All posts by Vincent Nicosia

GW- Chinese leadership transition

For my second DC event I went to George Washington for a discussion on China’s leadership transition. The speaker was Christopher Johnson, a chair of China studies at CSIS and a former analyst at the CIA. After a brief introduction he started his discussion. He started off simply discussing the apparent result of the most recent party congress. He addressed some of the more widely discussed topics, especially the influence of Jiang Zemin. He also discussed the lack of reformists on the standing committee. While he acknowledged that this sent discouraging signals he made the counter argument that since the committee does not seem to have any major ideological fault lines it means it has a greater opportunity accomplish its goals.

After discussing the transition itself he moved onto the effects the personnel changes would have on China’s policy. In terms of economic and political reform the latter is less likely to occur. If anything changes it is likely to be in the form of some intraparty democratization or some small tweaks to the system. With economic reforms he argues that as a princeling Xi Jinping may have the credibility to tackle some of the most egregious forms of corruptions such as land grabs by local officials. Later Johnson discussed some of the problems with provincial and local authorities. Afterwards he talked about the changing status of the PLA and the extent of military corruption.

After discussing the military he segued into foreign affairs. Here he discussed the difficulties of Sino-Japanese relations in recent years and the reasons for their decline. Johnson also tried to explain why the Chinese government has been moving to embrace the North Korean government more since 2008. He then finalized his analysis by discussing the future of relations between the US and China. While the Chinese government was slightly relieved with Obama’s reelection there is a degree of uncertainty as many administration officials leave. However, he did not predict any major changes in the near future.

After he was done speaking Johnson opened up a question and answer session. The first questions dealt with perennial issues such as Taiwan and Tibet. On the former he felt not much would change soon since the current KMT government has overseen a relatively stable period of cross straight relations. On Tibet he was surprisingly optimistic since Xi and his father have had a history of being fairly moderate on this issue. The remaining questions mostly regarded specific officials or certain details of the transition such as Xi’s brief disappearance. After these had been addressed the moderator made some closing remarks as the conference wound down.

Chaebol Reform

Although they once were seen as omnipotent pillars of the South Korean economy, chaebols, massive family-run conglomerations, are facing a nearly unprecedented assault. This is most likely due to a decline in conservative economic sentiment, mostly driven by younger voters. Still the chaebols have survived previous attempts to dislodge them. However, their resilience will likely be put to the test in the near future. Of the three presidential candidates, all of them are running on a platform of “economic democratization.” Although the meaning of this phrase varies somewhat by candidate, all of them have made campaign promises to take on the chaebols and attempt to level the playing field for all players in the South Korean economy.

Although controversial today, chaebols were once not only widely accepted, but a source of pride for many South Koreans. Following the Korean War the country had been torn to shreds due to the conflict. Even before then, the Korean Peninsula had been an economic backwater for centuries. This had been further exacerbated by ruthless exploitation by Japanese colonialism. However, this changed when economic growth in South Korea exploded in the mid to late 20th Century1. Much of this was due to the amalgamation of various family businesses. Much like the trusts and monopolies of Gilded Age America, one of these groups would cover a wide swath of different industries at the same time. Thus the Chaebol was born. Part of the reason for their ascendance is the fact that Confucian infused Korean culture heavily emphasizes both family values and interdependence. However, the larger reason may have been that one right-wing military government after another would prop these up in an effort to expand growth.1 While they once were more favorably viewed by the South Korean public they have since become much more controversial. Much of the swing in public opinion is due to the impression that chaebols calcify income inequality and compete unfairly against newer companies. Although the constant stream of political scandals involving bribery of political officials and illegal business practices is also responsible. As a result, many Koreans, particularly younger voters, now view the chaebols as having a corrosive effect on democratic governance.5

The first attempt of reform was under Kim Young Sam, the President from 1992 to 1998. He came in as a fresh new figure ready to usher in a new age of transparency and honesty. However, his attempt to reform the Chaebols resulted in failure. This event hurt confidence in the markets and exacerbated the Asian Financial crisis. The opportunity for meaningful reform came up again in late 1997 when South Korea got a loan from the IMF. As a condition for the bailout the government was required to limit the dominance of the Chaebols. However, these attempts only resulted in economic power becoming more concentrated. While there were originally 30 chaebols they have since been whittled down to five. This failure, along with charges of corruption and incompetence, resulted in him leaving office with a 5 to 10 percent approval rating. 1 Therefore, it is important to not underestimate the forces opposed to any meaningful reform.

For left-of-center South Koreans Chaebol reform takes on a special significance. Since these were originally propped up by the hand of successive right wing dictatorships these may be seen as remnant of the old system. Hence political democratization must be followed by economic democratization as well. Additionally there is a natural left-wing aversion to a few politically connected companies dominating the economy, especially in the context of ever expanding income inequality. Furthermore, Lee Myung Bak the relatively unpopular outgoing conservative president was himself a high ranking executive at Hyundai, one of the most well-known Chaebols. By going after these companies it would offer a left-wing president a chance to differentiate himself from his predecessor. However, liberals are currently split between two candidates. The first is Moon Jae-in, a former human rights lawyer who is currently the head of the Democratic United Party. The second is Anh Cheol-soo, a prominent software entrepreneur.2

Currently their proposals are nearly exactly similar. The first of these is a ban on the controversial practice of cross shareholding. The second is reinstating a cap on how much Chaebols can invest in equity. The purpose of this ban was to limit money being transferred around between various parts of the conglomeration. This was first introduced in the late 1980s but was later repealed by the conservative Lee government in 2009.3 Anh particularly is well positioned to exploit this issue politically. As a young entrepreneur he holds credibility with younger voters who may not have the personal connections to easily succeed in a business environment dominated by a few powerful families.   Additionally, as a political outsider he can more credibly say that he will not simply be another Kim Young Sam. If they were running alone, the conditions could be favorable for either one of the two candidates. But the fact that they are running in a first past the post system without a runoff would mean that unless one of them drops out their base of support is likely to be split too much for either to pull off a victory.2

In a sign of the leftward shift of South Korean politics, even Park Geun-hye, the Presidential candidate for the conservative Saenuri Party, is endorsing chaebols reform. However she has not gone as far as her left leaning counterparts. While she has promised to stop additional cross-shareholding, she stops short of banning it all together. Additionally, she has not promised to reinstate the equity cap.3 Since her base of support consists of older Koreans with fond memories of the rapid economic growth under her father, General Park Chung-hee, she can hardly afford to be seen as abandoning the free-market ideals of her party. However, she needs to balance the nostalgia of a portion of the population with general sentiment as a whole. Already she has denounced the human rights abuses committed under her father’s command.4 Additionally, by running under the general banner of economic democratization she further accommodates the growing segment of the population which views the time General Park as a black eye on South Korea’s history. So by campaigning on moderated reform she may be able to position herself as somewhat of a modern day Theodore Roosevelt. A reformist political figure who takes on powerful business interests while remaining committed to free market conservatism.

Regardless of who wins, this election is illustrative of a turning point in South Korean politics. The era of growth by any means necessary seems to have come to an end as voters grow increasingly concerned with income inequality and economic fairness in general. Therefore, all left of center politicians cannot afford to give up the opportunity to voice their opposition to the Chaebol’s domination of the economy. To a lesser extent conservative candidates must jump on the populist bandwagon as well. However, if history is any guide, actually implementing the reforms may be harder than expected. Still it is unlikely that this reality will deter the three presidential candidates from making popular promises during the final three months of the campaign.

 

  1. Hayes, Louis D. Politics Systems of East Asia. London: East Gate Group, 2012.
  2. “It’s Ahn.” The Economist, September 19, 2012 http://www.economist.com/blogs/banyan/2012/09/south-koreas-politics.
  3. Byung-joon, Koh. “Presidential candidates double down on chaebol reform .” Yonhap News Agency. http://english.yonhapnews.co.kr/national/2012/09/26/44/0301000000AEN20120926008800320F.HTML.
  4. BBC. “South Korea presidential runner Park apologises for father.” http://www.bbc.co.uk/news/world-asia-19697171.
  5. Byong-Chul, Lee. “Korea’s Chaebol a Hot Election Issue.” Asia Sentinel, September 21, 2012. http://asiasentinel.com/index.php?option=com_content&task=view&id=4838&Itemid=182.

Brookings – US/China Relations

For my DC event I attended a conference at the Brookings Institute regarding the China/US relationship as an issue in the 2012 election. The four panelists were Richard Bush, Kenneth Lieberthal, Joshua Metzer, and Jonathan Pollack. Although they all admitted that this has not been a huge issue in the presidential campaign they argued that this will be one of the most, if not the most important foreign policy areas for the foreseeable future.

All of the panelists mentioned that they thought that the difference between Obama and Romney on this issue is one of packaging rather than substance. While Romney may take a more hawkish tone on the campaign trail he and Obama have similar stances on issues from human rights to intellectual property issues. Lieberthal added that there has been a pattern in presidential elections where the challenger accuses the incumbent of being soft on China. If he is elected he will try to implement some of his promises but eventually reverts to the original policy. An example was Clinton’s promise to use sanctions in response to China’s human rights violations, which he eventually dropped.

Some of the panelists did remark that there is some risk that given China’s sensitive leadership transition some of the more nationalist campaign rhetoric could have a negative effect on mutual relations. If Xi Jinping or other new officials feel that they need to solidify up their base of support they may feel the need to push back more forcefully than expected. However, the general consensus was that the US/China relationship is going to remain relatively stable although there is some work to be done.