How Secure is China’s Leadership? Part Two
By Bill Stork

In the U.S., the political parties and media have their focus on the mid-term elections, and perhaps there is too much to cover and too much coverage. In China, the Chinese Communist Party has its Party Congress every five years, with the next one scheduled for this fall (date not yet revealed). At the last Party Congress, President Xi Jinping had enough power to scrap term limits on his presidency. But has his power slipped? Will the Party Congress vote to restore those term limits? Will they move forward on any other limitations?

Part Two of this three-part article will take a look at Xi’s standing within the Chinese Communist Party.

First let us revisit some bits from the China Rising panel of our Fiftieth Reunion, which also preceded a five-year CCP Party Congress. Mention was made of the various power cliques within the CCP: the Peoples’ Liberation Army (PLA), the State-Owned Enterprises (SOE), the powerful Shanghai clique. There was even discussion of Bo Xi-lai, the charismatic Party Secretary of Chonqing and Minister of Commerce and member of the ruling Politburo who had been seen as the chief political rival to Xi Jinping. Somehow scandalous photos emerged of Bo, his wife and a westerner who was poisoned.

Further investigation revealed embezzlement and other charges of corruption, and the court sentenced him to life in prison for abuse of office. Xi had found a way to eliminate a rival. Corruption is a major problem in China, and these two cases were prominently highlighted by the government to set an example. The Chinese have an expression for this, “Kill the monkey to warn the chickens.” The ensuing Campaign Against Corruption eliminated many in the Shanghai clique, and the PLA got the message. Seven members of the 25-member Politburo were replaced, mostly with Xi loyalists, and his followers were prominent in the powerful Standing Committee.

Five years later Xi had further developed his successful cult of personality, and was able to get 2017 CCP Congress Party to scrap term limits for the presidency. But in order for this to succeed, a compromise with the Shanghai clique elevated one of theirs, Li Keqiang, to premier.

Now let’s jump to the present and examine the often unknown and unreported internal political jockeying amongst the various factions. As we approach the Chinese Communist Party’s five-year Party Congress this fall, there is good reason for Xi Jinping to worry about his hold on the party’s helm. There are signs and signals that China-watchers look for as they digest the various rumors looking for evidence.

As a result of Xi’s ‘dynamic zero-Covid’ policy and the attendant lockdowns in the top industrial city of Shanghai and dozens of other areas, production has declined so rapidly that US investment banks are forecasting a GDP growth of under 4%, below the 5.5% forecast in China’s economic plan. Xi’s mismanagement is getting some of the blame. Large manufacturers like Tesla are still required to maintain “closed-loop” operations, where employees must be quarantined, sleep on site, and be tested every day for Covid-19. Small businesses are still bearing the brunt of the shutdown’s impact, suffering losses from missed deadlines, lost clients, cancelled orders and empty order pipelines. This is just another layer along with the anger of city residents who were barricaded for weeks and blocked from getting basic necessities. Add to this that many factories cannot obtain the basics needed for their manufacturing due to increasing supply chain disruptions. In another U-turn, high-tech firms are now being encouraged to do more for the economy, and last year’s propaganda phrase “prosperity for all”…

… when those firms were being attacked by the government, has quietly disappeared. This seen as another U-turn by Xi.

Hundreds of thousands of small businesses in China have been driven to the brink of collapse. Many residents fled their cities, signing declarations not to return for the duration of the lockdown. The result is an exodus of talent that will disrupt many cities’ labor markets. Coronavirus-driven disruptions have already affected 160 million people this year in cities with a combined economic output of 18 trillion yuan (US$2.69 trillion), according one estimate. Shanghai’s lockdown could reduce China’s economic output by between 2.5 to 3 percent, according to another projection by a group of economists.

To repair the US$637 billion economy, Shanghai’s government unveiled a 50-point plan last week to give 300 billion yuan of tax breaks, incentives and subsidies to the city’s businesses. Landlords were asked to give their retail tenants a rent holiday. The government will also offer up to 3 million yuan in incentives for companies to fend off large-scale lay-offs. To help the automotive industry in Shanghai, the government cut taxes by 60 billion yuan to spur sales. It is also rolling out a 10,000 yuan subsidy for electric-car purchases and retail spending coupons.All of this largesse strengthens the position of the Shanghai clique.

But will these stimulus measures be enough to placate the populace? Will they embolden the Shanghai faction about whom Xi is most worried? Add to these social and economic difficulties the geo-political stresses posed by Biden’s so-called ‘pivot to Asia,’ Taiwan issues, a more active presence of Quad (a partnership among the US, Japan, Australia and India), and an effort by the US to engage Asian nations in an international trade relationship.

It is now August, and China’s Twentieth Party Congress is but months away. What do we know about challenges to Xi?

The rumors from Beijing in recent weeks haven’t come close to suggesting that Xi Jinping’s time in office is nearing its end. But gossip about some kind of policy split in elite political circles is spreading. Commentators outside China have seized on an unusual video call recently from Li Keqiang, the Chinese premier and second in rank behind Xi, as further evidence of tensions at senior levels. Li spoke to more than 100,000 government officials across the country, warning of an economic crisis that could be worse than two years ago after Covid first emerged in China. Liwas given the number two position at the last party congress so Xi could get the support of the Shanghai faction. Traditionally Li’s term would end with the CCP Party Congress, but it has been announced that he will step down six months later in March 2023. Is this a sign of increased strength for the Shanghai clique?

In his online address, Li told his audience that risks to growth were slipping out of a reasonable range. He predicted a long and difficult road to recovery if the economy didn’t keep growing over the rest of the year.

He warned specifically about pressures on local government finances, saying that the central government would not be offering rescue funding. Transcripts of the speech seen by international media outlets were much more frank than the official readout published by state media. Political commentators have painted the instructions as confusing for civil servants tasked with implementing policy at a time when President Xi has pushed repeatedly to prioritize the zero-Covid policy, grounded in warnings that millions of deaths could occur if Covid spreads unchecked. A retreat from the policy could look like political weakness for Xi in the lead-up to the National Party Congress.

Li is widely believed to have been side-lined by Xi, playing second fiddle for a decade. That has led to speculation that his higher profile in recent weeks is part of an effort to make himself heard in his final months in office. There’s even talk that Li wants to position himself before the leadership changes later this year, in hope of securing another senior job in the reshuffle.

The cloudiness of elite-level politics in China means that there are always alternative perspectives on what is actually happening. Another take is that Xi is demonstrating his personal authority by pushing Li forward to give the bad news about the economy (and take more of the blame for it). Another is that he is simply throwing Li a bone by allowing him a little more prominence during his last months in office.

That conference call stirred different responses as well. Zong Liang, chief researcher at the Bank of China, told CNBC that it was the largest meeting of its type for many years and that it was unprecedented for Li to address so many levels of government at the same time. Yet Bloomberg’s take was that plenty of senior officials hadn’t bothered to dial in. “Perhaps the most telling detail from Li’s mammoth meeting was who didn’t show up,” the news agency noted. “The top-ranking Communist Party official for many cities was absent because they had to focus on ensuring Covid control, said one of the people, adding that it signaled that pandemic work still trumped the economy.”

David Bandurski, a director of the China Media Project in Hong Kong, has been scrutinizing the front pages of the People’s Daily for signals. He says that Xi has been less prominent in recent weeks, appearing in fewer large headlines and photographs. In some cases he has been missing altogether – at least five times in May by the middle of the month. “More than five absences for Xi from the People’s Daily front page in a given month would be something unusual, and this is especially the case with the approach of the 20th National Congress this fall, which should usher in wave after wave of promotion of the top leader and his ideas, policies and speeches,” he added. Yet Bandurski wonders himself how much to read into statistics like these, asking how often Xi would need to be missing from the front pages to signal a major shift in the political scene.

Among headline hunters, another perspective came from Bill Bishop, who writes the Sinocism newsletter. He highlighted how Li’s speech merited only a minor mention on the People’s Daily front page, below three much larger pieces featuring the Chinese president. Uncertainties like these seem inevitable for even the most seasoned commentators. But in the meantime, Li’s warning on the economy has continued to provoke comment. Critics of the zero-Covid stance are seeing it as a subtle sign that there could be a softening of virus containment efforts earlier than many have been forecasting. Probably the more substantive subtext, however, is that the Politburo is preparing the ground for a failure to hit the government’s economic growth target this year.

As for talk of a paralyzing split between president and premier – it seems safer to assume it’s more a matter of emphasis in communicating policy priorities at any given moment. Li still backs the broader policy of Covid controls, for example, but recently chose to highlight how this means that efforts to revive growth are going to be even more crucial.

The urgency of this task has been given more focus by the State Council over the last month, with the release of a 33-point plan covering fiscal and monetary policies, investment and consumption, food and energy security, supply chain stability and people’s livelihoods. Government departments reported back with more details on these plans this week in response to an end-of-the-month deadline set by Li himself. Local governments and agencies should “effectively stabilize the economy in the second quarter” and lay a “solid foundation” for the latter half of the year, the State Council demanded. And in a further sign of how the Chinese premier is taking the lead in efforts to rescue the economy, there were instructions to the state banks this week to set aside 800 billion yuan ($120 billion) in credit for infrastructure projects as the government turns back to construction to boost growth.

Further evidence of Li’s political resurgence has been seen in his several international involvements, most recently with the premier of Indonesia in Jakarta.

In sum, China watchers continue to sort through the tea leaves in an effort to decode the opaque dynamics of China’s leadership. Will the Party Congress in the Fall confirm that President Xi is still in command? Or might it show that Xi has been weakened by an unpopular Covid policy and the concomitant economic fallout? Will the Shanghai faction, led by Premier Li Keqiang, make a move to rein in Xi’s power? The jockeying for pre-Party Congress positioning goes on.

 

[Note – Part One alluded to the powerful Politburo Standing Committee’s rebuke of Xi’s harsh enforcement of his ‘dynamic zero-Covid’ policy: “We should resolutely overcome the problems of inadequate awareness, inadequate preparation and insufficient work, and resolutely overcome contempt, indifference and self-righteousness in our thinking.”  See Part One here. Part Three is here]

 

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