Trade War

Newsletter 154 - March 5, 2023

Welcome to the 154th edition of Trade War.

I’m getting a little nostalgic today as the latest lianghui, or “Two Sessions” gets underway in Beijing held in the cavernous Great Hall of the People off of Tiananmen Square. I first started covering the annual political event that includes meetings by both the roughly 3,000-member National People’s Congress, as well as the 2,000-plus Chinese People’s Political Consultative Conference (CPPCC) back in the late 1990s. (It took me years to memorize that second organization’s name.)

Here’s one piece I helped report from March of 1998, during the Asian financial crisis, when the worry was China would be the next Asian economic domino to fall. “We need a New Deal with Chinese characteristics," Chinese Academy of Sciences researcher Hu Angang told us at the time.

The lianghui would become a yearly reporting ritual for me (and all the other journalists based in Beijing) for the next two-plus decades. And while its always been a largely ceremonial or rubber-stamp event—with the CPPCC just an advisory body, and the NPC, despite its official role as China’s top legislative body, in reality just signing off on laws and personnel appointments already decided by the Chinese Communist Party—there is still always a bit of excitement.

There’s the big reveal during the work report, roughly equivalent to the U.S. State of the Union address, when the premier announces a target for GDP growth—”around 5 percent” this year. There is the premier’s press conference that comes at the end of the usually ten days of the meetings and sometimes provides surprises (as when in 1999 then premier Zhu Rongji angrily singled out a cover story I had recently written called “China: What’s Going Wrong,” examining the country’s economic challenges, labelling it part of an “anti-China wave”; I was glad he didn’t call me out by name, as I sat there in the press conference hall nervously listening to his tirade.

(Here is this year's work report (pdf), hot off the presses.)

Then every five years—and even more so every ten years—things get more exciting at the lianghui that comes in the spring following a National Party Congress which has seen major turnover in the party’s Politburo and Standing Committee, as is the case this year. So, as in 2013, and 2003 a decade before, this year’s meeting will see the unveiling of a new team of top leaders under Xi Jinping, including notably, the premier, the vice premier in charge of the economy, and the central bank governor.

While we don’t know for sure who will get these and many other coveted positions, we have a pretty good idea based on who got promoted and who didn’t at last year’s Party Congress. For example, it is all but certain that former Shanghai party secretary Li Qiang will take over the premiership from the retiring Li Keqiang. State planning chief He Lifeng will likely replace economic reformer Liu He. And Zhu Hexin, a longtime banker, is said to be the next head of the People’s Bank of China, successor to Yi Gang, who studied and once taught economics in the U.S.

And, of course, we’ve known since last fall’s Party Congress who got into the Politburo Standing Committee, the now seven-member body that sits at the apex of power in China. And we’ve also gotten plenty of interpretation and educated guessing about what the new leaders will mean for China’s future. Broadly speaking, the prognosticators have fallen into three separate camps:

1. First, and initially most popular, is the take that Xi has successfully presided over the creation of a team of yes-men unprecedentedly beholden to the top leader, who quaking in their boots, would never dare stand up to him; that is seen as very bad news for China, and a step back to the Mao era when one megalomaniacal leader’s unchecked power led to the radical excesses of the Great Leap Forward and the Cultural Revolution. What dangerous and misguided direction Xi will lead China next will inevitably be revealed, this take argues.

2. Now, newly-ascendant and not surprisingly, very popular amongst the China bulls, is the theory that a new crop of market-minded leaders will now finally be able to push back against a weakened Xi, stymying some of his worst ideas, as China faces economic adversity. (A recent piece by Reuters that features incoming premier Li Qiang playing a starring role in pushing an end to the economy—damaging Covid Zero restrictions, a Xi signature policy, falls in this category.)

3. And a third, seen in this interesting take by Bloomberg News, makes the argument that having a host of Xi’s men in top positions, may not be so bad after all. They won’t butt heads with Xi like Li Keqiang apparently once tried to do, leaving the premier discouraged and unsuccessful. Instead the new leaders closeness to Xi is deemed a positive, allowing them to work with China’s still very powerful top boss, and so subtly nudge him down the right reform path.

Although interesting and perhaps with grains of truth, I don’t really agree with any of these interpretations. As has been true almost since the beginning of Xi’s tenure starting in 2012, China’s top leader will continue to dominate decision-making; far more important to the country’s future than the character or lack thereof of the other six members of the Standing Committee, is what Xi himself decides to do.

And China may continue to dial back on some of the policies causing concern amongst business and investors, as was true with Common Prosperity and the crackdown on tech sector and property market. That will happen because Xi himself decides that it should happen, rather than through pressure exerted by others.

Finally, given that there are no convincing signs that Xi himself has truly changed his core beliefs (in an article on February 16, Xi hit his favorite statist themes once again, writing of the need for “unswervingly consolidating and developing the public sector” and that “China's economy must ensure national security”), we can assume that recent market-cheering changes—and any in the future—will likely be temporary.

On to the news:

China reports lower than expected target for 2023 GDP growth. The lianghui, or “Two Sessions,” is expected to rubber-stamp Xi’s continued consolidation of party control. And incoming premier Li Qiang lauded for reportedly overcoming Xi’s resistance, and pushing for a faster end to Covid Zero controls.

Top internet tycoons are stiffed at the NPC and CPPCC. Xi believes private entrepreneurs not showing proper respect for the CCP. China is no longer a top three investment choice for American firms. And foreign direct investment into China drops to its lowest level in almost twenty years.

Former deputy national security advisor calls “trust-building” with China misguided and compares CCP to a hungry shark that wants to keep eating. And writer and former Beijing-based correspondent calls for “both deterrence and coexistence” with China, arguing for a détente.