Triumphal nationalism, risk aversion and stability at all costs won’t take China to the promised land
General Secretary Xi Jinping had a good first term in office capped by a splendid 19th Party Congress in October 2017.
At that congress, Xi was declared the “core” of the party’s all-important Central Committee, his “thought” (Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era) enshrined in the Constitution, his term limit as president abolished with no successor anointed and the four leading small groups chaired by him elevated to the level of party commissions.
A month later, Xi hosted a first-ever official dinner for a visiting American president inside the Forbidden City. But it has been more or less downhill ever since:
- China was labeled a revisionist rival in the December 2017 US National Security Strategy;
- The US-China trade war kicked into full gear in the spring of 2018;
- In May 2019, the US opened a technology denials front, which it has broadened exponentially with the recent export controls on advanced computing and chips;
- The Covid-19 pandemic put paid to in-person leader-level diplomacy and interrupted the new round of “reform and opening up”; and, now,
- Russia’s invasion of Ukraine has added grist to the Biden administration’s democracies versus autocracies framing of great power relations.
It may be tempting to blame external forces beyond the general secretary’s control for this turn of events. That would be accurate only up to a point. The roots of China’s current economic malaise and geopolitical predicament derive as much from within as without. And they stem from acts of both commission and omission during Xi’s two terms in office.
In his report at the 19th Party Congress, Xi had vowed to pivot from the growth model of overinvesting in fixed assets and, instead “leverage the fundamental role of consumption in promoting economic growth.”
Three years on, even before the pandemic set in, the household share of consumption had barely eked its way to 40% of GDP, a full 20 points below the global average. Fifteen years after ex-premier Wen Jiabao had labeled China’s economic problems “unstable, unbalanced, uncoordinated and unsustainable,” the economy remains almost as unbalanced – notwithstanding the halving of credit growth since 2017 by shrinking the shadow banking sector.
At the 19th Party Congress, Xi had intoned that “housing is for living in, not for speculation.” In the three years thereafter, China’s housing market ran up one of its largest increases in residential floor space construction starts.
Today, the economic slowdown, excessive leverage and US dollar-heavy borrowing structure of property developers have left the Chinese unable to refinance their debt and additionally vulnerable to the dollar’s appreciation.
More to the point, the sedate pace of financial services-sector policy liberalization has meant that property continues to overwhelm equities and mutual funds as, disproportionately, the primary store of value for Chinese households – leaving private retirement savings plans as a mere blip of China’s pension assets.
At the 19th Party Congress, Xi had pledged to “forge friendship and partnership” with China’s neighbors and “hold high the banner of peace [and] development.” In his ten years as president, Xi has failed to stitch up even a mere hundred-square-kilometer fisheries agreement with a neighboring country – let alone resolve a full land or maritime boundary dispute.
Every Chinese leader since the founding of the People’s Republic has, in his first decade in office, either crafted the principles of settlement of or settled outright a sovereignty-linked dispute – that is, until Xi. In far more trying domestic and geopolitical circumstances, Mao Zedong authored some of China’s most creative land boundary settlements.
Many of Xi’s aggressively pursued first-term policies have come back to haunt him, too, from the ill-advised collective punishment of Uighur Muslims to the “influence operations” and talent recruitment programs overseas.
His techno-nationalism-driven, deep-pocketed purchasing forays for core technologies and excess subsidies-fueled industrial policy spillovers, moreover, have invoked retaliation from the West in the shape of tariff impositions, acquisitions denials, export controls and a forthcoming outbound investment ban.
In striving to telescope his middle-income nation’s dash to techno-security superpowerdom during his time in office, by means fair or foul, Xi has in fact condemned China to a far more arduous, self-dependent pathway to national modernization.
By contrast, Deng Xiaoping saw no dishonor in China hauling itself by its bootstraps by stitching shoes and garments for the world and organically working its way up the value chain to a re-rise and greatness.
To be clear, there have been important accomplishments over the past decade. The military’s organization and services have been radically restructured, the vestiges of abject poverty eradicated, high-level corruption rooted out, and ecological consciousness placed at the forefront of national development.
If Xi’s “common prosperity” development philosophy of prosperity-based opportunity, inclusion and rebalancing is successfully realized in this decade next one, it could leave a mark on China’s social market economy that is as influential as Deng’s ‘four modernizations’ (of agriculture, industry, science and technology, and national defense) of the late 1970s.
China’s mid-century national rejuvenation goal of leadership in terms of composite national strength and international influence, to be realized, requires engaging with the hard questions on reform and opening up, prioritizing diplomatic ingenuity over military steadfastness and re-opening the civic square for the exchange of viewpoints.
Triumphal nationalist talk paired with risk-averse, stability-preserving methods will not deliver China to the promised land. And the bold reformist utterances at the 19th and 20th Party Congresses must be matched with actual delivery on the ground.
Sourabh Gupta is a senior fellow at the Institute for China-America Studies in Washington, DC. Prior to joining ICAS, he was a senior research associate at Samuels International Associates, Inc, an international consulting firm specializing in government relations and global trade and investment matters.