For some time now it has been assumed that in November the National Congress will rubber stamp Xi Jinping’s continued role as China’s supreme leader for a third five-year term, which would make Xi the first Chinese leader for a generation to serve more than two terms.
Just a year ago his position as one of China's three pre-eminent leaders was confirmed when the 400 members of the Central Committee passed the third ‘Historical Resolution’ in the Chinese Communist Party’s 100-year history. The previous two were organised by Mao in 1945 and Deng Xiaoping in 1981. The resolution highlighted the concept of ‘Xi Jinping Thought’ as a historical equivalent to that of his two legendary predecessors. But a number of crises, international and domestic, have put a question mark against Xi’s continued omnipotence.
When Xi met Putin before the Beijing Winter Olympics, the allies, who had moved ever closer over the last decade, declared that there were ‘no limits’ to the Russia-China relationship. What followed Putin’s invasion of Ukraine, about which Xi was forewarned, is therefore a puzzle. Although China voted against the UN resolution to denounce Russia’s invasion of Ukraine, China’s active support for Russia has been notable by its absence.
There has been no public expression of support for Putin’s ‘special military operation’. Xi himself has subsequently stated that China is ‘committed to respecting the sovereignty and territorial integrity of all countries’. Russia has asked for military aid from China but no answer, at least publicly, has been forthcoming. If, as one suspects, China is helping Russia, it is being done in secret.
Neither does it seem that China wants to risk being involved in trade wars with the West. It is notable that Union Pay, China largest credit card company, has, like Visa and Mastercard, stopped working with Russian banks. Chinese companies, particularly those established in the US, appear to be equally circumspect about breaking US sanctions.
The Russia-China allegiance may now be superglued but to what strategic benefit to China? It is difficult to see how China’s geopolitical ambitions can be burnished by its support for an ally, albeit half-hearted, whose actions are causing global inflation and, in some countries, starvation. This is not how you win friends among the ‘non-aligned’ nations – just look at the borrowing default, food riots and political crisis in China’s ally Sri Lanka over the last month.
If China’s friendship with Putin is toxic internationally, it also seems likely that this toxicity applies in some measure at home. The leadership of China is opaque when it comes to identifying opposition to Xi. However, it is highly unlikely that factions who supported the cautious internationalism of Deng Xiaoping and his successors can be happy with the consequences of Xi’s overtly aggressive foreign policy which appears to have united the West in a Russia-China containment strategy. It has to be asked whether it was Xi or other government members who decided that there should be limits to Xi’s ‘no limits’ relationship with Russia.
The domestic economic costs of Xi’s campaign against western values are also becoming apparent. Under the influence of the Wang Huning, the communist party’s chief ideological theorist, a member of the Politburo’s seven man Standing Committee, Xi has pursued increasingly authoritarian attacks on the stars of China’s new economy.
Last year technology entrepreneur Jack Ma, the charismatic founder of Alibaba, was ‘disappeared’ and his company Alibaba forcibly restructured. A swathe of new regulations has hit China’s tech sector. The US$100bn online digital education industry, deemed inegalitarian, has been devastated by new regulation. Cryptocurrency has been banned. Even China’s social media stars such as Zhao Wei, a billionaire actress, pop singer and influencer whose online presence was erased in August last year, have been reined in.
Wang, a social puritan, believes that a ‘nihilist individualism’ has undermined the moral fabric of the US. He and Xi are determined that China will not be infected by such Western-style moral corruption, which they believe is fostered by social media.
Xi’s regulatory crackdown on technology companies has crashed stock prices. According to TechNode, a Chinese technology media company, there is an ongoing bloodbath in tech sector employment. Xiaohongshu, sometimes described as China’s Instagram, has recently laid off 10 per cent of its staff. According to Reuters, even the major tech companies such as Alibaba and Tencent are planning large-scale redundancy programmes.
Investment in start-ups, already in decline before Covid, has plummeted. Many technology entrepreneurs are quitting mainland China and heading to safer regulatory locations such as Singapore or the US.
Furthermore, China’s main technology and financial hub, Shanghai, has been particularly badly affected by Xi’s doubling down on his zero-Covid stance. Shanghai’s officials and its business elite are reportedly furious. Unlike other zero-Covid zealots, such as New Zealand Prime Minister Jacinda Ardern, who have given up on draconian lockdowns, Xi appears determined to stay the course. As long as Xi remains committed to the policy of zero Covid, how is China ever going to open up its borders? It is a question that must have occurred to many within China.
As a result of Xi, a perfect storm of problems is now bearing down on the Chinese economy. His foreign policies, particularly in relation to his threats to Taiwan and his support for Russia, are scaring off foreign investors. Revelations about Xi’s brutal suppression of China’s Uighurs are a further negative for investment in China. Foreign Direct Investment has fallen to just 2 per cent of GDP compared to 6.5 per cent in the mid-1990s. Meanwhile Chinese companies are offshoring manufacturing capacity to countries such as Vietnam.
At the same time the Chinese property sector is in a cyclical downturn. Xi’s clampdown on property leverage following the collapse of residential property behemoth China Evergrande Group is crashing the property market and construction sectors. This is a disaster for China’s regional governments whose finances are highly dependent on property sales.
No wonder then that, after a first quarter of negative GDP, global investment banks are busy slashing their growth estimates for China in 2022. Real GDP growth is now forecast to halve from 8.1 per cent in 2021 to around 4 per cent in the current year. Even that may prove optimistic.
This is not the economic background that Xi would want in the run up to the Politiburo Standing Committee elections in November. Confusingly, Xi’s lockdown orders to Covid-hit cities, the Chinese Premier Li Keqiang, not a Xi acolyte, has emerged from the shadows to exhort Chinese companies to get back to work. In some quarters there is clearly alarm at the economic downturn. Does Li’s sudden appearance centre stage indicate a power struggle at the heart of government?
Xi’s government remains broadly popular. The Edelman Trust Index shows that the Chinese government enjoys a 91 per cent trust rating compared with just 39 per cent for the US government. But Xi’s future will not be decided by the Chinese people; power struggles are fought within the Communist Party behind closed doors.
Though there is no sense that things are so bad that Xi might fail in his bid to win a third term as China’s leader, there can be little doubt that his reputation is tarnished within some political factions – particularly the ‘Shanghai gang’ who dominated Chinese politics for a generation until Xi’s emergence. While we should not expect a political earthquake at the National Congress in November neither should we rule one out, particularly if the economic outlook in China continues to deteriorate.