Delegates gather before the start of the 18th National Congress of the Communist Party of China at the Great Hall of the People in Beijing, China on November 8, 2012. (Remko Tanis/Flickr)
The next leaders of China, named at this week's 18th Party Congress in Beijing, will face a host of challenges in the coming years. The greatest of these challenges, according to Goldman Sachs Vice Chairman J. Michael Evans, is the civil unrest centered around the lack of shared wealth in a growing economy.
As Evans puts it, many Chinese citizens "feel they have not participated in the economic benefits of an economy that's been growing very rapidly. And many believe that they are entitled to a broader participation in all aspects of the economy, and also in greater representation."
In the video embedded below, Evans describes the challenges he thinks the future leaders of China will face, starting with the legitimacy of a one-party system in which very few citizens genuinely participate. Evans also discusses the need for financial reform, the U.S.-China relationship, and China's relationship with other Asian nations.
The video is part of a series of interviews we have conducted with the help of our friends at ChinaFile that examines China's leadership transition from a variety of viewpoints.
A complete transcript of the video can be found below in italics. Be on the lookout for more interviews in the coming days, and for Asia Society's complete coverage of the transition, please click here.
[The] most important aspect of the leadership transition is for the new Standing Committee of the Politburo to put a reform agenda on the table for China which will look very different than what the last 10 years has been.
I think if you look back over the last 10 years, many people in China are much less happy 10 years ago than they are today. And I think they have not — many feel they have not participated in the economic benefits of an economy that's been growing very rapidly. And many believe that they are entitled to a broader participation in all aspects of the economy, but also in greater representation. So, the incoming administration is going to have to make this a priority and a focus area.
I think the biggest challenge is the ongoing political legitimacy of the one-party system. And that's been called into question on the back of the fact that people in China do not feel that they're particularly well looked after. And this takes many forms, whether it's pension, or insurance, or education, or other important social services. And the government is very good at rushing to the latest earthquake or natural disaster, but some of these broader structural social reforms are going to be really important in terms of people in China feeling that at least a significant part of the government focus is properly directed.
Second big challenge is clearly the economy. And, that's something that's talked about a lot. The notion of re-balancing, away from exports to an economy that is more driven by consumption and less by investment. That structural shift will take many years to accomplish, in my opinion. But it's started, and the reforms really involve shifting capital allocation away from the state-owned enterprises into the 40-plus million small and medium enterprises and large corporates, so that there's a greater dispersion of investment ability in those corporations, greater opportunities for employment, greater opportunities for wealth sharing. That in turn drives consumption, which is a key part of a restructured economy in the future. So these are all linked, all these issues are linked, and they need to be sequenced properly, they need to be executed. But there should be no expectation that this is all going to happen in the next 12 to 18 months. This is going to take many years.
China's Relationship with the U.S.
I am optimistic, for two reasons. First of all, I think people say things as part of the political process, which are understood both here in the United States, and in China. So I don't think that much of what has been said, as part of this election in the U.S., will be interpreted badly in China. But, on the other hand, I do believe that both countries recognize that as the largest and second-largest economies in the world there's more to be gained by cooperating with one another and trying to work through some of these difficult issues than there is to squaring off in economic combat, whether it's protectionist measures or other issues that might come up.
China's Relationship with the Rest of Asia
Well, China's leaders are going to be very focused on what's going on with their Asian neighbors. We obviously have an unfortunate level of tension between China and Japan, around these islands, which hopefully will get resolved in a peaceful way. But I think more broadly, Asia as a trading center for global trade and for inter-Asian trade, is becoming increasingly important, as probably the largest trading area in the world. And the bilateral relationships that China has with many of the countries in Southeast Asia, and Korea, and India, are going to be very, very important, not only to China but also to the growth prospects and wealth generation for the middle class and the growing consumer class across Asia. So those relationships, I think, will be just as important in terms of developing, as will the relationships with other parts of the world.