With the path now apparently cleared in China for President Xi Jinping to continue in office past 2023 as officials scrap the two-term limit rule, questions about how the change will affect the economy, foreign investment and political power there abound. While the timing of the move surprised many, the ultimate consolidation of power by Xi in this way was not unexpected, say three experts who discussed the major development on the Knowledge@Wharton show, which airs on SiriusXM channel 111. The guests included Jacques deLisle, a professor of law and political science, and director of the Center for East Asian Studies at Penn; Ann Lee, a professor of economics and finance at New York University; and Marshall W. Meyer, a Wharton emeritus management professor and China expert. (Listen to the complete podcast at the top of this page.)
The experts were divided on what the move could mean for China: Xi’s new mandate could allow him to better meet a long-standing Chinese goal of becoming a more socialist society modeled on northern Europe, and it could give Xi more time to see through important longer-term projects like the “One Belt, One Road initiative” – the country’s plan for a new Silk Road trade route from China to Europe. Or, it could ultimately be a setback for democratic rule, particularly as it applies to limits on institutions, while enhancing a growing tendency to expand the “surveillance state.”
Too Much Power?
Meyer pointed out that historically, China has moved its economy along through decentralization. The motto of Deng Xiaoping — China’s transformative ruler from 1978 to 1989 — was to let each province try its own way, and the winners can be copied. According to Meyer, the question is: “Does [more] centralization potentially up-end China’s very successful economic growth?”
“Does [more] centralization potentially up-end China’s very successful economic growth?”–Marshall Meyer
The strengthening of Xi’s power is a cause of concern, deLisle agreed. “One of the things that authoritarian regimes do to avoid some of the pathologies of overconcentration of power is to have the leader think [that they are] going to be out of office in five-to-10 years,” he said, adding that is not the case with China. “Obviously, a great deal of power can be used to any number of ends – good, bad and indifferent. What we’re seeing right now is mostly a mix of bad and indifferent. But the potential for good is still there, of course.”
It helps that Xi has also gradually consolidated power, said deLisle. “[He] clearly is a strong leader for a strong China internationally that sells pretty well at home. It sells better at home when they can portray the U.S. as being in chaos and other Western governments as being in some chaos. It undercuts the argument for political change.”
With a longer term, Xi also would be able to more fully pursue his vision for China to become more like a socialist society modeled on northern European countries, which include Denmark, Sweden and Norway, said Lee. “Northern Europe is obviously a western society, and he would like the end goal for China to be like that – a very high income, innovative and socialist government.” With the “respect and attention” that Xi has cultivated within the world community, he is seen as the right person to pursue that model, she added. On its part, the Communist Party would not “want to mess around with that formula,” she said.
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Xi could also use his power “to push forward with bold economic reforms, [but there is] not a whole lot of evidence of much movement in that direction,” deLisle said. What is evident, however, is that Xi has led a “very repressive regime in terms of civil liberties-type issues, in terms of dissident views and [other] such things, and there’s absolutely no sign” that is going to change, he pointed out. “So whatever the economic outcome, it’s not going to look like Northern Europe in terms of its politics.”
Unexpected Timing
Meyer said the move to enable Xi to continue in office beyond 2023 was “not a surprise,” but he was taken off guard by the timing – he expected it to happen “much later.” Another surprise, according to deLisle, is that “there’s been very little pushback as one would expect from foreign governments, particularly the U.S. Usually we would say this is a setback for democratic governance, which China doesn’t really have,” he noted. “But … [it is] disconcerting in an era when authoritarianism seems to be on the rise.”
The U.S. and other countries haven’t spoken up against Xi’s tenure extension for good reason, said Lee. “The U.S. and every other country also have interests in having a stable China,” she explained. “They have major investments in China, and so corporate leaders certainly don’t want uncertainty from China in an already uncertain world with Trump.”
According to Lee, the move is significant in that it reaffirms China’s commitment to the One Belt, One Road project in the face of opposition to it from several countries. “They feel it’s important to perhaps signal to the world, and even domestically, that Xi’s going to be around for a while so that everyone knows that this [initiative] will continue because he is the face of it.”
“[Xi could also use his power] to push forward with bold economic reforms, [but there is] not a whole lot of evidence of much movement in that direction.”–Jacques deLisle
The move to extend Xi’s term is likely be ratified in the Communist Party’s plenary sessions coming up in March, or it could be put off for later, considering that he has just begun his second term, said deLisle. In any event, “it’s going to happen unless there’s a decision to change policy direction,” he added.
According to Meyer, Xi himself and his party wanted his term extended. “Here’s a person who likes power and breaks norms regularly,” he said. He noted that at the same time, Xi is “being pushed from left and from right.” The opposition from the “right” includes the faction led by former president and party chairman Jiang Zemin, who appears to have been sidelined by the Xi regime, he explained. The pushback on Xi’s policies from the left include those who want to return to what they see as “the good old days” before Deng Xiaoping. “[Xi] followed his own predilections, but I also think that he’s being pushed to have to consolidate power.”
A Balancing Act
Meyer spotted inconsistencies between Xi’s supposed attempts to “westernize the economy” and the baggage China continues to carry of loss-making state-owned enterprises (SOEs), saddling banks with capital shortages. He noted that on the one hand, Xi is taking steps to consolidate his grip on the economy by elevating two senior officials in particular. Liu He, who is credited with leading the effort to draft Xi’s economic blueprint, is tipped to be named vice premier in the March party meeting, and to be in charge of China’s financial system and its industrial sector, according to a Wall Street Journalreport. Also, Wang Qishan, who led Xi’s anti-corruption drive, is likely to be named vice president at the March meeting. Those moves stem from worries that foreign investors will pull out from China as interest rates in that country and those in the U.S. begin to converge, said Meyer.
On the other hand, Meyer pointed out state-owned enterprises “are taking up a lot of the credit space in China, and dragging the economy.” According to Lee, China’s economy could continue to move forward despite the drag of loss-making SOEs. She pointed to the country’s internet-era giants such as Alibaba and Tencent, pointing out that they don’t rely on credit and are growing with their own equity resources and cash flows. “These new economy companies don’t require debt to grow,” she added. “China has always kept one foot in the old space while letting companies grow into some new space. That’s how they moved in to the industrial revolution, and that’s how they’re going to move into this new economy innovation society.”
A Plateful of Challenges
China has its share of challenges, too, and they don’t have easy solutions, deLisle noted. He pointed out that the country’s economic growth has slowed to the “new normal” of 6%-7%, adding that analysts are concerned about how sustainable that is. China also has an aging population. “China is trying to deal with that through moving up the value added chain – more brainwork, less brawn work and more automation,” he said. “But these are all tough things to do in any circumstance, and they’re facing this transition at a rapid pace. They’re getting older sooner than most countries at their level of development.”
“The last thing they want is to have another Tiananmen Square.”–Ann Lee
Other concerns relate to the future of unviable SOEs, and obstacles the country has faced in using its specialties elsewhere, such as building infrastructure in Africa and Central Asia. “Not every country is as effective at absorbing and using infrastructure as China has been, and so there have been problems there,” deLisle noted.
Lee agreed that China faces those challenges. It is precisely in such circumstances that it helps to have leadership stability “to navigate these very uncertain waters,” she said. “The last thing they want is to have another Tiananmen Square [protest], because that happened when China was experiencing really high inflation – in the double digits.” At that time, China was making a transition from an agricultural society into a more modern one with increased exports and so forth, but that was painful, and caused “an enormous amount of unemployment and inflation,” Lee noted.
China’s leaders probably see the present times as being equally challenging, said Lee. That must be the key driver for them to decide to bring more durability to Xi’s leadership and “stick with the formula that seems to be working well for them.” Its leaders are looking for “consistency,” even if that means slowing economic growth, she added. In any event, a 7% GDP growth on an economy of its size is “a tremendous amount of economic growth,” she pointed out.
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