What to expect from China's new leadership

March 7, 2013: 11:56 AM ET

The majority of China's new leaders grew up during the Cultural Revolution, laboring in factories and the poverty-stricken rural regions, so they have a deeper understanding of those who have been left behind during the country's economic boom.

By Wenguang Huang

The opening session of the Chinese National People's Congress

The opening session of the Chinese National People's Congress

FORTUNE -- A no-frills parliamentary session is just one of the palpable changes under China's new Communist Party leadership, which tries to project its "plain-speaking and pro-people" image.

In a move touted by state media to promote simplicity and frugality among officials, China's National People's Congress, the world's largest parliament, opened on Tuesday without the usual fanfare. The nearly 3,000 delegates who are converging on the smog-filled capital city of Beijing for the annual session have forsaken chartered jets, red carpet receptions, motorcades and extravagant banquets. Jargon-filled speeches have been shortened.

It comes as no surprise that one of the key agenda items is to create "super ministries" to further streamline government agencies and cut red tape and reduce overlapping functions and unnecessary fees. On the economic side, the government will unveil ambitious policies that emphasize a new growth model, driven not simply by exports, but by boosting domestic consumption, improving air, water and food safety, and increased spending on social welfare programs.

Calling it a landmark session, a government spokesperson promised the 10-day meeting will be "democratic and progressive." Legislators are supposed to elect the president and vice president this year and approve top cabinet posts, including the premier and government ministers who will lead the country in the next ten years. But don't expect the heated debate and harsh rhetoric that are common with the Senate confirmation hearings of the President's appointees in the U.S.

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In China, elections exist in theory only. The president and his cabinet members have been predetermined behind closed doors by the power brokers within the ruling Communist party, including members of the Politburo and the Politburo Standing Committee. The National People's Congress is merely a place for validation of decisions by senior party leaders.

Therefore, there will be no surprises about who will be "elected" or approved at the end of the session. As in previous years, political insiders leaked the new leadership roster to the overseas media weeks before the parliament convened.

Xi Jinping

Xi Jinping

As expected, Xi Jinping, who was installed as the party chief last November, will be "elected" the ceremonial head of state. Li Keqiang, the second highest-ranking party official is poised to replace Wen Jiabao and become China's next premier, or the country's top administrator. "If Xi presided over the leadership revamp in the widely reported Communist party congress last November, the focus of this parliament is on Li, the premier-designate and his cabinet members," says Pin Ho, political analyst and founder of the U.S.-based Mirror Media Group.

Since the party controls defense and foreign policies, Ho says the premier's cabinet is the de facto "economy cabinet," which will direct the country's fiscal, economic and social programs in the next 10 years. Core members of the cabinet include Premier Li, his deputy, and three vice premiers.

The 57-year-old Li Keqiang served as the party chief of the central province of Henan and the northeastern province of Liaoning before taking over the vice premier's position in 2007. With a doctorate in economics, he's become well versed in handling the country's economic and fiscal policies during his tenure as China's vice premier and has actively promoted sustainable growth through economic structural change and urbanization.

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The 60-year-old Zhang Gaoli, a member of the Politburo Standing Committee, is slated to be the deputy premier. He will oversee the country's finance department, taxation bureau, and the central bank. Liu Yandong, a Politburo member, will be the only female member on Li's team. At 68, she will take charge of education, public health, and science/technology development. Wang Yang, 58, served as the former party chief of Guangdong. As vice-premier in the new administration, he will be responsible for the development and reform commission, the national land resources, housing and construction and commerce. The 67-year-old Ma Kai is a key member of the previous cabinet and will continue to serve under Li. He is expected to keep the areas of agriculture, forestry, water resources, nationality, and religious affairs.

"The previous leadership was made up of technocrats -- president Hu Jintao, a hydroelectric engineer, and premier Wen Jiabao, a geologist -- who lacked experience in managing the country's economy and were widely believed to be inflexible in their policy initiatives," says Wang Yi, a business analyst in Shanghai. "In the face of the world's economic meltdown during their reign, they chose to pursue short-term economic and fiscal policies, such as massive support for state companies that bring immediate benefits, but failed to address risks like the rising levels of bad government loans and overheated housing market, all of which could harm the country in the long run. "

In the new leadership team, both Xi Jinping and Li Keqiang, as well as members of the economy cabinets, are trained in law and economics. They all have the background of working within the party apparatus but are adept at handling economic and financial issues. Zhang Gaoli, who will be in charge of China's fiscal policies, and Wang Yang, whose assignments include the commerce ministry that handles foreign trade and investment, have both worked in the southern province of Guangdong province, with a strong track record of implementing liberal economic policies that benefit private enterprises and foreign investors.

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Since the majority of the new leaders grew up during China's Cultural Revolution and spent years laboring in factories and the poverty-stricken rural regions, they have a deeper understanding of those who have been left behind during the country's economic boom. This means they are more likely to shift from the former model of "growth at all costs" and place more emphasis, not just pay lip service, on social programs to protect the environment and ease the widening gap between the rich and the poor. More importantly, all the core members are known for being low-key and plain-speaking in their previous leadership roles. Their approach to domestic and foreign conflicts can be practical and tougher but also willing to compromise.

The leadership transition takes place at a time when China is facing serious economic and social challenges. Currently, many regions in China are reporting slower economic growth. In 2012, the overall Chinese economy only grew by 7.8% in 2012, compared to an average 10.6% over the past 10 years. In addition, with the slowing demand from the U.S. and Europe, the country's export rate is facing severe challenges. HSBC's Purchasing Managers' Index (PMI) shows a reading of 50.4 in February 2013, compared to 52.3 in January, the slowest factory growth level in four months.

Therefore, seeking steady and sustained growth -- the government has set the growth target at 7.5% for 2013 -- and rebalancing growth away from the investment-driven, export-oriented model will continue to be a priority for premier designate Li Keqiang.

An important and much-anticipated economic policy initiative that Li will undertake this year to stimulate growth involves engineering an unprecedented urbanization program -- moving 400 million people from rural areas into the cities. In other words, the number of China's urban residents, who make up 30% of the total population of 1.3 billion, will double by 2020 (developed countries have achieved an average of 80% urbanization). The government plans to spend about 40 trillion yuan ($6.4 trillion) to pay for the program by creating employment opportunities and building homes, roads, hospitals, and schools for them.

China's new leadership hopes that urbanization will improve the quality of life for millions of peasants and drive domestic consumption.

Despite the tremendous benefits associated with urbanization, critics worry that a top-down and hasty approach to urbanization could lead to another round of irrational land grabbing and city building, causing a host of other problems, such as further erosion of farmland, an overburdened social welfare system and the high unemployment rate that resulted when farmers left their villages without a steady job in the city.

In the late 1970s, senior Communist leader Deng Xiaoping reformed the rural economy by allotting land to individual household and allowing peasants to sell the produce of their private plots at free market prices to earn extra income. The move greatly improved agricultural output. In the 1990s, premier Zhu Rongyi restructured the ailing state enterprises to improve efficiency without inducing massive urban unemployment, paving the way for two decades of robust economic growth. Li's urbanization, which will have a tremendous impact on the world, must achieve balanced growth for China in the next decade.

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