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China’s new politics

September 8, 2011, 1:00 PM UTC

Anticipating a change in the presidency, the country debates competing social and economic models.

Consider the choice at hand: A leading political figure — adored by his “base’’ — believes that government should be in the business of reducing income inequality, expanding low-cost housing for the disadvantaged, and in general redistributing wealth to those in need. By contrast, another political figure, the governor of a region that has been booming economically for years, says the priority of economic policy is much simpler. It should be about “making the cake bigger.”

It may sound like Barack Obama vs. Rick Perry, but the politicians in question are in China. They are Bo Xilai, the governor of Chongqing, the so-called gateway to the west, and Wang Yang, the governor of Guangdong province in the east, a primary locomotive of China’s economic transformation. Bo’s “Chongqing” model and Wang’s “Guangdong” model have become the touchstones of what has reportedly been an increasingly vigorous debate in Beijing on which direction the country should head.

The debate comes at a delicate moment for China, because just over a year from now the country will have a new President. (Vice President and current Politburo member Xi Jinping is widely expected to succeed Hu Jintao.) Many political analysts, as well as businesspeople, have focused attention on Bo, because he is said to be in contention to move to Beijing and assume a high-ranking Politburo position when Xi takes over.

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That’s not the only reason Bo has become a lightning rod in the discussion of where China is likely to go after the transition. In a country where political leaders tend to be bland, Bo stands out. He is tall and handsome and has a certain Western-style political panache that’s highly unusual for China. Like Xi Jinping, he’s also a “princeling,” which means he traces his bloodlines back to key figures surrounding Mao Zedong and the Chinese revolution. (His father, Bo Yibo, is one of the “eight immortals” of the revolutionary era.) Before taking over in Chongqing, Bo was minister of commerce, and before that, he had a reputation as a fairly business-friendly governor of Liaoning province, in China’s industrial northeast.

That business-friendly reputation is now in question. In addition to his populist economic policies, Bo has led a high-profile “anticorruption” campaign in Chongqing. His political allies contend it’s been brave and much needed, no matter whose toes it has stepped on. His opponents — who include a lot of businessmen — say it’s been a politically motivated campaign that has targeted Bo’s opponents.

Even more controversial, under Bo, Chongqing has adopted a “patriotic’’ campaign that openly celebrates the Mao era. It includes, among other things, ordinary citizens trooping to public parks all over town to sing songs popular during the Chairman’s era. That has freaked out businesspeople, few of whom have anything good to say about the repression and economic deprivation of the time. Bo’s allies insist that he has simply tapped into a vein of nostalgia in China — a longing for simpler days amid the country’s hell-for-leather growth. And, they argue, the “Red” campaign also taps into a welling pride in the powerful country China has become since the Communist Party took power in 1949.

The result, politically, is not surprising: “The liberals are lining up behind Wang Yang, and the diehard Maoists love Bo,” says Liu Yawei, director of the China program at Emory University’s Carter Center.

The critical question is, where do Xi Jinping’s sympathies lie? While hardly anyone believes Xi is a hard-left Maoist, during a visit to Chongqing last December he publicly lavished praise on Bo’s subsidized-housing policies and the anticorruption campaign, and in addition endorsed “singing Red songs, studying the [Maoist] canon, telling [Mao-era] stories.” It sure left the impression that when Xi takes over in Beijing, Bo Xilai may be by his side.

This article is from the September 26, 2011 issue of Fortune.