China’s New Helmsman

When Deng Xiaoping opened China to the world in the 1980s, the awe-inspiring economic growth he unleashed canonized him both within the Chinese Communist Party and the country’s history. But four decades of remarkable growth eventually slowed, weighted down by rampant corruption, widespread anger toward environmental pollution, and a social fabric torn by the stress of capitalistic life. It was only a matter of time before a leader would come around to challenge Deng’s formidable legacy.

At China’s 19th Party Congress last week, that challenger arrived. President Xi Jinping cemented his status as the core of the party and the most powerful Chinese leader since Deng—or even Chairman Mao Zedong. The Communist Party National Congress unanimously passed an amendment to the constitution of the Communist Party, the de facto highest law in the land, to include “Xi Jinping Thought on Socialism With Chinese Characteristics for a New Era” as a guide for party action. Each paramount leader of China has had his contribution to Communist Party ideology enshrined in the same manner, but the only other use of “thought” was ascribed to Mao. Deng was afforded only a “theory,” as was his successor Jiang Zemin, and ineffectual Hu Jintao was downgraded to “outlook.”

What propelled Xi’s rise to power as a “lingxiu,” or wise and great leader, was both his political background and his timing. Anti-corruption sentiment had reached a fever pitch, and he thus had the mandate to go after those in his own party—to remove bad actors, yes, but also those who can check his power. 

It would be too simplistic, however, to suggest that Xi’s personal ambition is his primary motivation in consolidating power. The vision he has for China’s future involves loftier goals. According to a report issued at the opening of the 19th Party Congress, the key elements of China’s current policy outlook are to “build a moderately prosperous society in all respects, strive for the great success of socialism with Chinese characteristics for a new era, realize the Chinese Dream of national rejuvenation, and see that our people realize their aspirations for a better life.” Although Xi has pursued each of these to some degree in the last five years, it is the first time they have been presented officially and in a holistic manner. 

In practice, a “moderately prosperous society” involves cautious revitalization of China’s ever-growing but precarious economy. Structural reforms, ranging from liberalization of the country’s capital account to introducing more free market competition, have been attempted since the late 1990s, but they did not become truly critical until China’s GDP growth slumped below seven percent in 2015, the first time since 2009. Still, the country remains generally cautious about reform and takes an incremental approach. The current top priority is the deleveraging of businesses and financial institutions, as well as the reduction of overcapacity in heavy industrial sectors. At a conference in Washington, D.C., prior to the Party Congress, Zhou Xiaochuan, the governor of the People’s Bank of China, stated that the bank’s financial stability and development committee was focused on reducing shadow banking, as well as addressing the regulatory gaps that gave rise to new financial innovation in the last few years but that also introduced risks into China’s financial system. They need to be dealt with now to avoid future crashes.

A particularly controversial topic is the reform, or restructuring, of state-owned enterprises. The government does not want their assets to decline but desperately needs to improve efficiency and market competition. That is why at the Party Congress Xi promised to work toward building “a mixed-ownership economy.” But it’s virtually impossible to both reform state-owned businesses and move toward a mixed-ownership economy at the same time, especially since the party cannot repeat the disaster of the 1990s when mass layoffs at state-controlled companies led to social unrest that threatened to destabilize the party. The solution seems to be reorganization first, which would still displace some jobs, but not as many as would a complete overhaul.

This raises the question: to what extent do foreign firms factor in Xi’s quest to make the economy more competitive? China has always practiced some measure of economic nationalism, first to control its transition from a centrally-planned economy to a partially market-driven one. Now its efforts to protect its interests and engage on the international stage on its own terms are more a display of strength, not caution. In particular, China continues to encourage the development of its technology and manufacturing sectors through knowledge transfer and keeps those markets protected from full foreign investment or competition. The Great Firewall is as impenetrable and sclerotic as ever. In other areas, including financial services, Xi offered greater opportunities for outside companies to invest and compete. He also promised greater liberalization of the services sector, expressed a commitment to free trade agreements, and has proceeded full throttle with Belt and Road, an ambitious infrastructure and development project to connect China to southern Asia, as well as to Africa, Europe, and the Middle East. 

When it comes to “national rejuvenation,” Xi is angling to reclaim China’s centrality on the global stage, but as a new kind of power—one that is both globalist and nativist. Although Beijing adheres to its protectionist policies and nationalistic approach to security, it recognizes that there are many areas of global concern in which it can seek international cooperation. “No country can alone address the many challenges facing mankind; no country can afford to retreat into self-isolation,” Xi said at the Congress, in acknowledging the overlap of global and domestic problems that are of special importance to China: climate change, terrorism, and cybersecurity. He went even further in saying, “It is time for us to take center stage in the world and to make a greater contribution to humankind.” Such a statement is a great departure from China’s oft-repeated promise to practice non-interference in the affairs of other countries.

Much of China’s new global perspective is driven by its increasing presence overseas, owing to its aggressive outbound foreign investment. Particularly in developing countries, these Chinese assets and citizens often need to be physically protected. For that, the People’s Liberation Army needs to modernize and grow its forces. Xi set an ambitious goal of achieving the former by 2035 and building a top military force by 2050. He is wary, however, of the military’s role in the fall of the Soviet Union and other authoritarian regimes. That is why over the last five years, he has steadily brought the armed forces under his control, first by chairing the Central Military Commission and then forcing high turnover of top military positions. 

That brings us to the thrust of Xi’s vision now enshrined in the party’s constitution. What does it mean for “socialism with Chinese characteristics” to enter a new era? A Xinhua editorial, published the day after Xi’s address, sheds some light on what this could mean:

It is clear that capitalism is completely unfit to monopolize the world's ideology. […] It is no surprise that there is a growing nostalgia for socialism in the West. In the developing world, China’s experience offers them a new option to speed up development while preserving their independence. The twenty-first century is likely to see capitalism lose its appeal while the socialist movement, led by China, rapidly catches up.

There has not been a more explicit call for a worldwide socialist revolution since the Soviet Union embarked on a mission to aid other countries in setting up their own communist governments. Even if has no intention of starting a global movement, China clearly sees itself as the vanguard of the “Second Way,” or an alternative to liberal, capitalist democracy. Much of China’s global influence stems from its cultivation of the developing world, which it does by investing and supplying political and military aid without the exacting conditions of the West.

In this regard, China is now addressing head on what is known as the “principal contradiction” in its version of Marxism. As Xi said last week, “What we now face is the contradiction between unbalanced and inadequate development and the people's ever-growing needs for a better life.” The most potent example of this is the fact that hypergrowth has led to health-threatening pollution. Other ills include inadequate social services. As the Xinhua editorial put it, “The very highest level of education is not available or in acute short supply. There are long waiting lists in the very best hospitals. Tourist sites are crowded and services there have hardly advanced at the same pace as people's expectations.” Foregoing a GDP growth target for the first time in decades, Xi is instead refocusing the country on improving social conditions and quality of life.

The vision Xi has laid out is no doubt ambitious, but he has already taken the steps to realize it. That said, the means by which he’s chosen to ensure its safe passage into history can prove to be counterproductive. When the new Politburo Standing Committee, China’s governing body, was unveiled at the end of the Party Congress, China watchers were shocked not to see Wang Qishan there. He is an ally of Xi and heads his anti-corruption effort. Keen observers had guessed that Guo Wengui, a billionaire fugitive living in the United States who has gained some notoriety for his threats to spill secrets about China’s most powerful officials, had greatly embarrassed Wang by broadcasting accusations of rampant corruption against him and his family on Twitter. Still, to drop Wang is an operational step backwards because he has run the anti-corruption campaign successfully to date and remains one of China’s most capable leaders.

Judging from the composition of the new Politburo Standing Committee, however, Xi’s aim was to put in place members that could not have possibly challenged his power. They are either staunch allies or figures who significantly lack his political clout. He also failed to elevate a potential heir. In other words, Xi has ensured total control of the party and, thus, the country. This may lead to an unnatural level of centralization, without the requisite checks to encourage the best abilities and ideas to rise up. Although this may not prove fatal to Xi’s ability to govern, it is certainly hard to imagine a new era of socialism being able to emerge in such conditions. That is why, despite Xi’s intentions to usher in a new era for China, it is possible that this Party Congress has instead provided the conditions for a new kind of challenger in the future, one that will bring the country through a wave of liberalization.