In autumn 2017, the Chinese Communist Party’s (CCP) National Party Congress (NPC) will convene in Beijing. This five-yearly meeting of the 2,300 or so most senior CCP officials – drawn from across China’s provinces, state ministries and the military – is shrouded in secrecy. Behind the closed doors of Beijing’s Zhongnanhai leadership compound, a week of heated discussions and horse-trading will ensue. The result will be the election of the party’s key leadership bodies, including the Central Committee, a body of approximately 370 members that presides over the Party until the next congress.
If convention holds, the day after the NPC closes, the first plenum of the 19th NPC will convene with the sole purpose of appointing the top leadership. A 25-seat Politburo – the Party’s senior leadership body – will have been chosen, from which the seven-member Politburo Standing Committee (PBSC) will be selected. The seven are revealed to the world for the first time when they parade, in order of seniority, onto a stage in the Great Hall of the People in Beijing. In 2017, five of the seven PBSC members – excluding Party general secretary and president of China Xi Jinping, and Premier Li Keqiang – are due to retire, as are a total of 11 of the 25 Politburo members.
Such a sweeping change to the leadership will determine China’s governance trajectory in coming years, and should be of keen interest to all China observers including foreign investors. It is likely that Xi will retain his authority and continue to push key initiatives already underway, including an ambitious infrastructure programme extending to Europe that will open up numerous opportunities for investment.
There is limited utility in attempting to forecast the outcome of the NPC. There has been speculation that Xi Jinping may defy some of the current conventions surrounding the congress. For example, he may amend the constitution to raise the mandatory retirement age, or to reduce the PBSC’s membership from seven to five. These changes would not only allow key allies to remain in post, but would also potentially pave the way for a third term for Xi.
It is a near certainty that Xi will remain general secretary come autumn, and will serve for at least a second five-year term. Xi’s purging of political rivals and corrupt officials in the CCP – as well as a re-concentration of power within the general secretary’s office – will allow him to stack the upper echelons of the Party with his allies. This will be the latest – and key – step in a power consolidation process that has elicited frequent comparisons to Mao Zedong. A good indication of China’s future direction can likely be gleaned from looking at key policy initiatives from Xi’s first term, and how these may be extended into his second.
In a busy first term, Xi has bucked the trend of consensus politics that emerged under his predecessor Hu Jintao. He has consolidated power within the Party and used his ever more authoritative role to pursue a range of bold initiatives.
Upon taking power, the focus of Xi’s political agenda was an anti-corruption campaign that was unprecedented in both its scale and severity. Shrewdly tapping into a latent public anger toward corrupt officials, Xi empowered the Central Commission for Discipline Inspection to launch a campaign which has probed over one million officials for graft.
Critics argue, convincingly, that a significant motivating factor behind the campaign is for Xi to purge the Party of political opponents. In addition to the Party itself, major state-owned enterprises, the military, financial regulatory bodies and other key government departments have all been affected. The numbers of high-ranking officials targeted account for a relatively small proportion of the overall investigations. However, the high-profile trials of senior figures including former security tsar Zhou Yongkang, former head of the China National Petroleum Corporation Jiang Jiemin, and former PLA general Xu Caihou, captured the nation’s attention.
The “Belt and Road” initiative (一带一路 – BRI) sits at the heart of Xi’s outward-looking economic agenda. Also called “the new silk road”, BRI is a wide-reaching project comprising an overland trade passage from China to Europe and a maritime route through South East Asia. The Asian Infrastructure Investment Bank, a major multilateral financial institution set up in 2016, was established, in part, to foster BRI’s development.
Through BRI, Xi hopes to strengthen regional and cross-continental connectivity between China and over 60 countries. The initiative’s approach is multi-faceted and has already seen numerous bilateral cooperation agreements signed with countries including Russia, Turkey and Mongolia; major infrastructure projects launched; and the establishment of six major economic corridors. The initial phase of BRI has focused on transport – railways, highways and port construction – and energy infrastructure. As it matures, the scope of the initiative will expand to include a greater focus on the development of local economies across a broad range of sectors from healthcare to telecommunications.
Xi has more tangible links to the military than his predecessors, which he has exploited in his first term. Between 1979 and 1981, he served as secretary to the secretary-general of the CCP’s Central Military Commission (CMC), Geng Biao. Upon taking office, Xi immediately took control of the CMC (President Hu, by contrast, waited two years), and has since overseen substantial military reform. Xi restructured China’s military regional set-up, streamlined the chain-of-command, and made substantial personnel cuts. He also adopted a new title, commander-in-chief, in 2016.
Press scrutiny has focused heavily on China’s military activities in the South China Sea (SCS), which is increasingly seen as a potential flashpoint. Based on the contentious “nine-dash” line – first drawn up by Chinese cartographers in 1947 – China claims sovereignty of around 90% of the SCS. Xi Jinping has overseen an aggressive land reclamation project and the militarisation of disputed islands in the sea. While these activities continue, recently improved trade relations with key regional parties Malaysia and the Philippines have served to diffuse tensions, at least temporarily.
More recently, Xi has continued to promote China’s key role in global trade. The final year of Xi’s first term has coincided with the election of Donald Trump in the US. Trump’s protectionist message has offered Xi an opportunity to present China as an alternative champion of globalisation. In an unprecedented speech delivered at the 2017 Davos Economic Forum in January, Xi presented a robust defence of global trade. Further, since Trump abandoned the Trans-Pacific Partnership (TPP), China has increased its efforts to strengthen trade links in the Asia Pacific region. This includes the backing of the Regional Comprehensive Economic Partnership, a proposed trade deal covering 16 countries and almost half the world’s population.
If, as expected, Xi manages to shift the balance of the Politburo in his favour by filling it with allies, he will be able to pursue his first-term policy initiatives with a freer hand.
The re-emphasis on the importance of the Party’s role means that Xi will be under added pressure to deliver tangible economic and social results at home. He has a host of challenging domestic issues to contend with, not least growing public dissatisfaction at pollution levels, the threat of the property bubble bursting, and financial and banking sectors that are in desperate need of reform. Efforts to address systemic issues plaguing the banking sector – such as non-performing loans and a rapidly expanding shadow banking industry – appear to already be in motion. For example, in February 2017, reform-minded Guo Shuqing was named as chairman of the China Banking Regulatory Commission.
In order to realise his longer-term ambitions – BRI and military modernisation in particular – Xi will want to foster a stable international environment. While his domestic rule may have an increasingly authoritarian bent, he appears to want China to assume a leading role in the liberal global economy. Xi will not want to unnecessarily rock the boat by becoming involved in potentially destabilising regional spats.
That said, there are a number of red lines that, once crossed, Xi will not be able to back down from. Taiwan, Hong Kong and Tibet are all traditional flashpoints, and precisely where the red line will be drawn with regard to the SCS is not yet clear.
This will be further complicated by the need to deepen domestic economic reform. Attempts at reform have, thus far, failed to make substantive change at the institutional and policy level. Perhaps, less distracted by the immediate concern of power consolidation he faced at the outset of his first term, Xi will do more than pay lip service to these reforms in his second outing.
On balance, this is a good time to be engaging commercially with China. As the country assumes a greater leadership role in global trade, and attempts to deliver on its ambitious Belt and Road initiative, it is courting foreign support and investment.
There are a number of potentially destabilising factors that remain outside of Xi’s control. High among these are Donald Trump’s as-yet-undefined China policy – the forthcoming bilateral summit may help clarify this – and the belligerent actions of North Korea’s erratic Kim Jong-un. The anti-graft campaign will likely continue to target Xi’s enemies, and, in typical strongman style, the crackdown on civil society under Xi looks set to continue.
During this period of heavily politicised domestic economic transformation, the challenges for foreign investors are also changing. While their investment is welcome, they need to select investment projects and partners carefully, lest they inadvertently find themselves in Xi’s crosshairs. Failure to properly understand the risks associated with a potential Chinese partner or business sector could lead to foreign investors becoming collateral damage in the wider anti-graft battle waged by a powerful Party apparatus firmly under Xi’s control.