Wild rumours of a coup in Beijing

By John Chan
26 March 2012

Just days after Politburo member Bo Xilai was removed as Chongqing Communist Party secretary, a wild rumour swept through China’s huge micro-blogging community last Tuesday of a military coup in Beijing. The story resulted in tremors in international financial markets, with the credit default swap on the Chinese sovereign debt hitting its highest level in four months.

The downfall of Bo, a major figure of the so-called “new left” tendency in the Chinese Communist Party (CCP), came after Premier Wen Jiabao publicly warned that China could face social turmoil on a scale similar to the Cultural Revolution of the 1960s. (See: “Top official Bo Xilai dismissed by Chinese Communist Party”)

The Internet rumour revolved around supposedly sharp differences inside the CCP leadership over how to treat Bo and his close associates. The dominant “Communist Youth League” faction headed by President Hu Jintao has apparently called for his prosecution on corruption charges. However, representatives of the so-called “Shanghai gang”, associated with former President Jiang Zemin, sought to protect Bo. His protectors included Zhou Yongkang, who is in charge of state security. Vice President Xi Jinping—the likely next compromise president—supported Hu. The two sides argued. Zhou called out the state security forces, while Hu had the army’s backing. Gunfire was heard by local residents.

Even though there was no evidence for any of these purported events, the rumour was rapidly passed on by millions of people. It is hardly surprising, given the lack of public information about the biggest political upheaval in the CCP leadership since the Tiananmen Square massacre in 1989. The Internet police immediately scrambled to stifle the story, blocking anything with references to Bo and “a coup.”

Bo, a rising political star, had been poised to join the country’s most powerful body—the nine-man Politburo Standing Committee—at the upcoming 18th CCP congress. His political demise exposes the CCP’s façade of unity, amid real economic and political policy divisions within the ruling bureaucracy as the economy slows and social tensions rise.

While the Chinese media blacked out references to Bo, there is real concern in the international finance press about the implications of the differences.

A Bloomberg News editorial commented: “The real lesson of Bo’s downfall is that the Communist Party as a whole is losing its ability to stay on top of public disaffection with widespread corruption and rising inequality. Bo was able to tap that disaffection to fuel his political ascent (never mind that his own downfall was reportedly precipitated by his effort to quash an investigation of his own family). His popularity testifies not only to the level of public disgust, also to the possibility of fissures within the ruling elite over the handing such challenges.”

Unlike most colourless bureaucrats in Beijing, Bo sought to revive a basis for support for the government by appealing to popular resentment against the social evils produced by three decades of capitalist market relations. He introduced token spending programs in Chongqing that he claimed would lower income inequality. He organised a massive law-and-order campaign against organised crime, and promoted “red culture” by encouraging the public singing of Mao-era songs.

Behind Bo is a wing of the CCP bureaucracy, which has been benefited heavily from state subsidies to businesses owned by various levels of government. Chongqing is typical of the way in which local governments and their enterprises exploited the flood of cheap state credit made available after the 2008 global financial crisis for infrastructure building and, above all, real estate speculation.

Based on the apparent economic success in Chongqing and other regions, some “new left” academics even began to hail the “Chinese model” of state-led capitalism as superior to the crisis-stricken “free market” system in the West. All of this has begun to unravel, however, as local governments are burdened with huge debts, property speculation is unsustainable, and the Chinese economy slows amid declining export markets in Europe and America.

Fearing Bo’s populist rhetoric could ignite a working-class rebellion, Premier Wen warned the economic gains made in the past 30 years of pro-market reform “could be lost.” He called instead for vaguely defined “political reform”, as a means of cultivating a social base of support for the CCP regime among sections of the middle classes.

Wen’s appeal for “political reform” takes place as Western corporations demand the full opening up of the remainder of the Chinese economy, including banking and other sectors. This, in turn, will convert many giant enterprises still owned by the state but already controlled by the children of top CCP bureaucrats (the so-called “princelings”) into fully-fledged private property.

Xi Jinping, the president in waiting and a leading “princeling”, outlined the agenda at a party meeting just days before Bo’s removal. He referred to three problems that had to be tackled: firstly, the domination of large state corporations was stifling private sector enterprises, secondly, state banks were used to subsidise state enterprises, and thirdly, the mishandling of state-owned lands by officials had led to rural unrest.

A new round of privatisations will lead to massive job losses, social and economic dislocation, and the potential for widespread unrest. “Political reform” is viewed as a means for securing the support of layers of business and the intelligentsia. It has nothing to do with the granting of basic democratic rights to workers and the rural masses.

Bo’s removal clearly points to sharp divisions in the CCP leadership. The last top CCP leader to promote “political reform” was former general secretary Zhao Ziyang in 1989, when he championed a new round of pro-market reform. Zhao’s “democratic” appeals unexpectedly opened the door for the working class to raise their own radical social demands. The CCP responded by sending the army to crush the protests in Tiananmen Square.

Wen’s call for “political reform” will be opposed by sections of the CCP that have long opposed any, even limited, concessions on democratic rights. Above all, Jiang Zemin’s “Shanghai gang”, which ordered the military crackdown in 1989, are fearful that such a move could unleash a rebellion by the working class and oppressed rural masses against the entire regime.

Last week’s “coup” was nothing more than a rumour, but the deep tensions within the CCP bureaucracy mean that a real political upheaval in Beijing is no longer unthinkable.