Curious Capitalist

The Fall of Bo Xilai and the Future of Chinese Growth

  • Share
  • Read Later
MARK RALSTON / AFP / Getty Images

Bo Xilai, the charismatic but controversial Communist Party leader of China's Chongqing municipality, was removed from his post.

The fall of Bo Xilai, the former head of the Chinese Communist Party in the sprawling mid-Western city of Chongqing, is the stuff of movies.  A member of the party elite and supposed corruption fighter who was seen to have brought order to a Blade Runner-esque sprawl with a population the size of Belgium, Bo was not only poised to enter the top rungs of the Politburo this year, he was the first Chinese celebrity politician since Deng and Mao. In a country where the Party likes to speak with one voice, and tall poppies are often cut down, he stood out. He dressed well; he cultivated the media; he had his own one page Comment and Analysis piece in the Financial Times.

But in March, he was abruptly dismissed as the Party head of Chongqing, after his police chief, Wang Lijun, sought asylum in the U.S. consulate in Chengdu, a city several hours northwest of Chongqing. Wang had provided evidence of crimes allegedly involving Bo, according to reports in the Financial Times and the Wall Street Journal, including murders carried out on his order. Wang also claimed that a dead British businessman, Neil Heywood, who was said to be close to Bo’s wife Gu Kailai, had been in a business dispute with her, and had been poisoned. Rather than being a tough-but-honest politician fighting corruption in China’s Wild West, a very different picture of Bo began to emerge — one of a man who his critics say was an entitled “princeling” (his father was Bo Yibo, a revolutionary general who had fought alongside Chairman Mao), and who was corrupt himself; someone willing to torture, frame, and even murder anyone who got in his way.

(MORE: Why China Will Have and Economic Crisis)

Bo hasn’t been seen in weeks (one high level American source in China says he’s most likely under house arrest), and the U.K. has requested that China reopen an investigation into the death of Neil Heywood. Chongqing police had ruled that the Brit’s death was caused by “excessive alcohol consumption,” even though friends said he didn’t drink. His body was quickly cremated.

The story is titillating just as a thriller (indeed, a satirical email circulating over the last few days in China laid out a movie treatment of the story to be filmed by Miramax). But it’s even more compelling when you begin to parse what it means politically and economically for the Middle Kingdom, and for the world. Bo Xilai represented a very particular kind of Chinese power, and a specific notion of how China should grow. The “Chongqing model” was built on hyper-development, particularly around real estate, and economic power was largely held by the “state-owned enterprises” or SOEs. The city was growing at over 16% a year, but it was old-style growth, rife with vested interests of the sort laid out in Ken Miller’s China Bubble cover story for TIME last year, and with little regard for the environment, or, it seems, rule of law.

(MOREWhy China Faces a Catch-22 on Financial Reform)

It was exactly the kind of growth that Chinese premier Wen Jiabao has said time and time again is “unsustainable.” Both he and president Hu Jintao have led the reformist camp that wants to move China from a capital intensive, growth at all costs model, to one that’s based on slower and more inclusive growth and a more developed local market. The problem is, as Miller laid out in his cover, that China’s development machine has too many vested interests – people like Bo and his associates make a lot of money developing real estate (in China, it’s often taken by force from peasants who get little for it). One high level American businessman I spoke with in China last night remembers Bo’s son, Bo Guagua, having “an endless supply of cash and lots of fancy cars.” He also recalls Chinese acquaintances trying to do real estate deals in Chongqing being threatened with their lives when terms couldn’t be agreed upon.

Compounding this problem is that in China, political promotions (and thus power) are given on the basis of raw economic growth figures—figures boosted by massive real estate development—rather than any more holistic development metric. But this model, which has led to great inequality and environmental degradation as well as huge growth, is broken. The World Bank recently issued a report saying what everyone has known for some time – if China doesn’t find a new growth path, it’s in for social instability.

In a country where many still have memories of the bloody and chaotic Cultural Revolution, stability is all. And so, there’s been a fight going on for years within the top rungs of the Party about how to turn the ship (for more on that fascinating insider baseball, check out the work of Cheng Li at the Brookings Institute) without causing mass unemployment that could lead to a peasant uprising. China announced a slow down in its growth target this year, from 8% to 7.5%, though many, like my colleague Michael Schuman, don’t believe they’ll honor it. Indeed, the country grew nearly 9% in the last quarter of 2011.

(MORE: Can Asian-Style Capitalism Save the West?)

But Bo’s fall may mark a real turning point. It’s possible that his scandal didn’t start with Wang Lijun, but that he was being targeted for some time by reform minded Party officials who wanted to make an example out of him, and to spur on real political and economic change. Indeed, Wen Jiabao, the outcoming premier,  has warned publicly that China would indeed have another Cultural Revolution if it didn’t change. President in waiting Xi Jinping recently gave a speech at a party conference that, while cloaked in Party rhetoric, also signaled that China needed to fight corruption, and have more inter-party debate about how to solve its problems (for an excellent parsing of that speech and its meaning, check out UBS senior economic advisor George Magnus’ recent op-ed piece in the Financial Times).

While the Bo Xilai scandal says that China is in some ways more fragile than we think, it may also become a wake up call for the Party, and the country. “I think we’re going to see a rallying now around the political center,” says the American businessman. “The leadership knows the country has to change.” If that happens, it could be a great plot twist for the planet’s second largest economy – if it can keep growing in a smart way, it’s likely that the world can, too.

0 comments
Sort: Newest | Oldest