CFR : How to Read Xi’s Muscular Message on China’s Global Role

 How to Read Xi’s Muscular Message on China’s Global Role

Xi Jinping used the annual legislative session to lock in his tenure as president and reinforce China’s assertive foreign policy and the reemergence of its economy.

Article by Ian Johnson

March 17, 2023 4:05 pm (EST)

This month saw the Chinese rite of spring known as the lianghui, or “two sessions”: the annual meetings of the national advisory committee and the country’s parliament. Neither body holds much power, and it’s easy to write the whole exercise off as empty theater. Yet, public rituals are meant to deliver messages, and this year’s lianghui offered two important points: President Xi Jinping and his muscular foreign policy are here to stay, and China is back open for business after three years of fighting COVID-19—even if its return to growth is bolstered through unsustainable deficit spending.

The End of Term Limits

The first point was made on March 9 when Xi took a third term as “state president,” a largely honorary position in the Chinese political system. Power in China derives from the Chinese Communist Party, which Xi has led since 2012 as general secretary. (He secured a third five-year term in that post this past October) Being president mainly matters because it makes Xi head of state, meaning he can meet other heads of state as equals, rather than as merely the leader of a political party.    

But the title also matters for understanding Xi’s ambitions. Xi took power in 2012, but just six years later telegraphed that he wanted to rule beyond 2022. Even though largely ceremonial, the title of president was enshrined in the constitution as having a two-term limit. So, with an eye on a third term, Xi persuaded parliament in 2018 to lift the term limits on the presidency, signaling his goal of leading China longer than anyone in a generation.

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China’s Washington Problems

This past week has seen Xi drive home his importance in other ways, too. He reorganized the government to solidify control over both external and internal security agencies, appointing veterans aides who served under him during stints in the provinces. He also signaled that although “wolf warrior diplomacy”—a sometimes bellicose rhetoric used by Chinese diplomats—could now be somewhat restrained, China won’t refrain from calling out countries that it opposes. And he did so by declaring Washington to be behind many of Beijing’s problems.

“Western countries—led by the U.S.—have implemented all-round containment, encirclement, and suppression against us, bringing unprecedented severe challenges to our country’s development,” he said in a speech last week.

Xi’s statement was echoed by China’s new foreign minister, Qin Gang, who hit back at U.S. criticisms of China, saying that for Washington, good behavior on Beijing’s part meant “China should not respond in words or action when slandered or attacked.”

The two statements were seen as provocative by some U.S. commentators, but they can also be seen as Beijing responding to equally harsh actions and words emanating out of Washington.

Over the past few months, the Joe Biden administration has limited the export of high-tech chips to China, and made a series of serious allegations against it—to date, without concrete evidence. They include alleging that a Chinese balloon blown off course was a spy balloon, and that China was considering sending weapons to Russia to help it in its war against Ukraine. The United States has also renewed scrutiny into whether COVID-19 could have stemmed from a Chinese laboratory leak.

In this context, Xi and Qin’s rhetoric can be seen as evidence of China’s resolve, even as both sides try to stabilize the relationship. Over the coming weeks, the U.S.-China relationship will be further tested by a visit from Taiwanese President Tsai Ing-wen to the United States, and hearings by a congressional committee on China that seems chiefly dedicated publicizing to Chinese problems and failings.

Bullish Business Signals

At the same time, Xi and his team sought to show that China is back open for business after years of a highly restrictive lockdown that slowed economic growth.

In talks at the session, Xi said that private entrepreneurs are “one of us,” countering the conventional view of Xi as hostile to private business. He also has a new premier, Li Qiang, who is widely seen as sympathetic to foreign business.

Li epitomizes the tension between the pro-market growth that has made China rich and the emphasis on stability and control that Xi favors. Li was previously the reform-minded party secretary of Shanghai, and a year ago, he also experimented with ending the city’s zero-COVID policy—before an outbreak forced him to reverse course and implement a harsh lockdown.

Xi said during the meetings that there is no contradiction between the two positions, saying “security is the foundation of development, and stability is the precondition for strength and prosperity.”

Speaking at the closing press conference on March 13, however, Li gave a robust defense of private enterprise, promising to “treat companies under all forms of ownership as equals.”

Li’s concrete policies, however, are still unclear.

Over the past decade, a trio of technocrats—Liu He, the coordinator of economic and financial policy; Guo Shuqing, the chief financial regulator; and Yi Gang, the governor of the central bank—ran China’s economic and financial policy, bringing decades of reformist credentials to the table. Liu, Guo, and Yi spent much of their time in office controlling the spread of financial risk that stemmed from the 2008 financial crisis. China was not directly affected, but it responded to the worldwide downturn with aggressive pump-priming. That left the country indebted and its financial institutions highly leveraged. The trio’s main accomplishment was to successfully address this potential crisis.

A Return to Financial Riskiness?

After a sweeping reform of financial institutions at last week’s session, Liu retired and Guo’s ministry was abolished, leaving only Yi in his old position. That’s left some observers wondering if China’s long-standing focus on preventing financial risk will wane and be replaced by an orientation toward pump-priming and other short-term measures to juice economic growth.

Already, there are indications that the government is looking to the old easy-money model to promote growth. Last year, officials relaxed lending to real estate companies, which were a driver of growth but also of debt, and signaled that they would bail out poorly regulated local investment companies. Such moves will spur growth but could be a reversion to debt-driven growth rather than more sustainable growth led by gains in productivity.

The broader implications are significant. If China relies on easy money, real estate, and state-driven investment, it is unlikely to make the jump from being a mid- to a high-income country in the coming decades. If that happens, China could slip into what economists called the “mid-income trap” and fail to become a truly modern, productive economy.

That would leave it far from its goal of being a super-sized Japan or South Korea, with world-beating companies and technology. Instead, it could begin to resemble the old Soviet Union: militarily strong but permanently lagging the world’s most advanced industrial democracies.

This year’s meeting has left both options open: a focus on strong state control, or on economic reforms. The coming months will show which side of the equation will dominate in Xi’s unprecedented third term in office.

CFR - Article by Ian Johnson

March 17, 2023