Xi Jinping's Path for China

Editor’s Note: This arti­cle is writ­ten by a mem­ber of Stratfor’s Asia-Pacific team and is informed by their most recent vis­it to China.

  • Since assum­ing pow­er, Chinese President Xi Jinping has tak­en many steps to reshape his coun­try, de-empha­siz­ing growth to build a more sus­tain­able econ­o­my and engag­ing in more proac­tive diplo­ma­cy. He has also been rewrit­ing polit­i­cal rules to estab­lish him­self as a strongman.
  • But as China’s econ­o­my slows while the United States esca­lates its trade attacks, pol­i­cy debates inside the coun­try are inten­si­fy­ing and test­ing core pil­lars of Xi’s eco­nom­ic and for­eign poli­cies — as well as his own polit­i­cal strength.
  • Despite the chal­lenges, China can­not afford to dial back its progress in eco­nom­ic devel­op­ment and glob­al involve­ment, espe­cial­ly con­sid­er­ing its grow­ing strate­gic com­pe­ti­tion with the United States.

There seems to be trou­ble on the hori­zon for China and President Xi Jinping. A year ago, when I vis­it­ed my coun­try, I sensed an upbeat atti­tude about the future, with pub­lic and media dis­course dom­i­nat­ed by dis­cus­sions of China’s mete­oric inter­na­tion­al rise. When I returned this year, how­ev­er, I sensed uncer­tain­ty. The media is engag­ing in less nation­al­ist rhetoric and has shift­ed from trum­pet­ing China’s ambi­tious plans to qui­et­ly down­play­ing some of Beijing’s star­ring devel­op­ment pro­grams — such as the Made-in-China 2025 ini­tia­tive — to avoid draw­ing more atten­tion from Washington. Within sev­er­al of the coun­try’s aca­d­e­m­ic cir­cles, there are ongo­ing debates about whether China has over­reached in its glob­al expan­sion and if it should shift to a strate­gic with­draw­al to ease exter­nal scruti­ny over its rise.

This is not a huge sur­prise. Escalating U.S. trade attacks have exposed to the Chinese pub­lic the gap between China’s real and per­ceived lev­els of devel­op­ment, and they have also coin­cid­ed with the coun­try’s slow­ing econ­o­my. This has inten­si­fied anx­i­eties over China’s future among elites and even in the pub­lic dis­course. And these anx­i­eties have man­i­fest­ed in rarely exposed pol­i­cy divi­sions with­in the gov­ern­ment. Economic pol­i­cy­mak­ers are debat­ing the right bal­ance of fis­cal poli­cies to lead the coun­try through a peri­od of increas­ing eco­nom­ic stress. And ahead of China’s annu­al infor­mal Beidaihe meet­ing, where polit­i­cal lead­ers dis­cuss key poli­cies, there have been leaks to the rumor mill about the Communist Party’s inter­nal pol­i­tics. Over the past three years, such leaks were large­ly mut­ed, indi­cat­ing strong polit­i­cal align­ment through­out the par­ty. But things appear to be changing.The Big Picture

Since tak­ing pow­er, Chinese President Xi Jinping has built up a for­mi­da­ble pow­er base. And yet, he has not faced any seri­ous chal­lenges until now. With China’s eco­nom­ic tran­si­tion already at a tip­ping point, the U.S. trade attacks on China has begun prompt­ing inter­nal pol­i­cy debates. It also rais­es ques­tions about Xi’s polit­i­cal strength and the like­li­hood of him accom­plish­ing every­thing he set out to do.

China’s failed trade talks with the United States in May and the result­ing esca­la­tion of ten­sions have prompt­ed skep­ti­cism about Xi’s close ally Liu He, who was respon­si­ble for man­ag­ing the nego­ti­a­tions. There are also sus­pi­cions about whether Beijing had under­es­ti­mat­ed Washington’s deter­mi­na­tion to achieve a “fair trade” agen­da with China, and whether domes­tic eco­nom­ic poli­cies — also dom­i­nat­ed by Xi and his allies — were too slow to respond to this threat. Indeed, until recent­ly, China’s eco­nom­ic poli­cies remained heav­i­ly focused on delever­ag­ing its debt-rid­den sys­tem — which can be seen as a move to sup­press growth — and increas­ing default risks among cor­po­ra­tions and local gov­ern­ments at a time when the risks asso­ci­at­ed with a trade war loom.

Xi’s cam­paign for a more proac­tive and expan­sion­ist for­eign pol­i­cy also faces crit­i­cism. Some have accused the Communist Party’s pro­pa­gan­da sys­tem of overem­pha­siz­ing China’s strength abroad, thus invit­ing push­back from glob­al pow­ers wary of China’s inten­tions. Those with­in the coun­try who wor­ry China has gone too far in its glob­al expan­sion efforts have sug­gest­ed that it might ben­e­fit from a return to Deng Xiaoping’s dic­tum of hid­ing China’s strength and bid­ing its time.

At the cen­ter of every­thing is the pres­i­dent. Since tak­ing office, Xi has arguably made him­self the most pow­er­ful ruler since Mao Zedong, and he sits at the apex of China’s entire eco­nom­ic and polit­i­cal strat­e­gy. Until now, Xi has large­ly man­aged to insu­late him­self from direct attacks, but that may not last for­ev­er. Domestically, he has already faced down oppo­si­tion from polit­i­cal stal­warts and intel­lec­tu­als over his attempts to enforce ide­o­log­i­cal and social con­for­mi­ty as well as his con­tro­ver­sial deci­sion to extend pres­i­den­tial term lim­its. Any per­ceived pol­i­cy fail­ures could bring sim­mer­ing threats from polit­i­cal oppo­nents (and vic­tims) back to the sur­face.

So how did China get here, and why? Since the begin­ning of his rule, Xi sought a very dif­fer­ent path than his pre­de­ces­sors for shap­ing China. Internally, he has tak­en bold steps to rebuild his coun­try’s trade- and debt-dri­ven econ­o­my and reshape the elite polit­i­cal sys­tem from a com­mu­nal struc­ture to one ruled by a strong­man. Internationally, he aspires to shift the coun­try from a pas­sive glob­al play­er into a strong and assertive pow­er. Each of these changes, how­ev­er, come with the risk of mis­cal­cu­la­tions and unin­tend­ed con­se­quences that could even­tu­al­ly endan­ger Xi’s own posi­tion of power.

What it Means to Rule China

Every dynas­tic ruler in China’s more than 2,000 years of his­to­ry has faced the same strug­gle: to uni­fy and gov­ern an insur­mount­ably vast and dis­parate land­mass under a cen­tral­ized author­i­ty. Xi is no excep­tion. The pres­i­dent came to pow­er with a clear under­stand­ing of his coun­try’s his­tor­i­cal cycles, as well as its asso­ci­at­ed strengths and pit­falls. He drew from his knowl­edge of China’s past glo­ry, its “cen­tu­ry of humil­i­a­tion” start­ing with the first Opium War in 1840 and his per­son­al expe­ri­ences dur­ing the chaot­ic Cultural Revolution half a cen­tu­ry ago. He has done lit­tle to hide his aspi­ra­tion of giv­ing China a crit­i­cal place in the glob­al order once again.

But though Xi may have had a clear goal informed by his his­tor­i­cal knowl­edge, the real­i­ties of his rule have also been shaped by his coun­try’s present sit­u­a­tion. And the fact is that he came to pow­er dur­ing a time when China was sit­ting at a major cross­roads — not only in regard to its domes­tic polit­i­cal and eco­nom­ic sit­u­a­tion but also the struc­ture of the glob­al world order. These real­i­ties have fun­da­men­tal­ly com­pelled and con­strained his actions in equal mea­sure, regard­less of his intent.

On the eco­nom­ic front, mas­sive debt risk and indus­tri­al over­ca­pac­i­ty loom over China, in large part a result of the cred­it and infra­struc­ture boom that the coun­try expe­ri­enced after the 2008 finan­cial cri­sis. And after six years of rel­a­tive­ly sta­ble growth of around 7 per­cent, the econ­o­my is final­ly tak­ing a hit, because of its own bat­tle against debt and the trade war with the United States. Moreover, domes­tic con­sump­tion has yet to live up to expec­ta­tions, and Beijing’s dream of a nation with cut­ting-edge tech­no­log­i­cal capa­bil­i­ties remains at least a decade off.

Even so, it’s easy to under­stand Xi’s desire to make big changes to the Chinese econ­o­my, and the years­long process of restruc­tur­ing and upgrad­ing has pro­duced some pos­i­tive results. If the coun­try had con­tin­ued its cred­it-and-invest­ment dri­ven path for the sake of main­tain­ing rapid growth, it could have been par­a­lyzed by much high­er finan­cial risks and many of the oth­er chal­lenges that still con­front the coun­try right now — from envi­ron­men­tal degra­da­tion to sup­pressed domes­tic con­sump­tion. And, if China was fac­ing the cur­rent U.S. tar­iff threats with the econ­o­my it had a decade ago, it would be in much worse trou­ble. The coun­try has suc­ceed­ed in eas­ing its reliance on trade, which went from rep­re­sent­ing 37 per­cent of China’s gross domes­tic prod­uct in 2008 to less than 20 per­cent today. And Beijing’s ser­vice-based employ­ment rates rose from 23 per­cent of total employ­ment in 2008 to 45 per­cent now. Both these num­bers sug­gest China is in a bet­ter place to weath­er a trade blow than it was ten years ago.

The coun­try is sec­ond only to the United States in out­bound for­eign direct invest­ments and aid, while projects such as the Belt and Road Initiative have put Beijing at the fore­front of infra­struc­ture devel­op­ment in the devel­op­ing world. At the same time, the coun­try has expand­ed its mil­i­tary pres­ence abroad, con­tribut­ing sig­nif­i­cant num­bers of troops to U.N. peace­keep­ing mis­sions. It just estab­lished its first over­seas naval base in Djibouti, and has begun test­ing a more proac­tive for­eign pol­i­cy from the Middle East to Africa.

China is now fac­ing exter­nal push­back for its aggres­sive inter­na­tion­al engage­ment, but when Beijing start­ed mak­ing these deci­sions, it was fac­ing both domes­tic pres­sure to adopt a more assertive glob­al role (in order to secure its expand­ed eco­nom­ic inter­ests) and inter­na­tion­al pres­sure to take greater respon­si­bil­i­ty for glob­al affairs. In oth­er words, China was essen­tial­ly being asked, by voic­es with­in and out­side the coun­try, to test its diplo­mat­ic, eco­nom­ic and mil­i­tary outreach.

Of course, Xi is not sole­ly respon­si­ble for mak­ing all the changes that have brought China to where it is today. But what he did was take con­trol of China at a time when the coun­try was fac­ing two pos­si­ble futures: main­tain the iner­tia of near­ly three decades of risky, expen­sive pro-growth poli­cies that rely on exter­nal play­ers, or urgent­ly try to move away from that mod­el in ser­vice of a more sta­ble future, with the asso­ci­at­ed with risks and costs. And Xi made a decision.

Choosing a Different Path 

Xi has cho­sen not only to alter the course set by pre­vi­ous Chinese lead­ers but, in some cas­es, is tak­ing much bold­er steps to accel­er­ate China’s trans­for­ma­tion into a dif­fer­ent type of coun­try. With all the risks and resis­tance to that tran­si­tion in mind, Xi has pur­sued a much stronger, more cen­tral­ized polit­i­cal sys­tem. As a result of mas­sive insti­tu­tion­al over­hauls, ruth­less crack­downs and inter­nal rec­ti­fi­ca­tions, Xi has rewrit­ten the inter­nal elite pol­i­tics that was ground­ed on three decades of col­lec­tive leadership.

However, Xi inad­ver­tent­ly cre­at­ed an inher­ent para­dox: on one hand, the chal­lenges and costs of such a major trans­for­ma­tion require an extreme­ly pow­er­ful polit­i­cal ruler. But on the oth­er hand, the very dic­tates that enshrine him with absolute pow­er in times of sta­bil­i­ty could eas­i­ly put him at per­il when the momen­tum shifts and obsta­cles arise. Having imple­ment­ed a more per­son­al­i­ty-dri­ven polit­i­cal sys­tem, Xi becomes far more account­able for fail­ures than pre­vi­ous lead­ers, and in doing so makes the Chinese gov­ern­ment sys­tem more vul­ner­a­ble to pol­i­cy miscalculations.

Over the past five years Xi’s mech­a­nism has worked rel­a­tive­ly well — at least, in a fair­ly sta­ble envi­ron­ment, but as exter­nal and inter­nal chal­lenges add up, cracks will begin to show.

The trade war, for exam­ple, is test­ing the Chinese lead­er­ship’s pol­i­cy prepa­ra­tion. Its slow response soon revealed domes­tic eco­nom­ic chal­lenges and finan­cial stress across the board. And if the U.S. gov­ern­ment employs even more aggres­sive trade assaults, China would expe­ri­ence greater eco­nom­ic insta­bil­i­ty and Xi would face ever more polit­i­cal back­lash. Externally, Beijing must now man­age Washington’s pow­er­ful desire to con­tain China. The shift­ing glob­al strate­gic envi­ron­ment is dri­ving the need for a rapid change in China’s for­eign pol­i­cy posture.

Did Xi and his team under­es­ti­mate the risks? This would help to explain Beijing’s appar­ent lack of prepa­ra­tion for the trade war with Washington and its slow­ness in rec­og­niz­ing the strength of U.S. President Trump’s resolve to bal­ance China’s pow­er in his favor.

To deal with exter­nal threats, Chinese soci­ety and lead­er­ship under­stand they will need to become more cohe­sive. New and unfore­seen prob­lems will test the resilience of Beijing’s poli­cies and Xi’s pow­er, and the new sys­tem may well be forced to accom­mo­date or adjust in return for that coherence.

Still, even if China engages in some sorts of “strate­gic with­draw­al,” the coun­try is too far along this new path to dial back com­plete­ly. The stage of its eco­nom­ic devel­op­ment, its exten­sive glob­al engage­ment and its very abil­i­ty to chal­lenge U.S. suprema­cy means China will only face more strate­gic com­pe­ti­tion from oth­er pow­ers in the future.

Xi Jinping’s Path for China

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