China’s Xi Mines State Firms for Political Jobs Before Reshuffle

As President Xi Jinping prepares for a shuffling of China’s senior leaders later this year, a new path to power has emerged: the $20 trillion state sector.

Over the past two years, Xi has installed eight former executives from state-owned enterprises in top provincial leadership posts across China. That’s double the four ex-corporate managers who were serving among the country’s 62 regional Communist Party secretaries and governors ahead of the last big leadership reshuffle in 2012.

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Those promoted included Guangdong Governor Ma Xingrui, a former executive at the main contractor for China’s space program, and Chongqing Mayor Zhang Guoqing, who rose up through the country’s biggest maker of guns and tanks. Hunan Governor Xu Dazhe previously helped run a manufacturer of spacecraft and missile systems.

The prestigious appointments — overseeing economies larger than small countries — position them to advance in China’s upcoming party congress, in which as many as 11 of the 25 members of the ruling Politburo could be replaced. While it’s unclear how Xi’s preference for SOE executives may influence policy, it illustrates one way he is putting his imprint on the party by disrupting the promotion system preferred by his immediate predecessors.

“Former business executives never penetrated provincial-level leadership at the rate and scale they have under Xi,” said Cheng Li, director of the Brookings Institute’s John L. Thornton China Center and known for his research on the evolution of the party’s leadership. “Xi intentionally promoted these people to bring some diversification to his power base and to nurture a new set of protégés to broaden his support.”

Party Infighting

While Xi grew up in an elite party family — his late father was a vice premier — he served much of his career far from the capital. He became party chief five years ago without a clear affiliation with a party faction, and he’s since consolidated power to become the party’s “core” leader in October — a status that eluded former President Hu Jintao.

Hu, who stepped down as party leader in 2012, favored technocrats and bureaucratic groups like the Communist Youth League for China’s top jobs. Xi has criticized that group, whose alumni include Premier Li Keqiang, saying in 2015 that its members must be less “aristocratic” and more connected to the grassroots.

By contrast, Xi called SOE executives the “backbone” of the economy and a “major resource of well-rounded talent” in an October speech to Politburo members, provincial chiefs and corporate leaders. Three former executives have also been promoted to central government positions in recent months, including China Banking Regulatory Commission Chairman Guo Shuqing, 60, who had led China Construction Bank Corp. before a stint as Shandong governor.

Policy Questions

Whether such promotions will shape decisions in China’s opaque and increasingly party-centric policy landscape is an open question. State companies — insulated from market pressures by monopolies and access to government financing — are seen by many as a drag on the world’s second-largest economy. 

Hu Xingdou, an economics professor at the Beijing Institute of Technology, said the former SOE executives might draw on business connections to attract resources and investors to their new provincial roles.

“The downside is the state sector is a massive bureaucracy where the top dogs know more about administrative measures than market-oriented ones,” he said. “We need more genuine market-minded officials who have legal knowledge to head up regional leadership.”

Defense Industry

It’s notable that six of the eight former executives elevated to provincial leadership posts under Xi spent much of their careers in the defense and aerospace industries. The sectors are sources of national pride and central to the president’s goals of putting a Chinese astronaut on the Moon by 2036 and turning the People’s Liberation Army into a modern fighting force.

Ma, 57, a former executive at China Aerospace Science and Technology Corp., has brought an emphasis on science to Guangdong, the southern manufacturing powerhouse trying to foster higher-end industries. In January, he proposed spending 2.65 percent of the province’s $1.15 trillion economy on research and development — the first such target to be included in a regional work report.

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Chongqing’s Zhang, 52, who led China North Industries Group Corp. and holds a doctorate in economics, oversaw the signing of 10 commercial deals with Singapore to boost cooperation in aviation and information technology. Since taking over the CBRC in February, Guo has issued several new directives seeking to reduce leverage in the banking system.

To be sure, some of China’s top political figures previously had cut their teeth at SOEs before they grew into the multinational giants they are today. Former President Jiang Zemin ran an FAW Car Co. factory in the early 1960s while the party’s current anti-corruption chief, Wang Qishan, was governor of China Construction Bank in the 1990s.

Still, the increased number of SOE executives signals that increasingly there are different pathways to power in China’s one-party system, where leaders often spend years working their way up through local governments in various provinces.

“There is a wider variety of options for Xi to choose his people from,” said Li, who last year published “Chinese Politics in the Xi Jinping Era: Reassessing Collective Leadership.” “Some of these provincial leaders will eventually become state leaders.”