Zhou Investigation Raises Stakes For CPC Leadership

BMI View: The Communist Party of China (CPC) has launched an official investigation against former politburo standing committee member Zhou Yongkang, the party's most high profile target since at least the 1970s. Zhou's downfall has considerable implications for the party's top leadership moving forward, and suggests that President Xi Jinping's ongoing political purge has further to go.

The Communist Party of China (CPC) has initiated an official inquiry into former head of state security and Politburo Standing Committee (PSC) member Zhou Yongkang, capping a remarkable fall from grace for a man that was as recently as 2012 among the five most powerful politicians in China. Zhou has been under fire from the top echelons of the party since at least mid-2013, and has not been seen in public since October of last year. The move to officially investigate Zhou, who served as the head of the tremendously powerful Central Politics and Law Commission from 2007-2012, is an unprecedented step for the party, marking its most high profile target since at least the 1970s. Zhou will be the first current or former member of the PSC to be subjected to such an investigation, which sets a new standard for culpability among China's top leadership, which has historically been immune from such campaigns.

Proving the allegations of widespread corruption ('serious disciplinary violations', in CPC parlance) against Zhou will be for the party somewhat of a foregone conclusion, as reports indicate that the government has already seized nearly USD15.0bn in assets from Zhou's family and close associates. More broadly, however, the case against Zhou represents a new zenith for President Xi Jinping's ongoing political purge ( see 'Political Purge Bolsters Xi's Reform Credentials', April 10 2014). The rift between Xi and Zhou, a classic power-broker with deep connections within China's state security apparatus as well as its top State Owned Enterprises (SOEs), has been well documented, and Zhou's fallen protege Bo Xilai was widely viewed as a top challenger to Xi's presidency.

BMI View: The Communist Party of China (CPC) has launched an official investigation against former politburo standing committee member Zhou Yongkang, the party's most high profile target since at least the 1970s. Zhou's downfall has considerable implications for the party's top leadership moving forward, and suggests that President Xi Jinping's ongoing political purge has further to go.

The Communist Party of China (CPC) has initiated an official inquiry into former head of state security and Politburo Standing Committee (PSC) member Zhou Yongkang, capping a remarkable fall from grace for a man that was as recently as 2012 among the five most powerful politicians in China. Zhou has been under fire from the top echelons of the party since at least mid-2013, and has not been seen in public since October of last year. The move to officially investigate Zhou, who served as the head of the tremendously powerful Central Politics and Law Commission from 2007-2012, is an unprecedented step for the party, marking its most high profile target since at least the 1970s. Zhou will be the first current or former member of the PSC to be subjected to such an investigation, which sets a new standard for culpability among China's top leadership, which has historically been immune from such campaigns.

Proving the allegations of widespread corruption ('serious disciplinary violations', in CPC parlance) against Zhou will be for the party somewhat of a foregone conclusion, as reports indicate that the government has already seized nearly USD15.0bn in assets from Zhou's family and close associates. More broadly, however, the case against Zhou represents a new zenith for President Xi Jinping's ongoing political purge ( see 'Political Purge Bolsters Xi's Reform Credentials', April 10 2014). The rift between Xi and Zhou, a classic power-broker with deep connections within China's state security apparatus as well as its top State Owned Enterprises (SOEs), has been well documented, and Zhou's fallen protege Bo Xilai was widely viewed as a top challenger to Xi's presidency.

Xi's Power Play

As such, Xi's ability to coalesce the forces of the party in a purge against Zhou is an impressive feat, and corroborates our view that Xi is on his way to becoming a significantly more powerful leader than predecessor Hu Jintao. Earlier this year, reports emerged that former presidents Hu and Jiang Zemin had both discouraged Xi from pushing further with the investigation against Zhou out of fear that the prosecution of such a high profile figure could be destabilising for the party. Now that Xi has succeeded in launching an official investigation against Zhou, it is likely that he will continue his purge in order to both further consolidate his power as well as burnish his anti-corruption credentials, which are integral to his goal of restoring the credibility of the CPC among the public.

The scale and depth of Xi's campaign strengthens our conviction that the leader remains set on implementing the broad economic reform agenda outlined at last year's third plenary session. However, the controversy surrounding the Zhou Yongkang case, as well as the considerable amount of time that it has taken to bring an official investigation against him, suggest that Xi is still in the process of consolidating his power and clearing the party of the vested interests that might stand in the way of hard-hitting and controversial economic reforms, such as a restructuring of China's bloated and inefficient SOEs, as well as its financial sector. For this reason, as well as the potentially negative growth implications tied to such initiatives, the government is likely to take its time with the implementation of substantive economic reforms.

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