Background to the rise of political meritocracy
The key lever of China’s reform agenda is its increasingly meritocratic system of officialdom. Under the meritocratic ideal, which has roots deep in the history of the Chinese imperial bureaucracy, officials had a duty to ‘serve the people’ selflessly in the interests of the wider public. We believe the extent of political meritocracy as a guiding ideal and ordering force of China’s system of government is insufficiently appreciated within Western financial markets. Yet this system has been the key engine behind important and impressive policy outcomes, including the rapid reduction in poverty in China over the past few decades.
In this part of the series, we argue that political meritocracy in China is genuine and pertinent for investors. We are not saying that Chinese government is flawless. It is clearly not. Rather, focusing on political meritocracy is an exercise in viewing China the way China views itself – a vital task if investors are to understand a political system that remains remarkably enigmatic both within and outside of China.
An evolving system of talent selection
Over the past three decades, China has evolved a sophisticated system for selecting and promoting political talent in government. The modern revival of what political scientist Daniel Bell calls political meritocracy (and what some other analysts call the ‘promotion tournament model’) dates from the post-Mao reform era as an effort to overcome the chaos of the Cultural Revolution. Inspired by China’s history of selecting officials by examination and recommendation, China’s leaders devised a sophisticated and comprehensive system for promoting political officials, involving decades of training and many exams at different stages.
Specifically, in 1977, the year after Mao’s death, Deng Xiaoping’s government re-established competitive university entrance exams, which had been interrupted during the Cultural Revolution, which lasted from 1966 until Mao's death and arrest of the 'gang of four' in 1976. In this new political regime, admittance was merely the first step. Matriculated students would then compete fiercely to join the party. Once dominated by workers, and then by peasants, the party now seeks out star students and wealthy entrepreneurs. Today, joining the party from university is a process that takes at least 12 months.1 The party selects students with high academic achievement and leadership skills, preferably from elite universities. It considers factors such as political attitude, personality, family background, and eagerness.2 Once they leave university they can join government.
In the early 1990s, nationwide civil service examinations were re-established, reviving the tradition of written exams that began around 600 CE and that continued in some form until its abolition 1300 years later in 1905. They act like IQ tests, designed to filter out those without superior analytical skills. In 2017, 1.56 million university graduates applied to take China’s five-hour civil service exam, with only about 27,000 jobs available. This resulted in an acceptance rate of less than 2%.
Revival of competitive exams
Two hierarchies: party and state
China’s governing system has two parallel hierarchies that operate side by side: state and party. Both operate at all five administrative levels of the system (the political centre, the 33 provinces (which include five autonomous regions, four municipalities and two special administrative regions), the 333 prefectures, the 2,851 counties and 39,888 township).3
Chinese political hierarchies: party and state
The party hierarchy is more important than the state.4 The party staffs government ministries and agencies through a hidden appointments system, instructs them on policy through insider committees, guides their political posture and controlling public statements. The officials working in public institutions are trained at regular intervals through the party’s extensive network of 2,800 schools. "In general, the party’s pervasive backstage presence means the front-stage role of government bodies must constantly be recalibrated against the reality of the power that lies, largely out of sight, behind them”.5
The line between state and party perpetually befuddles outsiders. However, it is worth remembering that, “aside from a few largely symbolic exceptions, every senior government minister or official is a party member. By contrast, every senior party official does not always hold a government post. Instead, many work for the key party departments, which outrank mere government ministries. The Central Organization Department is responsible for personnel appointments. The Central Propaganda Department handles news and information”, and so on.6
The line between state and party perpetually befuddles outsiders
During Xi Jinping’s term, the party has, if anything, become even stronger. Since 2018, appointments within the party as well as to government are explicitly (rather than just obliquely) handled by the Organization Department, which reviews performance records for each official.7
Within the state administration, there are 27 different ranks, and up to 14 grades within each rank to further refract seniority and performance. Meanwhile, the 27 ranks are sub-divisions of 11 levels.8 To advance, officials must pass through a continuous series of merit-based tests and accumulate extensive and diverse governing experience. Unlike the American or the British political systems, the Chinese political system does not clearly distinguish between ‘bureaucrats’ and ‘politicians’ and thus ambitious civil servants can reach the top of government.9
Climbing the ladder of officialdom
What does the ladder of officialdom look like? Officials must typically be promoted successively to the township level (levels 11-9), a county division (levels 8-7), a department bureaucracy (levels 6-5), and then to the province/ministry level (level 4-3). Levels 2 and 1 are reserved for the highest officials. At level 2, the official may be a member of the 25-member Politburo, and at level 1 the official may be a member of the seven-person Politburo Standing Committee.
The ladder of officialdom
The system is extraordinarily structured and hierarchical. A public official aiming to reach the position of vice-minister (in level 4) will have had to be promoted through nine different levels: senior member to deputy section chief, section chief, deputy division chief, division chief, deputy bureau chief, bureau chief, and vice-minister.10 Meeting the minimum level of service at each rank would require at least 20 years to reach the position of vice-minister.
During this climb, officials are typically rotated through the civil service, state-owned enterprises, and organisations such as universities and community groups. The top candidates will be sent for further training at party and administrative schools, and overseas. By the time the leaders are in the Politburo Standing Committee, they will have served as governors or party secretaries of at least two provinces, each the size and population of many big countries. As one analyst put it, “a person with Barack Obama’s pre-presidential professional experience would not even be the manager of a small county in China’s system”.11
A public official aiming to reach the position of vice-minister (in level 4) will have had to be promoted through nine different levels
The system is not entirely centralised. The top of the system, as in the original Leninist model, is highly centralised.12 On the other hand, regional economies (provinces, municipalities, and counties) are relatively self-contained. These sub-national governments have overall responsibility for initiating and coordinating reforms, providing public services, and making and enforcing laws within their jurisdictions.13 Since the 1980s there has even been space for some kind of democracy, with village-level elections and limited self-governance. The idea is that information can flow up to the Central Committee.
The system is not perfect. Officials are still selected and promoted on social connections and family background, and posts are still bought and sold at lower levels. Finally, the workings of the CPC's Organization Department, which sets standards and promotes officials, remains largely opaque to outsiders.
Promotion based on economic success
Nevertheless, the success of the promotion tournament model in China has also been obvious. By promoting local officials based on economic gains, the CPC has substantially eliminated poverty in China in recent decades. The promotion system appears to have been most effective at the lowest levels of government. As research by Xing Ling has shown, political competition has amplified the central government’s growth objectives at the local level.14 From 2006-2010, the average provincial growth target was 10.15%, 2.6% higher than that of the central government. Yet the actual provincial growth rate for that period was, on average, 13.07%, nearly 6% higher than the central government's target. Despite the obvious waste incurred in state-driven growth targets, growth is the key to reducing poverty. Therefore, political meritocracy played an important role in poverty reduction.
Political meritocracy has played an important role in poverty reduction
The system is also becoming more meritocratic. Everyone knows that several top leaders in China today are ‘princelings’, or children of leading political families from China’s revolutionary era who began their rise before the revival of exams in the 1990s. Given the ultracompetitive nature of the exams, some have suggested there will likely be a declining percentage of princelings in the political system in two or three decades.15
China continues to have many substantial problems, including corruption, the gap between rich and poor, environmental degradation, abuses of power by political officials, harsh measures for dealing with political dissent, and so on. That is precisely why the political system needs to be further ‘meritocratised’.
To this end, China continues to pursue experiments in public administration. For instance, recently the government launched an experimental scheme in parts of Guangdong to force public officials to disclose their assets. This is similar to the introduction of the so-called ‘avoidance system’, an antinepotism mechanism with roots in imperial China that forbids officials with kinship or other relations to work in the same office. This was extended to all public officials in 1991, which has reduced examples of blatant nepotism.16 More recently, the CPC’s Central Discipline Commission has been aggressively rooting out corruption. In 2011, it conducted formal investigations into 137,859 cases that resulted in disciplinary actions or legal convictions against party officials. This represents a nearly fourfold increase since the years before 1989, when corruption was one of the main issues that drove the Tiananmen protests. Under Xi Jinping, the Discipline Commission has been augmented further.
China continues to pursue experiments in public administration
Rural revitalisation: key metric for promotion
In the last six years, China has been moving away from the idea of ‘growth-at-any-cost’.17 As Zhang Jun of the China Center for Economic Studies has put it, China's leadership has begun to: “change the way it evaluates local officials' performance. Now, beyond economic growth, local governments must work to transform and upgrade the local economy, foster technological innovation, protect the environment, reduce poverty and mitigate financial risks”.
In the context of rural development, there is explicit guidance that rural revitalisation will be used as a metric to promote officials. Indeed, there are signs that the rural revitalisation strategy is "an important yardstick to promote relevant officials,” as Han Jun, one of China’s top rural policymakers, put it. Combined with other statements and actions, it gives us confirmation that China’s political meritocracy is now being put at the service of improving the countryside. This is an important development.
Rural revitalisation is "an important yardstick to promote relevant officials"
Quality of growth, not just quantity
There are also signs the system is adapting and becoming more responsive to public needs and services delivery. For instance, the city of Foshan is giving the public a direct role in evaluating officials’ performance. Under the city’s new points-based evaluation system, 15% of officials will be assessed via an online questionnaire. A further 10% of points will be awarded for public service, while just 5% will be awarded for economic growth. This helps put the focus on quality of growth, not just the quantity of growth.18
There has even been a revival of Confucian values in some areas – manifestly a turn away from pure growth-based metrics. For example, in Qufu City, the birthplace of Confucius, candidates must satisfy basic expectations of filial piety. For instance, if parents are asked about the virtue of their child during the candidate selection process and the parents have bad things to say that would weigh against the candidate.19
The shift away from pure measures of economic growth can be seen in the way the government has handled two recent risks in the Chinese economy. Neither the very rapid crackdown on shadow banking, nor the recent uptick in profitability at state-owned enterprises (SOE), could have been achieved without the presence of empowered officials within a robust incentive structure. There is little need for ‘on-the-job’ training, given the preparation officials receive. Essentially, when China’s political system decides to do something, it happens relatively quickly. We believe that China's reinvigorated and reformist government will be a key pillar in tackling China's vast, underestimated, and changing rural economy.
*Other contributing authors
Greg Kuhnert, Co-Head of 4Factor | Mark Evans, China Analyst | Mike Hugman, Portfolio Manager, Emerging Market Fixed Income