Why Its Successes
Are Becoming Liabilities
As China’s National People’s
Congress and its advisory body, the Chinese People’s Political Consultative
Conference, gather this March in Beijing for their annual two-week sessions to
discuss the country’s challenges and path forward, President Xi Jinping may
well be tempted to take a victory lap. Within his first five years in office,
he has pioneered his own style of Chinese politics, at last upending the model
Deng Xiaoping established 30 years ago. As I wrote in Foreign Affairs last
year (“China’s New Revolution,” May/June 2018), Xi has
moved away from Deng’s consensus-based decision-making and consolidated
institutional power in his own hands. He has driven the Chinese Communist Party
(CCP) more deeply into Chinese political, social, and economic life, while
constraining the influence of foreign ideas and economic competition. And he
has abandoned Deng’s low-profile foreign policy in favor of one that is
ambitious and expansive.
And yet the mood in Beijing is
far from victorious. As Xi begins his second five-year term as CCP general
secretary and (soon) president, there are signs that the new model’s very
successes are becoming liabilities. Too much party control is contributing to
a stagnant economy and societal discontent,
while too much ambition has cooled the initial ardor with
which many in the international community greeted Xi’s vision of a new global
order “with Chinese characteristics.”
Xi has given few signals
publicly that anything has gone awry: the first speeches of his second term even
suggest that he is doubling down on his current approach. Doing so will only
exacerbate the challenges that are emerging. But fortunately, because most of
the country’s current problems are of Xi’s own making, he still has both the
time and the power to correct his course.
HE’S GOT THE WHOLE WORLD IN HIS HANDS
Xi’s accomplishments to date
are undeniable. His efforts to consolidate institutional power paid off in
March 2018, when he successfully maneuvered to eliminate the two-term
limit on the presidency,
ensuring that he could continue to hold three of the country’s most powerful
positions—CCP general secretary, chairman of the Central Military Commission,
and president—through at least 2027, if not beyond. His anticorruption campaign
also continued to gain steam: in 2018, 621,000 officials were punished, a marked increase over the 527,000
detained in 2017. And dozens of universities have raced to establish new institutes and
departments devoted to the study of Xi Jinping thought, a 14-point manifesto
that includes the inviolability of CCP leadership, the rule of law, enhanced
national security, and socialism with Chinese characteristics, among other
broad commitments.
Under Xi’s leadership, the
party now has eyes everywhere—literally. As many as 200 million surveillance cameras
have already been installed in an effort to reduce crime and control social
unrest. The surveillance technology will also play an essential role in the
2020 national rollout of the country’s social credit system, which will
evaluate people’s political and economic trustworthiness and reward and punish
them accordingly. The CCP has now established party committees within
nearly 70 percent of all private
enterprises and joint ventures, in order to ensure that the businesses advance
the interests of the state. Beijing has also succeeded in constraining outside
influences: thanks to a law passed two years ago, for example, the number of
foreign nongovernmental organizations operating in China has fallen from more
than 7,000 to just over 400. And
“Made in China 2025”—China’s plan to protect its domestic firms from foreign
competition in ten areas of critical cutting-edge technology—is well under way.
The Sichuan provincial government, for example, has stipulated that for 15 types of
medical devices, hospitals will be reimbursed only for procedures that use
Chinese-manufactured devices.
Xi’s efforts to establish
greater control at home have been matched by equally dramatic moves to assert
control over areas China considers its sovereign territory. Xi has militarized
seven artificial features in the South China Sea, and in January 2019, a
Chinese naval official suggested that China might
“further fortify” the islets if it feels threatened. As Beijing negotiates a
South China Sea code of conduct with the Association of
Southeast Asian Nations, it seeks to exclude non-ASEAN or Chinese
multinationals from oil exploration and to bar foreign powers from conducting
military drills, unless agreed to by all signatories. Meanwhile, Xi has
increased the mainland’s political and economic control over Hong Kong, banning a pro-independence
political party, calling on the Hong Kong media
to resist pressure from “external forces” to criticize or challenge Beijing,
and constructing a rail terminal on Hong
Kong territory, which includes a customs check by China for travel to the
mainland. Xi has also adopted a range of coercive economic and political
policies toward Taiwan, including reducing the number of mainland
tourists to the island, successfully persuading multinationals not to
recognize Taiwan as a separate entity, and convincing five countries to switch
their diplomatic recognition from Taiwan to the mainland, to try to advance his
sovereignty claims. The Belt and Road Initiative—Xi’s grand-scale connectivity
plan—now extends beyond Asia, Europe, and Africa to include Latin America. A
little more than a year ago, the People’s Liberation Army set up a logistics base
in Djibouti, and in private conversations, Chinese military officials acknowledge that scores more could
follow.
Even as China expands its hard
infrastructure—ports, railroads, highways, and pipelines—it has become an
increasingly essential player in the technology sphere. Brands such as Alibaba,
Lenovo, and Huawei have gone global, and more are on the horizon. A book by the Chinese tech guru
Kai-Fu Lee proclaims that China will inevitably dominate in artificial
intelligence—unsurprisingly, the book has become an international bestseller.
Although Lee’s prediction may yet fall short, China is laying the foundation
for AI leadership: two-thirds of the world’s
investment in AI is in China, and China already boasts a commanding presence in
areas such as drone and facial recognition technologies.
All these successes have made
China attractive to smaller countries not only as an economic partner but as an
ideological standard-bearer. Xi has admonished that the so-called China model
offers countries disenchanted with Western-style market democracy a different
path to development. In countries such as Ethiopia, Tanzania, and Uganda, the
message resonates, and officials are learning from their Chinese
counterparts how to control the media and constrain political dissent.
WITH GREAT POWER COMES GREAT PROBLEMS
For all its successes so far,
however, the Xi model, fully realized, may simply be too much of a good thing.
Too much party control—perhaps too consolidated into Xi’s hands—has contributed
to economic stagnation. The constant stream of often competing directives from
Beijing has produced paralysis at the local level. In August 2018, China’s
Finance Ministry reinforced an earlier directive
calling on local governments to issue more bonds to support infrastructure
projects to help boost the slowing economy; many local governments had been
resisting the government’s call because the projects have low returns. That
same month, however, Beijing announced that officials who failed to implement
Beijing’s policies could lose their jobs or be expelled from the party.
Xi’s predilection for state
control in the economy has also starved the more efficient private sector of
capital. His desire for enhanced party control within firms led one state-owned
enterprise head to quit; he commented privately that the party committees
wanted to make decisions but wouldn’t take responsibility when they failed.
Evidence of economic distress abounds. The government is deleting statistics
from the public record, a sure sign that things are not moving in the right
direction. One economist has suggested that growth in 2018 fell
to 1.67 percent, and the Shanghai stock market turned in the worst performance
of any stock market in the world. Birthrates, which correlate closely with
economic growth and optimism, fellto their lowest rate since
1961. Beijing has pulled back on its air pollution
reduction targets—after some noteworthy initial success—out of concern that
pollution control measures might further slow the economy.
The economic downturn has also
stoked social discontent. Multiprovince strikes have galvanized crane operators
as well as workers in food delivery and van delivery. A
nationwide trucker strike erupted in the summer of 2018, as the online platform
Manbang established a competitive bidding system that exerted downward pressure
on haulage fees, highlighting the potentially disruptive effect of the gig economy on
the Chinese work force. Most troubling to Xi, however, was likely the news that
university Marxist groups were converging on Shenzhen’s Jasic
Technology plant to stand beside workers and retired party cadres in support of
efforts to organize independent labor unions. The protest was quickly shut
down, but the moral legitimacy of its demands remains to be addressed. At the
same time, broad social movements that cross age, gender, and class, such as
those advocating women’s and LGBTQ rights, have arisen alongside the traditional
protests around the environment, wages, and pensions.
Xi’s consolidation of power
has not only cost China’s economy but raised suspicions around its enterprises
abroad. The deepening penetration of the party into Chinese business has caused
all Chinese companies to be viewed as extended arms of the CCP. Foreign firms
and governments no longer have confidence that a Chinese company—private or
not—can resist a CCP directive. Because of this assessment, they are cautious
about drawing technology made by the Chinese national champion Huawei into their critical
infrastructure.
Even the Belt and Road project
risks bending under the weight of its ambitions. Some countries, including
Bangladesh, Malaysia, Myanmar, Pakistan, and Sierra Leone, among others, have
reconsidered the deals they’ve made with China as their debts have mounted
and/or environmental, labor, and governance concerns go unaddressed. Some
experts within China now question the wisdom of the
country’s foreign investments as many of the large state-owned enterprises
driving the Belt and Road projects dramatically increase their debt-to-asset
ratios—well beyond those incurred by other countries’ firms.
Amid all this turmoil, Xi’s
efforts to project Chinese soft power have fallen flat. Beijing’s draconian
treatment of its Uighur Muslim population in Xinjiang and its abduction of
foreign citizens in China, such as the Swedish citizen Gui Minhai or the
Canadians Michael Kovrig and Michael Spavor, undermine its efforts to shape a
positive narrative of international engagement and leadership. In addition,
Beijing’s mobilization of its overseas students globally for political and
economic purposes, such as informing on other students who do not follow the
Communist Party line, has led to a backlash in a number of
countries. Moreover, Xi’s regulations have created a difficult operating
environment for foreign nongovernmental organizations and businesses, the two
constituencies most supportive of deeper engagement with China.
THE TRUMP FACTOR
The Trump administration’s
reaction to Xi has only made things worse for Beijing. Most obviously, the U.S.
government’s enforcement of tariffs on $250 billion in Chinese exports to
the United States has weakened Chinese consumer confidence and caused some
multinational corporations to shift or consider shifting manufacturing out of
China to other countries. More profoundly, however, the administration and
Congress have adopted a more bare-knuckled approach to Chinese global
assertiveness. The White House has enhanced relations with Taiwan, increased the number of freedom of navigation
operations in the South China Sea,
constrained Chinese investment in
areas of core U.S. technology, elevated international attention to Chinese
human rights practices, and begun to compete directly with the Belt and Road
Initiative through infrastructure investments in partnership with other
countries, such as Australia, Japan, and New Zealand, as well as through the
establishment of a new development finance
institution, the U.S.
International Development Finance Corporation.
The United States is not alone
in resisting Xi’s charms. In the spring 2018 Pew
Research Center polls, a 25-country median of 63 percent said they preferred a world in which
the United States was the leading power, while 19 percent favored China
(although Donald Trump himself fared poorly in the polls in comparison with Xi
Jinping). Market democracies collectively have adopted a number of measures
similar to those of the United States, and despite Trump’s questioning of the
importance of partners and allies, his team has proved remarkably adept at
coordinating approaches to many of these countries. Even in China, some
intellectuals and entrepreneurs quietly state to visiting foreigners that the
Trump administration provides an important bulwark against the worst excesses
of the current Chinese model.
XI 2.0
For Xi to tackle the rapidly
mounting problems his political model has created, he will need to undertake a
significant course correction and modify many of his first-term initiatives. On
the economic front, his priorities should include structural economic reform
that gives preference to the private sector over state-owned enterprises and
provides a level playing field for multinationals that want to do business with
China. He should also take a revised approach to the Belt and Road Initiative
that adopts international standards around governance—including transparency,
risk management, and environmental and labor practices. Politically, China’s
image and soft power would be greatly enhanced by a reduction in the
government’s use of Chinese citizens abroad as tools of its political and
economic objectives, a step back from its coercive policies toward Hong Kong
and Taiwan, and a sharp reduction in its repressive policies toward its own
citizens in Xinjiang and Tibet.
In his description of
leadership, Xi is fond of using the analogy of a relay race: a baton is passed
from one runner to the next, and each runner builds upon what has come before
while delivering his own contribution. With the baton in Xi’s hand, the Chinese
government has expanded its reach and influence at home and abroad. Yet the
negative consequences of Xi’s approach—local government paralysis, a declining
birthrate, and international opposition, among others—have begun to hold China
back from the finish line.
Xi needs to course correct—or
perhaps pass the baton to the next runner.
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