One of the key issues we are tracking in China is the unity of the People’s Liberation Army. We expect, both in 2016 and in the years to follow, China will become more of a dictatorship, as Beijing attempts to maintain central control over the country. This forecast is based in part on the PLA remaining the enforcement mechanism for the Communist Party’s control over the country. We recently published an update on this key element of both our 2016 and 2040 forecasts earlier this month, following an article in the PLA’s official daily newspaper stressing the need for compliance with new military reforms pushed by President Xi Jinping. These reforms include a reorganization of the Chinese military command structure to be completed by January, as well as an eventual reduction of China’s military by 300,000 people.
Keeping this context in mind, it is notable to us that on Dec. 29, the Chinese Ministry of Civil Affairs (MCA) said on its website that both it and the Assets Supervision and Administration Commission (SASAC) had arranged for state-owned enterprises (SOEs) to offer preferential hiring to retired Chinese soldiers. The story was in turn picked up by the People’s Liberation Army Daily, which emphasized the positive impact guaranteeing employment to PLA veterans had on “social harmony and stability.” Xinhua News Agency furthermore reported that the central government would more rigorously enforce an already existing requirement that SOEs reserve at least 5 percent of their vacancies for veterans of the PLA.
On the one hand, this announcement is somewhat to be expected. Beijing needed a coherent plan for the hundreds of thousands of soldiers and PLA staffers that are to be laid off as Xi pushes forward with his ambitious reform agenda. Maintaining both control over the PLA as well as overall morale is critical to the Chinese Communist Party’s ability to exert its control over the country. While we have not seen any overt signs of instability within the PLA, there have been occasional blips on the radar, as when the PLA newspaper took down an article from its website that suggested that, if military reforms were undertaken improperly, the fabric of Chinese society could be at risk. This is one of China’s imperatives and it is, therefore, not surprising to see the state taking care of its veterans.
However, the issue that China faces constantly is that the political imperative to maintain the loyalty of the PLA is at odds with the economic reforms the central government is also trying to implement at the same time. This is particularly salient when discussing state-owned enterprises, which for years have been identified as a problem for China because of their lack of profitability resulting from the prioritization of employment over profit margins. Just last month, China’s State Council issued details on reforms meant to delineate more clearly the lines between SOEs and the government itself, including the creation of an SOE supervision authority that would ensure SOEs prioritize market efficiency over government directives. Assistant Minister of Finance Xu Hongcai went so far as to say that direct government involvement in business operations should be avoided.
That is nice in theory, and indeed China will continue to both reform its military and restructure its economy on parallel tracks. At the end of the day though, when these reforms intersect, the central government will have little choice in the matter. If the choice is between maintaining stability in the ranks of the PLA and reforming the way SOEs work to make them more profitable and the economy more efficient, the central government must choose the former.
Comments made by Xi today are also worth noting in this context. Xi publicly warned members of the Political Bureau of the Communist Party of China’s Central Committee not to have any sense of superiority regarding their power or status – pointedly raising the example of former high-level officials who were targeted under China’s ongoing anti-corruption campaign. These moves highlight both Xi’s boldness in consolidating power within the party and his insecurities as he attempts to reshape the People’s Liberation Army.
China has decided that it must restructure its military, but it cannot permanently lay off thousands of soldiers. Beijing has decided the easiest way to do this is to re-employ them via a de facto affirmative action program for veteran soldiers. Doing this via SOEs compromises reforms meant to take the government out of this kind of direct intervention in SOEs, but Beijing has little choice. Maintaining harmony in the PLA is the greater imperative.