On the western side of Tiananmen Square, the Great Hall of the People will this week be the setting for the formal proceedings of the 19th Congress of the ruling Chinese Communist Party. The event, held every five years, isn’t normally of huge interest outside China. But this one is generating more attention than usual. This time is different.
For a start, China’s footprint in the global economy is now bigger than ever. The country has been gifted a global role by President Trump that its leaders couldn’t have imagined a year ago: it is central to resolving tensions on the Korean peninsula, and president Xi Jinping's Belt and Road infrastructure initiative is attracting a lot of attention. Earlier this year, for example, the UK’s interest was drawn to it by the arrival of the first ever freight train service from Yiwu, about 180 miles south of Shanghai, to London Gateway Terminal.
The real reasons that this Congress is significant, though, are all to do with Chinese politics, and the implications for the power of President Xi Jinping.
The main business of the Congress is political. Numerous lengthy reports, prepared and approved over many months, will be read and recited, and there will be a look back at the achievements of the last five years, along with a broad overview of political, economic and social objectives over the coming five-year term.
Away from this, some 2,300 delegates will choose just over 200 members of the Central Committee—a body which comprises senior figures in the Communist Party—to replace those who have reached the age limit of 68, and several who have been detained on corruption charges. The Committee will fill 11 vacancies on the politburo, from which members of the Politburo Standing Committee will be chosen. The considerable interest in these latter members derives from their eligibility to be the next top leaders in 2022, and from the insight offered into who’s in Xi’s closest entourage. This time, people are also curious to see if the signals about the next leaders are clear, or if not, whether this means Xi has designs to stay in power for longer than the normal two terms.
What most China watchers are interested in, though, is the opportunity Xi Jinping will take to stamp his authority on the government of China after five years in which he has rebuilt and restructured the purity of the Party (as Lenin would have said), and consolidated huge power over it, the country’s armed forces, and the internal security organs of the state. In the view of some political experts, Xi is now the most powerful leader of China since Mao Zedong. Consider, for a moment, that in the run-up to the 18th Party Congress in 2012 Xi was deeply engaged in factional fighting and plotting against his rivals. He actually vanished for two weeks, ostensibly because of a back injury, but it is widely believed he was on a mission to win support from the military and security establishment for a campaign against opponents. You certainly don’t get do all the things Xi has done since then without making enemies, but for now Xi rules, and must be obeyed.
What does this Congress, then, mean for China?
Some see Xi’s power as necessary so that the president can now turn his attention to the implementation of domestic reforms, which have been mostly disappointing since they were announced with great fanfare at the end of 2013. Others, including your scribe, see the centralisation of power around a strong leader as a substitute for the institutionalisation and codification of regulations, normally guided by and subject to the rule of law. We need robust institutions to challenge consensus and constrain narrow authority. In China, whatever progress had been made in this direction is being reversed, and power has passed to the president from technocratic ministries and government organisations.
“In the view of some political experts, Xi is now the most powerful leader of China since Mao Zedong”It is for people to judge, and for us all to see whether this kind of political direction will be effective in China, and whether it will accommodate the disruptive change and creative destruction typically associated with a modern economy.
For example, the most urgent issue is how to deleverage the economy that has built up high levels of debt and risky forms of funding the loans that comprise the debt. A financial crackdown this year has, for the moment, stabilised the credit excesses of the last few years, but as yet, there has been no pain other than for a handful of companies and chief executives. No one can be sure the government’s current strategy is going to be effective or endure if the economy slows again—as seems to be happening now. Much attention, therefore, will be on whether the authorities have the stomach for a proper deleveraging and are willing to accommodate much lower economic growth. If not, they will surely be storing up a bigger problem in the next two-three years.
Less urgently but no less important, the government is going to need to get smart with reform initiatives as it confronts, amongst other things, the consequences of a rapidly ageing country with a minimalist social safety net, a chasm between rural and urban areas as regards the quality of life, income and social and educational standards, the tensions between the desire for innovation and modernity and an increasingly authoritarian approach towards companies and social media. These and other issues call for changes in institutions, and economic and political reforms that aren’t even on the party’s agenda.
From a global standpoint, China’s management of domestic economic and social issues matters a lot, partly because of the transmission effects via trade, investment and capital markets, and partly because of the political responses by the government in the international relations arena. Brexit Britain also has vested interests in this regard.
We want China’s capital, trade and acquiescence in London’s status as the major non-Asian centre for trading and distributing Renminbi (the Chinese currency) instruments. All of these things are easily said, but China’s goose won’t always lay the golden eggs some of our politicians and experts expect.
The climate for Chinese economic growth, and the country’s already restrictive approach to trade policy and foreign companies, may get a lot tougher when Beijing gets serious about deleveraging. Yet the UK will also find out that it may only be possible to strike a satisfactory trade arrangement with China if we succeed first in establishing a favourable UK-EU trade deal. Without that, the EU won’t want the UK as a backdoor for the entry of Chinese goods, and China will be much warier about investing in the UK. If we want a golden era of sino-British relations, we need to avoid a “no deal” Brexit outcome like the plague.
