Inside the Red Dragon--Part 3

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This is Part 3 of my interview series with Jeremy Hurewitz, Head of Business Intelligence for Nardello & Co., an international corporate investigations firm based in New York.  Mr. Hurewitz is an expert on Chinese affairs, and he offers keen insights into the political and economic developments there and what they mean for the United States and the rest of the world. We ended Part 2 talking about the sense of optimism and destiny in the Chinese people juxtaposed with China’s uneven development and corruption. James R. Gorrie, Managing Editor, Absolute Wealth.

James:  Among the middle class, is there confidence in the Chinese Communist Party--and in the leadership--that they’re on the right path?

Jeremy: That’s hard to gauge. My sense is that the Chinese are probably more confident in their leaders than China-watchers in the West, who’d like to see Democratic reforms happen, would like them to be.

The Chinese people remember the chaos of the past. They remember that Mao and the Communists united China. And so many Chinese citizens have seen their life improve over the last several decades. So the CCP still has a lot of credibility.

That pact that holds China together these days, where the government says to the people, “You can get rich, just don’t try to participate in the politics of our country,” still holds, but it's potentially at the beginning stages of fraying. Overall, I do think there’s still confidence in the Communist Party, although there is rising cynicism, too.

James:  You mentioned the pact between the government and the people, and referenced Mao and unification. But can you talk a little bit about Bo Xilai, whom many called the next Mao?   As you know, he was summarily dismissed from his high position, and his wife was convicted of the murder of British businessman Nick Heywood.

What effect has this had in China, both in the Communist Party and among the people?

How are the people viewing this?

How has it affected business or the confidence of Chinese businesses?

What are the ripple effects there?

Jeremy:  Well, it’s a huge scandal. It's the biggest story around. I haven’t been on the mainland since it took place, but I was in Hong Kong in April, as it was still unfolding and it was really all that anybody could talk about.

Firstly, it really takes the drama out of the upcoming leadership transition in the fall. Essentially Bo Xilai was the dark horse to assume a high Politburo position, and he was pitted against Wang Yang, who is his polar opposite as the  Party Secretary of Guangdong province, which is, the most liberal province.

Wang Yang and the Guangdong model have to do with a more liberal economic approach that favors more reforms and embraces a greater free market, capitalist structure.

Bo Xilai was this kind of retrograde, neo-Maoist figure that wanted roll back some of those reforms and turn back the clock to the days of Mao. He also had a great deal of credibility with the military, which made the government very nervous.

So as this first played out, there were rumors that he was planning a coup. I thought it was very interesting that he flew to Yunnan to go to a military installation shortly after his police chief, Wang Lijun, tried to defect to an American consulate and shared sensitive information with US officials.

The Chinese government was very nervous about that, and took quick action against him. But most people I’ve talked to think there was no real coup being planned, that Bo Xilai was just a two-faced politician that, on the one hand, was deriding the rising economic disparity in China and was urging a return to a more pure Communist vision. On the other hand, he and his wife were apparently transferring tens of millions of dollars out of the country and sent their son to posh private schools.

James: Let’s talk about the political aspect. My understanding is that Bo did nothing different in terms of his personal behavior than any other kind of princeling or party chieftain has done, but rather, that he went the populist route, taking his campaign public as opposed to keeping his campaigning within the party.

I want to get your opinion on what the ripple effect will be in terms of the direction the Chinese government is heading. Is the liberalization from Wang Yang now more of a possibility?  Or is there a reactionary, circle the wagons type of mood among the party leaders?

Jeremy:  I alluded earlier to how corruption has fully permeated the Chinese Communist Party. To answer your question, he probably did behave like many other of his colleagues, who are also very likely corrupt and secreting money out of the country as well.

But Bo Xilai did a few things differently, too. He was very high profile, he was very outspoken, and I think he made some people nervous in that way.  But it's also alleged that he was bugging other political officials when they came to a Szechuan province and that made senior party members very, very uncomfortable.

They haven’t detailed the allegations about his crimes but, if I were a betting man, that would be a large part of it.  He also has an extremely strong personality and made a lot of enemies as he rose up party ranks. He was running into problems, and when his police chief defected, that along with the government being nervous about his ambitions, really brought him down.

So, on the one hand he’s just like every other Communist Party official who had his hand in the till. On the other hand, he pushed limits in such a way that the government had to finally take action. The ripple effects are going to be a little bit harder to gauge.

But if you were a businessperson who was nervous about somebody like Bo having a more senior Politburo position than you would like, with the possibility of rolling back economic reforms, then his fall is obviously good news.

But we’ll have to see if somebody like Wang Yang is going to take a much higher position of power as a result of this. It’s also  not clear that we’re going to see a drastic acceleration of economic reforms. The Chinese policy of incrementalism will likely continue; I think the general curve of liberalization is going to continue as well.

This ends Part 3 of my interview with Jeremy Hurewitz, Head of Business Intelligence for Nardello & Co., an international corporate investigations firm based in New York. Read Part 4 in next week’s Friday edition of Absolute Wealth.  JRG

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