The Chinese Communist Party is at a critical juncture. The investments that drove Chinese economic growth for more than three decades are delivering diminishing returns. The only way to keep the country from falling into a middle-income trap—a political disaster for a regime that bases its legitimacy on its ability to keep the economy growing—is to transition the nation to entirely new growth engines. This will require Beijing to ratchet down its support for heavy industry, infrastructure investment, and resource extraction—a move guaranteed to immediately inflame those interest groups—and shift the nation toward new growth drivers, such as high-end manufacturing and services. The problem is that it takes time to build up new industries. During the interim period, the party will be alienating old bastions of regime support—coal provinces and titans of heavy industry—faster than it will be building up new ones.
Chinese President Xi Jinping’s job is to steer the party through those dangerous waters, and the 19th Party Congress—currently underway in Beijing and set to conclude next week—is his opportunity to place his own loyalists at the helm. Every five years the party convenes these gatherings to reshuffle leading cadres throughout its ranks. As the name suggests, this will be the 19th convening since 1921. The primary focus will be on the party’s major internal leadership bodies. The roughly 2,000 party members attending the congress as delegates—representing different regional, industrial, ethnic, and bureaucratic interests—will appoint a new central committee of roughly 200 cadres. The new central committee will then select around 25 of its members to elevate to the more powerful politburo, and within the politburo, five to seven cadres will be chosen to serve on the Politburo Standing Committee, China’s highest decision-making body.
Few of these appointments are left to chance. President Xi has spent much of the past five years working to sideline political opponents and move his own loyalists into key positions at every level. For outside observers, much of the focus will be on the composition of the new Politburo Standing Committee—the top leaders who will serve as the board of directors guiding Chinese policy over the next five years. When the 19th Party Congress concludes, these new leaders will stride out onto the stage, presenting themselves to their people and the world.
There is much more at stake, however, than choosing the small group of cadres who will take the final stage with great fanfare. Here are some of the most important issues playing out behind the scenes.
Top leaders are working overtime to keep the Chinese Communist Party from fracturing
If there is one word that best defines the upcoming party congress, it is discipline. Party leaders are putting tremendous effort into presenting a united front. They know that the one thing the party is not likely to survive is a major split among elites, glimmers of which were seen leading up to the previous congress in 2012. That year, a massive political scandal involving Chongqing Municipal Party Secretary Bo Xilai exposed rifts between Bo—who had a legion of zealous followers—and his superiors in Beijing. The scandal aired the party’s dirty laundry and internal divides in public to a dangerous degree.
This year is particularly high risk. President Xi’s anti-corruption campaign has disciplined more than one million Chinese Communist Party cadres and ousted around 200,000 party and government officials, including at least 250 officials at the highest levels of the Chinese Communist Party, the Chinese People’s Liberation Army, and China’s domestic security services. Those officials who lost jobs, status, and access to lucrative revenue streams due to these investigations have much to gain if Xi is weakened or removed. If they perceive cracks between Xi and other top leaders, they will have an incentive to throw their weight in with the opposition.
To head off this threat, Xi is redefining party loyalty as loyalty to himself and his vision, and he is threatening to take down anyone who does not fall in line. In a January 2016 speech, Xi defined internal factionalism—groups of cadres pursuing agendas that do not align with his own—as a threat to China’s national security and ordered internal party disciplinary agencies to root out and punish officials “forming cabals and cliques.”
Xi is leveraging his role as the commander-in-chief of China’s armed forces to keep the military in line as well. Under Xi’s leadership, the military propaganda apparatus is redefining the military’s duty as not only following party commands but also “safeguarding the core” of the party—Xi himself. These campaigns increase the risk cadres will face if they speak out against Xi and his vision. Despite Beijing’s attempts to define this congress as a bottom-up democratic process, there is no room for alternative voices in 2017. The goal is a united front, and any cadres who disrupt that image will face dire consequences.
Xi is betting on a massive personnel transition to drive economic and military reform
President Xi’s most ambitious reform plans are on the economic and military fronts, both of which will hit key deadlines during his second five-year term as party general secretary. Both efforts require big structural changes that will disrupt vested interests, and personnel shifts will be key for sidelining opposition and putting new people in place who have more to gain from supporting Xi’s agenda than from opposing it.
On the economic front, the Chinese Communist Party has committed to doubling China’s 2010 gross domestic product (GDP) by 2020 and achieving a “moderately prosperous society” by 2021, the party’s centennial anniversary. Failure on either front would be a disaster for the regime. To avoid that, Xi must execute a tricky balancing act between pushing forward difficult changes that will slow GDP growth and keeping some old growth drivers online long enough to avoid slowing down the economy too much and missing the 2020 target. Thus far, Beijing is erring on the latter side. Many of the key reforms Xi called for after the last party congress appear to have stalled. Instead of weaning subnational economies from state-financed debt and pushing them to rely more on private capital, for example, Beijing is once again issuing more credit to keep dependable growth drivers moving.
Beijing is working hard to keep up a narrative that reform is succeeding and that Xi is fighting hard against the vested interests blocking important changes. Xi is utilizing the 19th Party Congress to transition almost the entire economic leadership, including many key provincial leaders. At the subnational level, China is divided up into 31 provincial-level regional governments, which include 22 provinces, 4 provincial-level municipalities, and 5 provincial-level autonomous regions. Between 2016 and mid-2017, Xi reshuffled 47 provincial leaders, including 27 governors and 20 provincial party secretaries—nearly a full-scale turnover of the nation’s subnational leadership. Only 21 of these shifts can be explained by age requirements, term limits, or alleged corruption cases, meaning that more than half were made according to Xi’s discretion. Many of those newly appointed officials have a personal history with Xi. For example, at least nine served in Zhejiang province while Xi was the provincial party secretary there.
Xi is also replacing key ministerial heads. Last year, he replaced Minister of Finance Lou Jiwei—a market reformer who was serious about limiting local government borrowing and preferred sustainable, gradual progress over temporary fixes to prop up the economy—with then-Deputy Minister of Finance Xiao Jie. Many view Xiao as a weaker voice and as someone who will be more likely than his predecessor to follow orders. Similar changes are unfolding across the Chinese bureaucracy. Over the past two years, Xi has replaced eight ministers and the heads of four major organizations under the State Council, China’s national cabinet.
On the military front, Xi has committed to restructuring the People’s Liberation Army into a modern warfighting force by 2020. That process is already underway, and it involves laying off at least 300,000 personnel and reshuffling the entire military leadership—two moves that face staunch opposition from those who stand to lose jobs or influence. Xi has been leveraging anti-corruption campaigns to weed out key opponents. To take their places, he is bringing in a mix of younger military leaders and previously exiled generals who, unlike their predecessors, will owe their promotions to Xi and have more to gain than lose from supporting his changes.
Beijing knows it must deliver the quality of life that Chinese people now demand
There are no direct lines for holding party leaders accountable to their citizens in China, but Beijing carefully tracks public opinion and works to maintain at least enough citizen satisfaction to convince the majority that they are better off supporting the current regime than they are fighting to replace it. China is now a middle-income nation, and its citizens are focusing more attention on their quality of life. For many Chinese citizens, Beijing’s ability to deliver clean air, clean water, and public safety—including protections from poisonous food products, crumbling buildings, and abusive security services—is just as important as economic growth.
Environmental pollution is the biggest area where the Chinese Communist Party currently risks falling short of citizen demands, and with increasing awareness of environmental problems and their health consequences, citizen demands are rising. According to a 2015 Pew Research Center poll, three-quarters of the Chinese public surveyed regard both air and water pollution as very or moderately big problems—ranking second and third among the public’s top concerns, below only “corrupt officials.” Public opinion was almost evenly divided on whether pollution conditions will get better or worse. In a survey conducted this year by the China Youth Daily, 70 percent of Chinese respondents report that “smog makes them unhappy,” and 50 percent stay home to protect their health when smog levels are high. In another 2017 survey, Shanghai Jiao Tong University found that 46.8 percent of residents think urban environmental pollution is “relatively severe” or “very severe,” an increase from the previous survey conducted in 2015. It also found that 50.9 percent of residents think that environmental pollution harmed their physical health, significantly higher than the 29.4 percent who reported harm in 2015. Based on these results, the Shanghai Jiao Tong research team concluded that more than half of the Chinese public likely views China’s environmental situation as “grim” and “urgent.”
Chinese leaders are aware that discontent is rising. In the run-up to the 19th Party Congress, Beijing has been dispatching high-level environmental inspection teams to investigate pollution problems across the nation. In addition to officials from the Ministry of Environmental Protection, these inspection teams include senior party cadres from the Central Commission for Discipline Inspection and the Central Organization Department, two party organizations with the power to end official careers and throw provincial leaders in jail. As of September 2017, the teams have disciplined more than 12,000 officials and levied more than 870 million yuan, or $132 million, in fines against 18,000 companies.
Instability fears are triggering a pivot back toward top-down management
In 2013, one year into President Xi’s first term, the party issued a blueprint for comprehensive reform that suggested Beijing would be liberalizing new sectors of the economy to drive growth. As soon as those liberalizations triggered market fluctuations, however, the party pivoted back to top-down control.
For example, in response to the large capital flight that decreased yuan and foreign reserve holdings in 2015 and 2016, the People’s Bank of China—the nation’s central bank—is now controlling who can take money out of the country. Large capital shifts must have central bank approval and state banks are now required to ensure that they bring more capital into China than they send overseas. In the turbulence following Shanghai’s 2015 stock market crash, the Chinese government prohibited major shareholders from selling, and China continues to issue new rules to control the timing and sale of major stock sales. In the state enterprise sector, Beijing is strengthening party control over major decisions, meaning that the party committee must be part of any major strategic business decisions in order to make sure that companies act in support of party political interests.
The top-down environmental protection teams mentioned above are yet another example. Under former President Hu Jintao’s leadership, Beijing experimented with utilizing the courts, citizen complaints, and watchdog journalists to hold local officials accountable for environmental violations and expose wrongdoing. Now the pendulum appears to be swinging back toward top-down rather than bottom-up enforcement. Although central government inspection teams can rack up impressive enforcement numbers and high-profile cases, these top-down campaigns are, at best, a temporary substitute for comprehensive regulatory enforcement and grassroots accountability.
The problem with top-down management is that it is never as efficient as market allocation or decentralized, bottom-up governance. Every time Beijing chooses top-down management over more innovative market and governance reform, it is choosing to sacrifice efficiency to maintain a tighter political grip. Over time, those efficiency losses will add up.
It is still unclear whether Xi can deliver on his reform promises in a tight security environment
Under President Xi’s leadership, the Chinese Communist Party is rolling back many of the forms of political opening that occurred under the previous administration. There are new controls over the media, new controls over academia, and new controls over international exchange. Access to information within China is more restricted than it was five years ago, and the Chinese Communist Party is empowering its domestic security apparatus to increase surveillance and control over daily life in China.
Chinese leaders want their economy to produce the next wave of cutting-edge technology innovation. In other nations, innovation success has been contingent on the free flow of information and private capital—two forces that are not faring well under Xi’s leadership thus far. It remains to be seen whether China can achieve global innovation and technology dominance without political opening and true economic liberalization. Currently, Beijing is betting that it can and that the risks of opening far outweigh the potential rewards. Once Xi has put many of his own loyalists in power, however, system failings are likely to become more evident.
From a U.S. perspective, the future of the U.S.-China relationship hinges on how President Xi tackles these major challenges. Beijing must execute a tricky balancing act, because actions taken to maintain the party’s grip on power will make it harder to drive forward meaningful economic and governance reform. If Xi is entirely successful, his vision—which rolls back market liberalization, increases party control over society and the economy, and aims to reshape China’s regional security environment—will add more conflict than cooperation to the mix in U.S.-China relations. If the party stumbles substantially on the economic front—if its economic rebalance hits a wall, for example—the party may turn to a rejuvenated Chinese military to generate new sources of legitimacy by challenging the United States and its allies. From a U.S. perspective, the ideal trajectory is likely a middle road, one where Beijing succeeds in rebalancing the Chinese economy and avoiding a middle-income trap but does so by reverting to a path of greater openness. Decisions made behind the scenes at the 19th Party Congress this week will play a role in determining which of those paths China will take.
Melanie Hart is a senior fellow and director of China Policy at the Center for American Progress. Blaine Johnson is a China and Asia policy analyst at the Center.