A teacher with students during a relaxation drill ahead of exams, in ChongqingBeijing’s colourful Art Zone 798 is a world away from the grey communist-style buildings that surround the iconic Tiananmen Square in the heart of China’s capital. Located in the suburban district of Dashanzi, 15 km north-east of Tiananmen,,A teacher with students during a relaxation drill ahead of exams, in ChongqingBeijing’s colourful Art Zone 798 is a world away from the grey communist-style buildings that surround the iconic Tiananmen Square in the heart of China’s capital. Located in the suburban district of Dashanzi, 15 km north-east of Tiananmen, Art Zone 798 isn’t even marked on the official tourist map. The government isn’t keen on giving this thriving hub of art, culture and dissent any official publicity. It has toyed with the idea of closing it, but has desisted. Closure could risk offending the New China.It’s a Saturday afternoon and the narrow streets and alleyways of the art zone are packed with people. It is difficult to spot a tourist. The crowds are local. It is equally difficult to spot anyone above the age of 40. Beijing’s youth throng the galleries, shops and European-style street cafes. The residential apartments are plush-Bentleys and BMWs hog parking slots. The art is interesting, subtly irreverent. You could call it Maoist chic. There is a lot of the party’s red colour but there seem few red lines of conformity. No one is beyond satire, be it Mao, Obama, Marx or Hitler.China’s current leaders Hu Jintao (centre) and Wen Jiabao (second from left) with gen-next leaders (circled) XI Jinping (left) and Li Keqiang in Beijing.For the Communist Party of China (CPC), Art Zone 798 is a lethal cocktail of the wealthy, the youth, the creative and the liberal intellectuals. In less than a decade since it was founded in 2002-when a group of artists moved to occupy a factory (Number 798) that had fallen into disrepair in the 1970s-the district has already produced China’s most famous dissident in recent times, the artist Ai Weiwei. Authorities were quick to recognise Ai’s potential as an artist and dissident, co-opting him as a design consultant to the 2008 Beijing Olympics. That did not quell his dissident streak. After years of criticising the government for lack of democracy and abuse of human rights, Ai was arrested in 2011 for “economic crimes”.Corruption hits Communist citadelBo Xilai,Ling Jihua signal rot at the top advertisementGu Kulai,wife of disgraced Chinese politician Bo Xilai, during her trialThe district is harbouring hundreds of potential Ai Weiweis who could pose a problem to China’s next leadership duo of Xi Jinping, 59, and Li Keqiang, 57, expected to take power from President Hu Jintao and Premier Wen Jiabao over a lengthy transition process that begins in October and ends in March 2013.This has not been the best of years for CPC. That it is a sensitive year which witnesses a once-in-a-decade transition of the country’s leadership only exacerbates the problems. In February 2012, a scandal hit the CPC’s top tier leadership for the first time. The scandal unravelled when a renegade police chief in the southern metropolis of Chongqing sought shelter in the US consulate in nearby Chengdu claiming a threat to his life from local party boss, Bo Xilai. At the time, Bo, a rising star of CPC, was tipped to be appointed to the powerful nine-member standing committee of the politburo that effectively rules China, during the transition in October 2012. In revelations that followed, it was found that Bo’s wife Gu Kulai had ordered the murder of a British businessman, Neil Haywood, in November 2011 after a business deal had turned sour. Bo was sacked in March for attempting to cover up the murder by pressurising his police chief. His wife Gu was sentenced to death on August 20. His former police chief Wang Lijun was sentenced to 15 years in prison on September 24. The fate of Bo is still awaited, but punishment is likely to be severe to send out a message to the people of China-that CPC doesn’t tolerate abuse of power.The car crash in which the son of Ling Jihua, who was chief of staff to president Hu Jintao, died.Another embarrassing scandal broke out in the first week of September when bloggers in China and mainstream media in Hong Kong broke the story of a fatal car crash in Beijing, involving a Ferrari, two semi-naked women and a senior official’s son. It turned out that the driver of the Ferrari, who died in the crash, was the son of Ling Jihua, then chief of staff to President Hu Jintao. Questions about how the son of a government official sported such an expansive lifestyle went viral on the Internet. The government moved fast to censor the Internet but by the time the clampdown began, in the public eye, the damage had been done.”Corruption is the most acute problem in the party. That is why people have lost confidence. I would say they generally approve of the CPC policy line but they disapprove of corruption. Corruption in the name of serving the people is bad,” says Ge Jianxiong, 67, a professor of history at Shanghai’s Fudan University. “In my opinion, the situation is worse than ever before,” he adds.advertisementPeople relax at China’s only artificial beach near bund,in ShanghaiEconomist and China expert Arvind Subramanian, senior fellow at the Peterson Institute of International Economics in the US, has visited China frequently over several years. He agrees with Ge’s perception on corruption. “This is the first time I have seen corruption become such a public issue in China,” he says. He sounds an ominous warning: “The party is too complacent about corruption. Serious questions about CPC’s legitimacy have arisen in the last six months.”For many years, while corruption was rampant, the party had contained its taint to minor local level leaders. It was easy for the central leadership to sack the wrongdoers, in cases even execute them. With Bo and Ling, corruption has touched CPC’s uppermost echelons.The country that bought FerrarisThe rich-poor divide assumes critical proportions The public perception of corruption is not CPC’s only serious problem. The wide disparities in wealth, often between those connected to the powerful and those who are ordinary citizens, are creating social tension. At the Ferrari showroom on Beijing’s Jinbao Street, eager young sales girls are waiting for their next customer. A brand-new Ferrari costs 4 million yuan, around $600,000 or Rs 3 crore. The one sales girl who speaks halting English says that they sold 170 cars (about 15 a month) in 2011. This year, because of a slowdown in growth, business is slower. “We have sold only 40 (four-five a month) so far,” she says. The showroom’s clientele is exclusively Chinese. “No foreign buyers,” says the girl. China is now the third largest market for luxury Ferraris after the US and Germany.A pole dancer performs at a night club in ChongqingFifty metres down the road from Ferrari, there is a multibrand showroom called FFF selling supercars like Bugatti and high-end Ferraris. This correspondent was denied entry. “You must come with reference or appointment,” said the stern looking guard to my interpreter. Young Chinese couples surveyed the cars inside. There was no foreigner in sight.Right behind the row of luxury car showrooms-there is Lamborghini, Aston Martin, Rolls-Royce and Mercedes Benz all within 100 metres-is the Ganmian Hutong. Hutongs are traditional lower middle class neighbourhoods in Beijing. A large number have been destroyed to make way for skyscrapers. Some have been preserved as World Heritage Sites for tourists to visit. Ganmian isn’t a tourist destination. It has a series of ramshackle courtyard residences with people cramped into tiny living quarters. There are an unusually large number of rag-pickers. Nobody wants to be photographed. They are not ready to show off their poverty.A few kilometres away, at the Hong Qiao Pearl Market, a downmarket indoor mall where makeshift stalls sell cheap goods from electronics to clothes, at least some Chinese youth openly complained about their relative poverty. Yang Yang, 25, from the province of Liaoning, north-east of Beijing, works as sales girl at a tiny stall selling women’s handbags. She dropped out of middle school at 15 and learnt English interacting with customers. She earns 3,000 yuan (Rs 24,000) per month working from 9 a.m. to 8 p.m. six days a week. Yang explains that she has to send 1,000 yuan (Rs 8,000) a month to her parents in a small town in Liaoning. They work as janitors and earn around 900 yuan (Rs 7,200) a month. Yang spends another 500 yuan (Rs 4,000) a month renting a room in a tiny two-bedroom house she shares with cousins. That leaves her with just 1,500 yuan (Rs 12,000) to spend on food, travel and entertainment. “The only entertainment I can afford is to watch television at home,” says Yang, managing a smile. Yang has ambitions. She wants to start her own business, selling clothes. But she doubts her prospects. Why? “The global economy’s slowdown has hurt Chinese business,” she says. She refuses to blame the government.advertisementDissident artist Ai Weiwei,who was arrested in 2011 in a tax-related caseA few stalls down, A. Bao, 30, originally from Anhui province in interior China, owns his own stall selling Chinese silk and clothes. Bao is married with two young children. His wife works as a sales girl in another stall. Bao says that he and his wife don’t earn enough to keep their children with them in Beijing-they live with his parents in rural Anhui. Bao makes a profit of 5,000 yuan (Rs 40,000) a month, half of which he has to send home to his parents. “Things were better at the time of the 2008 Olympics,” says Bao. “I made a profit of up to 20,000 yuan (Rs 1.6 lakh) every month back then,” he says. Bao is almost tempted to criticise the government until a neighbour intervenes to say, “We are not interested in politics or government.”Xiao Ching, 27, a sales girl from Anhui, is the most outspoken. “China has either very poor people or very rich people, there is no middle,” she says. In India, she would be easily qualified to be middle class, but she thinks she is poor. However, she admits that there are people worse off than her. “In villages far from here, people don’t have food to eat. They wear very bad clothes, not like us,” says Xiao. She giggles when asked about the government. She only wants to say one more thing, “I want to marry a rich man.” Who does she define as rich? “Someone who can buy me what I want from a shop. Someone who has a car. And someone who has the potential to buy a house,” she says.Xiao and the other sales girls and boys in the market are still proud of their country. They believe China is a strong nation whose rise is being resisted by the US and Japan. Says Xiao expressing a mild note of dissent, “Every country has strengths and weaknesses. China’s weakness is that there isn’t enough money for people like us,” she concludes in a statement that underlines the serious challenges facing China’s new leaders.Learning to be freeSocial media fuels popular dissidence What will make the job of China’s future leaders more difficult than that of their predecessors is the democratising force of the Internet. China has banned Western social media sites like Facebook and Twitter but permits local versions of the same. Weibo, the Chinese equivalent of Twitter, is a rage among the youth. Micro-bloggers on Weibo, in fact, played a lead role in exposing the Ferrari scandal, pictures of the crash going viral in a matter of hours. It wasn’t just the images that did the damage. Micro-bloggers also reported that Ling Jihua had smiled at television cameras in the aftermath of the scandal, interpreted by them as an indication that he believed he was above the law. They also reported how Ling was sporting a very expensive watch.Speaking at a meeting of the World Economic Forum (WEF) in Tianjin in September second week, eminent Chinese economist Li Daikou said that social media was allowing people to express their anger against the regime for the first time. “People have begun to complain loudly about corruption and excessive government interference,” he said. The party is worried. Says Fudan University’s Ge, “They fear what happened in the Arab Spring and North Africa.”Kai Fu Lee, a China-based American entrepreneur who heads Innovation Works, a venture capital firm that funds Internet ventures, believes China’s leaders are entirely aware of the Internet’s power. “They are following an underwater approach. They watch and hear but don’t say anything,” he said at WEF in Tianjin. Lee says complete censorship is impossible. “Someone says it. It gets removed. And then someone else says it,” he explains.It may not actually be the government’s intention to shut down all dissent. “The Internet can provide a safety valve. Some place where people can express their frustration with the system,” says a senior executive of a multinational corporation based in China. “The red line for the leadership is if there is any mass mobilisation. Individual dissent is okay,” he adds. Lee believes that smart officials and leaders are beginning to look at social media as an important feedback mechanism on which they can act to correct flaws. “Social media could be a safety valve but it could easily lead to an Arab Spring-type scenario too,” says Arvind Subramanian.End of the China modelTime to empower the private sector and consumer Click here to EnlargeIf there is one thing that has defined CPC’s legitimacy in China over the last three decades, it is the party’s contract with the Chinese people to deliver rapid, double-digit growth, year after year. Unfortunately, for China’s new leadership duo of Xi and Li, China’s growth model-based on aggressive exports and state directed investment in infrastructure-is running out of steam. In the first six months of 2012, growth fell to 7.6 per cent, below CPC’s comfort level of at least 8 per cent. There is only a limited prospect for exports to rev up in the near future as China’s major markets in the US and Europe continue to struggle to escape recession. China’s impressive infrastructure is already first world in quality, but China’s per capita income is just $5,400 (Rs 2.2 lakh). In such a scenario, any further build-up of infrastructure would just create unused over-capacity. It is well recognised, in China and abroad, that the country needs to shift its growth model to a domestic consumption-oriented one, a model that encourages the private sector and private consumer rather than government and exports. “We will work to maintain the balance between keeping steady and robust growth, adjusting the economic structure and managing inflation expectations. We will boost domestic demand and maintain steady and robust growth as well as basic price stability,” President Hu Jintao said at an apec meeting in Vladivostok, Russia, on September 9. At wef in Tianjin, Prime Minister Wen Jiabao acknowledged that the country faced several challenges including rising inequality, and the need to boost domestic consumption. A.Bao, 30 Owns a stall in Beijing that sells Chinese silk and clothes”Things were better for business atthe time of the 2008 Olympics.I made a profit of up to 20,000 yuan (Rs 1.6 lakh) every month back then.”According to some experts, the process of rebalancing the Chinese economy has already begun. “Rebalancing began four-five years ago with higher minimum wages and social security spending. That is already working to boost consumption,” says the CEO of a multinational corporation based in China. Others are less sanguine. Subramanian agrees some structural adjustment has taken place: “At least the Current Account Surplus (excess of exports over imports) has fallen from 10 per cent of GDP to 3 per cent of gdp over the last decade.” But he believes more fundamental reforms are needed. “There are still too many well-connected people getting rich,” he says. That is the direct result of a tightly controlled banking system which gives out loans at interest rates as low as 1-2 per cent per annum to businessmen chosen by the government. “Liberalisation, which will help give out loans to the private sector and individuals, means taking on these interests. Can the leadership take on these vested interests?” wonders Subramanian.He Zhenhong, editor-in-chief of Entrepreneur magazine, agrees with Subramanian: “It is very difficult to start a business here. The public sector is very dominant.” But she is not optimistic about things changing dramatically with a leadership change. Subramanian highlights another problem. “The Chinese need to move from manufacturing to services. But services are over-regulated and there is no competition. Political will is necessary to change that,” he says.Then there is the perennial pressure from the US for China to revalue its exchange rate. Republican presidential candidate Mitt Romney has promised to declare China a currency manipulator on his first day in office. China fears that a serious revaluation of its exchange rate could destroy its exports completely and cause an unmanageable slowdown. In the circumstances, it would not be surprising if the Xi-Li duo is secretly hoping that President Barack Obama is re-elected on November 6-they could do with one headache less as they get ready to wield power in uncertain times.The rise ofthe fifth generationXi Jinping and Li Keqiang have their task cut out Yang Yang, 25 Works as a sales girl at a small stall selling women’s handbags in Beijing.”The only entertainment i can afford is to watch TV at home. Once a year, on birthdays, friends gather and celebrate.”There is little doubt that China is a country on the cusp of far-reaching economic and social change. It is change that CPC’s GenNext needs to respond to effectively if the party expects to retain its iron grip on power. There are mixed views on how much the new leadership can achieve.Economist Li Daikou is optimistic about the new leadership’s ability to implement reforms. “They (Xi-Li generation) were educated in the honeymoon years of opening up in the late 1970s. They believe in reform. The British model of gradualist incremental reform may work in China. Nothing radical is necessary,” he says. Li Daikou says the new leadership needs to focus on institutional reform, the most urgent of which is to democratise the judicial system and separate it from party control. He believes China’s new leadership should use the social media to their advantage. “They can use it to mobilise support for big-ticket reform,” he says.Ge Jianxiong argues that the Chinese people are yearning for change. “A majority of China hopes for change, like Obama and his promise of change in the US,” he says. “They won’t get it though,” he adds with a smile. Xiao Ching, 27 Works as a sales girl at a stall selling miscellaneous goods in Beijing”Every country in the World has strengths and weaknesses. China’s weakness is that there isn’t enough money for people like us.””Remember, Xi Jinping and Li Keqiang are controlled by the system, by CPC’s traditions. They have risen with party support.” Ge is concerned with the party’s overemphasis on stability. “You can solve any problem using this word stability. But stability must not mean stagnation. It means reasonable change. Not revolution, but progressive change,” he says. Like Li Daikou, Ge also believes that reform of the judiciary must top the agenda of the new leadership. “The rule of law must prevail,” he says.One young Chinese journalist, who spoke on condition of anonymity, said that Xi Jinping and Li Keqiang will form a formidable partnership. “Xi is not good-looking,” she jokes, before adding, “but he is a reformer. He will work to democratise systems.” According to her, Li Keqiang will be a good foil because unlike Xi, he does not come from a privileged background. “He rose from an ordinary background. He will have the people’s concerns at heart,” she says.Many others don’t even know what to expect from China’s new leaders because they know so little about them. Says a local business executive in Tianjin, “I wish I knew more about what they were going to do.” Says a young journalist, “You are asking me what they will do, I want to ask you the same because I don’t know.” Communication isn’t CPC’s forte. Leader-in-waiting Xi Jinping didn’t distinguish himself from earlier generations when he disappeared from official engagements and public view without an explanation in the first two weeks of September. At the very least, he will need to develop a better communication strategy if he is going to rule the New China effectively over the next 10 years. Xi would not want to be remembered by history as China’s last communist.