Editor's note: In an interview with Business Standard, Kenneth Lieberthal explains what talks about the changes China is likely to see under the new leadership, the prospect of China-India relations and China’s relations with its neighbors. Read an excerpt below.
Business Standard: What does the change of guard in China mean for the nation internally? What does it mean for the outside world?
Kenneth Lieberthal: There's been a 70 per cent turnover of the leadership of the Communist Party of China (CPC), government and military in November last year and March this year. They have a good idea about the challenges China faces. But whether the new leadership has the political capacity to meet these challenges is the question.
The leadership understands that the development model on which China has been operating its economy for the last few decades is no longer viable: it was a natural resources-intensive model that has led to deepening inequalities, environmental destruction and corruption.
The assumptions on which the model was based are no longer valid. The assumptions were that China can develop based on continuing to expand exports rapidly, leveraging a large, cheap, young and flexible pool of labour, and counting on social tolerance of various problems such as inequality, corruption, and pollution as the inevitable costs of transitioning from plan to market.
The new model is significantly different. It sees a bigger contribution to the Chinese economy from services - versus manufacturing - and visualises a bigger contribution by the Chinese private sector. It envisions a much bigger social safety net, accelerated urbanisation and an increase in domestic consumption as a driver in the domestic economy. It wants to see the Chinese economy become innovative and high quality.
Today, while everyone knows what the objectives are, if the political capacity is missing, these objectives cannot be achieved. Will the changes in the political leadership produce the necessary changes in the economy?