It’s Xi Jinping’s big moment to further cement his rule. At next week’s Twentieth Party Congress, Xi is expected to secure a third term as general secretary of the Chinese Communist Party (CCP) and perhaps be elevated in other ways within the pantheon of the country’s past leaders. But the once-in-five-years event—which brings together more than two thousand party members starting October 16—will have an impact in a number of other policy areas.
From navigating geopolitical tensions to tackling the country’s property crisis, the outcomes of the congress could have significant implications for China’s political and economic landscape. So we reached out to the Atlantic Council’s broad network of China experts to give us a comprehensive view of what this year’s congress might bring.
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Why China will still struggle to rebalance its economy
Investment banks including Nomura and Goldman Sachs are predicting that China will ease up on its zero-COVID policy in the spring, sometime shortly after the season of high politics comes to an end, lasting from the Twentieth Party Congress to next March’s National People’s Congress. That’s because “the effects of China’s strict COVID management are now increasingly at odds with its policy objective of achieving common prosperity,” Morgan Stanley economists wrote. If pandemic lockdowns are finished, will gross domestic product (GDP) growth recover, household consumption finally flourish, and efforts to rebalance the economy to one that is more consumer-driven be back on track?
During the congress Xi Jinping will likely call on the Chinese Communist Party to work to overcome “unbalanced and inadequate development” and better meet the “people’s ever-growing needs for a better life,” China’s “principal contradiction,” as he called it during his speech at the last party confab five years ago. But policymakers have been talking about boosting consumption and reducing reliance on excessive investment for at least fifteen years, what premier Wen Jiabao first referred to in 2007 as meeting the challenge of “unstable, unbalanced, uncoordinated, and unsustainable” growth.
Investment in China has accounted for 40-50 percent of GDP for decades now, far above the roughly 25 percent global average. That has been accompanied by a worrying buildup in debt, now at some 250 percent of GDP (with the struggling real estate sector especially over-leveraged). Plans to replace that indeed unsustainable economic model with one more reliant on spending by Chinese consumers have been unsuccessful; household consumption still makes up just under 40 percent of GDP, well below the 55 percent and higher in other large countries.
That has to do with the demographic challenge of an aging workforce, as well as declining productivity, exacerbated in recent years by Beijing’s crackdown on private entrepreneurs. It is also because of painfully slow progress reforming the household registration or hukou policy as well as ending the dual land system, both of which keep incomes low for rural Chinese and migrant workers—about one-half of China’s population—and block their entry into the middle class. As long as Xi continues to stress the need for more party control over not just politics but economics and society too, don’t expect real progress on rebalancing—no matter how much officials talk about it.
—Dexter Tiff Roberts is a senior fellow with the Council’s Asia Security Initiative in the Scowcroft Center for Strategy and Security.
Will Xi favor loyalty over technocratic competence?
The results of the Twentieth Party Congress will be difficult for even informed observers to interpret. As a result of this ambiguity, the narratives that major media outlets develop around China’s leadership changes will be significant and are likely to influence both the reaction from foreign governments and financial markets.
The most important decision from the congress will be the widely expected announcement of Xi Jinping’s third term as general secretary of the Communist Party. Virtually every other appointment will be viewed through the lens of whether it points to a further consolidation of Xi’s authority within the party or pushback against Xi’s rule.
Financial markets and economic analysts are hoping for some evidence of internal resistance to Xi, given the arbitrary policymaking over the past three years that has created significant market volatility. But there would need to be clear evidence that a new team of economic officials plans a different approach to shoring up a Chinese economy hit by strict COVID-19 containment measures, a property crisis, and, in the longer term, formidable demographic challenges. A further consolidation of Xi’s authority, in contrast, would imply continuity in policy—and more importantly, continuity in the elevation of party priorities above those of China’s economic technocrats. Evidence of centralizing political authority will make it more difficult for Chinese technocrats to send credible counter-cyclical economic policy signals.
For the future of China’s economy, both the next premier (replacing Li Keqiang) and the vice premier for economics and finance (replacing Liu He) will be closely watched. If appointments to these positions produce a narrative that Xi is favoring loyalty over technocratic competence, this would be one of the strongest policy signals out of the congress—and one that would be interpreted negatively for China’s economic outlook over the next five years.
—Logan Wright is a partner at Rhodium Group, where he leads the firm’s China Markets Research work, and is an adjunct fellow of the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies.
A signature moment in China’s bid for environmental leadership
China’s Twentieth Party Congress is highly likely to signal a greater focus on climate action and more detailed environmental conservation plans than the last party congress of 2017. This is part of a long-term trend of Beijing moving from a defensive to offensive strategy on climate and environmental action, which the CCP increasingly views less as a zero-sum competition with economic growth than as a key element of demonstrating effective governance at home and responsible leadership abroad. Beijing now seeks a better balance among environmental, societal, and industrial interests, which is all the more important since the war in Ukraine has emphasized the need for greater energy supply sovereignty for all countries, including from renewable energy sources.
Beijing will probably continue to try to promote itself as a global leader on environmental issues and a partner of choice for the Global South on climate change and on adaptation and resilience building. China will expand on its recently released 1+N Framework that offers guidance for how Beijing plans to meet its “double carbon” (双碳) goals of achieving peak carbon emissions by 2030 and carbon neutrality by 2060. Over the next six months, we can therefore expect the development of these detailed sector plans, with further signals to industry and investors and further announcements during the twin sessions of the National People’s Congress and the Chinese People’s Political Consultative Conference.
Follow through on all these commitments will depend in large measure on Xi’s personal focus on environmental actions amid a raft of other priorities and how that focus is communicated through the system.
—Thammy Evans is a nonresident senior fellow at the Council’s GeoTech Center.
China’s leadership must respond to the property crisis
One of the biggest policy challenges looming over the congress will be China’s rapidly metastasizing property downturn that threatens to engulf heavily indebted developers, homeowners, financial institutions, and local governments. Property represents up to 30 percent of China’s GDP and has provided a crucial engine of growth for China and, by extension, the world economy. However, the build-up of property-related debt now threatens China’s economic and financial stability.
So far, party leaders appear hesitant to respond to the crisis with the necessary financial resources that the central government has at its disposal. Instead, they have adopted what one economist calls a “whack-a-mole” strategy of piecemeal bailouts. It’s unclear whether they’ll even tackle the issue head-on at the party congress, which may focus more on solidifying Xi’s third five-year term. Such an outcome would symbolize the victory of party politics over actual problem-solving. And, as property represents some 70 percent of the assets of China’s urban population, homeowners will not be happy if their middle-class status is undermined by a reassertion of politics over economics.
Local governments have announced some actions to stabilize the property market in recent weeks, and more actions may be announced after the party congress. However, an incremental response that shifts the responsibility to overstretched local governments only puts off the eventual day when Beijing will need to orchestrate expensive bailouts that shift vast amounts of bad debt onto central government balance sheets. Without such drastic measures, the party could end up inflicting severe financial pain on hundreds of millions of Chinese whose dreams of economic security are tied to their homes.
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—Jeremy Mark is a senior fellow with the Council‘s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal.
Beijing takes aim at the Global South
Beijing’s Global Development Initiative (GDI) and Global Security Initiative (GSI) will likely feature prominently as foreign-policy priorities during the Twentieth Party Congress, specifically in the Congress Work Report. These initiatives currently appear to be lacking in detail, but they build on existing efforts underpinning Xi’s strategic vision for China’s global reach, in particular the Belt and Road Initiative and the “community of common destiny” concept. As such, we can view GDI and GSI as the next stage in Beijing’s attempt to shape an international system that is more conducive to China’s expanding global interests.
Despite the “global” in their names, GDI and GSI look to be primarily geared towards rallying developing and emerging countries, including those sometimes grouped as the “Global South,” to address the development and security challenges that Beijing claims Washington and developed democracies have created or ignored. China sees regional groupings in which it takes a leading role—and from which the United States and its allies are excluded—such as the Shanghai Cooperation Organization (SCO) and BRICS groupings as key conduits for promoting these initiatives and enhancing China’s influence.
Indeed, Xi’s speech at last month’s SCO summit gave us a good look into Xi’s worldview going into next week’s congress. Xi described a world split into two camps: On one side, a US-led group that has produced a worldwide “peace deficit,” among other issues, and another camp—implicitly led by China—that stands for stability and development and can employ the GDI and GSI to address the problems that the US-led camp has created. As such, we can expect that both initiatives will feature strongly in Xi’s foreign-policy vision and efforts to achieve greater influence (including the endorsement, or at least acceptance, of its non-democratic development model) during the congress and beyond.
—Gabriel “Gabo” Alvarado is a nonresident senior fellow in the Council’s Global China Hub.
A big moment for engagement with Latin America
Public and private-sector stakeholders in Latin America and the Caribbean (LAC) will be watching whether the region’s relations with China will be influenced by—among other factors—the pace and intensity of China’s diplomatic and economic engagement.
For example, LAC metal exporters should stay alert for any signal of change in Beijing’s attitude toward its domestic real estate and infrastructure sectors, which will impact Chinese demand and global prices of copper, iron ore, and more. While official lending from China to LAC has significantly slowed in recent years, a modest rebound would be in the cards if senior Chinese officials were to visit the region again—for the first time since 2020—bearing gifts in the form of financial commitments.
More importantly, however, LAC should take the opportunity to not only respond to Beijing’s signaling, but also proactively shape the terms of bilateral engagement going forward. The region may have more agency and ability to do so, now more than ever, given its critical role in a volatile global commodities market and in an increasingly fragmented and multi-polar world order. Part of this will require countries to continue navigating the still-contentious US-China dynamics, as many of them have masterfully done so far by actively engaging both sides.
—Pepe Zhang is an associate director and fellow at the Council’s Adrienne Arsht Latin America Center, where he leads the China-Latin America portfolio.
A new high-tech era for China’s military
President Xi Jinping will use the congress to promote technological innovation and military-civil fusion (MCF) as core national priorities for the next five years. Since coming to power ten years ago, he has repeatedly highlighted the importance of technological innovation as a key enabler for other political, economic, and military objectives. During the last party congress, Xi stated that China must “firmly implement the strategy of rejuvenating the country through science… and the strategy of military-civilian integration.” Since then, China’s civilian research and development budget has grown from $279 billion to more than $405 billion, while the Chinese military budget has grown from at least $151.43 billion to more than $229 billion. This has enabled China to develop some of the world’s most sophisticated emerging technologies and weapons systems, including hypersonic missiles and quantum-based stealth detection capabilities that threaten the ability of US nuclear submarines to securely operate in the Pacific.
During this year’s congress, Xi will seek to build on these policy declarations and technology successes through a combination of strategic messaging and personnel shifts on governing bodies like the Central Military-Civil Fusion Development Committee. He will likely elevate senior People’s Liberation Army (PLA) technocrats with scientific and technological credentials to national leadership positions and continue to prioritize the party’s and PLA’s roles in developing an “innovation-oriented society.” However, unlike other political drama playing out at this year’s congress, China watchers should not expect any surprises on S&T and MCF policies. Rather, Xi will continue to highlight the importance of innovation and then allow the existing MCF bureaucracy to develop and implement more substantive S&T plans over the next five years.
—Kit Conklin is a nonresident senior fellow at the Council’s GeoTech Center.