As 2011 closed and 2012 dawned, China's leadership transition—"elections"—began, with new leadership expected to be announced in March. As we've written, there's a historical tendency for China's communist government to cool its centrally planned economy in the year prior to transition—and attempt to goose it during the transition year. But a look inside the dynamics of China's "elections" and intraparty tensions can help shed light on why.
To be sure, China's method of transitioning leadership differs greatly from processes existing in the West. Their elections aren't so much citizens choosing between Republican or Democrat, Socialist or Green, etc. It's a one-party nation, meaning choices are between communist and, well, communist. What's more, it isn't as though Chinese citizens actually turn out to the polls and directly vote for senior party leadership.
[Related -Demand For Safe-Haven Bonds Surged Last Week]
In theory, China's government system is based on elections every five years at the provincial level. These locally elected officials then select the next rung of leaders, who select the next rung and so on—all the way to the top, culminating in the selection of the president and premier. (While this process may seem a version of bottom-up representation within the party, in practice, power flows the other direction.)
The president and premier are restricted to serving two consecutive five-year terms and are part of the nine-member Standing Committee. The Standing Committee is picked from the 24-member Politburo. If you're not part of the Politburo, the highest you can get is the State Council—although most members of the Politburo also hold multiple ministry positions in the State Council.
[Related -Thoughts on MetLife and AIG]
Despite being a one-party system, there are many factions with different interests. Two seem to dominate, differentiated primarily by socioeconomic backgrounds. On the one side are the wealthy elite, hailing mostly from the wealthy coastal region (a large set from Shanghai). On the other side are politicians mostly from poorer backgrounds who've fought their way up on some form of merit.
The current president (Hu Jintao) and premier (Wen Jiabao) are from the group with poorer backgrounds. As such, they have attempted to emphasize closing the wealth gap between urban and rural populations (although this policy position takes a backseat to government stability—always important in non-democratic societies—tied to high growth and low inflation). The previous president, Jiang Zemin, was from the wealthy elite and focused on urban development. Prior to stepping down in 2003, Jiang packed the Politburo and Standing Committee with his allies, allowing him to continue to wield significant power despite no longer being president.