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Driving commercial and political engagement between Asia, the Middle East and Europe
Shaped by personnel changes, economic challenges, and factional dynamics, the upcoming National Congress of the Chinese Communist Party will have profound implications for China and the global economy. Zhouchen Mao, Head of Research and Advisory at Asia House, shares his analysis ahead of October’s key summit.
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Key messages
China is approaching the commencement of the 20th Party Congress1, a pivotal moment for the Chinese Communist Party (CCP). The quinquennial Party Congress, which is set to start on 16 October, marks the most significant event since the 12th Party Congress in 1982 during which former leader Deng Xiaoping set China on a path of economic reforms and development. This year’s event is consequential in both political and economic terms as it takes place against a backdrop of an increasingly complex and delicate domestic and international environment. The decisions made at the October Party Congress are not only relevant for China, but could also shape the global economy.
Politically, the 20th Party Congress will present a development blueprint for President Xi Jinping’s “New Era”2 and how the CCP leadership intends to fulfil the second centenary goal of transforming China into a “modern socialist country”3 over the next five years and beyond. The political significance of the second centenary goal cannot be overstated as it is intrinsically linked to President Xi’s vision for China’s next phase of modernisation and to the Party’s objective of achieving national rejuvenation4 by 2049.
Unlike previous Party Congresses, the 20th Party Congress is regarded as simultaneously less predictable and highly anticipated. It is anticipated because President Xi is expected to secure his third term as the Party chief and head of the state, which will deliver a big mandate to continue his policies. The Politburo has also announced an amendment to the Party constitution at the upcoming Party Congress5, a move that would further elevate President Xi’s position in the Party by possibly incorporating some of his governing thoughts on the economy, rule of law and diplomacy into the constitution. It is also anticipated that President Xi’s proteges and followers will occupy the most senior leadership positions when Politburo and Politburo Standing Committee (PSC)6 appointments are unveiled at the First Plenum of the 20th Central Committee. For these reasons, it is anticipated that there will be continuity in the policy agenda, evidenced also by official statements and lengthy articles published by the state media in recent months.7
However, there is less predictability as to whether succession norms and rules of post-Deng era – such as retirement age – will apply to Xi’s confidants, namely top economic official Liu He, who is over the informal retirement age of 68 when the Party Congress opens. It remains to be seen whether Premier Li Keqiang will retire despite being eligible for a third-term on the PSC. The ambiguity surrounding major personnel reshuffling has contributed to a deepening sense of uncertainty as unwritten rules and norms have previously imparted a sense of consistency over the leadership turnover. Questions also remain as to whether a potential successor to President Xi will emerge in the reshuffle, who will take up the premiership to nominally oversee a slowing economy and factional composition of the new Sixth-Generation leadership.
While Party Congresses are traditionally known for heralding personnel changes in the Party’s top echelon and setting key policy agenda, remarks related to the direction of the economy, from which the CCP draws its legitimacy, are equally important and authoritative. Although specific economic policies will not be laid out at the October’s Party Congress, what is said at this meeting will set a strong tone for the Third Plenum of the 20th Central Committee8. The importance of this year’s Party Congress has been magnified as observers look for answers on how China continues to progress and move forward amid economic slowdown, supply chain disruptions and dampened investor confidence.
That said, with President Xi’s third term in sight, there is likely to be more continuity in the broader economic priorities. As such, the 20th Party Congress is expected to further consolidate and build on the foundations of the 19th Party Congress, while the focus shifts towards realising the second centenary goal. It is anticipated that the CCP’s work report which President Xi will deliver at the start of the Party Congress will reference key macro policy frameworks such as dual circulation and common prosperity as main strategies to direct the country’s development towards a “modern socialist country”.
This year’s Party Congress will occur amid a significant economic slowdown, with growth at only 2.5% in the first half of 2022, including negligible rise of 0.4% in Q2 year-on-year9. A combination of COVID-19 restrictions, a contracting real estate market, and high inflation in overseas markets, as well as a slowing global economy are placing downward pressure on the Chinese economy. After posting one the worst quarterly performances in Q2, the government quietly retreated from the 2022 GDP growth target of “around 5.5%” following a July Politburo meeting. It called on the provinces to “reach the growth target at the best of its ability”10 without mentioning the specific target. The statement is the most explicit indication that the 2022 growth target will not be met.
Other economic indicators have shown that major sectors are also in decline. In the first seven months of 2022, property investment dropped by 6.4% year-on-year.11 Given the outsized role of the property sector, property investment is an important metric to gauge China’s economic health. Additionally, consumption has continued to decline as a result of COVID-19-related restrictions, with consumer confidence remaining far below the pre-pandemic level. Manufacturing experienced a slowdown, expanding by 2.7% year-on-year compared with 3.4% in June.12 With demand also weakening, most notably from export markets and the property sector, the economic slowdown is expected to continue in the coming months.
The CCP’s work report set to be delivered by President Xi will not contain any detailed economic measures. But there will be continuity in the Party’s economic objectives and priorities, and the work report will likely emphasise three main priorities: building self-reliance and sufficiency, tackling wealth disparity and ensuring financial stability and growth. These priorities are deemed central to the country’s overall stability, the Party’s prominence and the long-term sustainable development which are the basis to build a “modern socialist country”.
The emphasis on dual circulation13 since 2020, particularly the importance of domestic circulation, points to the country’s new economic paradigm centred around the domestic economy and supported by the interaction with global economy. That is not to say the external market is becoming less critical than the domestic one. Rather, dual circulation strategy is a pursuit of both economic self-reliance and creating greater economic leverage by building stronger advantages in China’s international economic engagement (Lin & Wang, 2021).
Amid weakening economic performance and a volatile external environment, the Party will likely to stimulate the domestic economy by focusing on domestic consumption, progress in high tech and innovation and coordination between domestic supply and demand (Huang et al, 2022). This is in line with the 14th Five-Year Plan (2021-2025) published in 2021 that called for self-reliance to reduce vulnerability from external shocks. In particular, technological self-sufficiency and the development of domestic key industries and supply chains will be high on President Xi’s agenda in the next five years, to minimise China’s exposure to national security concerns and escalating geopolitical tensions.
Dual circulation’s centrality in President Xi’s economic thinking means that it will be a long-term guiding strategy, which in turn will have varying impact on trade partners at the global level. The strategy’s implications are two-fold. First, resource-rich countries will likely benefit from China’s greater demand for raw materials which are critical for the self-reliance and technological sufficiency drive. Relatedly, the immediate neighbourhood will also benefit from the likelihood of deepening economic cooperations amid tensions between China and the US. Second, the strategy, which will push China up the global value chain, could exert additional competitive pressure on countries that are more technologically advanced.
While the domestic market will be a priority for the foreseeable future, China’s ability to attract foreign direct investment (FDI) is equally crucial for the sustainable development at home. The country is fully cognizant of the need to balance between economic development and pandemic control measures given the market’s concerns of Zero-COVID policy. This is evidenced by repeated calls from top officials to stabilise FDI as part of the country’s economic recovery.14 To balance between investor confidence and pandemic prevention, China will continue to “tweak and refine” dynamic Zero-COVID policy.15 But a notable shift away from the policy is unlikely in the short-term.
On tackling wealth disparity, China has announced its accomplishment of becoming a “moderately prosperous society” after extreme poverty was fully eradicated in 2021.16 Addressing this imbalanced development was named a key priority at the 19th Party Congress, with common prosperity17, first announced in August 2021, serving as a key tool. Despite the major economic slowdown this year that shifted the priority to maintaining stability, the pursuit of common prosperity could become a focal point at the 20th Party Congress. The policy measures associated with common prosperity will undoubtedly change over time, but the core tenets of the strategy are here to stay.
Policy measures to regulate excessive incomes and “control disorderly capital expansion”,18 which constitute one of the main objectives of common prosperity, had resulted in regulatory tightening and crackdowns in various sectors over the past two years to stymie systemic risks that threatened financial stability. Given the expected continuity of President Xi’s political and ideological framework at the 20th Party Congress, the work report could reaffirm the Party’s commitment to assert greater control over sectors such as fintech and property, with a view on the long-term domestic sustainable development and financial stability.
Power succession is at the core of the 20th Party Congress. Given the complexity and opaqueness of Chinese elite politics, this briefing outlines three main considerations that could influence the composition of the Politburo and PSC. These are factional affiliation,19 age and the degree to which President Xi can personally decide the appointment process.
The political equilibrium in the CCP largely depends on factional orientation of members of three top committees – the PSC, Politburo and the Central Committee. While the selection process will be determined by current PSC and Politburo members alongside the views of faction leaders and former PSC members, factional affiliation and association with President Xi will have a significant impact on the prospect of appointments and promotions (Meyer et al, 2016). For instance, the vast majority of newly appointed Politburo members at the 19th Party Congress previously worked with or had ties with the president.20 One can expect factional affiliation to continue play a decisive role in the appointments of new Politburo and PSC members at the 20th Party Congress.
Second, while the informal retirement age is set at 68, some members from opposing factions could depart from the top leadership despite being eligible to serve another term at the PSC. This will allow the promotion of some of President Xi’s close associates to the top leadership. There remains a possibility that Xi’s confidants could be promoted to the PSC despite passing the informal retirement age. How the two scenarios play out will mostly depend on the final factor of President Xi’s influence over the appointment process vis-à-vis the ability of opposing factions to maintain influence at the top bodies.
The outcome of the reshuffle will not only have implications for policy directions in the next five years, but will also have a longer-term impact on the Politburo appointments and promotions at the 21st Party Congress in 2027. If President Xi is able to elevate his close associates into the PSC at the 20th Party Congress, this will leave more vacancies at the Politburo which can then be filled with more junior members affiliated with the president who will have the chance to enter the top leadership in 2027. In this case, policy agenda for at least the next ten years will be determined by President Xi and his confidants.
The 20th Party Congress will see a new foreign policy chief as top diplomat, Politburo member Yang Jiechi is set to retire. The move is highly unlikely to change China’s foreign policy trajectory. President Xi has consolidated his hold in this domain to such an extent that his personal stamp on Chinese foreign policy will remain robust in the foreseeable future.
Even though external environment has traditionally played a lesser part in the Party Congress work report in comparison with domestic priorities, the Party will increase its effort to maintain a stable external environment that is conducive to domestic development by continuing to pursue a more active leading role in both global and regional affairs. This will include deepening South-South relations and expanding footprint in Southeast Asia. It will also continue to strengthen its ability to defend its national interests and regime security.
The October Party Congress is expected to convey a message of continuity, as much of the groundwork has been laid prior to the start of the event. The recently published statement by Xinhua news agency21 offered an outlook of the Party Congress as it contained messages dominated by President Xi’s policy narratives. This suggests he will continue to chart the Party’s direction and priorities, with key governance ideologies enshrined in the amended constitution set to guide the country in the “New Era”.
New members of the Politburo and PSC will be unveiled at the First Plenum of the 20th Central Committee, with appointments to central government positions, including the premier, vice-premiers and ministers, finalised during the annual National People’s Congress and the Chinese People’s Political Consultative Conference, also known as Two Sessions, in March 2023. The Two Sessions will be closely observed also for detailed economic policies and changes as Party unveils the new economic team.
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NOTES
1. The twice-a-decade Party Congress will produce a new leadership and provide an opportunity to assess past policies and establish new policy directions.
2. “Xi Jinping Thought on Socialist with Chinese Characteristics for a New Era” was included in the charter at the 19th Party Congress and has regularly appeared in government and Party documents to suggest that China has entered a new era of development and modernisation.
3. Building a “modern socialist country” by 2049 is the second centenary goal, with 2035 being the mid-point. In 2021, the Party declared the achievement of first centenary goal of building a “moderately prosperous society”.
4. The term national rejuvenation encapsulates CCP’s ambition to build a powerful China in political, economic and military terms and regain China’s centrality in the world by the centenary of the People’s Republic of China in 2049.
5. https://news.cgtn.com/news/2022-09-09/20th-CPC-National-Congress-to-amend-Party-Constitution-1dbOBP7Zvtm/index.html
6. The seven-member Politburo Standing Committee is comprised of top-ranking leaders and is the top decision-making body within in the 25-member Politburo, the Party’s governing body.
7. At a two-day study session in July, President Xi emphasised the importance of 20th Party Congress in building a “modern socialist country” and urged to tackle unbalanced development and plan for risks in the next five years https://www.chinadaily.com.cn/a/202207/29/WS62e32cf0a310fd2b29e6f09d.html. This was followed by state media Xinhua reinforcing Xi’s domestic priorities when announcing the start of Party Congress. https://english.news.cn/20220830/e3ede2ba6e9f4de6b9eebe30603b51e4/c.html
8. The Third Plenum is the third plenary session of Central Committee that introduces the new leadership’s broad economic and political reforms.
9. https://www.ft.com/content/bb302ef4-001a-478f-ac61-31cdc972cc8e
10. http://www.gov.cn/xinwen/2022-07/28/content_5703255.htm?mc_cid=ab809528bb&mc_eid=627c47469b
11. http://english.scio.gov.cn/pressroom/2022-08/15/content_78372443.htm
12. http://www.stats.gov.cn/tjsj/zxfb/202208/t20220815_1887338.html
13. Dual circulation strategy aims to boost China’s domestic production, consumption and distribution through internal circulation, while the external circulation of international trade supplements the internal circulation. While the emphasis is on domestic development, internal and external circulations reinforce each other.
14. Premier Li Keqiang called for the stabilisation of international trade and FDI during a State Council meeting on 15 September. https://english.www.gov.cn/premier/news/202209/15/content_WS63225b1dc6d0a757729dffb9.html. This came after Vice-Premier Hu Chunhua issued a similar message on 18 August, calling for efforts to boost consumption and attract foreign investment http://english.www.gov.cn/statecouncil/huchunhua/202208/18/content_WS62fd78afc6d02e533532f554.html
15. Dynamic zero-COVID policy is a newer term to reflect the government’s aim to balance between pandemic control, which involves targeted and localised lockdowns, and economic development.
16. http://www.xinhuanet.com/english/2021-02/26/c_139767705.htm
17. The goal of common prosperity is a crucial part of President Xi Jinping’s developmental philosophy in the “New Era”. The formation came after the 19th Party Congress during which unbalance development was identified as an issue. There was also a long section on common prosperity in the readout from the Central Economic Work Conference in December 2021 that set out the economic priorities for 2022. Though the concept itself is hardly new. “Harmonious society” was articulated by the previous Hu-Wen administration to address inequity through expanded social spending.
18. Despite the ambiguity, the phrase has often been used as the basis to regulate the platform economy vis-à-vis controlling debt and mitigating the risk of financial instability.
19. In very broad terms, Chinese elite politics is dominated by two main factions: the princelings and the Communist Youth.
20. https://macropolo.org/analysis/the-ties-that-bind-xi-people-politburo/
21. https://english.news.cn/20220830/e3ede2ba6e9f4de6b9eebe30603b51e4/c.html
REFERENCES
Ling, L. and Wang, X., 2021. Dual circulation: A new structural economics view of development. Journal of Chinese Economic and Business Studies, pp.1-20.
Huang, X., Yu, P., Song, X. and Chen, H., 2022. Strategic focus study on the new development pattern of ‘dual circulation’in China under the impact of COVID-19. Transnational Corporations Review, 14(2), pp.169-177.
Meyer, D., Shih, V.C. and Lee, J., 2016. Factions of different stripes: gauging the recruitment logics of factions in the reform period. Journal of East Asian Studies, 16(1), pp.43-60.
