Many signs suggest that the political honeymoon enjoyed by China's new leadership under President Xi Jinping is coming to an end. On the economic front, the news is bleak. Manufacturing growth has practically grinded to a halt and the risk of a financial crisis has risen exponentially. Out-of-control credit growth has resulted in hundreds of billions of dollars of non-performing loans, often undeclared. The People's Bank of China, China's central bank, signaled that it would not continue to provide unlimited liquidity to commercial lenders, but the warning shot misfired, causing panic in the Chinese interbank loan markets and precipitating a plunge in equity prices.
On the domestic political front, there are worrying developments as well. In June alone, dozens died in ethnic violence, which reportedly included attacks on government offices and police stations, in restive Xinjiang, forcing the new leadership to impose extraordinary security measures in affected districts. But Xinjiang is not even the most difficult challenge facing Xi and his colleagues. Nearly seven months into office, this leadership has yet to define itself. Conservatives within the ruling Communist Party have tried to stifle debate on the need for constitutional rule as a means of curbing the abuse of power and corruption. The party's propaganda department is believed to be behind a series of shrill essays denouncing the concept of constitutional rule as "Western," "subversive," and "inappropriate for China." This reactionary campaign has raised worries that the prospects for moderate political reform have dimmed further.
The only relatively bright spot seems to be Chinese foreign policy. Xi had a much-needed and successful informal summit with U.S. President Barack Obama, and there is now more momentum in building a more stable bilateral relationship. However, such improvement is confined to rhetoric so far. Beijing will still have to address the concerns of the United States and its allies in East Asia before it can reverse the adverse trends in Chinese foreign relations in the last few years.
This brief review of developments since China's new leadership assumed power last November leads to one conclusion: that Xi and his colleagues have to yet convince the Chinese public and the international community that they have committed to undertaking difficult political and economic reforms. Although there is a popular perception that Xi has demonstrated strong leadership since last November and is taking China in the right direction, it is at odds with reality. Compared with his predecessor, Xi has undoubtedly amassed an extraordinary degree of power in record time, but power and leadership are not the same thing.
So far, the only area where Xi seems to have led - exercising his power boldly - is on the anti-corruption front. He has launched a vigorous crackdown on corruption and issued a set of regulations to curb ostentatious entertainment and spending by party and government officials. Although this campaign has made Xi highly popular among ordinary people, its sustainability is doubtful. The new leadership has shied away from effective institutional reforms, such as the passage of a law making disclosure of personal and family wealth mandatory for party and government officials, strengthening the role of the legal system in fighting corruption, and giving the media more freedom in exposing official wrongdoing.
Such political hedging seems to be the new leadership's current strategy. Indeed, Xi and his colleagues want to be all things to all people. Immediately after their installation, they proclaimed their commitment to reform. But to allay conservative fears, they restrained press freedom, toned down their rhetoric, and warned against repeating the mistakes of the former Soviet leader Mikhail Gorbachev, whose political reforms are blamed by the Chinese Communist Party for bringing down the Soviet Union.
For China's new leaders, dependent on support from a small ruling elite, political hedging may seem like smart politics. They may simply be waiting for the right moment to strike. But it is equally possible that such hedging is just an attempt at muddling through. Unfortunately for China and the rest of the world, muddling through is not an option. Slowing economic growth requires quick and decisive actions. The Communist Party's central committee is scheduled to hold its third plenum this fall to unveil a reform package aimed at rebalancing the economy and sustaining growth. The substance of the package - and not any rhetoric - will prove whether the new leadership consists of real reformers or not. It will also have to cope with fast-moving developments, including a possible financial crisis and bolder calls for political liberalization over the coming year. When faced with these litmus tests, Chinese leaders will have no choice but to show us what they really stand for.