In the 10 years since Chinese President and General Secretary of the Chinese Communist Party (CCP) Xi Jinping came to power, he has expanded the role of the state more than any Chinese leader since Mao Zedong, who ruled from 1949-1976. Xi is all but certain to secure an unprecedented third five-year term at the 20th Party Congress on Oct. 16. And if he is allowed to surround himself with more loyalists, the state’s influence over society and the economy will only grow, threatening China’s development as well as the cohesion of Chinese society and the CCP’s hold on power. China’s suitability for global leadership will also be increasingly questioned, as Xi’s confrontational approach toward diplomacy and national security matters further strains Beijing’s relations with the West. If Xi is selected for a fourth term in 2027 — a plausible prospect given the extent of his centralization of governing and political power — these effects will only be exacerbated.
How Anti-Corruption Built a Loyal Base
After Mao’s death in 1976, Chinese leader Deng Xiaoping instituted a norm of consensus-based leadership to ensure China was never again run by a single capricious and all-powerful individual. But since taking office, Xi has helped destroy that 40-year norm by imposing a sweeping crackdown on state corruption that has scared cadres into tacit alignment with his policies and ideology, while empowering CCP conservatives (who support a powerful state and are more skeptical of the West) and sending pro-reform liberals (who support light-touch governance and opening up China to the rest of the world) into hiding.
Since 2012, Xi has coupled the anti-corruption rhetoric of his predecessor, Hu Jintao, with a campaign that has both tamped down on overt abuses of power (i.e. expensive watches and family trips abroad), as well as purged Xi’s political rivals, like the acolytes of former presidents Jiang Zemin and Hu Jintao, from the CCP on a scale unseen since Mao’s 1966-1976 Cultural Revolution. In the last decade, Xi’s campaign has investigated nearly 5 million CCP members, expelled 63 military generals, and prosecuted members of the elite Politburo. The crackdown also remains more active than ever, with 627,000 cadres punished in 2021 — the most of any year since 2012. Under Xi’s leadership, the Chinese central government has paired this crackdown on allegedly corrupt state officials with Party Education Programs that focus on avoiding factionalism and enforcing ideological alignment with the central government and Xi in particular.
Reviving Nationalism and Keeping Tabs on Chinese
In Chinese society, Xi has attempted to inculcate ardent nationalism, love for the CCP and conservative cultural norms — often to the detriment of China’s global image. The most infamous example of this is the new brand of ”wolf warrior” diplomacy that has taken root in Beijing under Xi’s leadership, wherein strident and confrontational diplomats are lauded by Beijing as national defenders rather than the bullies they are perceived to be overseas. Nationalist narratives peddled by state media have attempted to drown out dissenting voices on policies like China’s controversial partnership with Russia and stir consumer boycotts against Western companies, like the March 2021 ban from Chinese e-commerce platforms of Swedish fashion brand H&M for taking a mild stance against forced labor in Xinjiang.
The Xi administration has paired this nationalist zeal with a raft of regulations on social activities and education. Since January 2021, Chinese regulators have: published the ”Proposal to Prevent the Feminisation of Male Adolescents”, which called on schools to ”toughen up” the next generation of Chinese men by more heavily promoting competitive sports in schools’ physical education programs; banned all Western curricula in K-9 public schools and replaced it with a curriculum promoting ”Xi Jinping Thought” and CCP-approved topics; restricted Chinese minors to playing no more than three hours per week of online video games; issued the family education law, which requires parents to instill in their children a love for the CCP or else be subjected to state-mandated training; and banned people from live-streaming content that exhibits ”extravagant” lifestyles.
An Active Hand in the Economy
Xi Jinping has tried to deleverage the economy and make growth more sustainable via domestic consumption and high-end manufacturing. But he has done so using poorly timed regulations and greater market intervention, interspersed with a number of risky policies that Xi has taken personal ownership over.
Amid the COVID-19 pandemic in August 2020, the Xi administration introduced its so-called ”three red lines” policy, which restricts the amount of debt that developers can take on to fund their projects. But without the ability to increase debt to fuel their growth, Chinese property developers have been scaling back their construction plans, which has caused home sales to plummet over the past year. The resulting crisis has, in turn, cratered consumer and investor confidence in China’s real estate sector — a key driver of economic growth — without providing alternative avenues for investment.
Likewise, Xi’s campaign to rein in rapidly expanding tech giants like Alibaba and Tencent with multi-billion dollar fines and required donations of tens of billions dollars to Xi’s common prosperity campaign — aimed at reducing wealth inequality — have neutered China’s key innovators and corporate investors.
Xi has also personally championed China’s ”zero-COVID” strategy of tight lockdowns and travel restrictions, partly due to Beijing’s preference for all-of-society responses to health threats and partly to restore Beijing’s global image for having tried to cover up the origins of the pandemic. But this strategy has led to the closure of countless family-owned businesses, which generate half of China’s GDP. And Xi’s close personal relationship with Russia’s Vladimir Putin, sustained amid Russia’s invasion of Ukraine, has exposed China to U.S. sanctions risk and reduced Western faith that Beijing can act as a responsible world leader.
Xi’s economic record has bright spots, too. He’s pushed through market reforms by, for example, opening China more to foreign mortgage, life insurance and automobile companies. But the reputational, operational and compliance risks of Xi’s other economic policies have far outweighed any market enthusiasm brought on by these reforms.
Xi’s Third Term and Upgraded Crew
The fallout from these policies could suggest that Xi’s ruling legitimacy is fading and that his chances of winning a third term at the quinquennial Party Congress on Oct. 16 are slim. But his past decade of crushing rival factions and centralizing policymaking and ideological power in himself has guaranteed that no others can contend for the top spot of CCP General Secretary, at least not during this Party Congress.
Thus, Xi’s leadership is secure for another five years. His grooming (or cowing) of CCP and military elites makes it quite likely he will also be able to fill the ranks of the Politburo, Beijing’s elite policymaking body, with more loyalists and ensure that whoever is the next Premier, the government’s chief administrator, will not threaten Xi’s power. If he is able to fill these ranks, China’s societal stability and foreign relations are likely to erode further, and the CCP could see its first succession crisis in 40 years when Xi eventually leaves office. In the meantime, his continued leadership may also risk China’s current economic malaise turning into permanent stagnation.
Beijing’s ongoing campaign to align China’s cultural norms with Xi’s vision for a modern socialist society could further isolate Chinese citizens from their communities as modern hobbies are vilified and social platforms are sanitized of meaningful and/or enjoyable conversation. This is no small feat, as the 1970s Cultural Revolution (in which Mao weaponized all of people’s social ties to root out ”class enemies” and placed loyalty to the state above all others) has already made Chinese citizens distrustful of one another, with older generations almost exclusively focused on acquiring wealth for their immediate kin. Greater restrictions on leisure activities and open expression — both common release valves for the pressures of life in China — risk once again making nationalism and political orthodoxy the only meaningful forms of social currency. This will exacerbate anti-West sentiment among Chinese citizens and make consumer boycotts against Western products and companies more frequent.
Western observers, meanwhile, will be increasingly blind to these societal shifts and policy debates in China as fewer Western journalists are permitted to report from inside China, and as the few domestic media outlets trying to maintain journalistic integrity, like Caixin or South China Morning Post, are purged of state criticism. Complete control over the online and media spheres will remain beyond Beijing’s grasp, but like in the 1970s, the CCP will rely on self-censorship by threatening heavier punishments for ”deviant” social behaviors.
This increasingly repressive and nationalist environment will, in turn, continue to erode China’s attractiveness to foreign businesses and tourists. And Xi will increasingly enact ill-advised policies as he surrounds himself with more yes men and further suppresses any critical voices — including Chinese academics, business elites and local politicians — who could otherwise help him avoid major pitfalls.
Threading the Needle on Economic Reform
The timing and implementation of Xi’s reform campaigns suggest the supreme leader is not terribly concerned with economic collateral damage as long as the end state of China’s development (e.g. becoming a high-income nation) is satisfactory and the CCP maintains political control. Thus, Beijing’s campaigns to deleverage the real estate sector and align the tech sector’s innovation and investment priorities with the government’s own goals will persist. As these two economic engines are further restricted in the coming years, Beijing may have to lean more heavily on other sources of growth, like domestic consumption. Consumer confidence, however, is closely linked to the country’s failing real estate sector. Beijing may also try to attract more foreign investment by enacting greater market reforms, though this will yield limited success as long as the U.S.-China strategic competition and Chinese nationalism make foreign investors leery of greater exposure to the volatile China market.
This dynamic may leave Beijing with few other choices but greater state intervention in the economy — likely by guiding investment into certain sectors and attempting to regulate (or deregulate) away any negative side effects, such as Beijing’s targeted leniency in recent months toward the mortgage boycotts that arose from the real estate crisis. Xi’s active state management of such issues will produce economic inefficiencies, resulting in higher local and national level debt. It will also create local winners and losers based on which companies can best take advantage of accelerated state support. If these reforms are unsuccessful in transitioning China toward quality growth, the Chinese economy could see long-term stagnation as the capital inefficiency of state investments grows.
Echoes of 1977
Should his policy failures compound to the point where they produce severe and long-term economic stagnation, Xi may lose the support of the CCP, like when Mao temporarily lost party support following his failed agricultural collectivization efforts of 1958-1962. Given Xi has yet to name a successor (and remains unlikely to do so as long as he has any hope for a fourth term in 2027), such a sudden loss of Xi’s ruling mandate could lead to the rapid resurgence of suppressed political factions. This would herald a period of great turmoil as high-level officials collaborate with local officials for their factions’ dominance in the CCP, leading to periods of domestic policy gridlock interspersed with rapid changes to both domestic and foreign policies.
If, however, Xi weathers the political storm but stays on too long and dies in office, this could also trigger a sudden power struggle. Such an outcome would not be extraordinary, either, as the overweight Xi turned 69 this past June and another two terms in office would bring him to 79. It also isn’t unprecedented for China: Chairman Mao stayed in office until he died at 82 years old in 1976, triggering a succession crisis that saw Mao’s deathbed designation of Hua Guofeng last less than two years before Hua was sidelined by soon-to-be leader Deng Xiaoping and his reformist allies. Interestingly though, like the fall of Hua and the rise of reformist Deng, the sudden fall of Xi could bring about a new reform-minded CCP leader who somewhat eases China’s tensions with the West. But it could also herald yet another hardliner; after all, China’s prior leadership selected Xi to lead China through the challenging 2010s.
Digging in to Fight ‘Western Hegemony’
Assuming Xi does not die in office, his relative disregard for economic collateral damage (compared to previous leaders) — combined with his nationalist policies and aggressive ”wolf warrior” approach to diplomacy — are likely to worsen China’s trade and investment relations with the West, and to a lesser extent East and South Asia, over the next five years. The prime example of this has been Xi’s approach toward China’s restive regions like Hong Kong and Xinjiang over the last few years, which has privileged national security and accelerated assimilation to the complete exclusion of other local or international concerns. In the process, China’s human rights abuses against Uyghur muslims in Xinjiang led Europe to sanction China, followed by Chinese retaliatory sanctions, after which the European Union indefinitely suspended negotiations on the EU-China Comprehensive Agreement on Investment in May 2021.
Furthermore, Xi’s close personal partnership with Putin, undergirded by Sino-Russian historical ties, will help counter what Moscow and Beijing perceive as ”Western liberal democratic hegemony.” But it will come at the cost of continuing to sully China’s global image and increase its exposure to sanctions, as both Beijing and Moscow make decisions for regime longevity that clash with Western notions of universal human rights. In the near term, barring a significant escalation in Ukraine (e.g. the war’s expansion to a pan-European conflict), China under Xi is still unlikely to assist Russia in this war, and helping Moscow to dodge Western sanctions would expose China to massive economic risk. Nor is Beijing likely to abandon its long-term partnership with Moscow, though Russia’s use of chemical or nuclear weapons in Ukraine could erode China’s tacit support for Russia in this conflict.
Over the next decade, Xi may also wield the Chinese military to make further aggressive moves toward Taiwan — like the August live-fire drills around the island following U.S. House Speaker Nancy Pelosi’s controversial visit to Taipei. Such confrontational behavior against Taiwan would only further confirm the idea in Western capitals that China’s prospects for responsible global leadership or even meaningful participation in the international system were negligible, leading to even greater supply chain decoupling and technological competition between China and the West.
Of course, none of these projections are set in stone. The behavior of China’s political elite is notoriously hard to predict, and the Chinese economy is famous for righting the ship just as its collapse appears unavoidable. But with Xi Jinping at the helm for another five (if not 10) years, the deck is stacked against China returning to the political quietude of former leaders like Hu Jintao and Jiang Zemin, under whose leadership China’s prospects for greater economic development and integration into the international system seemed, to many, limitless. In addition, the societal instability and policy upheaval of the Mao days is becoming more likely to return to China, even if on a fraction of that scale, the longer Xi stays in office.
Source: Stratfor.com October 13, 2022