In your article Xi Jinping Brings China’s Reform Era to an End, you note how Mr. Xi has most crucially reversed Deng Xiaoping’s policy of separating state from party, to which many have attributed China’s economic growth to. What do you think are the long-term consequences of him blurring the lines between government and party, and what similarities/differences does Xi’s approach to governance bear to Mao’s?
Xi Jinping has ended the reform and opening era ushered in by Deng Xiaoping. Division of power, however limited, between the government and the party was one of the key features of Deng’s design for China. It allowed the party to cede a degree of control. Previously under the Mao era, the party decided everything, be it a party secretary at a factory, or a party secretary in a city or town, you basically decided everything. That kind of absolute party control led to really bad policies and misguided campaigns, like the Great Leap Forward, which resulted in mass starvation. So that's why Deng Xiaoping’s policy was basically in response to the disastrous policies under Mao as a result of absolute party control and one man rule. So he engineered this division of power between the party and state, and allowed private enterprises greater room to grow and develop, and also imposed term limits on senior party officials. However, over the past decade under President Xi, the fundamentals of governance laid out by Deng Xiaoping really have been dismantled bit by bit. He consolidated power into the party, and increasingly into his own hands, cracked down on private enterprises, and inserted the party into all aspects of Chinese life.
Though many things have yet to pan out, one big consequence of this reversal is the fact that the number one priority for the party is no longer economic development. It's more about national security and making the Chinese people feel safe from perceived threats from the U.S.-led West. So, economic development has taken a backseat to security concerns, and that is putting China on a collision course with the United States. It is becoming more and more inward looking, as opposed to embracing the Western world and market forces, as China did under the reform agenda laid out by Deng.
Observers have noted that China’s policy of “dual circulation” signals a controlled withdrawal from the international market. However, you note that an economic decoupling, especially from the U.S., would do China more harm than good. Do you still see economic coercion as a main source of leverage for the U.S. in this strategic competition? Would American leverage eventually erode given China’s economic growth and efforts to reduce its vulnerability with the U.S.?
The U.S. leverage over China has been reduced quite a lot, given China's economic rise. In fact, for the Chinese leadership, they think their biggest trump card is China's economy. Everybody wants to be in China, because the returns are really good. Few countries have the kind of growth rate that China has, even though Chinese growth has slowed down quite a bit, especially during the past three years under COVID lockdown. However, the U.S. still maintains some leverage over China, especially when it comes to key advanced technology. The chip ban that the U.S. put in place last October has been a huge blow to China's own efforts in developing a semiconductor industry. Even after all of that money spent on developing the semiconductor industry, China still lags far behind a lot of other countries in terms of chip design and manufacturing. Therefore, China still needs very advanced chipmaking technology from the U.S. and Europe and other countries to keep growing its chip industry. So that's the U.S.’s leverage, and the U.S. has been able to get other countries, including Japan and the Netherlands, on board with its sanctions targeting China. However, from Beijing's perspective, their model is a state-led model. The Chinese are very good at deploying all kinds of resources to achieve a stated goal. Despite the fact that China is still lagging behind in terms of chip design and manufacturing, they have made some progress in terms of developing low-end chips. With more resources, effort and energy to be devoted to the chip industry, we shouldn't dismiss China’s ability to catch up. So the question is effectively, how long can the U.S. maintain its leverage. If you ask people in Washington, they will tell you to confront and compete with China, while building up America's own strengths in competitiveness. That is what the Biden administration has been doing with the Chips and Sciences Act. As a result, a lot of manufacturers are coming back to the United States.
Though China’s economic coercion has given it a “big bully” image on the international stage, it has begun displaying signs of more flexibility and proactiveness in solving international conflicts, especially in developing countries, like in the case of Iran & Saudi Arabia. If Beijing continues this softer approach, what are some of the obstacles to Beijing in gaining more influence in challenging the U.S.-led world order?
The Saudi-Iran deal that China brokered was quite a success from Beijing's perspective. It caught many people in the Western world by surprise. However, there's also a backstory behind that deal, where Saudi Arabia and Iran already wanted to improve their relationship, and China was very smart to take advantage of that desire. So, the role played by the Chinese was still pretty big, but we also need to be clear-eyed about the conditions that were already there for them to play this role.
China has taken many actions that show that this is basically a desire to challenge the U.S.-led international order, despite the fact that China itself has benefited so much from the existing world order. Its alignment with Russia, in particular, is aimed at challenging the existing order, with both being authoritarian governments, and choosing to form such a close relationship against the backdrop of the Russian invasion of Ukraine. So, China definitely is a big challenge to the U.S.’s desire to maintain its lead. However, it's also easier said than done. Recent observations have shown that China's foreign policy priority this year is to drive a wedge between Europe and the U.S. The recent visit to Beijing by French president Macron has been widely interpreted as Europeans, or at least the French, softening their position. However, as Professor Minxin Pei just pointed out in his Bloomberg opinion piece, it is much easier said than done. There are actual concessions and prices China has to be willing to pay in order to really win over America's traditional allies like Europe. First of all, there's a war going on in Europe that is the biggest security threat to Europeans. Nevertheless, China's position on Russians and the invasion is murky at best. They claim to be neutral, but they really are pro-Russia. To this day, Xi still has not picked up the phone to call Zelensky, the Ukrainian President. China says it wants to broker peace between Russia and Ukraine, but what they have done so far is only talking to Putin and the Russians and never asking the Ukrainians. So how do you take on a bigger global role without actually doing the hard work? While China is a challenge to the U.S. and continues to assert itself even more on the world stage, it is still up in the air in terms of how successful China is going to be.
Popular media coverage of China tends to center decisions around Xi Jinping as the decision-maker for everything, from domestic city-level to foreign policy issues. To what extent is China’s policymaking process dictated by Mr. Xi, or do smaller actors also play a decisive role in influencing Beijing’s decision calculus?
The reason for that is because Xi Jinping does call the shots. In the past ten years, all of us at the Wall Street Journal’s China Bureau have really documented Xi Jinping's rise to power, consolidation of power and use of power. It has become abundantly clear that Xi really dictates China's key policies, be it foreign policy, economic policy, or national security policies. I did a story last year about the limits to Xi’s power through the backlash he had encountered in implementing his socialist visions. In the past two years or so, he launched a campaign to crack down on some of the most high-profile private companies in China, like Alibaba and Tencent, to remake China's economic model to be more like a socialist economy, as opposed to Western-style capitalism. One clear consequence of that campaign was a plunge in private investments in China, and growing uncertainty and fear among Chinese entrepreneurs about the future. That led to a drop in economic activity and growth. Now, we have seen the government trying to dial back that campaign. At the moment, they talk about the need to rebuild the private sector, and rebuild private sector confidence. Nevertheless, talk is cheap, and you really need a real, more meaningful course correction in economic policies to start letting private companies get their IPO plans implemented, and better allocate resources from public to private sectors. So far we haven't seen real actions being taken. The very public crackdown on private enterprise is over, but the party’s control over the private sector is taking on more subtle forms, such as golden shares, party committees and getting private companies to join the corporate social credit system. They are more subtle and more sophisticated, but it's still a form of control that could lead to more suspicion and more uncertainty among private entrepreneurs.
China has reopened after three years of costly zero-Covid policy. What is the government doing to recharge its economic momentum? What are the main obstacles in the near term?
The priority for China this year is to rescue the economy, because even though economic development is no longer the party's top priority, Xi Jinping and his colleagues still very much want growth. Without growth, you know, all bets are off. So we have seen them trying very hard to step up the rhetoric in trying to convince private entrepreneurs and foreign investors. However, a lot of the problems in the economy right now are the results of other strategic decisions. For example, China's alignment with Russia, and the increased distance between China and the U.S. and other European countries. One direct result of that strategic decision in terms of foreign policy is that Chinese exports have dropped significantly. Exports traditionally have been a big driver for Chinese growth. So, when your key trading partners get increasingly suspicious of your intentions or your actions, you lose customers. Three years ago, zero-COVID also severely disrupted global supply trends and made a lot of companies in China's traditional export market think about divesting out of China. This slowdown in China's exports is very severe and we just saw the new Premier holding talks with government officials trying to resuscitate the export market. However, it's not just an economic issue, but also a geopolitical issue. Another sector that we have seen the government loosening up control over is property. Just last year, the restrictions on financing to developers were still very strict, which caused a mess in the real estate market with a lot of defaults and customers not being able to pay off their mortgages. The government now is reversing their stringent policy, and trying to get banks to lend to developers again. However, the confidence is so low. Even though the banks are willing to lend to developers, there's no demand because people are not buying new apartments. Therefore, that is a very big challenge for the government. No matter how much they stimulate on the supply side, there is just very little demand to get the market up and running again. While we have seen the government rolling out some new policies, it has all been very much so on the margin, and mostly about reversing some of the past policies that hurt the economy. However, we haven't seen any meaningful course correction in economic policy that would make me think, wow, this time is really different. While China's economy will be in better shape this year than last year, largely because of the removal of zero-COVID restrictions, there are many medium to long-term issues and long-standing economic ills that the government hasn't really tried to fix. Hence, the medium to long-term prospects, as the International Monetary Fund and other institutions have pointed out, are still not great.
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