Congress Takeaway: A large portion of Xi
The level of interest in the 19th Congress of the Chinese Communist Party has been unprecedented. The week long political gathering was covered by reporters from around the world, eager for an insight into the direction of travel China will take in the years ahead; and, critically, who will be in the driving seat.
The exposure has made one thing clear, if it wasn’t already: that the Congress is no longer considered a largely domestic occasion by the outside world. It is now firmly on the radar of politicians and business chiefs from Singapore to the US. It matters because it sets the tone and acts as a compass for the next five years in a country with nearly 1.4 billion people and the world’s second largest economy.
This shift in perception around the Congress is no accident but a very real reflection of the ambition the Communist Party’s General Secretary has for China – something he has been trying to embody since his appointment to the top job in 2012.
Xi Jinping is a man on a mission. He wants to ensure a new status for China, where it is more confident, respected and prominent on the global stage, particularly in terms of its economic clout, trading relationships, and influence on foreign policy. He wants to see a strong China, not just a wealthy one. So, the question concerning many foreign governments, including Trump’s team, is how you define strong?
In a marathon address lasting over 3.5 hours, Xi set out some of the detail for how his bold vision would be achieved. He traversed a range of issues: everything from improving the environment and eradicating poverty, to turning the military into a technology focused, well-equipped and modern fighting force.
There is a reasonable dose of pomp and ceremony that goes with a Communist Party Congress, and even former leader Jiang Zemin was caught on camera having the odd yawn. But, cutting through all that, what can we really distill from the event that might help international businesses better understand the landscape that confronts them in China? Here are five of the main Congress takeaways:
- Xi has consolidated his power…so assume what he says goes.
While being confirmed for another term as General Secretary, Xi Jinping has also had the greenlight to have his political thought – “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” – enshrined into the Party’s constitution. This effectively means schoolchildren will study Xi’s philosophy, just as they did Chairman Mao’s, and to seriously question him is tantamount to sabotage or an affront to the revolutionary cause.
- Xi is going to be around for a lot longer…so you’d better get used to him.
We will be seeing President Xi for another five years at the very least. Many assume he will push on beyond 2022, and into a third term, because there was no obvious successor promoted onto the elite Politburo Standing Committee at the Congress. That view may be correct but it is equally likely that Xi – and therefore the Party – does not yet see a suitable successor to continue and complete his work.
- Xi now has his people in key roles…so expect flagship policies to be vigorously pursued.
What is interesting about Xi’s meteoric rise in power is that he has achieved it without having his allies in all the key political positions. Some argue this is why he ruthlessly pushed his anti-graft campaign to eradicate potential threats. Others say he is driven by a deep belief that insidious corruption in China’s politics and institutions needed to be excised to make any meaningful economic and social reform. Both views are probably true, but whatever you believe, the graft crackdown is going to stay – albeit fronted by a new man in Zhao Leji. You can expect other policy priorities to be pursued with similar vim now that Xi has his people positioned exactly where he wants them.
- Xi has already framed his priority areas…so expect more of the same.
While the elevation of “Xi Jinping Thought” into the constitution is a new development, the ideas and policies that underpin it have been pursued, at least to some extent, for the last five years. There is no reason to suggest these are going to change; and, if anything, we should anticipate any new policies that emerge to align with the vision of a strong Chinese that Xi is determined to deliver.
So, the broad themes will remain. We will see a more proactive foreign policy and a desire for increasing influence on global affairs – whether through diplomacy or in economic and trade discussions. The drive to eradicate domestic poverty will continue at apace, and the enormous Belt & Road initiative will receive all the backing the Chinese state can provide, which includes ensuring the banking and private sectors play their part in making it a reality.
Greater market access will be a question on many people’s lips and Xi himself did make positive overtones about this in his marathon opening address. He understands that seclusion is not the answer. However, words are one thing, action is another. What we do know is that China’s approach will include a negative list of sectors or potentially even companies that are not considered beneficial to the country.
- Some decision making may appear kneejerk …so expect a few surprises.
At a more micro policy making level, China is less predictable. But, you should not be thrown by these decisions, if you remember the bigger picture and desire to forge a strong China. Many people will have been stumped by capital control restrictions suddenly being enforced in early 2017. While this caused significant problems for business, both foreign and domestic, it was a necessary move to protect the Yuan. The short-term problems it caused, and the negative headlines about kneejerk Chinese policymaking, were palatable to ensure the greater objective remained on track.
Those with operations in China should expect to see other short to medium term measures that are tactically deployed, as required, to deliver the principal objective – although it is near impossible to predict exactly when and how they will materialise.
This dynamic also explains why there is an increasing desire to control the message within China, especially through social media and the Internet more broadly. The digital world is both an opportunity and a threat to China so it cannot be left unsupervised. We should expect a further tightening in media freedom and internet censorship through the clampdown on VPNs and the type of content that is acceptable.
Sam Turvey will join Maitland as a Partner in January 2018. He has spent the last six years of his career based in the Middle East and Hong Kong.