This week's invited contribution comes from Frederic Langer, a Paris-based China watcher.  He provides some interesting insights into recent events concerning BO Xilai, the former Chinese Communist Party Secretary for the Chongqing municipality.

When BO Xilai was recently replaced as Party Secretary for the Chongqing municipality, media commentary focussed on all the associated political intrigues in the context of the upcoming change of leadership in China. The economic background of this event has not however been sufficiently highlighted.

Chongqing was and still is the model for a fundamental shift in China’s growth pattern, namely a policy shift towards developing interior regions, internal market, production for China’s needs, and home-grown innovation, which would make China less dependent on the vagaries of international markets.

This policy trend came to the fore in the wake of the 2008 global financial crisis when US markets for Chinese-made products declined temporarily.  Factories in the coastal regions such as Guangdong had to send thousands of migrant workers back to their home in interior regions, sometimes as far as Sichuan, with no certainty that they could hire them again.

China’s growth depends on two pillars, one of them being the availability of surplus rural labour, sometimes referred to as “slave labour” because these people have little opportunity to work elsewhere and few rights. The labour reserves are in western China, but the jobs are in coastal China, so many people migrate to the coast.  But these people cannot settle where jobs are because of the legal urban-rural divide in citizen status.  As a result there is a huge East-West imbalance in prosperity.

In the event, these fears were groundless and growth in export-oriented industries has resumed on the coast, but the episode gave decisive support to a political line within the Communist Party which had been advocating regional rebalancing.  Symbolically, the State council decided in 2009 to upgrade Chongqing (32 millions inhabitants), already the only municipality directly under the central government in the central and western regions of China, to the status of “national pilot zone for urban-rural reform”.

Naming BO Xilai as Party Secretary there was another boost. BO had been a successful mayor of Dalian in North-East China where he had pleased, inter alia, Japanese investors by cleaning the city and making it “green”. He had a stint as Minister for Commerce, during which he took part in the OECD Ministerial Council Meeting, representing China there for the first time and displaying his excellent English language skills. This was clearly a man destined for high posts.  So his Chongqing assignment was critical both for the project of making Chongqing “a gateway between the West of China and the outside world” and for himself.

Now, BO's career seems shattered, at least for the moment. But the emergence of a more diverse China regionally is still on the long term agenda. With proper management, the vibrant coastal regions need not be an obstacle to the development of the central or western part of the country.  All over the world, sub-national entities are asserting their power and taking more initiatives for economic development. In China they have done so for long but in a peculiar, typical, way.

The second fundamental pillar of China’s growth has been the great land robbery whereby peasants are deprived of their land by local authorities which set up lucrative operations with real estate companies, and draw from them the funds necessary for local government management, in the absence of large central-local transfers.  This situation has been now publicly criticized and may be evolving.  The Chongqing experiment was to be at the cutting edge of this change, with the organization of auctions whereby peasants would offer their rights to the land in exchange for urban status, giving them social security and access to jobs.

While BO might have disappeared from the Chinese political landscape for the moment, it is to be hoped that his many good initiatives will continue.