The Ousting of Bo Xilai

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The very public demotion of Bo Xilai, former Chinese Communist Party (CCP) boss of the south western province of Chongqing, marks the biggest public split among China's rulers since 1989. Then a split in the top leadership helped spark a major nationwide revolt from below, inspired by the students in Tiananmen Square, that culminated in troops gunning down protesters in Beijing.

Over the last few years Bo had built up something of a personality cult around his nostalgic appeals to the egalitarian image of Mao's China - by implication a criticism of the corruption rampant among present-day officials. Later this year the CCP will choose a new collective central leadership of nine men (there are no female candidates in prospect). The assumption was that Bo was in line for one of these places.

Personality cult
His removal prompted speculation about a much wider purge, and there were online rumours of military vehicles on the streets of some cities, and even one report of gunshots heard in Beijing. But the man picked to replace him comes from the same wing of the CCP as Bo, suggesting it was the personality cult that did for him rather than any decisive policy shift.

Many Western analysts see one of the key faultlines in the CCP leadership as running between the "princelings" (men who owe their positions to their fathers) and those who have come up through the ranks. But while there are very real personal issues at stake they tell us little about where people line up on the key policy issues. The driving force here is not individual rivalry or a straightforward opposition between two clearly-defined groups. It is rather that the CCP leadership collectively face a set of problems they cannot see a clear way through.

The biggest problem is the need for a new overall economic strategy. After 1989 the Chinese economy expanded mainly through becoming the primary source of cheap consumer goods for the West - crucially for the US. Through the 1990s and early 2000s China regularly recorded growth rates of over 10 percent a year.

Even without an economic crisis, that could not have lasted indefinitely - the Western economies simply lacked the capacity to absorb that level of imports indefinitely. Interestingly, at the time almost no one could see this.

The economic crash of 2008 put an end to that strategy, and the Chinese ruling class moved quickly to increase the levels of state investment - already very high by world standards - to keep growth rates high. This has worked, but at a price.

China now has a very serious housing bubble. Local governments have run up huge levels of debt they cannot repay.

Although the economy is still growing, the rate of growth has steadily decreased over the last two years, a trend made worse by the collapse in European economies. Most economists say if the Chinese economy is to start growing again at its previous rate it will have to be through increasing personal consumption.

There's no question that China could afford to do this - the problem is rather the effect it might have on an already very restive population.

"Mass group incidents" - strikes, protests, demonstrations and riots - have grown enormously as the economy has been expanding. Each incident has a very specific trigger, whether it is bullying management, corrupt village officials or particular instances of national oppression as in Xinjiang and Tibet.

Confidence to fight
But each separate incident has the same underlying cause - rising inequality. Workers and peasants can see that others are prospering far more than they are, and increasingly have the confidence to fight back against their immediate bosses.

This isn't a national movement - in most cases people fighting back expect the central government to support them against local officials.

But it does mean that the ruling class has to take popular reactions into account when working out its way forward.
That's why some leaders have been talking of political reforms, including formally legalising strikes, as a way of building some safety valves into the system. But others are acutely aware of what happened in Russia after 1989 and are determined to ensure that the same doesn't happen in China.

The stakes are very high, and none of the options in front of them are guaranteed to work - but doing nothing is not an option. Bo Xilai has been the first victim of this vicious circle, but he is unlikely to be the last.