Everything crowds in on the leadership

“Events, dear boy, events” was the (perhaps apocryphal) response of Harold Macmillan, the British Prime Minister, when asked by a journalist what was most likely to blow a government off course. China’s leaders might say much the same thing this spring.

First there was the Bo Xilai affair, which is far from over. The latest leak has Bo tapping the telephones of Hu Jintao and other leaders when they visited Chongqing while British newspapers unearth such details as his wife’s involvement in a scheme to import hot air balloons from England to China (see my last blog – Play the wife, not the man).

The Chen challenge. Then came the weekend escape from house arrest of Chen Guangcheng, the blind lawyer who, though not challenging the regime politically, has become a major thorn in its side through his activism on social issues. How he managed to evade the security cordon round his home in Shandong remains a mystery but, if he is in the US Embassy in Beijing as his supporters say, that poses another major problem, especially coming a couple of months after Bo’s former police chief, Wang Lijun, fled to the US consulate in Chengdu.

Meanwhile, though it has attracted little international attention, dozens of Tibetans monks and nuns have set fire to themselves in an ongoing protest against Chinese rule. In the latest large-scale demonstration more than 10,000 people in Hainan Island clashed with riot police as they took to the streets protesting against a thermal power plant being built in what was meant to be an ecologically protected tourist area by the sea.

Romney steps up. From Washington comes news that congressional supporters of Taiwan are stepping up pressure on the Obama administration to sell new F-16s to the self-ruled island. Republican presidential candidate Mitt Romney has ratcheted up the Chinese rhetoric, portraying the President as weak on China and adding, with reference to Chen, that "Any serious US policy toward China must confront the facts of the Chinese government's denial of political liberties, its one-child policy, and other violations of human rights." Closer to home, Chinese ships have gone into new confrontations in disputed waters off Japan and the Philippines while Japanese Prime Minister Yoshihiko Noda held talks at the White House today as Secretary of State Hillary Clinton and Defense Secretary Leon Panetta had talks with their counterparts from the Philippines.

All this as Clinton and Treasury Secretary Tim Geithner fly in to Beijing this week for the latest round of the regular US-China Strategic and Economic Dialogue at which they will have to decide just what line to take with their Chinese hosts. Anything emollient on the Chen case would be fuel to Romney. Anything tough would risk pushing the Chinese into public expressions of anger. How to handle the Chen case is a test on both sides. Will Beijing simply insist that he must be handed over? Will Washington dig in its heels and protect him? Or will they be able to find a compromise which would entail China admitting that it does not hold complete sway? And how will Chen, who is said to want to continue to practice law in China, react?

Equally, if all Chen is doing is to ask Beijing to investigate whether the way he and his family have been treated contravenes Chinese law, he is putting the central authorities in an awkward spot. They were ready, after all, to bring down as powerful a figure as Bo on the grounds that he had contravened Party discipline. So why would they hold back from investigating the conduct of local officials in Shandong, unless, that is, somebody very senior at the centre had backed the persecution of the lawyer even after it had attracted international media attention and a visit from the Hollywood actor Christian Bale who was hustled away by the guards surrounding Chen’s house.

Still, past US efforts to persuade the Chinese to see things its way at the semi-annual dialogues have not been very successful. Remember, for instance, all that pressure for yuan appreciation and look at the result as shown in the chart below where the red line of the Rmb remains obstinately flat compared to the gyrations of other big emerging market currencies. The ball, as so often, is in China’s court and everybody has much to play for – the conservatives in trying to hold the old line and reformers like Wen Jiabao in seeking to advance the cause of the rule of law.

Distractions multiply. Whatever transpires, the stability the leadership wanted for this year of transition is certainly being buffeted by “events”. These can only distract the leadership from the rebalancing of the economy to which it committed itself in the new Five-Year Plan but which inevitably involves changes that will not be welcome to proponents of the status quo – and this does not take into account the need for more wide-reaching reforms in areas such as land ownership, the labour system, capital markets and pricing of water and energy, or the environmental crisis or the demographic trap.

The question is how the outgoing and incoming leaderships will react. For all the crystal ball gazing which characterizes analysis of China, especially after as dramatic an event as the fall of Bo Xilai, the truth is that we do not know. Indeed, it may be that the leadership itself does not know and will proceed by feeling the stones beneath its feet as it crosses this year’s river.

The reform line-up. The line-up of reformers against conservatives is clear, especially after a string of pro-reform remarks by Premier Wen Jiabao, several similar calls for change by Wang Yang of Guangdong and a spate of articles in major Communist Party and state organs last week (we will be analyzing the reform mood in a note for Trusted Sources subscribers later this week). Though there have been many false dawns in China since the launch of economic reform thirty-five years ago, there does seem to be a stronger push for change right now. The conservatives may well paint a picture of a US plot against China, starting with Wang Lijun and now compounded by Chen.

Zhou Yongkang, the hard-line security chief in the Politburo Standing Committee, has been insisting on the need to use the law to strengthen the Party. But he will have to explain how first Wang and then, as it appears Chen managed to get to US diplomatic premises despite the heavy police presence. Reformers will have to play a careful game to avoid being tarred with the brush of lack of patriotism. The premium will be on no further rocking of the boat, as shown by the stress on Party unity in the wake of the Bo affair and the way in which Xi Jinping, the anointed heir to Hu Jintao did not go to bat for his fellow “princeling” in Chongqing.

A complex brew. The snag is that events are doing the rocking, and Beijing’s obsessive desire to maintain control is becoming increasingly difficult to exercise in a rapidly evolving society. Add in the impact of a US presidential battle in which China may not be the sleeping dog it has been in recent electoral contests, and the year when Beijing longed for stability may turn out to be rather different. The succession of Xi as head of the Party at the Congress late this year and, most probably, of Hu’s protégé, Li Keqiang, as Wen’s successor at the annual session of the legislature next March are not in doubt. But ruling China is becoming an ever more complex process – and that is without even mentioning the economy.