The ruling Chinese Communist Party (CCP) wraps up its annual summer retreat at the northern coastal town of Beidaihe. The meeting comes amid signs of dissent within the Chinese political system as the president, Xi Jinping, struggles to manage an intensifying trade fight between the US and China. Our baseline view is that the president’s authority will remain intact, but we are likely to see tilts in several policy areas.
It has been a challenging few months for Mr Xi. While he emerged all-dominant from the political reshuffle of 2017‑18, his administration has since been buffeted by several events. Intense US pressure on China over its trade and industrial policies has caused unease within domestic financial markets. The government’s deleveraging and financial derisking campaigns have given rise to corporate liquidity strains, an easing in economic growth and public anger over failed investment schemes. A vaccine scandal ignited criticism of the authorities for their failure to guarantee the quality of state-provided healthcare. In addition, there have been several setbacks for the Belt and Road Initiative (BRI), Mr Xi’s signature foreign policy initiative, including the cancellation or renegotiation of several China-backed infrastructure projects in Malaysia.
Space emerges for domestic criticism
Such events have given more space for criticism of the government to emerge. The handling of US-China trade ties has been the main focus, with doubts surfacing in commentary about the wisdom of the hardline stance taken by Mr Xi’s administration. This is seen as a reflection of the president’s desire to maintain his “strongman” public image (China’s main negotiator with the US, Liu He, is seen as keener to reach a deal).
Criticism of the approach is often heard in private, but there has also been more public voicing of discontent, including commentary in state media urging a more realistic assessment of China’s achievements and global status. Calls from alumni of Tsinghua University (Mr Xi’s alma mater) for the resignation of Hu Angang, an economics professor at the institution known for his view that China has surpassed the US economically and technologically, can be interpreted as indirect criticism of Mr Xi’s government; Mr Hu is seen as influential within CCP leadership circles.
There has also been criticism of Mr Xi’s domestic political approach. An unusually strident essay published in overseas Chinese media in July by Xu Zhangrun, a law professor also from Tsinghua University, bemoaned a totalitarian shift in Chinese politics, called for the restoration of the presidential term limits that were abolished in March 2018 and urged an end to the building of a “personality cult”. While Mr Xi was not mentioned by name, the target of the essay was plain.
In the foreign policy realm, meanwhile, there have been instances of scholars and experts voicing concern about the abandonment of China’s traditional low-profile diplomacy, famously expressed in Deng Xiaoping’s dictum to “hide our strength and bide our time”. Mr Xi has backed a more assertive foreign policy and called for China to become a “leading global power”. However, growing tensions with several countries, alongside questions about the international largesse associated with BRI, have generated concern. An essay published last year by a scholar affiliated with the Central Party School of the CCP, Luo Jianbo, which argued that China risked being motivated by a “premature sense of national greatness” in its foreign policy, has been recirculated on social media recently.
Authority intact, but expect policy tilts
We do not believe that such criticism indicates that Mr Xi’s position is under threat. His schedule appears to be normal: he recently conducted a ten-day trip to the Middle East and Africa, which would have been an unusual decision if the president felt that his position were seriously in jeopardy. He also continues to dominate the pages of the CCP flagship People’s Daily newspaper. Our baseline view remains that we expect him to see through his apparent goal of staying in power beyond 2023.
However, there will probably be policy tilts in some areas to assuage critics of the government’s line. These could be fleshed out at Beidaihe. In terms of US-China trade relations, a softer approach may be forthcoming. Already, in its response to the latest US tariff threat over US$200bn of imports from China, the government backed away from its previous policy of reciprocating with tariffs covering an equal value of US goods. Its focus may move towards cultivating better relations with other trading powers and resisting the US through actions at the WTO.
Propaganda efforts may also be dialled down. There have been recent senior personnel changes within the state propaganda machinery, and it is possible that Wang Huning, the fifth-ranked member of the top-level politburo standing committee who oversees CCP ideology and propaganda, may have his role reduced or even be replaced as the government recalibrates its approach. A refocused propaganda effort may seek to downplay China’s economic advancement, as well as reduce some of the more egregious examples of slavish propaganda around Mr Xi.
For the BRI, we expect a cooling in related activity and promotion. Domestic financing for such projects will become harder to come by, and China is likely to make stronger efforts to engage international partners, including foreign governments and companies, in the initiative. Some of China’s policy banks have already opened conversations with their international counterparts in countries such as Japan about co‑lending projects based on international standards of transparency.
However, one area that is unlikely to see a shift in approach is the domestic political environment. In a sign that the government is unlikely to be waived by Mr Xu’s arguments, it has launched a campaign to instill “patriotic striving spirit” among China’s intellectuals, including mandatory visits by academics to CCP revolutionary bases. In truth, Mr Xu’s opinions are representative of a liberal strand of thought that currently lacks influence within the CCP.
The return of political risk
The criticism levelled at Mr Xi points to political risks that are still present in China, despite the president’s accrual of massive authority. There is a possibility that should the US government push even more aggressive policies on trade (not our central forecast), it could cause a level of economic instability that will increase political pressure on Mr Xi.
There are several plausible risk scenarios worth exploring in this context. A move to oust the president remains highly unlikely, given the chaos and public anger that this would generate. However, it is now possible to imagine realistic circumstances under which Mr Xi, unable to deflect blame for policy missteps, is forced to concede power in terms of policymaking and personnel appointments, and also to step back from his plans to extend his term in office beyond 2023. This could lead to an expanded role for the premier, Li Keqiang, who seems keen to use the US-China trade fight as a way to back domestic economic opening, as well as the CCP factions associated with former leaders.
There is also the possibility that a full-scale trade war with the US, alongside heightened competition in the security realm, would prompt the CCP to bury internal differences and hunker down for a fight with an external opponent. Under this risk scenario, Mr Xi’s primacy would probably be secure.