The Xi's Bet

The Race for Power Consolidation and Disaster Avoidance.

Xi Jinping is a man with a goal. He moved quickly after taking power in late 2012 to consolidate his political authority, clean up the Chinese Communist Party (CCP), sideline his opponents, tame China's once high-flying technology and financial conglomerates, crush internal dissent, and assert China's influence on the international stage. Xi has chosen conflicts with several of China's neighbors and antagonized countries further away in the guise of preserving China's "core interests," particularly the United States. Xi is impatient with the status quo, has a high tolerance for risk, and appears to feel a strong sense of urgency in challenging the international order, whereas his immediate predecessors believed China needed to bide its time by overseeing rapid economic growth and the steady expansion of China's influence through tactical integration into the existing global order.

Why is he in such a rush? Most observers have settled on one of two diametrically opposite hypotheses. The first holds that Xi is driving a wide range of policy initiatives aimed at nothing less than the remaking of the global order on terms favorable to the CCP. The other view asserts that he is the anxious overseer of a creaky and outdated Leninist political system that is struggling to keep its grip on power. Both narratives contain elements of truth, but neither satisfactorily explains the source of Xi’s sense of urgency. 

A more fair interpretation is that Xi's calculations are governed by his timeframe, not his goals or anxieties. Simply put, Xi has consolidated so much authority and shattered the status quo with such vigour because he sees a 10 to fifteen-year window in which Beijing can benefit from a series of huge technical and geopolitical breakthroughs while simultaneously overcoming enormous internal obstacles. Strong demographic headwinds, a structural economic slowdown, fast breakthroughs in digital technologies, and a perceived shift in the global balance of power away from the United States, according to Xi, necessitate a bold set of immediate measures.

By narrowing his vision to the coming ten to 15 years, Xi has instilled a sense of focus and determination in the Chinese political system that may well enable China to overcome long-standing domestic challenges and achieve a new level of global centrality. If Xi succeeds, China will position itself as an architect of an emerging era of multipolarity, its economy will escape the so-called middle-income trap, and the technological capabilities of its manufacturing sector and military will rival those of more developed countries. 

However, ambition and execution are not synonymous, and Xi has now put China on a dangerous path, one that jeopardizes the gains made by his predecessors in the post-Mao era. His opinion that the CCP should steer the economy and Beijing should rein in the private sector would limit the country's future economic progress. His demand that party cadres stick to intellectual orthodoxy and show personal fealty to him would stifle the flexibility and competence of the governing system. His reliance on a broad notion of national security will lead the country to become increasingly inward-looking and suspicious. China would become more belligerent and isolated as a result of his unleashing of "Wolf Warrior" nationalism. Finally, Xi's growing singularity inside China's political system will prevent policy alternatives and course corrections, a challenge exacerbated by his elimination of term limits and the likelihood of indefinite reign.

 

Xi believes he can mold China’s future as did the emperors of the country’s storied past. He mistakes this hubris for confidence—and no one dares tell him otherwise. An environment in which an all-powerful leader with a single-minded focus cannot hear uncomfortable truths is a recipe for disaster, as China’s modern history has demonstrated all too well.

A MAN IN A HURRY

In retrospect, Xi’s compressed timeline was clear from the start of his tenure. China had become accustomed to the pace of his predecessor, the slow and staid Hu Jintao, and many expected Xi to follow suit, albeit with a greater emphasis on economic reform. Yet within months of taking the reins in 2012, Xi began to reorder the domestic political and economic landscape. First came a top-to-bottom housecleaning of the CCP. The party had repeatedly demonstrated its ability to weather domestic storms, but pressures were building within the system. Corruption had become endemic, leading to popular dissatisfaction and the breakdown of organizational discipline. The party’s ranks were growing rapidly but were increasingly filled with individuals who didn’t share Xi’s belief in the CCP’s exceptionalism. Party cells were inert and unorganized in state-owned enterprises, private corporations, and nonprofit groups. Decision-making at the senior level has become disjointed and isolated. The party's propaganda organizations struggled to get their views across to a sceptical and technologically aware public.

Xi tackled all of these issues at the same time. In just one year, he launched a massive anti-corruption effort, started a "mass line" campaign to eradicate political pluralism and liberal ideology from public debate, announced new membership criteria, and introduced additional ideological qualifications for potential party members. He thought that the size of the party didn't matter if it wasn't made up of sincere believers. After all, he added, "proportionally, the Soviet Communist Party had more members than [the CCP], but none was man enough to stand up and oppose" when the Soviet Union was on the verge of collapse in the early 1990s.

Xi Jinping is a man on a mission.

Next on Xi’s agenda was the need to assert China’s interests on the global stage. Xi quickly began land reclamation efforts in the South China Sea, established an air defense identification zone over disputed territory in the East China Sea, helped launch the New Development Bank (sometimes called the BRICS Bank), unveiled the massive international infrastructure project that came to be known as the Belt and Road Initiative, and proposed the Asian Infrastructure Investment Bank.

For the rest of his first term, Xi proceeded to slice his way through the status quo, and he shows no indications of slowing down as he near the conclusion of his second. His consolidation of power continues unabated: he has no true political opponents, has eliminated term restrictions from his presidency, and has appointed buddies and loyalists to crucial positions. Party leaders regularly glorify his wisdom and goodness, while party policies and government planning papers increasingly claim to be based on "Xi Jinping Thought," according to new research institutes dedicated to researching his writings and speeches. He has reaffirmed the CCP's rule over large swathes of Chinese culture and economic life, even compelling powerful business and technological titans to grovel for pardon for their lack of party devotion. Meanwhile, he continues to expand China’s international sphere of influence through the exercise of hard power, economic coercion, and deep integration into international and multilateral bodies. 

Many outside observers, myself included, initially believed that the party’s inability to contain the outbreak of COVID-19 highlighted the weaknesses of China’s system. By the summer of 2020, however, Xi was able to extol the virtues of centralized control in checking the pandemic’s domestic spread. Far from undermining his political authority, Beijing’s iron-fisted approach to combating the virus has now become a point of national pride.

A UNIQUE MOMENT

Xi’s fast pace was provoked by a convergence of geopolitical, demographic, economic, environmental, and technological changes. The risks they pose are daunting, but not yet existential; Beijing has a window of opportunity to address them before they become fatal. And the potential rewards they offer are considerable.

 

The first fundamental shift is Beijing's perception that the West's strength and influence are on the decrease, and that as a result, a new age of multipolarity has arrived, one that China can mold more to its liking. As the US wars in Afghanistan and Iraq devolved into quagmires, this viewpoint gained traction, and it crystallized in the aftermath of the 2008 financial crisis, which the Chinese leadership perceived as the death knell for US global reputation. The United Kingdom's choice to leave the European Union and Donald Trump's election as president of the United States in 2016 reinforced the widespread belief that the United States, and the West in general, was in decline. This might suggest that China could opt for strategic patience and simply allow American power to wane. But the possibility of a renewal of U.S. leadership brought about by the advent of the Biden administration—and concerns about Xi’s mortality (he will be 82 in 2035)—means that Beijing is unwilling to wait and see how long this phase of Western decline will last. 

The second major challenge facing Xi is China's rapidly declining demographic and economic prospects. By the time he took office, China's population was aging and declining at the same time, and the country was bracing for a wave of retirees that would put a strain on the country's shaky health-care and pension systems. China's population is now expected to peak in 2029, according to the Chinese Academy of Social Sciences, and it is expected to fall by nearly half by the end of the century, according to a recent research published in The Lancet. Despite the fact that Beijing discontinued its harsh one-child policy in 2016, the country has seen a 15% drop in births in the last year. Meanwhile, the government predicts that roughly a third of the population would be over 60 years old by 2033.

Contributing to these woes is China’s shrinking workforce and rising wages, which have increased by ten percent, on average, since 2005. Larger paychecks are good for workers, but global manufacturers are increasingly moving their operations out of China and to lower-cost countries, leaving a rising number of low-skilled workers in China unemployed or underemployed. And because only 12.5 percent of China’s labor force has graduated from college (compared with 24 percent in the United States), positioning the bulk of the country’s workforce to compete for the high-skilled jobs of the future will be an uphill battle. 

Xi in Port Moresby, Papua New Guinea, November 2018
Xi in Port Moresby, Papua New Guinea, November 2018
David Gray / TPX Images of the Day / Reuters

The slowing of China's economy is directly tied to this concerning demographic picture. With annual GDP growth falling from 14% in 2007 to the mid-single digits today, many of the long-standing issues Beijing had been able to brush aside now require attention and a willingness to accept economic and political pain, ranging from unwinding the vast sea of indebted companies to demanding that businesses and individuals pay more into the country's tax coffers. Productivity is at the root of China's growth problems. During the first several decades after Mao's reforms, attaining productivity increases was relatively simple, since the planned economy was dismantled in favor of market forces, and large numbers of residents freely abandoned the countryside for the promise of higher-wage jobs in cities and coastal areas. Later, as foreign companies brought investment, technology, and know-how to the country, industrial efficiency continued to improve. Finally, the massive amounts spent on infrastructure, especially roads and rail, boosted connectivity and thus productivity. All of this helped a poor and primarily agricultural economy rapidly catch up with more advanced economies. 

Yet by the time Xi assumed power, policymakers were finding it increasingly difficult to maintain momentum without creating unsustainable levels of debt, just as they had done in response to the 2008 global financial crisis. What is more, the country was already saturated with transportation infrastructure, so an additional mile of road or high-speed rail wasn’t going to add much to growth. And because almost all able-bodied workers had already moved from the countryside to urban areas, relocating labor wouldn’t arrest the decline in productivity, either. Finally, the social and environmental costs of China’s previous growth paradigm had become both unsustainable and destabilizing, as staggering air pollution and environmental devastation provoked acute anger among Chinese citizens. 

Advances in emerging technologies such as artificial intelligence, robotics, and biomedical engineering, among others, are among the most significant changes that have occurred under Xi's leadership. Xi thinks that controlling the "commanding heights" of these new instruments would determine China's economic, military, and geopolitical fate, and he has rallied the party to turn the country into a high-tech superpower. This involves spending a significant amount of money to improve the country's research and development and manufacturing capabilities in technology deemed important to national security, such as semiconductors and batteries. First-mover advantage will go to "whoever grips the nose of the ox of science and technology innovation," as Xi noted in 2014.

Xi also hopes that new technologies can help the CCP overcome, or at least circumvent, nearly all of China’s domestic challenges. The negative impacts of a shrinking workforce, he believes, can be blunted by an aggressive push toward automation, and job losses in traditional industries can be offset by opportunities in newer, high-tech sectors. “Whether we can stiffen our back in the international arena and cross the ‘middle-income trap’ depends to a large extent on the improvement of science and technology innovation capability,” Xi said in 2014. 

 

New technology can also be used for other objectives. China's internal security authorities now have new means to monitor civilians and stifle dissent thanks to facial recognition software and artificial intelligence. The "military-civil fusion" plan of the Chinese Communist Party aims to harness these new technology in order to greatly improve the Chinese military's warfighting capabilities. Furthermore, developments in green technology provide the possibility of pursuing both economic growth and pollution reduction at the same time, two aims that Beijing has traditionally considered as incompatible.

THE PARANOID STYLE IN CHINESE POLITICS

This convergence of changes and developments would have occurred regardless of who assumed power in China in 2012. Perhaps another leader would have undertaken a similarly bold agenda. Yet among contemporary Chinese political figures, Xi has demonstrated an unrivaled skill for bureaucratic infighting. And he clearly believes that he is a figure of historical significance, on whom the CCP’s fate rests.

Xi has supervised the development of a new political system, one anchored by a major expansion in the CCP's power and influence, in order to push for fundamental reform. Beyond the increase of party authority, maybe Xi's most important legacy will be his broadening of national security definitions. Early in 2014, he began advocating for a "comprehensive national security concept," and in April of that year, he stated that China was facing "the most intricate internal and foreign circumstances in its history." Although this was plainly exaggerated—the Korean War and the widespread famine of the late 1950s were far more complicated—message Xi's to the political system was clear: the party faces a new period of danger and uncertainty.

The CCP’s long experience of defections, attempted coups, and subversion by outside actors predisposes it to acute paranoia, something that reached a fever pitch in the Mao era. Xi risks institutionalizing this paranoid style. One result of blurring the line between internal and external security has been threat inflation: party cadres in low-crime, low-risk areas now issue warnings of terrorism, “color revolutions,” and “Christian infiltration.” In Xinjiang, fears of separatism have been used to justify turning the entire region into a dystopian high-tech prison. And in Hong Kong, Xi has established a “national security” bureaucracy that can ignore local laws and operate in total secrecy as it weeds out perceived threats to Beijing’s iron-fisted rule. In both places, Xi has demonstrated that he is willing to accept international opprobrium when he feels that the party’s core interests are at stake. 

At home, Xi stokes nationalist sentiment by framing China as surrounded and besieged by enemies, exploiting a deeply emotional (and highly distorted) view of the past, and romanticizing China’s battles against the Japanese in World War II and its “victory” over the United States in the Korean War. By warning that China has entered a period of heightened risk from “hostile foreign forces,” Xi is attempting to accommodate Chinese citizens to the idea of more difficult times ahead and ensure that the party and he himself are viewed as stabilizing forces. 

Xi has placed China on a risky trajectory, one that threatens the achievements his predecessors secured.

Meanwhile, to exploit a perceived window of opportunity during an American retreat from global affairs, Beijing has advanced aggressively on multiple foreign policy fronts. These include the use of “gray zone” tactics, such as employing commercial fishing boats to assert territorial interests in the South China Sea and establishing China’s first overseas military base, in Djibouti. China’s vast domestic market has allowed Xi to threaten countries that don’t demonstrate political and diplomatic obedience, as evidenced by Beijing’s recent campaign of economic coercion against Australia in response to Canberra’s call for an independent investigation into the origins of the virus that causes COVID-19. Similarly, Xi has encouraged Chinese “Wolf Warrior” diplomats to intimidate and harass host countries that criticize or otherwise antagonize China. Earlier this year, Beijing levied sanctions against Jo Smith Finley, a British anthropologist and political scientist who studies Xinjiang, and the Mercator Institute for China Studies, a German think tank, whose work the CCP claimed had “severely harm[ed] China’s sovereignty and interests.” 

In pursuing China's interests on the international stage, Mao Zedong and Deng Xiaoping showed strategic patience. Indeed, Mao informed US President Richard Nixon that China could wait 100 years to recapture Taiwan, and Deng negotiated the return of Hong Kong in exchange for a 50-year term of local autonomy (which has since been broken by Xi). Both leaders were acutely aware of China's vulnerability and the importance of careful, nuanced diplomacy. Xi does not share their calm demeanor or belief in long-term solutions.

This has raised fears that Xi will attempt a highly risky gambit to annex Taiwan by force by 2027, the 100th anniversary of the People's Liberation Army's founding. It seems doubtful, however, that he would invite a possible military conflict with the United States just 110 miles from China’s shoreline. Assuming the PLA were successful in overcoming Taiwan’s defenses, to say nothing of surmounting possible U.S. involvement, Xi would then have to carry out a military occupation against sustained resistance for an indeterminate length of time. An attempted takeover of Taiwan would undermine nearly all of Xi’s other global and domestic ambitions. Nevertheless, although the more extreme scenarios might remain unlikely for the time being, Xi will continue to have China flaunt its strength in its neighborhood and push outward in pursuit of its interests. On many issues, he appears to want final resolution on his watch.

THE MAN OF THE SYSTEM

Xi’s tendency to believe he can shape the precise course of China’s trajectory calls to mind the economist Adam Smith’s description of “the man of system”: a leader “so enamored with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it.” In order to realize his near-term goals, Xi has abandoned the invisible hand of the market and forged an economic system that relies on state actors to reach predetermined objectives. 

 

Xi's reliance on industrial policy, a tool of economic statecraft that had fallen out of favor until near the end of Xi's predecessor, Hu's, tenure, when it began to shape Beijing's approach to technological innovation, has been critical to this shift. With the development of supersized industrial policy plans that attempted to reshape the whole economy rather than merely advance a certain technology or industry, the year 2015 represented a significant turning point. The Made in China 2025 plan, which aims to improve China's manufacturing capabilities in a number of key sectors; the Internet Plus strategy, which aims to integrate information technology into more traditional industries; and the 14th Five-Year Plan, which lays out an ambitious agenda to reduce China's reliance on foreign technology inputs, were among them. Through such policies, Beijing channels tens of trillions of yuan into companies, technologies, and sectors it considers strategically significant. It does this by means of direct subsidies, tax rebates, and quasi-market “government guidance funds,” which resemble state-controlled venture capital firms. 

Thus far, Beijing’s track record in this area is decidedly mixed: in many cases, vast sums of investment have produced meager returns. But as the economist Barry Naughton has cautioned, “Chinese industrial policies are so large, and so new, that we are not yet in a position to evaluate them. They may turn out to be successful, but it is also possible that they will turn out to be disastrous.” 

Xi believes he can mold China’s future as did the emperors of the country’s storied past.

Xi's attitude to China's private-sector enterprises, which includes many of the technical and financial behemoths that observers saw as potential agents of political and social transformation just a few years ago, is linked to this industrial policy. Firms like Ant Group and Tencent have taken control of vital new data flows and financial technologies thanks to technological innovation. As seen by the CCP's recent spiking of Ant Group's initial public offering in the aftermath of statements made by its founder, Jack Ma, that many saw as critical of the party, Xi plainly saw this as an intolerable danger.

To defend the party's interests and convey a message to corporate elites, Xi is ready to forego a boost in China's worldwide financial standing. But this isn't a David and Goliath story. Given the close and enduring ties between China's nominally private firms and its political system, it's more akin to a family feud. Indeed, nearly all of China's most successful entrepreneurs are members of the CCP, and many businesses rely on the party's favors, such as protection from foreign competition, to succeed. However, although past Chinese presidents gave the private sector a lot of leeway, Xi has drawn a hard line. As a result, the country's potential to innovate has been severely hampered. No matter how sophisticated Beijing’s regulators and state investors may be, sustained innovation and gains in productivity cannot occur without a vibrant private sector. 

GRAND STRATEGY OR GRAND TRAGEDY? 

In order to seize temporary advantages and forestall domestic challenges, Xi has positioned himself for a 15-year race, one for which he has mobilized the awesome capabilities of a system that he now commands unchallenged. Xi’s truncated time frame compels a sense of urgency that will define Beijing’s policy agenda, risk tolerance, and willingness to compromise as it sprints ahead. This will narrow the options available to countries hoping to shape China’s behavior or hoping that the “Wolf Warrior” attitude will naturally recede. 

By strengthening the resilience of American society and improving the competence of the US government, the US can refute Beijing's claim that its democracy has atrophied and Washington's star is dimming. The US and its allies can thwart Xi's efforts to achieve first-mover advantage in emerging and crucial technologies if they invest in innovation and human resources. Similarly, if the US played a more active and forward-thinking role in defining the global order, Beijing's potential to promote illiberal views beyond its boundaries would be limited.

Inadvertently, Xi has pitted China against itself, in a race to see if its many strengths can overcome the system's pathologies, which he has introduced. By the time he assumed power, the CCP had established a fairly predictable process for the regular and peaceful transition of power. Next fall, the 20th Party Congress will be held, and normally, a leader who has been in charge as long as Xi has would step aside. To date, however, there is no expectation that Xi will do so. This is an extraordinarily risky move, not just for the CCP itself but also for the future of China. With no successor in sight, if Xi dies unexpectedly in the next decade, the country could be thrown into chaos. 

 

Even assuming that Xi remains healthy while in power, the longer his tenure persists, the more the CCP will resemble a cult of personality, as it did under Mao. Elements of this are already observable, with open sycophancy among China's political elite becoming the norm. Outsiders may find eulogies to the brilliance of "Xi Jinping Thought" amusing or even amusing, but they have a serious negative impact on the quality of decision-making and information flows within the party.

It would be ironic and terrible if Xi, a leader tasked with saving both the party and the country, ended up jeopardizing both. His present approach threatens to reverse China's significant achievement over the last four decades. In the end, Xi may be accurate in his assessment that China's long-term prosperity would be determined by the next decade. What he probably doesn't realize is that he might be the largest roadblock.

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