China’s Trial by Fire

By Phillip Orchard

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From the COVID-19 outbreak to the subsequent economic crisis, with catastrophic flooding of the Yangtze River thrown in for good measure, 2020 has subjected the Communist Party of China to one existential crisis after another. Yet, Chinese President Xi Jinping seems to have a preternatural ability to swoop in and save the day. Not only does his administration appear to have come out from these calamities unscathed, but in some ways it seems to have grown stronger, more confident and more determined to dictate terms to foes foreign and domestic than ever – with Xi himself seizing every chance to turn crisis into opportunity to cement his power. It was Xi, for example, who Chinese propagandists say commanded the decisive battles in the “People’s War” against the invisible enemy, the coronavirus. It was Xi, according to his own comments during an August inspection tour of flood damage along the Yangtze, who’s continuing a centurieslong tradition of Chinese leaders demonstrating their mandate to lead by taming floodwaters. It was Xi who successfully waged a war on financial risk and who prepared China for the day when the U.S. would try to blunt China’s rise as a way to distract from its own problems, or so the narrative goes. It’s Xi who state media has increasingly been referring to as “the People’s Leader,” elevating the president to almost Mao-like status.

All this should pour cold water on persistent rumors of discontent with Xi in the upper ranks of the Communist Party of China. Of course, as Chinese elites wrangle for power and influence ahead of the Party Congress in 2022 – when Xi is expected to shatter CPC norms by sticking around for a third term as party chairman – palace intrigue will only intensify. And in a country like China, the next crisis is always just around the corner. Beijing is invariably choosing between bad options for dealing with immense problems, with many of its short-term fixes deepening its long-term structural issues, alienating powerful constituencies at home and antagonizing foreign powers.

But the reality remains: A year like 2020 is exactly why Beijing scrapped its Deng-era consensus leadership model and broadly supported Xi’s consolidation of power. His successes this year have been inflated, sure, but they have been real enough to validate his claim that a strongman must be at the helm during trying times. The most important question then is not whether Xi is strong or China is on the brink of collapse. He and China are simultaneously, perpetually both. What matters most for China and just about everyone else is how this combination of extreme power and extreme vulnerability shapes its behavior at home and abroad. It’s not about to change course.

Crisis Averted?

Two weeks ago, in a triumphant speech, Xi said, “The CCP’s strong leadership is the most reliable backbone when a storm hits. The pandemic once again proves the superiority of the socialist system with Chinese characteristics.” But if there were ever a moment when the Chinese public lost faith in the ruling party’s ability to govern competently, the pandemic could’ve been it. The government’s mishandling of the virus could be attributed directly to its rigidly enforced top-down decision-making structure and institutional cultures shaped by censorship and paranoia. Indeed, when a popular doctor in Wuhan succumbed to the virus in early February, Chinese censors lost control of a flood of outrage over Beijing’s cover-up of the outbreak, and it briefly looked as if things had reached an inflection point. But the censors regained control of the narrative, and China’s lockdown made it impossible for anger online to become anger on the streets. More important, it largely succeeded in containing the virus, capping deaths at just a fraction of the numbers seen in major powers across the globe. By March, the president, who had been conspicuously absent from state media for much of the first two months of the year, reemerged to “take command” of the response just as the infection curve was being driven downward. A month later, he was declaring victory. Since then, bungled responses in the U.S., Europe, India and elsewhere have bolstered his argument that the CPC is uniquely well-suited to crisis response. (Democracies like Taiwan, South Korea and New Zealand have something to say about this.)

The systemic shock from the pandemic could well have exposed China’s economy as a house of cards. China shut down the bulk of its domestic economy almost overnight. Millions were abruptly out of work. Countless small businesses – which were already weighed down by tariffs and a credit crunch before the pandemic – faltered, searching for rescue from an immature banking system that had already proved ill-suited for meeting the needs of China’s burgeoning private sector. China’s convoluted financial system, already awash in shadow lending and toxic loans, appeared on the brink. Once Beijing was able to reopen most of the economy, it faced a secondary crisis in the form of collapsing demand for Chinese exports as the rest of the world sunk into crisis.

And yet, Beijing has somehow been able to keep its myriad interlocking systemic risks from triggering a cascading crisis. It never even needed to unleash a firehose of stimulus as it did after 2008 – measures that contributed directly to its staggering financial risks today. This week, the Organization of Economic Cooperation and Development predicted that China would be the only one of the world’s 20 leading economies to post positive growth this year. Here, Xi can rightfully take credit for pushing through a series of painful measures to curb financial risk beginning in his first term; these worked better than many expected. Meanwhile, his emphasis on strengthening state-owned enterprises – which in normal times have sapped the economy of its dynamism and are at the core of Western trade grievances – has been validated since SOEs have sopped up surplus labor and kept industrial production humming. Perhaps most important, Beijing’s worst nightmare – a massive spike in unemployment – came true, but without the attendant social unrest. There’s a case to be made that the experience will ultimately make Beijing confident enough to adopt a more sustainable economic model that doesn’t prioritize stable employment at the expense of profitability and dynamism.

Much of Xi’s success could have been undone by the collapse of the Three Gorges Dam, a structure that best embodies the vast potential and pitfalls of China’s ruthlessly ambitious approach to development. It’s huge – so large that its construction in 1994 apparently slowed the earth’s rotation – illustrating China’s capacity to dream big and build bigger. It’s critical; the 22,500 megawatts per day it can produce are vital for meeting the country’s insatiable energy appetite, breakneck urbanization drive, and soaring public expectations for prosperity.

But it also illustrates the fragility of the contract the CPC has made with the Chinese people. The dam was dogged by warnings about its structural integrity even before it was built, and its construction displaced tens of millions of people, many of whom saw their farms and ancestral lands submerged for good. These people were promised prosperity. If the dam collapsed – or even, as it did in this case, proved inadequate for controlling flooding around economic engines like Chongqing and Wuhan, killing hundreds of people and displacing millions more – they might quite reasonably wonder if the CPC was capable of honoring its end of the bargain. But it didn’t fail. In mid-August, Xi showed up in flood-ravaged Anhui province to hail his government’s success in taming the floods and implicitly compared himself to a legendary Chinese emperor who built a network of canals more than 4,000 years ago.

The Tip of the Iceberg

This run of purported successes can be interpreted in seemingly contradictory ways. On the one hand, you could see it as evidence of the Xi administration’s singular ability to marshal resources and take on colossal challenges – or at least validation of its insistence on centralizing power and micromanaging the country’s affairs. On the other hand, you could simply see it as a series of narrow escapes that expose just how many intertwined, potentially catastrophic crises are keeping Chinese leaders awake at night. You could see Xi’s propaganda blitzes as demonstrations of true triumph and confidence – or desperate bids for credit that betray a thinly veiled anxiety about the CPC’s tenuous hold on power.

Presumably, all these interpretations are valid. Xi’s administration will need all the luck it can get and all the savvy at its disposal because China has no shortage of crises on the horizon. The current pandemic may be under control, but the culture of censorship and institutional rigidity fostered by Xi may keep Beijing unprepared for the next one. The scale of the structural damage on the Chinese economy left behind by the pandemic won’t be fully apparent for years to come. The “grey rhinos” and black swans Xi is always warning about in the financial sector are still out there – and many of Beijing’s critical reform plans aimed at thwarting them have been put on hold. The pandemic, along with the CPC’s increasing dependence on state control, has accelerated the slide toward open hostility between China and the West. The Three Gorges Dam cannot realistically be upgraded. Floods will return. The problems exposed this year are really just the tip of the iceberg.

But to Beijing, the lesson of this year is evidently: trust only the party’s power. Its solution to a dysfunctional public health sector, for example, is to tighten central control over it. The only way to stave off a financial collapse is through painful measures aimed at curbing financial risk, and these can only be implemented with the brute force required to remove opposition and contain the fallout. If the Three Gorges Dam is flawed or insufficient, in the CPC’s mind, then state power is needed to build more and build better – and to forcefully move the population out of harm’s way. If people are inclined to get upset about such things, then the state must be capable of preventing a revolt. If the West is going to turn against it, then Beijing must have the power to make clear that it won’t be bullied and reshape the region around its needs. And so forth.

Mao may have thrived on a doctrine of perpetual revolution, but Xi appears to be inescapably driven by permanent crises. This mindset is perhaps the inevitable result for a government haunted by China’s history – by the weight of rising public expectation, by the impossible task of meeting the needs of 1.4 billion people, and by the inherent difficulty of trying to make the massive machinery of the state run efficiently through sheer force of central will and ideology. But the downside risk of this mindset for Beijing is obvious – and for China’s neighbors, it’s particularly alarming. Either way, it’s the one Beijing is sticking with, whatever storms may come.