Implications of the 20th Party Congress: Economics, Politics and Foreign Policy

*See our predictions and read our special report for the 20th Party Congress here*

By Rahul Karan Reddy and Eerishika Pankaj;

As the historic 20th Party Congress draws closer, it is important to assess how the ‘Prince’ and all his men will tackle internal and external policy challenges awaiting the Communist Party of China (CPC). For instance, the 19th Party Congress in its last three years had to deal with worsening of China’s ties with the US (plus the larger West) and India, while the COVID-19 pandemic emerged as a critical challenge. The results of the upcoming Party Congress, particularly the make-up of important leadership bodies, will determine how much influence and control Xi Jinping will have over the political, economic, and foreign policy course that China will take over the next five years and beyond.

1. A Changing Foreign Affairs Ministry

Foreign policy is unlikely to see a drastic change due to personnel changes- unless of course Xi emerges as a weaker leader, the chances of which remain slim. Instead, it is important to see foreign policy more in continuation of the trend it has followed until now, with certain adjustments in the foreign economic policy as per requirements of the national economy. Due to the hierarchical structure of the party, the Standing Committee remains the major body deciding the course of foreign policy, with the Foreign Ministry serving more as an implementor of state decisions.

As implementor of state decisions China’s Foreign Ministry leadership changes will hold direct implications for the world. China is experiencing a generational gap and a shortage of seasoned diplomats as the nation deals with what many analysts describe as possibly the most hostile external climate in decades, despite the growth of a group of younger diplomats considered to be the post-Cultural Revolution generation. Hence, top diplomats’ reorganisation should be seen and understood in the context of overall leadership transition plans.

Yang Jiechi, China’s top diplomat and Director of the Office of the Central Commission for Foreign Affairs, is scheduled to leave the Politburo at age 72 after nearly ten years in that position. At the same time, Wang Yi, who is the Foreign Minister and also a state councillor, will also be retiring. Yet, in spite of the fact that Wang will turn 69 in October, Chinese diplomats and other observers feel that an exemption to the standard retirement rules will likely be granted for him. Wang might fill Yang’s position on the 25-member Politburo by staying on, moving up a level, and using his ties to help the Chinese leadership navigate a developing diplomatic crisis.

Should Wang take over from Yang Jiechi post an extension, Chinese foreign policy will likely continue to follow the ‘wolf-warrior’ format of diplomacy it has imbibed since 2017. This can be gathered from Wang’s comments in July defending the rise of such diplomats, especially as China’s ties with the US grow more and more sour. Wang’s walk-out from ASEAN events also attended by US and Japanese diplomats in August 2022 as a response to Nancy Pelosi’s Taiwan visit further highlight his continued faith in a more hawkish diplomatic approach.

Yang and Wang’s departures at the same time will leave a void in China’s foreign service, which will jeopardise the consistency of China’s foreign policy. For instance, Wang remains best suited at present to handle the diplomatic channel with the US as the military and climate channels have been discontinued, leaving just the diplomatic thread to maintain relations. Importantly, even as Yang has started reducing public appearances, Wang has remained actively engaged with focus on biaotai (loyalty signalling)remaining strong. Nonetheless, should the age-limit remain a key variable, other contenders for Yang’s position emerge in the form of Song Tao and Liu Jieyi, each of which will bring about a subtle shift in foreign affairs outlook:

  1. Song Tao, who has long been seen as a protégé to Xi; was unexpectedly transferred to a less important role at the Chinese People’s Political Consultative Conference, the nation’s highest political advisory body, may indicate his semi-retirement. Nonetheless, should Song re-enter the running, then based on his previous experiences during 2001-2008 as Councillor to India and Ambassador to Guyana and Philippines, focus on more traditional approaches to building diplomacy can see potential for return. Post 2008, Song has served important roles within the Foreign Ministry, but no international deputation portfolios. This puts him at a disadvantage compared to fellow competitors, especially as his latest transfer can only be viewed as a demotion.
  2. Liu Jieyi, 64, director of the State Council’s Taiwan Affairs Office (a position Wang held prior to being named foreign minister in 2013) and former ambassador to the United Nations is another potential candidate for Yang’s post. His lack of experience as a country-level deputation officer might adversely impact China’s bilateral diplomatic outreach especially if ‘wolf-warrior’ diplomacy is to see continuation. However, as Taiwan emerges as one of the most pressing diplomatic challenges, Liu’s command over Taiwan policy might provide a strong point in favour of his appointment.

Here, however, it is important to review the 2020 appointment of Xia Baolong, 69, as director of the Hong Kong and Macau Affairs Office. Xia, a long-term Xi ally who made a name for himself by being a hardliner against Christian churches, is not a member of the Central Committee and beyond the traditional age for appointment to important offices. However, as the position of the Hong Kong and Macao Office falls under the State Council, an exemption for him was made, owing most likely to his close personal relationship with Xi. Such a maneuver highlights that for a State office like the Foreign Ministry, there remains room for more flexible age-limit adjustments as per candidate preferences by Xi.

Beyond Yang’s position, the race to succeed Wang as foreign minister also has many key contenders like Le Yucheng, Ma Zhaoxu, Xie Feng, Liu Jianchao, Deng Hongbo, Liu Haixing and Qin Gang.

Ultimately, while the positional changes remain anyone’s guess, two key aspects of diplomatic policy indication at China’s 20th NPC emerge in the form of continuity and doubling-down on wolf-warrior diplomacy. There remain key challenges awaiting Chinese diplomats across the globe; for instance, despite disengagement along the India-China border, there remain areas of Depsang and Demchok –as well as potential threats like the triggering of the Dalai Lama’s succession process –that are yet to be dealt with. Meanwhile, ties between the US and China as well as China and Australia remain at an all-time low, and EU-China relations struggle to find momentum.  For Chinese foreign policy, there are four key challenges in 2022: 

  1. (Re)Building a trustworthy yet strong international image especially as hits in the form of COVID-19, Galwan, Ukraine and Taiwan have impacted global recognition; 
  2. Growing China’s participation in global and regional governance, especially as minilaterals led by democratic countries in the Indo-Pacific gain rapid traction; 
  3. Effectively managing the unstable China-U.S. relations while improving deteriorating ties with India, Japan, Australia and EU;
  4. Manoeuvring re-unification with Taiwan, with or without force, on an international stage

During such a time for Chinese foreign policy, a break away from a less-than-strong stand in communicating Beijing’s needs will not be the message Xi would wish to communicate as it would break away from his strongman position. As he would be securing an unprecedented third term in office, therein cementing domestic power within China, Xi’s focus would be on exporting such a model of authority in international politics as well to posit his –and China’s –continued rising power globally. Based on the precipice Beijing stands at vis-à-vis its international image and outreach, an extension of Wang Yi’s presence within the Foreign Ministry despite age limitations as successor to Yang Jiechi remains a possibility to ensure continuation of seasoned diplomacy that is well in line with China’s internal ambitions.

How Xi’s China will engage with international actors like US, India, Japan, Russia, Australia, UK, EU, South Korea, Indonesia and more as well as its manoeuvring vis-a-vis sensitive geopolitical arenas like the two China seas, the LAC and Taiwan are going to be shaped by the Foreign Ministry and Xi Jinping. Attempts at rebalancing ties with the US (especially along foreign trade policy lines) as well as focus on trade negotiations with the European Union (EU) are taking shape, while potential to improve relations with Australia can be achieved via economic and diplomatic outreach. Meanwhile, ties with Russia and North Korea have taken on stronger hues that require delicate projections internationally.

Hence, Xi would want to install players that he has trust in and believes would be able to act as strong extended arms of his own presence abroad, especially as the Chinese President has limited his international state-visits post the pandemic. The foreign ministry’s top echelon are vacancies wherein Xi would be more focused on appointing people with experience rather than bridging generational gaps by bringing in younger talent; a move many expect from the leader especially vis-à-vis Central Committee personnel changes.

2. Shaping Domestic Economics

Control over Economic Policy:

Xi Jinping is likely to exercise full control over long term economic policy, as Li Keqiang is side-lined and other reform-minded officials like Liu He and Guo Shuqing are retired. Xi and the Leading Group for Comprehensive Deepening of Reforms is likely to create long-term economic policy while state bodies like the National Development and Reform Commission (NDRC) will execute policies devised by Xi. Moreover, the potential successor to Li Keqiang, Hu Chunhua, who will be responsible for the economy at large is not an economist like Li and will only execute the policy directives of Xi Jinping. If Hu Chunhua is made Premier, he will most likely implement Xi’s left-of-center, state-driven economic policies without reluctance given his background as a Party bureaucrat and need to signal loyalty to Xi Jinping.

However, it appears that in the short-term, as long as China’s economic woes continue, Xi Jinping will be forced to cede control of economic policy making to Li Keqiang and other reform minded officials. The economic policies announced by Li Keqiang over the last two to three months are likely to remain in place for the next year or two. The task forces sent to 16 provincial-level regions by the State Council to supervise economic policy implementation shows that Li has been placed in charge of economic recovery. There are also signs that policy flexibility will be encouraged as Li Keqiang announced in late August that city-specific policies (one city, one policy) should be deployed to support housing demand. For instance, Zhengzhou became the first big city to end household registration (hukou) for non-locals to stabilize the real estate market. Nearly 120 cities have introduced policies that encourage housing demand, a sign that economic recovery is the immediate priority and policy flexibility is sanctioned.

Balancing Xi’s Economic Vision and Sustaining Growth:

Xi Jinping is likely to balance the need for reform and execute his economic vision of common prosperity. In the short term, Xi will be forced to hold back on his populist economic agenda of common prosperity until China’s economic woes are less pronounced, emphasising stability instead. ‘Making the cake bigger before redistributing it’ will take precedence as China’s economic woes in the real estate and banking sector are exacerbated by natural disasters and dampened consumption in the global economy. The focus will be to restore growth to at least 4% through a stimulus package for the third and fourth quarter of 2022, which was announced in August. Populist policies like common prosperity, directed at addressing wealth inequality and self-reliance, are likely to be emphasised less than the need for reviving consumption demand, investor confidence and ensuring price stability.

Given that GDP growth is an indicator of the administrations performance and delivering prosperity is a pillar of the CPC’s legitimacy in China, managing expectations about growth will be critical for Xi and the Party. Expectations of economic growth have already been toned down, with the Politburo even stating that growth should be kept within a ‘reasonable range’. Leaders in China’s export-oriented provinces will be under pressure to sustain growth and avoid single digit export growth as consumption dampens around the world. In a meeting with Li Keqiang, Party Secretaries and Governors of six key provinces were expected to take the lead in supporting the stabilization of the economy and even explore and deepen reform.

Additionally, with zero-COVID policies showing no signs of easing and nearly 50 cities under lockdowns, consumption is unlikely to drive growth in the short term. Lastly, youth unemployment rate of 19.9% in July is the highest since 2018 and could become a source of discontent in China. Such pressing challenges facing China’s economy are likely to ensure that economic management forces its way to the top of the list of priorities for Xi Jinping until China’s economy is on the road to recovery.

Persisting with Zero-COVID and Crackdowns on Commercial Centers of Power:

The zero-COVID policy is unlikely to disappear in the short term, even after the Party Congress, as evidenced by the current lockdowns in Chongqing and other provinces. However, the lockdowns were eased two weeks after they were announced, perhaps revealing the urgency of economic recovery. The emphasis on pandemic prevention as a prerequisite for economic growth continues in state media, but better coordination between pandemic prevention and economic policy is expected. Given the touted success of China’s pandemic prevention, the Party will continue to emphasise that zero-COVID was instrumental for China’s economic recovery immediately after the COVID-19 outbreak. However, as Xi Jinping loyalists are appointed to key positions, they will be eager to enforce the zero-COVID policy as a demonstration of political loyalty to Xi Jinping.

Xi is likely to persist with the imposition of regulations on economic sectors like tech, finance and real estate. Officials in the State Council and others will emphasise the importance of financial de-risking, which is one of Xi Jinping’s ‘three tough battles’. Controlling the disorderly expansion of capital will remain a priority for Xi as a way to assert control over officials and businesses operating in important financial and economic hubs in China.

CPC’s Political and Policy Changes

Personnel appointments at the Party Congress and trends within the Party suggest that Xi Jinping will continue consolidation of his control over various party organs. For instance, after the public security apparatus of China was brought under Xi’s control after purges of Zhou Yongkang’s network, appointment of loyalists will reflect Xi’s pervasive control over Party organs. Most importantly, with the purge of military officials and the appointment of 38 generals since 2019, Xi has brought the military, the most significant organ of the Party under his singular control. Control over the military rules out the possibility of any challenge to Xi from within the Party. Further, the CCDI and NSC will play a significant role in Xi’s third term as well, eliminating any opposition to Xi Jinping and targeting adversaries. Such moves will cleanse Party organs of influence networks operated by Xi’s rival factions while appearing like an operation to tackle corruption and excess. Moreover, the proliferation of Party organs like the CCDI into private companies, SOEs and other institutions will only sustain the control Xi exerts across Party organs.

However, Xi will find it relatively harder to identify and trust competent loyalists from younger generations, compared to those from his own generation that he shared close personal relationships with. Younger officials wouldn’t know Xi as well as Xi’s peers because they wouldn’t have worked with him directly. Moreover, they will be willing to feign loyalty for their political future, making it harder to ascertain their true intentions, ambitions and allegiances. Most importantly, grooming a successor will be a much harder task for Xi, given the risks a successor poses to Xi’s legacy and authority in the Party. Xi risks surrounding himself with ‘yes men’ reluctant to express contrary views on matters of economic or party policy, more concerned for their political position and driven by ambitions to climb the political ladder. The benefit of having a balance of reformers and ‘party-first’ personnel is no longer available to Xi once he stacks the highest bodies of the Party with loyalists.

Given the trend of Xi’s expanding control over the Party, it is likely that rival factions are side-lined even further and their role on the PSC and Politburos is diminished. It is expected that most new appointments to the PSC and Politburo will be personnel from the Xi Jinping faction and even those appointments from rival factions would have limited opportunities to cultivate networks of proteges. Moreover, political survival would dictate that personnel with ties to Jiang Zemin, Hu Jintao, the Communist Youth League and other factions would go out of their way to signal their allegiance to Xi. Additionally, Party elders like Jiang Zemin, Zhu Ronji and others are likely see their influence diminish further.

Xi will continue to enshrine his name and vision in the Party and state constitution, make his goal of rejuvenating the Chinese nation the singular objective and reiterate his centrality to achieving those goals. Xi Jinping’s legacy is likely to surpass that of Mao and Deng, and with the possibility of a fourth term it is possible that Xi will be considered modern China’s most important leader. Finally, Xi Jinping will most certainly amend the Party Constitution in October to shorten his ideological contribution, “Xi Jinping Thought on Socialism with Chinese Characteristics” to simply the “Xi Jinping Thought”, upgrading its importance to that of “Mao Zedong Thought” and jettisoning Deng’s phrase ‘socialism with Chinese characteristics’ from his own contribution. It is also expected that Xi will include his “Two Establishes” phrase in the document to cement his core position in the Party.

Structural importance of the Party Congress

China’s actions over the last five years have increasingly disassociated its identity with a non-threatening rise narrative; more and more actors are identifying Beijing as a revolutionary revisionist power. Such recognition has resulted in nations attempting economic decoupling from China, increasing focus on restructuring supply chains, limiting China’s access to technology as well as domestic tech markets of other countries, a greater number of minilaterals in the Indo-Pacific and focus on the ‘China Challenge’ by the Quad. Moreover, public reaction to the zero-COVID policy within China has seen divide emerge in the Party’s confidence in Xi’s leadership while China’s strategic gameplan vis-à-vis Ukraine has further alienated it from the West.

The results of the upcoming 20th Party Congress, particularly the make-up of important leadership bodies, will determine how much influence and control Xi Jinping will have over the political, economic, and foreign policy course that China will take over the next five years and beyond. As such, looking at the implications of the Congress becomes a critical assessment criterion to prepare how countries should expect to engage with a changing China.

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