xi having spent much of 2014 fortifying his control of China’s army, many China watchers expect Xi to use 2015 to focus on military corruption, which one expert called “a noisome sewer of graft.”

Of course, many Western critics argue that China’s graft crackdown is doomed to fail without a free press or an effective, independent judiciary. But there’s zero evidence that any significant political reform is on the agenda.

This year also saw the government clamp down on the press. In addition, Beijing refused to allow an open election in Hong Kong and cracked down on the country's Uighurs, a mostly Muslim ethnic minority population whose members often complain that Beijing is stifling them in Xinjiang, their traditional homeland in China’s far west.

If Xi succeeds in his market-oriented reforms — as analyst Elizabeth Economy wrote in Foreign Affairs — China is headed toward a “corruption-free, politically cohesive, and economically powerful one-party state with global reach: a Singapore on steroids.”

But if Xi doesn’t succeed, a sclerotic China will no longer be the engine of the world economy, able to pull up countries in the wake of financial crises in the West. China's political and economic systems could become even more brittle. An educated youth demographic with few employment options and a feeling the system is rigged against them creates a political landscape that could undermine the regime's legitimacy.

With an aging population, China is at crucial transition point if it wants to become a middle-class country. After two years of consolidating power, Xi Jinping has set the stage for a bold 2015. It remains to be seen if either the elite or the general population have the stomach for his reforms.