A ‘drop the pin’ event in Chinese politics

There could be headwinds as the CPC prepares for its 20th Congress in autumn and tracks the ‘China Dream’

There could be headwinds as the CPC prepares for its 20th Congress in autumn and tracks the ‘China Dream’

When the Communist Party of China (CPC) held its annual Central Economic Work Conference in December last year, the watchword was “stability”. This was reiterated with even greater emphasis at the March 2022 sessions of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC).

Path to a review

Later in autumn this year, the CPC will convene its 20th national Party Congress which will see a major turnover in leadership positions. There will be a review of the trajectory towards the realization of the “China Dream” — the rejuvenation of China, its emergence as a fully developed modern and powerful nation and occupying the very center of a transformed international order. The target year is 2049, marking the 100th anniversary of the founding of the People’s Republic and, therefore, of considerable symbolic significance.

It is also anticipated that President Xi Jinping will retain his party, state and military leadership positions beyond the 10-year tenure informally observed for party leadership positions, in line with the reforms instituted by Deng Xiaoping. This was in the wake of the immense damage to the party and the country unleashed by the then Party Chairman Mao Zedong’s Cultural Revolution (1966-1976). The Constitution of China was amended to allow only two five-year tenures to the head of state The objective was to restore the principle of collective leadership and ensure predictable leadership transitions and prevent a cult of personality developing around an ambitious individual leader. The Constitution has now been amended again to permit the President to serve beyond a 10-year term and, in theory, indefinitely for life. The Party has no fixed term of office for the Party General Secretary; only an informal norm is in place. In staying on in this position, Xi Jinping will not be violating any party statute.

On Xi Jinping’s tenure

The 20th Party Congress is important because it is expected to endorse the continuance of Mr. Xi as China’s top leader. The question is whether he will only get another five-year term or be assured his leadership position for life. The latter will signify that his power is unassailable for the present. A limited extension would indicate that there is opposition in the CPC to his assumption of leadership for life. For other leadership positions, the informal age limit of 68 years has been generally observed even during Mr. Xi’s tenure.

The current Premier, Li Keqiang, recently announced at a press conference that he would leave office later this year having completed his 10-year tenure. If the informal age limits are observed, then as many as 11 of the 25 members of the Politburo and two of the seven members of the Politburo Standing Committee would have to retire at the 20th Party Congress. The appointments to these top positions, including the naming of a new Premier, will give the world an indication of both Xi Jinping’s political influence as well as the orientation of China’s domestic and external policies over the next phase of China’s journey towards the realization of the China Dream.

Stability implies a predictable and carefully choreographed outcome to the Party Congress. There should neither be “black swans” nor “grey rhinos” — both signifying unexpected crises — to upset the apple cart. By now, it is clear that no such smooth passage to a celebratory 20th Congress will be possible. In his Work Report to the NPC, Premier Li Keqiang acknowledged: “A comprehensive analysis of evolving dynamics at home and abroad indicates that this year[,] the risks and challenges for development rise significantly and we must keep pushing to overcome them.”

A buffet economy

Domestic risks have multiplied as the economy continues to slow down and is being buffeted by severe lockdowns in major cities, disrupting ordinary lives, dislocating production schedules, causing supply chain interruptions and leading to widespread public anger and protests. The case of Shanghai, China’s first industrial and commercial hub and the world’s largest container terminal, is of particular concern. The images of ordinary citizens battling public health workers, people begging for food and medical help and generally expressing anger at a government immune to their suffering do not bode well for social stability.

And yet, Mr. Xi has publicly defended the very stringent lockdowns. There is a barely concealed controversy within the party leadership over whether such severe measures are necessary. The current Party Secretary of Shanghai, Li Qiang, is reputed to be close to Mr. Xi, but may be in the doghouse for having failed to check the spread of the infection in the city. He was rumored to be in line to be appointed Premier later in the year. This may have become a coincidence of COVID-19.

The Chinese economy was on a slower trajectory even before the outbreak of the COVID-19 pandemic and the pervasive disruptions that it spawned not only in China but across the world. The “decoupling” of China’s economy from the United States, at least in the high-tech and sensitive sectors, has been a challenge. But Mr. Xi himself attempted to reorient China’s economic direction by several key decisions.

One, he tried to bring to heel China’s hugely successful and profitable (and politically influential) privately held commercial multinationals such as Alibaba, WeChat and DiDi Chuxing, all in the tech platform category, by introducing several new and strict regulations, especially in the area of data security. Their foreign operations have been brought under close scrutiny and regulation. As a result, nearly US$1.7 trillion of their market capitalization has been wiped out, which would have been treated as an economic disaster in any other major economy.

Two, he has hit China’s large and expanding property market with similar strict regulatory measures resulting in the near bankruptcy of some of the largest property firms in the country, including Evergrande, which has a huge exposure of US$300 billion. The property sector constitutes around 30% of China’s GDP. Chinese banks have made 30% of their loans to housing construction and 60% of all bank loans are backed by property as collateral. In urban areas, 60% of employment is construction related. Therefore, the cascading effect of a property meltdown throughout the economy can only be imagined.

There is another serious vulnerability related to local government financing vehicles (LGFV) which are floated by local governments and municipalities to finance infrastructure and real estate development. The outstandings on this score have gone from US$2.3 trillion in 2013 to $8 trillion at the end of 2020. They are probably even larger today. This is nearly 50% of China’s GDP and constitutes an economic vulnerability which is not very visible.

The Ukraine war

The big uncertainty for China is the fallout from Russia’s Ukraine war. Whatever be the eventual outcome, Russia has lost the war even if it continues to win several more battles. One cannot see how reducing Ukraine to virtual rubble can constitute a victory in any practical sense. More importantly, whatever the outcome, Russia will continue to be unplugged from the global trade and financial system still dominated by the West. Western sanctions on Russia will continue and may become even more stringent than they already are.

China has condemned sanctions in general but is compelled to observe those whose violation will expose its own firms to secondary sanctions. There are limits to China’s “no-limits” cooperation with Russia. On balance, the Russian misadventure in Ukraine has exposed China to greater vulnerability in its external relations. The strengthening of the US-led western alliance, the revival of European unity and the renewed narrative of “democracy vs autocracy” implies that Chinese expectations of a steady march towards the “China Dream” may be believed. Certainly, the prospect of Taiwan returning to the Chinese fold, which is an indispensable component of the “China Dream”, may have receded for the time being.

Xi Jinping’s position may have weakened but it is unlikely that he will face a serious leadership challenge at the Congress. In an earlier commentary made soon after the release of the landmark Sino-Russian Joint Statement of February 4, 2022, I had said that China had done a Russia on the US just as, in 1972, with US President Richard Nixon’s visit to China, the US had done a China on Russia. This last day gambit appears to have failed. To that extent, India has some breathing space to rework its foreign policy calculations.

Shyam Saran is a former Foreign Secretary and a Senior Fellow, Center for Policy Research (CPR)

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