2018 may well go down as a defining year for President Xi Jinping’s leadership – one that marks the beginning of the end for the “President for Life”. President Xi began the year in full command of the country, seemingly ascendant on the world stage with his signature Belt and Road Initiative and, in the face of President Trump’s unilateralism, incredulously a newly found champion of the multilateral trading system and defender of the WTO and other features of the fast-receding liberal multilateral order. But by year’s end, Xi is under pressure.
The economy was continuing to grow strongly. He had prevailed at the Nineteenth Party Congress towards the end of 2017, having Xi Jinping Thought inscribed in the Party’s constitution, unusually while still serving in office, and at the National People’s Congress in March of this year had the two five-year fixed terms for President abolished so he could stay on in this role as long as he wished.
Xi continued to prosecute his anti-corruption campaign, despatching powerful political opponents in the process, especially former Chongqing Party Secretary, Sun Zhengcai just prior to the Party Congress last year.
Xi dealt China back into the centre of North Korean affairs, after the unpredictable and disruptive Donald Trump stole a march on China by re-establishing direct contact and agreeing to a head-of-state meeting. Kim Jung-Un made two visits to Beijing in quick succession. China was again the key influencer of the pace and direction of change on the Korean Peninsula.
But by year’s end, Xi is under pressure on at least four fronts.
Under the twin influence of the government’s own, and necessary, efforts to deleverage domestic debt, and the US trade measures against China, growth appears to be weakening. In the year to November, retail sales and industrial production are both down slightly on the same period last year, and fixed asset investment and property sales are flat. Commendably, the government seems to be resisting, at least for the time being, stimulating the economy.
Tellingly, auto sales in November were down 14 per cent from a year earlier and have been falling by similar amounts for the past three months. According to China’s automobile association, retail sales of autos are expected to fall 3 per cent this year, the weakest performance since 1990 (the year of China’s last recession following the violent suppression of the 1989 protest movement).
Foreign direct investment in China has also been falling throughout this year. For the year to November, it was down 1.2 per cent compared with the same period last year. Although a single month’s figure may be influenced by a number of random factors, in November alone foreign direct investment in China fell 27.6 per cent.
Wishing to avoid public disquiet over the trade war with the US, China’s state-controlled media is avoiding reporting on its negative implications. Meanwhile, Guangdong, the most exposed province, has stopped publishing certain provincial-level economic data. Guangdong’s Purchasing Managers’ Index (PMI), a key indicator of industrial activity, was not published for October. It had been falling over the past few months. It is probably the most accurate indicator of the direct effect of the trade war with the US as Guangdong has a concentration of companies exporting to the US. According to Nikkei, the number of loss-making manufacturing firms in Guangdong rose by 19 per cent in the year to November, compared with the same period last year.
Early signs would suggest, as many predicted at the outset, that the US would get the better of the trade war with China.
More generally, beyond the trade dispute, Xi Jinping is under increasing criticism from elite opinion within China for mis-handling the overall relationship with the US. Xi is seen to have overreached in dealing with the US and the West more generally with his assertive and muscular foreign policy stance, including in the South China Sea.
Ironically, as the Party is marking the 40th anniversary of Deng Xiaoping’s reform and open-door policies, Xi has set about to revise Deng’s legacy to play down its importance. A key element of this has been to set aside Deng’s guiding principle for foreign policy – hide your light, bide your time. Recently, Deng’s son, Deng Pufeng, made a rare public defence of his father’s legacy. This was a direct criticism of Xi.
The surgically planned and coordinated “five-eyes”, plus other allies, attack on Huawei, as reported by this paper (AFR), whether intended or not, will add substantially to the pressure on Xi. The symbolism of a scion of China’s elite being taken into custody, the unwelcome international attention to one of China’s iconic entrants into international business at the very top of the league, and the solidarity shown by US allies will be chilling and seen as further evidence that Xi has badly mishandled relations with the US.
It also underlines how much and how swiftly international conditions have turned against China under Xi Jinping. For many years, think tank and policy opinion in the US has increasingly questioned the conventional wisdom of engagement with China. This has been the cornerstone of the West’s policies towards China, including Australia’s.
The rejection of the long-standing approach was set out by Vice President Pence in a seminal speech in October. Effectively, Pence announced a new cold war but this time with China as the adversary. This view is widely held across the political spectrum in Washington from Republicans to Democrats, over everything from trade, cyber security, human rights, and intellectual property theft. Within China, this will be seen as another result of Xi’s overreach.
So too will be the push back from many countries against Xi’s Belt and Road Initiative (BRI). Many countries from PNG, to Malaysia, Sri Lanka and Pakistan and several African states are having sharp domestic political arguments about the benefits or otherwise of the BRI. Some BRI projects have been delayed or shelved permanently. Domestically, in private conversations, Chinese are questioning why so many resources are going to countries which are either ungrateful or unworthy or both of China’s largesse when so much investment is needed in social infrastructure in China. Recently, the official media and bureaucrats have been instructed to downplay BRI.
With a weakening economy and serious headwinds on several fronts internationally, Xi’s internal enemies have plenty of material to work with to seek to undermine his position. He has created enough enemies through the anti-corruption campaign to be in a dangerous position should he slip. He has, of course, substantially increased his control over the Party and as never before the Chinese Party and State have vast resources and technology at their command to ensure political control. 2018 has not ended for President Xi as it began. Next year, China may find itself living in “interesting times”.
Geoff Raby is a former Australian Ambassador to China.
First published in the Australian Financial Review 19 December 2018
Geoff Raby was Australia’s Ambassador to China from 2007-11, during which he visited all provinces in China officially. He served in Beijing as First Secretary (Economic) and then Counsellor (Economic), 1986-91. He was Ambassador to the WTO in Geneva, Ambassador to APEC, and Deputy Secretary, 2003-07. He was also head of the Trade Policy Issues Division of the OECD, Paris, 1993-95. He is a non-executive independent director of ASX listed-companies Yancoal, where he chairs the Health, Safety, Environment and Community Committee, and sits on the Board of the Gavan Foundaton.
His most recent book, Great Game On: the contest for central Asia and global supremacy, was published by Melbourne University Press on 12 November 2024. His previous book was China’s Grand Strategy and Australia’s Future in the World Order (MUP Nov 2020). He regularly contributes op eds and travel writing to the Australian Financial Review. He holds a PhD in economics. He was awarded the Order of Australia (AO) in June 2019 for services to Australia-China bilateral relations and to multilateral trade.
Comments
2 responses to “GEOFF RABY. Xi Jinping’s Year of Living Dangerously.”
For the AFR to prosper or even survive, its readership needs to be told what they want to hear, that socialism will be crushed everywhere, including China. Whether it really will be is another matter.
The China phenomenon, with its booming private enterprises, and unprecedented success at lifting people out of poverty, has caused us all to rethink what socialism is. For the sake of the language, I think socialism and individualism need to be antonyms. Socialism probably needs to be defined as actions of administrators that intentionally benefit the citizens, and actions of those in private industry that intentionally benefit their customers, as well as humanity at large. The teaching of benevolence (socialism) is the bed-rock of civilisation. Its Chinese characteristics are Confucian. Our selfish genes make the job a difficult one. The rule of laws is necessary but not sufficient for civilisation to survive, because laws are corrupted by the self-interest of the powerful, and kept in useful form only by those (the benevolent) with a clear idea of the public interest. Nowhere are laws and lawyers called on more than in America, but the laws are rapidly degenerating into mere weapons used by competing individuals and elite cliques to bash each other over the head. Continued use for that purpose has corrupted the laws to such an extent, and the loathing for any kind of government has reached such an intensity, that major outbreaks of Hobbesian individualist dystopia are inevitable.
The greatest internal threat to China is bribery and corruption of the government (the Communist Party) by rich capitalists. That captains of industry are usually members of the Communist Party cuts both ways. The party can spread its socialist values to the capitalists, and some capitalists can spread their expensive tastes to party members. It seems that Xi has helped rescue the government from some of that corruption, and that the cult of personality surrounding him is part of the Party’s clean-up strategy. For the sake of civilisation, I hope the strategy succeeds.
Congratulations Jeff. Great article. Evidence is thin but I was beginning to suspect the same as you. Xi must be coming under pressure. The anti-corruption campaign has gone on for too long and morphed into a KGB-style purge; the declarations of potential international power are beginning to wear thin in the absence of radical shifts in China’s relative S&T power; and world opinion seems to be turning mercilessly against Chinese commercial expansion (for some good reasons and some bad reasons). The power struggle against Xi will probably play out most seriously in two places: among the dispossessed (including the victims of rapidly escalating social credit system and the Uighur) and in the PLA, where rank and file sentiment remains opposed to the Belt and Road expansionism. They oppose it in part because Western opinion increasingly sees Taiwan as a country (not a part of China) and the Belt and Road appears to have has displaced Taiwan from the top level of Chinese priorities. We are now on the count down to 2049, the absolute deadline in Beijing for reunification with Taiwan. But recent trends may be pushing Xi toward to recalculate the risks of the Taiwan “patience policy” implemented under Deng (from 1979 to date). At what point before 2049 will China decide that military reunification with Taiwan is the only way? I wonder if Xi may be vulnerable on this front even though he engineered the historic meeting with Ma Ying-Jeou, a serving President of Taiwan at the time. Will Japan-China relations take a sour turn that helps fuel a new Taiwan crisis?