Trade War
Newsletter 137 - October 23, 2022
Welcome to the 137th edition of Trade War.
China’s new lineup of leaders to the Politburo Standing Committee has been revealed: Xi Jinping plus six of his allies. And demonstrating his intention to stay around for many years to come, there are no obvious successors to Xi on the elite body.
Meanwhile, Xi’s predecessor Hu Jintao is escorted from congress seemingly against his will, setting off rumor mill.
Xi’s speech to the 20th Party Congress puts security way above the economy. That means a less stable, less friendly China, I write in my latest commentary.
Reform and markets are downplayed but self reliance, struggle and ideology are all stressed.
Private entrepreneurs are not welcome at congresses when Xi is in charge. And economic reformers including the central bank governor and top banking regulator look set to retire next year.
GDP release abruptly postponed. China pares the number of economic indicators the world gets to see. And European countries are becoming less enamored of doing business with the economic giant.
*Plus links to both the English and Chinese versions of Xi’s Party Congress speech
*Video of my East-West Center talk on China’s economy post 20th Party Congress
The once-a-decade big reveal
The once-a-decade big reveal has happened. The seven leaders of China’s new Politburo Standing Committee walked - in order of seniority - into a room filled with waiting journalists in the Great Hall of the People, on Sunday October 23 in Beijing.
Guess who was at the head? Well that was Xi Jinping of course, now beginning his unprecedented third term in power. And guess who the other six owe their allegiance to? Xi again.
“Xi and the new leadership of the PBSC. A clean sweep and a PBSC with six of his allies, which is unprecedented in recent Chinese politics,” tweets The Hindu’s Ananth Krishnan. Here is his article on the new lineup.
‘Yeah, this is complete, total dominance’
“Politburo Standing Committee lineup (apart from Xi himself): Li Qiang, Zhao Leji, Wang Huning, Cai Qi, Li Xi, Ding Xuexiang. Yeah, this is complete, total dominance. No designated successor. (Ding is 60, whereas heirs are typically appointed in their early to mid 50s),” writes Yale University’s Taisu Zhang.
As many are noting, the appointment to the PBSC of Shanghai chief Li Qiang, who was in charge during that city’s disastrous Covid lockdown, may be considered a slap in the face to some who suffered there.
Xi unveils team to press, no questions
And here are the positions held by all all of the new Politburo Standing Committee’s members.
China focused on security over economy means trouble
In his almost two-hour-long address opening the 20th Party Congress on October 16, China’s leader Xi Jinping made a nail-biting 91 references to “security” while mentioning “economy” just 60 times, I write in The China Commentary.
That’s far more than the 55 times he brought up security in his speech to the last Party Congress five years ago. And while the number of references to “market” and “reform” made in a Congress speech were at their lowest this time since the 1980s, “battle” was mentioned 46 times.
This emphasis reflects Xi and other top leaders’ belief that China is facing unprecedented challenges, both at home and from abroad. Those emanating from within include a destabilizing reliance on debt and investment to drive growth, an aging population that needs to be supported by a shrinking working age population, growing inequality, and soaring youth unemployment, now officially at about 20%. Youth, of course, have long been the source of protest against government failings in China, from the May Fourth Movement of 1919 to Tiananmen Square in 1989.
Overseas challenges? “Hostile foreign forces” meddling in Hong Kong, Taiwan, and Xinjiang, as well as the more real threat, the people in those places, who no longer or never saw themselves as Chinese nor want to be part of China.
In the category of existential threat: the ongoing tech battle with the U.S. which threatens China’s development and future prosperity, as well as the potential for future military conflict. The former just got a lot more serious with the Biden Administration’s imposition of sweeping new sanctions that could badly hurt Chinese technology companies, leading to the Ministry of Information Technology convening emergency meetings with chip companies.
The concern with security is hardly new, of course. That’s what was behind the recent crackdown on China’s biggest internet technology companies and the billionaire entrepreneurs who created them. Concern about data security, for example, led to the swift regulatory crackdown on Didi Global just after its NYSE debut last year, which eventually forced it to delist in June.
Also a concern of Xi and other top leaders: the degree to which some of China’s biggest private companies became an integral part of people’s lives, potentially even rivaling the Party, while challenging state-owned companies at the same time. That unacceptable fact, along with founder Jack Ma’s brashness, convinced Beijing to block Ant Financial from completing its planned $37 billion listing in New York in November 2020.
And with these worries still strong today, expect the crackdown on Big Tech to be renewed at some point post-Party Congress.
Even the crackdown last year on private tutoring which devastated an industry once worth many billions of dollars was related to security concerns. At least in Xi’s mind, it was unacceptable to allow private companies like TAL Education or New Oriental English, which laid off 60,000 workers after the regulatory assault, to have such a large role in educating China’s youth.
“Any sector that has the potential to change how people think or how society works, resists the Party’s comprehensive control, or takes too big a portion of the country’s workforce/investment will find itself in the regulator’s way,” wrote Xibai Xu, a researcher on Chinese civil society, earlier this year. (Much to Beijing’s chagrin, its assault on tech companies has played a large part in the youth unemployment crisis of today.)
The focus on tamping down potential sources of instability also explains Beijing’s reining in of the debt-laden property industry even as it has hurt the economy — and why it will continue clamping down on this all-important sector into the future.
That will be a delicate balancing act: on the one hand an economy-wide debt level that could reach 275 percent of GDP this year is not sustainable; on the other, a too precipitous drop in real estate values risks angering the 90 percent of urban Chinese who own apartments.
The many who continue to predict real progress on reforming the household registration or hukou system, not just in select cities, but throughout China, will likely be disappointed, just as they have been since 2013. That’s a problem, as household registration reform is essential for China’s transition to a more domestic consumption-driven economy.
But restrictions keeping people from settling wherever they like in China’s cities have always been seen as necessary for public security, with migrants often unfairly blamed for rising crime rates. “It comes down to a question of loosening control. In order to do this, they need to be hands off a little bit. They need to stop thinking or acting as if they can decide where everyone lives,” I said in an interview in 2020.
This emphasis on security will not help but rather hurt an already struggling economy. The Party that has long based much of its legitimacy on guaranteeing rising living standards for the Chinese people will have to find other ways to bolster public support.
Top level pronouncements that call for creating a more equal society, as with last year’s Common Prosperity push and more recently by Xi in his Party Congress speech, will continue, even if in reality there are few effective policies to match the official rhetoric.
More scarily, existing feelings of nationalism among the Chinese public will be encouraged, or even drummed up by Beijing as a diversionary tactic, further complicating any peaceful resolution of China’s growing number of disputes with Taiwan, the U.S., and other countries.
Unfortunately, a China that prioritizes countering security threats rather than ensuring economic growth and development is sure to be a less stable and less friendly place.
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