Asia Society Hong Kong Center

"China's 17th Party Congress: Change or Continuity?"

A Panel Discussion with
PEI MINXIN, Carnegie Endowment for International Peace;
WANG SHAOGUANG, Chinese University of Hong Kong;
YANG DALI, National University of Singapore;
Moderated by VICTOR MALLET, Financial Times

Sponsored by the Financial Times

J.W. Marriott Hotel, Level 3, Salons 1-4, Pacific Place, Admiralty
Friday, October 26, 2007

VICTOR MALLET: I would like to welcome such a large and enthusiastic audience here today. My wife, Michelle Weldon, who works at Civic Exchange was involved in a similar meeting yesterday and Civic Exchange is a think tank -- a Hong Kong think tank for those of you who don't know. They arranged a similar meeting yesterday with Pei Minxin, who is on my immediate right. And she was telling me rather competitively that they had more than a hundred people and that we would never do so well. So thank you all for coming and, of course, some of you are paying as well which makes it even more impressive.

Now, it's not hard to see why this subject is of such interest to all of us in this room. An event like this, it is so important for the 1.3 billion people of China but also for the whole world, this Party Congress that takes place once every five years. And yet, many of us know almost nothing about it. The meetings are held in secret and, more importantly, the meetings preceding the big official meeting in Beijing, those meetings are also held in secret. So we don't really understand very easily the kind of horse trading that goes on to nominate and then to present to the people of the world the new leaders or the future leaders of China.

So we're very lucky to be able to draw on the wisdom of the three experts who are here with us today. I'm going to try and ensure that they stick to their 15 minutes each so that all of you have time to ask questions and make comments but, if by any chance, you don't have time to do that, a short plug for our website ft.com, Professor Pei is actually going to be online on ft.com today from 4.30 to 5.30, Hong Kong time. So you can log on and ask him something if you weren't able to do so in the room today.

So let me very briefly introduce the speakers. The full bios, biographies of all the speakers, I think, are on the table, so I won't go into too much detail. On my immediate right is Minxin Pei, who is the director of the China Program at the Carnegie Endowment for International Peace, who specialises in China, of course, but in democratisation or the lack of it and also on US-China relations. Moving to the middle, Dali Yang, Yang Dali, the director of the East Asian Institute of the National University of Singapore, and formally of the University of Chicago, and of the University of Science and Technology in Beijing. He has also been involved with Princeton and I think he still teaches from time to time in Chicago, and also works as a consultant for various businesses and governments and international organisations.

On the far right, Wang Shaoguang, who is Chair Professor at the Department of Government and Public Administration at the Chinese University of Hong Kong. And also a double job, also a Professor at Tsinghua University in Beijing. He too has been involved in American academia with his getting his Ph.D. from Cornell and has also worked at Yale.

All are experts in Chinese politics and governments. Gillian mentioned that they've produced numerous publications about Chinese politics, not just pure politics but also how it relates to business and the Chinese economy, which I know is of interest to quite a lot of people in this room. So let's start with Professor Yang. Thank you very much.

PROF YANG DALI: Thank you, Victor. It is surely a great pleasure for me to be here as well. Since, in fact, the 17th Party Congress actually seeks so much attention, I think actually there has been a sort of slicing and dicing in the Hong Kong media, more than in any other place in the world.

So I would like to basically start with a few impressions. Obviously, Minxin and Shaoguang can follow up and also we can open up to your questions. Let me give you a sense, first of all, of the report rather than the personnel aspect, which seems to have been getting a lot of attention.

Because the report is very important in the sense -- in the coverage, I've learned that when it comes to the report of the Communist Party, you should never grade it like a graduate student paper or something like that. Because what strikes me is how disparate, how many things it actually covers, and it covers in ways that one of the remarkable things about the Communist party is that it can live with contradictions. And intentionally does it, in fact, that they know that the things that you really analyse, that in certain ways, they may not exactly mesh with each other.

But, nonetheless, they've managed to do it again and again and again in that regard. But what's important though is everything that is included in the report is important, particularly the special or new initiatives. In many ways, some of them have been tried in the past and now you can include it in the report.

What's important is you are going to be involved by the agencies, the government ministries, the party organisations. Basically they say, "Well, this has been included in the report and therefore we need to do something about it." In many cases, from the ministries, for example, that means that they deserve more money for doing things, going in this direction.

Certainly, for example, the idea of the scientific outlook on development, sort of in this case, obviously, it harks back to scientific socialism to some extent. There is a political slant there. But, nonetheless, the emphasis on ecological balance and human centred development, all that, actually is very important in many ways. I think it really marks the combination of the development over the last two or three years, in particular, because every official now, all the leading officials, go through the central party school system and all that. They all have to be trained and, in fact, if you take the time to read the comments by the provincial leaders, party secretary, and so on, it is remarkable how similarly they sound, as if you were doing an exam. Even though I'm not reading the report, but you can really assess the performance in terms of how the provincial party secretary responds to the party report, as if it was a student really learning, really aping the phrases, they quickly grab the key concepts in many ways so it becomes part of their own.

What's important however is, for example, in Hong Kong, there's a lot of concern about the environment. Importantly is how gradually this is beginning to reshape the factors about the environment, because a lot of the conventional wisdom in China is that they're not doing enough, and particularly given the rapid economic growth.

But in terms of per unit GDP, pollution is actually beginning to come down, except that the GDP is growing so rapidly, it overwhelms any, actual, increase in energy efficiencies.

Nonetheless, increasingly, the local officials are beginning to be obsessed on the environmental performance and that's going to have an impact. That's going to reverse the smell, and the smell has gone in certain parts of the country. That is significant in many ways. I hope that it can continue.

More interestingly, also, we all know that the Communist Party, the government, has been trying to redefine the social agenda, rewriting the social contract in China, in many ways. I think actually, this document provides an extremely ambitious social policy agenda which -Shaoguang has paid a lot of attention to in recent years, for example.

For example, this idea that every person deserves access to basic healthcare, whilst they put it on the formal document like this, this government will be, not exactly held accountable, but people will ask. And the issue includes also a sort of -support for the disadvantaged groups, groups and all the other things. This means -- this happens at a time when the central government has tremendous surges in revenue. Unlike many other governments -- including the one that I just left behind -- the Chinese government has a wonderful fiscal balance, fiscal situation, at this present moment. That means we can commit huge resources to social security, to rural education, to healthcare. They should be able to do more.

But whilst it's much easier to give than to take away, even in an authoritarian regime, even in authoritarian politics. This means, down the road, this will become very interesting, when the population becomes more aged, when the central government balances may not be so plentiful, compared to today.)

I would rather still though spend the money this way, in fact, get the government committed. Because if they're not spending the money in this respect, they are spending money on their own travels, on their own fancy buildings and all that. In that sense, this is very important.

Political reform. Actually I do think I mean all the major reports, and I'm sure Minxin will disagree with me somewhat, but basically argue that the political reforms would go nowhere. I would characterise the words of patriot, some of you may well remember, Mr Chen Yun who used to argue that economic reforms in China should let the market be in a cage, you know, he had the birdcage model.

After a decade, now the Communist Party finally put political reforms back on the agenda. They have produced the birdcage model for political reforms. But we all know how the birdcage model for economic reform has gone. I'm more hopeful that actually as the leadership begins to further promote grassroots political reforms, they began to introduce certain measures intra-party democracy in a very limited way. they tolerate for example the party even in the selection, of the central leaders this time, the ordinary rank and file (inaudible) was involve, but they still won't let us know who gets what votes in the election of the Central Committee, or whatever selection, in that sense.

But, nonetheless though, it's going to be very interesting in many ways, in the sense that they formally have put those reforms on the agenda. Think about it, for any political leader in the future, unless there are major crises and things like that, how can you justify your performance? You need to say, "I'm doing more reforms."

Some reforms have happened, you can't go back and redo it. But reforms and all those kind of things have already happened and therefore you have to find some new things, all the time, to do. There is a ratcheting-up effect in terms of reforms, because the Chinese are still in this reform mentality. You have to continually search for reforms, even sometimes when you are not doing it, you have to use the phrase essentially. That's the interesting framework in that regard.

In that sense, I think actually there will be continuing effort, particularly, as is, for example, it justifies a variety of the local governments, the experiment, for example, in terms of the election of township officials, for example. I think gradually there will be other things that are happening within the provinces as well. And it will be very interesting developments, as a result. Although, I would not expect dramatic departures probably because Hu Jintao was very careful in emphasising the birdcage. Also, at the same time, basically the –four cardinal principles are essentially sort of in there.

So I think actually they learns some lessons from the past, you want to do some reforms, but you don't want the reforms to run too far away from you so that you don't have the control. In that sense, actually, that's to be expected for the Communist Party, in many ways.

But in the meantime, gradually though they have to contend with transformation through society in the economy.

How much time do I still have?

VICTOR MALLET: About seven minutes.

PROF YANG DALI: Okay, I still have a lot of time actually. Well, let me say that actually in terms of—let me talk a little bit about the government side, because until recently, political reform has simply meant residual reforms. This government will continue to do so.

In fact, every five years it has launched a major initiative. 1998 was major restructuring, in fact, and a lot of regulatory administrations were set up then. Some of them have gone terribly awry. For example, the Food and Drug Administration, which was supposedly modelled upon the US FDA. The US FDA, if you do a popularity poll, is one of the best, most highly ranked government agencies in Washington. The Chinese agency is called the State Food and Drug Administration. Their website is called SFDA. So they really consciously emulated the FDA, except that it's become so corrupt, so bad, that even its commissioner or director ultimately was executed actually only a few months ago.

What's interesting however is there are lessons to be learned in all those and the government is learning lessons because the credibility, the credibility of the government, is very severe in this particular impact. You cannot trust any drug that is produced in China today, because of what has happened over the past decade or so in this administration.

So, as a result, there are various initiatives, at this moment, to think about how to reform the government. There are some ideas that are put out in terms of building more comprehensive regulatory agencies in that regard. The Ministry of Energy is possibly in the works. Also, how do you deal with these issues and so on. I think, actually, we should expect quite a bit of movement in the next few months, in particular.

In fact, the regulatory administration, they used to be less highly ranked than the government ministries. But this time though, the major commissioners have all got Central Committee memberships. Basically, as a result, they actually become a little more influential than in the past. This is a gradual evolutionary process, in that regard.

Finally, we come to the leadership aspect—I don't want to give you all the names and all that, because you all have learned that. But think about the Communist Party as a corporation. This is very much about corporate succession, actually if you think about it in many ways. My good friend, Yasheng Huang has done some studies emphasising what kind of leaders are most likely chosen for the central government—the central party positions. The ones that have been managing comprehensive divisions, this is almost like a multi-divisional of a firm, let's say IBM, with moving officials, officers, from branch to branch to branch to branch. China, the Communist Party, has been moving Xi Jinping from Fujian, Zhejiang to Shanghai, and so on.

Everybody gets a fairly well-rounded experience. Basically, they are all being gone through all these different processes, and Li Keqiang—from Henan agricultural province to an industrial province in Liaoning, for that matter. So they are fairly close.

Then they decide, "Well, age wise and above a certain age you can't stay so you get rid of people that way, not the most rational way, but nonetheless, it helps to reduce the political infighting and all that. Then, in the end, however, they decide, "We need to plan for the succession. We need a new generation." Who are they? The problem is we have placed them in those positions; did they truly distinguish themselves? They didn't get in their positions by campaigning. They didn't do it because they have done something great in the past on their own., Actually they have all generally followed the party's policies.

So, what I'm saying is they didn't make big mistakes, generally speaking, and they followed the central orders. They didn't stick their necks out too much, unlike some others who didn't get promoted, for example. And then, in the end, whom do you finally promote? So you need capable people, both of them have Ph.Ds—even though both got their Ph.Ds while they were so busy working—but, nonetheless, actually that means something in these calculations when you do those kind of things generally.

Finally, you see, it's the party and the party has a history and the history means pedigree. It means there is some sort of revolutionary nobility, how can we trust them? And in that, why is it Xi Jinping therefore, because he actually obviously has all those things going for him. Li Keqiang, probably, any number of others, could have been put in those positions. In many ways, we can easily rationally justify putting them in, in many ways-. But in the meantime though, this is a compromise. But the compromise that does allow, for example, for those people to be there. In the end though, people say, "Well, maybe Xi Jinping is also Jiang Zemin's people, also—Zeng Qinghong's people." But he happens also to be the son of Xi Zhongxun and Xi has been a reformer after all. He was in Guangdong and started the reforms. He was also very good towards Hu Yaobang at a certain point and Hu Yaobang the disgraced—well, not disgraced, but certainly the one who suffered at the hands of the conservatives in the 1980s. At the time when Hu was trampled on, Xi Zhongxun was one of the few people who was willing to stick his neck out in support of Hu Yaobang. And that counts for Hu Jintao. The loyalty is very important and also support in that regard. In that sense, actually, Xi Jinping, is really acceptable to everybody. Now he has to prove himself. And so does Li Keqiang, in fact. The first year or so, they will be learning the ropes. They are not going to make any new policy departures. In fact, in the short term, they are going to be really working very hard to follow, to carry out the party's policies. Don't expect anything new from them for the moment certainly. Now I'll stop there.

VICTOR MALLET: Thank you very much indeed. Very interesting, particularly the comparison with the corporate succession, which I thought was fascinating. And the point about regulatory institutions, I think, is one we'll see a lot more of.

The other day, we interviewed the new head of the SFDA in Beijing. And, of course, at the back of your mind, you're thinking, "I wonder if this guy is worried that he too is going to be executed." It's a very strange phenomenon, and I think the short answer is "yes." As you say, the main thing is not to make mistakes.

Thank you very much. Anyway, we can discuss some of those points further later. If I can turn now to Professor Wang Shaoguang.

PROF WANG SHAOGUANG: Okay, thank you. I'm not going to talk about politics for a number of reasons. Number one, I don't know it and number two, I don't care. I care more about what they're doing, the top leadership is doing. Even though while the front runner, Li Keqiang, was my classmate 20 years ago, but I'm not going to talk about this.

Anyway, I think, to talk about the future, we have to look into the past, especially the recent past. In the last five years or so, I see—I term a historical shift in China's policy orientation, namely from economic policy to social policy. When China began its economic reform, for almost 20 years, there was no social policy whatsoever. If there's any, it's through a decline of social policy components.

But in the last five years or so, if you check the track record of the current Hu and Wen leadership, nothing had changed. For one thing, the State Council [...] met 176 times in the last five years. Over half of the meetings was about social policy, another half was about economic policy.

This was unthinkable in the early times, before year 2002, most of the meetings of the State Council meeting, were economic policy financial, industrial, and whatever. None of them have changed.

The purpose of the policy shifts, I think there are two. One is to reduce inequality. We know China used to be a very egalitarian society when the economic reforms just started. At that time, the Gini co-efficient, the national, the inequality, was lower than point 3. It's very low. But by year 2002, China had already become one of the most unequal societies the Gini co-efficient increased to probably point 447. It's very high. It's only lower than the country in Latin America, and some sub-Saharan African countries. It's very high.

So not a surprise starting from the new century, beginning of the new century, for the government to do something about inequality. So one of the purpose is to reduce inequality, another is to reduce human insecurity. Let's take a look at the track record in the last several years. Let me just give you some brief descriptions about what has happened in the last five years.

GINI co-efficiency of provincial per capita GDP, it's a measurement of the gap between East coastal provinces and against the Central and West provinces has actually declined for the first time in year 2004 and it continued in year 2005. So the regional gap has begun to show a sign of narrowing rather than expanding. I think it's a historical moment.

Also in terms of urban/rural gap, even though the gap is continuing to grow—but actually, after year 2002, it began to level off, increased very, very small margin.

In fact, my intuition is actually that rural urban gap is actually declining because China has undergone rapid urbanisation. Every year, probably 15 million or more people become urbanised. Which part of the countryside has become urbanised? It's the better part of the countryside.

So today's countryside and urban is different from five years ago. Therefore, I think a stable ratio of a rural urban income ratio, the actual gap, probably is narrowing rather than increasing.

More importantly, the urban rural disparity in per capita expense of healthcare and education actually has been declining since year 2004. So that is an early indication that in the near future, the income gap might also decline.

In terms of education, the government introduced the compulsory nine-year education in 1993, I think. But for the first ten years, or more than ten years, the people actually have to pay for the compulsory education. But starting from 2005, the peasants and the people in Central and West part of China, they don't have to pay for the nine-year compulsory education. Starting from last year, 2006, it's free for rural children. Pretty soon, it is going to become free for all the children in China, including urban areas.

Another important purpose is to reduce human insecurity. A lot of things have happened, for one thing, it's a minimal income security. Now, almost all the insurable urban poor people of about 22 million are covered by minimum income security program andthe average minimum income subsidies to those people, more than doubled between 2002 and 2006. 22 provinces have now also established rural minimum income security system. Of course, the criterion is much lower than urban but nevertheless 22 provinces already have a system built up.

Starting from next year, all provinces will introduce a rural minimum income security program. Healthcare was the one area that does not have a lot of attention paid to and a lot of news coverage in China. In 2001, Chinese people had to pay for healthcare. And the total health expenditure in China, about 62 was covered by out of the pocket payment, not by the government, not by social security. That was 2001. Now down to 52. So 10 per cent of a deduction, proportionally. I think in five years or so, there is a substantial decline. I think it is going to—this out-of-pocket payment, the ratio is going to continue to decline.

In 2001, basically the medical insurance system for urban employees covered about a 22 per cent of active employees and 45 per cent of retirees. By 2006, the two ratios increased to 41 and 79. In other words, for retirees, 80 per cent were covered by the healthcare program.

Many cities also began to experiment with healthcare insurance, for non-employed urban residents, such as old people and their children. Beijing, Shanghai, Shenzhen, they all have a system called [... means older people who are not employees, who are not official retirees and their children].

And in 2001, less than 7 per cent of rural residents have been covered by comprehensive health insurance. Now the proportion is 83 per cent. So it's a big gap of over 80 per cent. I'm pretty sure by next year, or the end of this year, probably 100 per cent of rural residents will be covered by some sort of healthcare insurance, one way or another. So government has already made a pledge to provide basic care to all by 2010, three years down the road.

Then also other insurances, within the four years, between 2003 and 2006, a number of employees covered by work injury insurance more than doubled, and now insurance covers 40 per cent of urban employees, the formal sector and informal sector combined. Basically urban -- old age insurance now covers nearly 90 per cent of retirees and 50 per cent of active urban employees. Also, it's a big jump from the lower base of 2002.

In the last several years, only one insurance didn't make any progress. Actually, it somehow declined coverage, that is unemployment insurance, for a number of reasons. One, unemployment insurance pays just very little more than the urban minimal income, therefore, the people, the workers, have no incentive to participate, to pay their share. Number two is that government policy makers now are wondering whether this is still necessary, having unemployment insurance, if you already have minimal income security there. So this debate, I think, pretty soon will be scratched off.

Yang Dali mentioned the environmental protection. In terms of a total expenditure, spending on environmental protection, China doubled it between 2001 and 2006, from 110 billion Yuan to 257 billion Yuan in 2006. In the four consecutive years since 2002, China's pollution control expenditure, as a percentage of the GDP, was about 1.2 per cent which actually is higher than the OECD average. In other words, proportionally, China has spent more of the GDP on pollution control than average OECD country now. Of course, China had—actually in Hu Jintao's report to the Party Congress last week, he said despite all the progress China has made in the last five years, those achievements are still far short of expectations of the people. That is an actual report from Hu Jintao's report.

So in the future, I think even though the government still regards economic development as top priority, Hu Jintao and the Wen leadership should emphasise the importance of putting people first. In addition to economic, political, social and cultural development, Hu Jintao, in his report, pays special attention to social development [...]. The goal for which is to ensure that all our people enjoy their rights to education, employment, medical, old age care and housing, so as to build a harmonious society. In Chinese, I think the phrase is more powerful. It's [...]. It's more powerful than the English translation.

So, what is going to happen in the future? I think the importance of the 17th Party Congress is that for the next 15 years, not just five years, the leadership issue, I think, is more or less resolved. Who and when will be in the top position for the coming five years. Li Keqiang and Xi Jinping will now enter in a training session for the next five years, then take over the next Party Congress. They will serve for two terms so we are talking about 15 years. Therefore, the stability in China's top leadership can be expected for the next 15 years and it seems to me that there is no reason to doubt the policy orientation demonstrated in the last five years will change any time soon. That's my observation. Thank you.

VICTOR MALLET: Thank you very much indeed for some of that data and a look at social issues and, perhaps essentially, concluding that some of the poverty and inequality is not quite as bad as it is perceived to be. But I'm sure we'll have some questions about that later. Thank you very much. And now our last speaker Minxin Pei.

PEI MINXIN: Thank you, I was assigned to be the third speaker and I was worried that with two very knowledgeable speakers ahead of me, I would have nothing else to say. So I threw away my old notes and I wrote up my notes earlier this morning, so I can assure you that the notes is fresh.

The second worry I had was that I was asked to comment on economic policy. Not being an economist, what am I going to say on economics? But I see in Washington lots of people without any training in economics pontificate on economics daily. So I should not be deterred by my lack of knowledge. I was in Beijing when this Congress was going on, and I really want to share with you one very striking impression I had. It really fell flat on the Chinese people. There was such mass apathy about this Congress. I think people outside China actually care more about this Congress than most people inside China, and that speaks volumes about Chinese society and Chinese politics today.

That's why if you look at the level of rhetoric, you would think that China is heading in one direction, but when you look at the reality, it's far more complex. Why is that the case, I'm not going to speculate, but I think the people correctly interpret this Congress as an event portending continuity rather than change. And I think they read this correctly.

So in terms of economics issues, we will focus basically on three sub-issues. One is what are the policy goals declared by this Congress as divined from the political report. Second is what are the short-term risk factors for China as a whole. And thirdly, commenting -- I will comment on leadership capabilities, whether China today or, as a result of the Congress, has the leadership team up to the task for the next five years.

The message from the political report—and I agree with my colleagues—it's a very positive message. It's rebalancing development goals. Whatever fancy slogan you apply to it, I think the heart of the message is very clear. China's growth model has to be changed. So the report hits on all the right notes: quality versus speed, environment, internal versus external balances, social equality, anti-corruption, what have you. That's, all to the good.

But let's again remember this striking fact about Chinese politics today. Again, I'm from Washington, so negativity is in the genes of people who live and work there. The gap between rhetoric and action perhaps has—never—seldom—I wouldn't use "never"— has seldom been wider in China. So that's why you have to apply lots of discount to rhetoric. I think there's a British drink called Beefeater, so I always ask, "Where's the beef?" So I think going forward what we need to keep in mind is that we welcome that kind of positive, forward-looking rhetoric. But what will impress cynics like me, is action on the ground.

Here, I think even the report itself sends out a mixed message. All the positive targets are soft. But there is one hard target, the government has promised to meet—quadrupling of per capita income by 2020. It is a very ambitious target, how do you square all the other soft social targets with this very hard economic target? We know that something has to give. We have not invented the perfect economic growth model that can achieve very ambitious double-digit growth target, while not undercutting other valuable social goals. That's why I think we need to be a little bit restrained in our optimism going forward.

Now let me focus on short-term risk factors. Of course, the report is focused on long-term challenges and it's not intended to address short-term issues. But today, many economists—I wouldn't say there's consensus—there are three basic, very difficult short-term challenges for the Chinese government.

First one is an asset bubble primarily in the stock market. Amazingly in China, there is such denial that you think -- you asked the question, on what planet they live on, truly, because they will give you, roll out, numbers to think that the Chinese stock market can go on, the party can go on. And how the government is intent upon deflating the bubble gradually but various measures have not really worked and that is a huge issue.

The second issue is inflationary pressure, given high GDP growth, high investment rate, enormous amounts of liquidity in the system, will interest rate increases alone do the job? That's another big problem because they do not want to touch on exchange rate issue.

Finally, unsustainable external imbalances, because here we see the EU and US are coming together on the issue of China's massive and growing external imbalances. For a major economy, this year, China's external imbalance, the surplus will reach perhaps $400 billion. That's a massive number for such a big economy.

All these are tremendous short-term challenges, but you cannot divine what kind of solutions the government has for these challenges. Then you look at the political calendar in China. Then you get even more cautious because going forward, the full economic team will not be in place until next March. So there is a period of waiting, trying to find out where your offices are and planning for moving in and moving out. And that's not really good for dealing with pressing issues. Finally, the Olympics. It will be China's biggest coming-out party but we all know this can paralyse good decision-making. So from now until the Olympics, probably we're going to see pretty much status quo, while the imbalances in the economy are expected to continue to grow.

Finally, let me comment on the economic team. In my job, I have learnt not to comment on personalities, because that can get you into trouble, but in this setting with good friends, I will break my rule. Basically, we see that the three vice-premiers being installed at the Party Congress: Mr Li Keqiang, Zhang Dejiang, and Wang Qishan.

So the first question is: will this, at the very top level, will this new economic team be as strong as the team it replaces. I would say at least no weaker, because if you go down the list, Mr Li may lack central level experience, his previous experience in the central government was running the Youth League. He never ran a central department ministry. He was, of course, working in Henan and Liaoning. But then you compare him with his predecessor, Huang Ju was sick half that time, who did not have equivalent experience. And on top of that, Li Keqiang at least has some formal economics training. And yesterday I've learned one of the papers he wrote won China's most prestigious academic prize for economics. So I think probably at least at a theoretical level, he understands economics better than his predecessor.

For Mr. Zhang Dejiang, there he has a much tougher act to follow, because Madam Wu Yi is almost irreplaceable, given her experience of leadership and her international credibility. So for Mr Zhang Dejiang, the real difficulty is really to establish his international credibility. He has been a very skilled administrator at the local level. He has some central level experience being the vice minister for civil affairs, but that was not economics. And his portfolio is supposed to be foreign trade. And just imagine Mr Zhang Dejiang being the principal interlocutor for Mr Hank Paulson, and how will he establish his respect and international credibility. So that's hugely important for him.

I think the brightest light of this trio is clearly Wang Qishan, the person who is slated to be China's chief economic planner. He is very well experienced in the financial sector. He was instrumental in China's rural economic reform and also had a very good record running Guangdong. Of course, he was, what I would call, one of Zhu Rongji's firefighters. Whenever there was trouble, he would dispatch Wang Qishan.

So I think with him in there, this is—at least the team is as strong, if not stronger than the team he had replaced.

So the bottom line is that given all the political uncertainty, the political calendar, the political—the sort of the risk aversion in the Chinese political system, the take-away is that we're going to see a period of inaction, most likely on key economic issues. And then followed by a period of frantic reaction to a sudden crisis—a sudden shock—I will stay away from the word "crisis"—a sudden shock to the system most likely in the form of a sudden and massive correction in the Chinese stock market. Thank you.

VICTOR MALLET: Thank you very much indeed. Thanks indeed to all our speakers. Just a very quick point on something. The quadrupling, I have a feeling the base year is not this year.

PEI MINXIN: Not this year. There is a change—

VICTOR MALLET: Which means it's something like 2005. Which means that if an economy is growing at 10 per cent a year, that means it can actually double in size.

PEI MINXIN: The base of the population will have increased by 10 per cent.

VICTOR MALLET: Per capita income, yes, there is a problem there.

I'm just going to start the ball rolling, I have been asked to just ask the speakers a couple of questions and then we'll open the floor. So by all means, we've still got half an hour or so, so by all means think of questions you would like to ask them. I'm going to start with Minxin Pei and your point about the gap between rhetoric and action. One of the things I've always been intrigued by in China is the way that the centre, you know Hu Jintao and Wen Jiabao will declare a very important policy and they say it must be enacted. And then apparently in the provinces, not much gets done. I just kind of want to ask you about, you know, the other day we met somebody from the NDRC, the Natural Development and Reform Council—if I've got that right—who was involved with energy efficiency in China, and he was describing how difficult it was to get anyone, even in his own organisation, to do things in the provinces. Because the NDRC in Beijing has no control over its staff in the provinces. So although there is an energy efficiency plan and program and guidelines, actually it's very hard to implement those. And he was talking rather jealously about Canada and about how the federal government could go out and actually do things. And the US EPA, for example, could actually go and do things.

So is that changing at all? Or is it still—what is the relationship between the center and the provinces? And how will these decisions—this report from the Congress, will that actually be implemented, and what are the mechanisms for getting things actually done on the ground, whether it's in Guangdong or the north of China?

PEI MINXIN: Well I have two colleagues who each—each of them has written a book on central and local relations so I will let them address this question. From my observation, central government policy lacks credibility. That is when the central government lays out 15 priorities, if you were a local government official, how do you interpret, which one do you have to demand, which one is a job, is a policy, the central government really cares about? And misbehaviour on that issue will cost you your job.

As a result, I think the message conveyed to local government officials is quite confusing. Within the Chinese political hierarchy, local officials also have a very good sense of what kind of misbehaviour is fatal, what kind of misbehaviour is excusable. And nobody loses their jobs if they miss a target.

To some extent, I like economic analogies, up to a point, they are like mutual fund managers chasing the index. If they are among the average, they'll be okay. So policy mistakes, they can always blame other factors. But it is one thing they all know very clearly; is that if they make political mistakes, that is different. That's why -- and I leave it to your imagination to decide what political mistakes are—but these officials really are very, very knowledgeable about how to work the system. And I have to add the central government officials are also aware of the political game.

VICTOR MALLET: So the political mistakes, doesn't that come back to essentially making a judgment as to what the government's priorities actually are?

PEI MINXIN: The public policy mistakes are not political mistakes. Public policy mistakes can always be explained away by objective factors. Only political mistakes cannot be explained away by objective factors.

VICTOR MALLET: But I would love you to explain "political" because I think—

PEI MINXIN: No, no, I don't want to get too political. But you all know there are certain core issues regarding the party's authority, how to deal with challenges to the party. This one wonderful phrase called [...] A certain select number of issues, if you step out of the bounds, you lose your job, no argument, no excuses, nothing.

VICTOR MALLET: So essentially a challenge to the party, in some way, rather than—

PEI MINXIN: Okay, in a crisis moment, like SARS. If you leave your post, because the party secretaries were asked to remain close to their posts, if they leave their post, they consider themselves having resigned, because that's the [...] That is the party has to elevate the credibility of its strength to that level. But there are very small number of issues the party can do that, and unfortunately public policy issues seldom reach their level.

VICTOR MALLET: Thank you. Carrying on. On my right, Professor Yang, you said rather interestingly, it's easier to give than to take away, which of course is true in all political systems, not just in China. But what I want to ask you is whether that means that people in China, especially middle-class people maybe, are beginning to feel that they have certain rights, not necessarily legal rights, it's almost like a psychological thing, you know, if you—of course, they do have legal rights as well I suppose—but if you own a piece of property and somebody decides, as they did in Xiamen, to build a chemical plant that you think is going to pollute the area, and you don't like it, you know, you protest, which is what happened in Xiamen. Or if you're in Shanghai and someone is building a Maglev line next to your house and you protest. In both of those instances, as far as I know, the government, the central government, has actually backed down. And I'm curious to know whether there is a way in which—obviously we're not talking about the party introducing Western-style representative democracy but is the party and the central government beginning to give ground, to yield ground, in the face of public demands from people who are saying, "You know, actually, we have rights and we want the government to do this or not to do that"?

PROF YANG DALI: I think to some extent, certainly yes, all the issues of the status quo are biased to some extent. I mean, this all comes from the cognitive psychology to a certain extent. We all are—generally people tend to be lost for words.

So, in that sense, the Chinese I know are no different in many ways. This actually goes back not just to the relationship between the government and the average person, it also happens in the relationship between the center and the provinces. And that's why it's so much more difficult, for example, in 1993/1994, for the central government to come back and say, "Well, let's reform the fiscal system." That took a lot of work and a lot of negotiation. It took the commitment by Jiang Zemin and Zhu Rongji to really work very hard on it. And Shaoguang and I both have done some work in that regard.

But once you get the start sort of—it requires a lot of political capital to get that carried out. But once you've carried it out, it becomes much easier in many ways. The remarkable thing is actually all these challenges happen in the context whereby, unlike most systems in the world, the central government, the central leadership, actually appoints the top provincial officials.

In actual fact, this remains one of the most hierarchical systems—to use a corporate analogy here, in many ways, there are a lot in there. In terms of the relationship between the people and the government, and there are a lot of studies in this regard, in terms of the rights consciousness among the Chinese people. And I see Professor Li Lianjiang here who has also written a bit on the rights for resistance, because increasingly people have learned the better educated, they learn about the law. In fact, some of the people who are sentenced to jail, the first thing they do is to get the law, they really want to study more about the law and all that. Increasingly, you see in China a lot of this kind of people who want to defend their rights, they resist. A lot of the mass incidents in the last three years, in particular, are arrived from this, and gradually, eventually, the leadership recognises that the major issues should be changed, sometimes by changing the policies, for example, the new property law is not in that direction.

Of course, by having such a property law, immediately empowers more people, and of course gradually the system will fall into place over time, even with all the misgivings we have about the rule of law in China.

So in that sense, I think, actually, increasingly we have a much more highly educated population. This population will be even highly —more highly educated in the future and we have grown up in a time when the government has been emphasising the rule of law. And, in fact, one of the points of the policy report is the party also uphold the law.

Now, of course, we can smirk on that point—but overall, though, that has been the trend. So I do think that actually over time, this is actually goes back to the—of course our British newspapers in this regard, this goes back to the British analogy, over time, there's an evolutionary process in there, it takes time, it takes change for generations. Over time, though, I do think actually this build in defenders of their existing interest and all that and it makes it harder, in fact, to change things in certain respects. But also, of course, to defend one's rights.

There is however a caveat, and it goes back to the issue of whether—of why somehow, sometimes, Chinese officials seem to go with abandon against central policies. Because in the reform era, in the early days, the reformers were generally the ones who violated central government and central party policies and then they began to rise. They succeeded, they rose to the very top, but there has been that—there is this mix of uneasiness in the sense that they are supposed to follow public policies, but sometimes, they also do better than be done. There is this balance and obviously, I think Minxin is right, a lot of officials have learned to finesse, to deal with the situation. They sometimes experiment but then they also know when not to, to some extent. Occasionally some get shut down, but overall, though, it's a kind of evolving situation.

VICTOR MALLET: Just, very briefly, if you were leader of the Communist party, wouldn't you then worry more about middle-class people in the cities than people in the countryside, in terms of, you know, danger to your authority. The government has talked a lot about, you know, closing the rural/urban gap, the rich/poor gap and so on. But actually the real challenges, I guess, as in any political potential revolutionary situation, are not from the peasants, are they? It is from the educated urban people that you referred to; is that right?

PROF YANG DALI: It's not educated or not educated. In many ways, historically, in France, in Britain, in all those countries, there were times when there were many riots. In China, the situation is even more significant because they were beyond even the age of pagers, everybody had a cell phone essentially. Excellent transportation, every major city has built a big square. But what can the square be used for? Not just for—and this was something that they don't—actually in the beginning, they didn't recognise, I think, in terms of the building of this.

There is an ecological factor so, yes, in essence, the party leadership is deeply concerned about that. Although they also worry about even the rural population also. Not only are they rapidly urbanising, but also they are very highly mobile. In fact, even the current price increases have occasioned some protests already despite the fact that the government, for example, has forced the universities, for example, to limit price increases.

VICTOR MALLET: Thank you very much. Another thing before we open the floor, Professor Wang, you said—if I can summarise what I think you said—you were basically providing data showing that the problem of inequality, the problem of the rural urban gap is not really as bad as people think. And almost from what you said, not as bad as President Hu seems to think.

Then you mentioned some of the environmental things and saying, for example, that China is spending 1.2 per cent of GDP on pollution control. And obviously one explanation for that might be that pollution is bad and therefore more money needs to be spent on it.

But I also have a question really about the data. If what you say is correct, and you quoted some figures there, why is the current leadership so worried about this inequality issue and is there a problem with the data? In other words, is a lot of the data actually nonsense? In other words, when a province declares that it has spent money on pollution control, has it actually done so? So it's a question really of the data and how good is that data or is there a lot of corruption going on which means that the money isn't spent where it ought to be spent?

PROF WANG SHAOGUANG: We can always raise the question about the quality of the data to which I have no answer. I rely upon official data because no alternative source of data is available. But if you look at the data, unless someone maximises all the data connection and data process, then it is unthinkable for those data to move in the direction which follows certain logic. So that's one reason I trust the quality of the data.

It is probably not as accurate as it should be. But in terms of a trend, the data—I trust that. So I think China has increased investment or money on pollution control, that's for sure. I mean 1.2, probably 1.3, probably 1.5, I don't care, but the base was point 7/point 5 just ten years ago, five years ago. So it's a significant increase. Probably I didn't explain myself clearly, for lack of time, I didn't have time to talk about it. I'm talking about the improvement, I'm not talking about the situation is good, there's nothing to worry about. Inequality is still a big issue.

Healthcare, education, housing, everything, is still a big issue. That's why Hu Jintao admitted, despite those achievements, it is still far—falls short of the people's expectations.

So China probably needs another 25 years, 50 years to address all of those issues. Remember I said China is a fast-growing, urbanising society. Every year, 15 million, and every year, 1 per cent of the population becomes urbanised. That is probably unprecedented in human history. Chinese government—local and the central—have to deal with that in fact.

I'd like to make some comments about the central and local relations. One of the reasons the central policy may not be carried out locally, because the system is still very de-centralised. Central government revenue today accounts for probably around 52 per cent of the total fiscal revenue. That's very low, even compared to the US. The US federal government often receives 60-63 per cent of total revenue.

In terms of the central government expenditure, Chinese central government only spent about 25 per cent of the total fiscal expenditure. So that's probably the lowest amongst all the countries for which I have data.

So if you don't have the money, how can you force local government to do things you want them to do? Take SEPA, the pollution environmental protection agency. In the past, it's vertically managed. In other words, every level of government manages its own SEPA agency. How can you expect the small boy to monitor the behaviour of their boss. That is not possible. In recent years, the system is supposed to become vertically managed but only to the level of the province, not to the national. Why? Because central government has no money to finance the whole system. But not only in this particular regulatory area, in nearly all regulatory areas, it is only vertically managed to the level of province, at the best. In many areas, it is still managed at the county level or municipal level. There is a structural reason why there's always in the shortfall between central rhetoric and the local behaviour.

PEI MINXIN: Can I just add one thing on this issue, because this data point is very important. Other than institutional structural issues, the term of office for local officials is so incredibly short that it does not encourage long-term thinking. And all these long term social goals require a minimum period of time to take effect. For example, a county magistrate party secretary, average length, serve tenure in their respective jurisdictions about 2.5 years. A mayor is 2.7. I have not seen data of provincial level leaders but probably it's no better.

VICTOR MALLET: Four years.

PEI MINXIN: So with that kind of short-term pressure, you really have to deliver very quick results. That is why the focus is on showy projects, because these projects can really improve their chances for promotion.

VICTOR MALLET: Thank you very much. Now I'm going to open the floor and we've got a couple of questions here already. If you could just briefly say your name and where you're from, and there's a mic on either side of the hall.

MEMBER OF THE AUDIENCE: Thanks. I'm Michael Kurtz from Bear Stearns. I hope you'll indulge me a two-part question, but when we have such an eminent panel, it's sort of a good opportunity to take advantage of your collective wisdom.

The first actually touches upon a subject that Pei Minxin already brought up, which is the issue of the Olympics and how it may be affecting policy-making and policy thinking. My question, I guess, begins with a bit of scepticism, which is specifically to ask, do you really think that the Olympics matters much in terms of how Chinese policymakers are contemplating either specific policies or the timing of the implementation of policy?

Two quick points here. The first is, you know, in the various episodes of the strategic economic dialogue with the US over the past year, Wu Yi continually pointed out that China will make its domestic economic policy with respect to its own internal challenges and doesn't necessarily believe that external opinion should be taken into critical account.

The second point is that, in a sense, the Olympics doesn't really represent a sudden coming-out party for China, in that the world has been intensely focusing its attention on China for years already. So it's hard to believe that this is really, in any sense, a watershed event in terms of the global awareness of what China means.

So I would love to hear what your views are in terms of just how seriously China policymakers take the Olympics, in terms of how they contemplate what they're doing and when they should be doing it. The second part is simply to address the issue of the relationship between the party and the military. We didn't hear much comment on that today. Is that relationship still critical in terms of representing the true source of political power in China? And what about the role of the chairmanship of the Central Military Commission? Will that still be a critical element of final authority or not, as we go forward? Thanks.

VICTOR MALLET: Thanks very much. Good questions. I think the first part was directed to you, Minxin.

PEI MINXIN: Yes, well, the Olympics may not be such a factor that it occupies the minds of Chinese policymakers 100 percent. Clearly, it's one of the major factors they have to think about when they want to make key decisions affecting the economy, society and so on.

It's not—because the Olympics may not be a major international event as far as China is concerned but it's a huge domestic event. Just think about the Olympics in August next year, June next year, June/July. If there was such economic instability in China, what would people be talking about in China? 100 percent of people in China own stock. If, say, the Shanghai index fell from 55 to 3000, the political atmosphere would not be there for China to celebrate its achievement.

VICTOR MALLET: Thanks. Does anyone want to comment on the military aspect? A good point that we haven't really discussed yet.

PROF YANG DALI: Could I add on the Olympics point?. After the Olympics, it is the World Expo 2010. So China will continue to be focused except that in Beijing there might be a slow down. In fact, China needs a slow down in some respects. So Olympics-related projects will slow down. But the energy of the country would be, in terms of the international high-profile events, would be directed towards the World Expo after that.

Although, however, interestingly, for various countries, actually, it's when they have achieved something, then they begin to stumble. Mexico, for example, and Korea, those actually really stumbled hard after they joined the OECD. You wonder about the psychological aspect of those things. But I do think, though, in terms of the overall Chinese economy, the Olympics is a relatively small part of the economy, but big in terms of the image domestically and internationally. So there will be some impacts. But we do also -- we have leadership so engineered in many ways to try to make sure that it will be a good event.

On the military. I'm sure my friends here will have more to add but one of the interesting things is that, first of all, the military representation on the Central Committee is 20 per cent, and this is fairly even over the past decade or so, much smaller than at the beginning of the 1980s, first of all.

Secondly, there is no military representative on the Secretariat at this point of the Central Committee. So as a result, this does indicate greater professionalisation of the military, the party military relationship. So therefore, the CMC chairman directly connects to the military much more directly than in the past. This raises an interesting issue, so unless—and then Professor Wang Shaoguang, in this regard, about whether everything, the deal has all been done about the succession, because there is the issue whether, for example, Xi Jinping or Li Keqiang, for that matter would be—I mean, the issue is appointment to the Central Military Commission, at a certain point, because no party leader would be the top party leader without that connection in there. And that's actually a little more delicate in there.

In that sense, if your wife is a major general, if you come from the family of a revolutionary leader, it does matter to some extent, in terms of a relationship to the Central military—to the military brass, in that regard. So, in actual fact, I think we have to continue watching it, I think. But overall though, it has become more professionalised and the military has been given more resources to do the job—to do its job—and, of course, to raise the living standards for the top brass as well.

VICTOR MALLET: Thank you very much. Professor Wang, do you have any comments?

PROF WANG SHAOGUANG: I just want to add one thing, in terms of the relationship between the party and the military. My observation is that since 1949, the military always follow the civilian leadership. Even during the Cultural Revolution, people sometimes say, "Okay, what about the Wuhan incident of 1967?" I think I'm an expert on that event and wrote a paper on that. There is no sign whatsoever of resistance from the military leader to Mao's leadership. So even that was not exceptional.

PEI MINXIN: I think the only time was after the Cultural Revolution, that overthrow of a gang of four was, to some extent, similar to the military coup, but it was a coup welcomed by the Chinese people.

VICTOR MALLET: Didn't Mao portray himself as a military leader? That was his sort of—

PROFESSOR WANG SHAOGUANG: Okay, then Deng Xiaoping is also a military leader.

VICTOR MALLET: Ann, you have a question. Right in the middle.

MEMBER OF THE AUDIENCE: Professor Yang, you mentioned a change in incentives for provincial officials such that their performance in the environmental area would be significant. In Hong Kong, living in Hong Kong, we certainly hope so. But can you tell us a little bit about how that might work and whether you think it will have real results.

PROF YANG DALI: This goes back to what Minxin mentioned earlier. That is, actually, there are so many targets. If you see the evaluation list for the local officials, there are 20-some targets usually to reach. There are only a few truly hard targets, in many ways, for example, the economy, revenue, population control, and those kinds of things. And, therefore, the local officials obviously pay attention to those targets. A lot of the others—and of course the SEPA and others have been seeking this right to veto policies, basically saying this is a hard target. During my recent travels in some of the localities, there are growing efforts in different provinces, basically saying environment is increasingly a more serious target than before. Whether it is serious enough yet, I think it takes time to see. At this point, though, there is some consensus that something has to be done, especially in the wealthier provinces, wealthier cities, in Jiangsu and other places, for example, Li Yuanchao has come out basically saying that even if the economy stops, we have to get there—even declines, we have to get the Taihu sort of situation, put it under control. I've also visited some places where I know were heavily polluted. They are expecting that bad smell and the smell is gone this year.

So there are changes but the issue is whether this is isolated just in certain cases, or, if this is going to be a major broader phenomenon, I think it will take some time to see. Because sometimes when the centre says, "Well, let's do this," then obviously that has some clout, and then the officials may want to do it. But then the problem is a place that says, "Well, we don't want the polluting factories". We have other parts of the country saying, "Well, welcome, come to us."

So there is the balance, the differences in different parts of the country. So I think there is the issue whether some parts of the country will get better, some other parts actually will get worse. At this point, we really don't know. This is why it's so important.

In fact, increasingly, the central doesn't trust the local officials, and therefore our land, the environment and other issues, they are using satellite, remote sensing, to find out exactly what's going on, rather than simply to rely on the locals to report. I know that in certain places the targets are so hard, they really check the satellite images and angles to say, "Tear this down" and things like that. So there have been those cases. But what I'm concerned though is whether this is general enough.

PROF WANG SHAOGUANG: One point. It is very difficult, if not impossible, to second guess what is the criteria for promotion, how local—or what is the local official strategy to handle the central criteria. I know a number of scholars that can amass the amount of data, develop a very sophisticated model to try to make a prediction. Their predictions come out all wrong. So that's—remember at your conference, there was a paper on how to predict this kind of data. All the predictions are wrong.

PEI MINXIN: I saw a survey of the local officials, they are very instructive. I asked them to rank all the most important factors in their promotion. Number one is good relations with your boss. Surprise, surprise. Second is age. You have to have the so-called "age advantage," if you're younger. Then third is, you have to have some record.

VICTOR MALLET: Thanks. I was going to say in relation to the earlier thing, how amazing it was that a government that is very capable of monitoring e-mail traffic and the internet with such sophistication, it finds it hard to shut down an illegal coalmine, which is extremely easy to see and very difficult to move so it's a matter of—I would say it's a matter of political will and the question is how that political will and priorities are now transmitted. But I think that was a question for you.

PEI MINXIN: I think we have to define the way of asking the media to behave only to report issues that will help governance but not inspire defiance against government authority. You cannot get that magic formula. But anyway, I think that probably I see the leadership as taking—as continuing the current policy, encouraging some form of openness, very limited, but remaining very firm on more sensitive issues.

PROF YANG DALI: I think a key would be what happens after the Olympics, whether the opening, first of all, to foreign media would automatically be suspended at that point, or whether—because currently foreign media essentially has officially been given much greater room—

VICTOR MALLET: With implementation.

PROF YANG DALI: Of course. The issue is if it continues to stay on the boat, maybe the Chinese leadership is comfortable enough at that point. We should be more responsible, more confident and therefore, if that's allowed—because that immediately opens up more channels of communication and other things that are not reported domestically, get reported internationally, and then they come back to China in that regard.

Secondly, the interesting thing is in Guangdong and other places, newspapers very often are freer to report on problems in other parts of the country, not in their own, or they try to stay away from reporting on problems in the locality.

So that is a good thing about being a country with so many different places. The newspapers do have to compete. So I do have some phrases in terms of describing this, again bird cage kind of situation in certain ways.

But I do think, over time, the Chinese media has become much more dynamic. In fact, some of the reported discussions are pretty remarkable in certain ways. And also in terms of reporting our social and economic policies is actually pretty no holds barred almost, in that regard. But I think it's the political issues, continuing efforts to sometimes push the boundaries and then push back and it's one step forward and one step back sometimes.

VICTOR MALLET: Thank you. Anyone else out there? I think we've got time for one last question. Yes.

MEMBER OF THE AUDIENCE: It seems to me that over the last few years, the party has put increasingly less emphasis on ideology, from what I've heard today.. And it's still important but they're basing their support and legitimacy less on political ideology but on delivering results, on reducing inequality, on improving human security and some of the other things that you've talked about. So what happens if they fail? Professor Wang has painted a very rosy picture but, as we know, there are more challenges the country still is facing. What happens in this absence of central ideology, or something that it is working towards, and they are not able to deliver the results which they have up until now?

VICTOR MALLET: Thanks. This comes under this absolutely fundamental issue of where the party and the leadership gets its legitimacy from and I think even senior Communist Party officials will admit now that it's entirely to do with delivering success, broadly defined, but that means usually economic growth, and it also means now, as you've mentioned, a few other things.

Perhaps we could just each say something briefly on that subject to close. Professor Wang, do you want to start?

PROF WANG SHAOGUANG: Actually, it's not just in the last few years, the government downplay ideology, it's over 20 years when (they talk about—suggest there's no more disputes, don't talk about—don't engage in ideological debate. If you situate Hu Jintao's report on the 17th Party Congress, you see he implicitly responds to the criticism from both right and left. Outside the party, outside this discussion, there is another debate over the Internet, sometimes over the print media. So, Hu Jintao has to respond to criticism from both fronts.

In other words, I see the government still wants to move a bit of a way, still more pragmatically. Even though, in the report, he makes references many, many times to socialism probably more than in the past. But pragmatism I think is still critical.

PROF YANG DALI: I largely agree, although I think many of us were also struck by how much the report did also pay attention to ideology and some of them are obligatory, but others are not so. And, of course, the fact that quite a few policies in China still are affected, including, for example, I had a conversation with a friend here concerning land ownership and all that. All those issues continue to be affected by this past history.

To some extent, this past history also has a significance in terms of, for example, the emphasis today, the rediscovery of social responsibility, social policy, to that extent.

So the idea of socialism does matter to many people, in fact. Down the road, though—Minxin was mentioning earlier though that a lot of Chinese were apathetic towards the Party Congress. That is because we're so wrapped up with the stock market, in many ways.

Therefore the issue is,down the road, though, increasingly this is performance-based regime. The problem is for any performance-based regime, you cannot—there is no possibility of constantly sustaining the growth rate and delivering on the goods all the time. If anything China has not managed the economic loss, I think.

PEI MINXIN: Our ideology in Chinese society always behaves the way it behaves. That is, it swings from one extreme to another, from extreme leftism, the utopian ideology, ideological madness to this total—lack of ideology, which has freed the government policymakers a great deal. But we owe the societies do not live on bread alone. That's why today, I think, the Chinese government itself is very concerned about lack of core values, what you call it.

Searching left, not an alternative, cannot go back to past, right, cannot emulate the West, going back to the path of Confucianism, too bad, obsolete, people don't care. So where is it going? I think actually in the hearts of Chinese top leaders, it's a big, big problem. I wish I could have access to engage them, in this soul-searching, where do you see China headed in terms of values? Because today, China is economically prospering but there's so much spiritual poverty in society. And that's not really a very healthy society. Thank you.

VICTOR MALLET: On that rather gloomy note, we have to stop. Thank you very much. Let me, first of all, thank Gillian and her colleagues at the Asia Society for organising this event. And then thank the three professors. On my right, Professor Pei, Professor Yang, Professor Wang, for a very informed and wide-ranging discussion. And, of course, in the short time, we can barely touch on some of the very profound issues at stake here, but I'm sure you'll find their publications either in the bookshops or on the Internet. So thank you very much to all three of you.

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