China’s 19th Party Congress: Economic Liberalization and Active Global Leadership

By: Cherui Chew and Zhouyan Li

All eyes were on China as the country’s ruling Communist Party (CCP) held their twice-a-decade National Party Congress in October. The national conference is the most important event for the party and the country because the reports[1] and speeches from it convey messages that contain all the major policy and political changes for the following five years. By examining these documents, this article attempts to provide a brief overview of the future of Chinese economic and foreign policies, as well as where the Sino-US relationship is heading.

The week-long 19th Communist Party Congress convened thousands of regional delegates to vote for a new Party Central Committee. More importantly, the 7-person CCP Politburo Standing Committee, which is the core decision-making body of the party, was reshuffled. Throughout the party congress, Xi’s strong grip on political power was evident. The leadership put great emphasis on economic reform and active global leadership, two important goals whose outcomes are highly dependent on China’s domestic political developments.

The Strong Leader

Chinese President and CCP General Secretary Xi Jinping has so far proven to be a much stronger leader than past presidents, and many have speculated that Xi plans to extend his power beyond the traditional two-term presidency. The lack of a new generation of leaders in the Party Central Committee means that no clear successor to Xi has prevailed. Different from his technocratic predecessor Hu Jintao, Xi projected during the Congress an image of a strong and charismatic leader who eclipses other members of his Standing Committee.

Additionally, the 19th Congress saw the CCP incorporate the Xi Jinping Thought into the party constitution, a move that elevated the historical status of Xi to that of Mao Zedong and Deng Xiaoping. The eponymous doctrine preaches “Socialism with Chinese characteristics for a New Era”, which is derived from reformist Deng Xiaoping’s doctrine and might signify further attempts at economic reforms.

In many ways, Xi’s presidency has started an impressive and distinctive chapter in Chinese politics. Internationally, the regime has boldly led regional economic cooperation and flexed its military muscles in territorial disputes. Domestically, the Xi regime has tightened its political control in China through various measures, including stepping up internet censorship and clamping down on political dissidents and human rights lawyers. Additionally, his administration introduced the phrase “Chinese Dream” during this Congress, which is supported by Xi’s “Four Comprehensives” doctrine, discussed below.

Economic Development as Political Legitimacy

The Four Comprehensives doctrine permeates Xi’s report to the Party Congress. The doctrine is comprised of four goals: building a well-off society, implementing rule of law, deepening reforms, and strengthening party discipline. Building a well-off, “moderately prosperous” socialist society has been a long-term pledge made by Chinese leaders. After all, the party’s legitimacy comes from its ability to deliver strong economic performance. As such, economic development remains an utmost priority for the party, according to the recently revised party constitution. In a divergence from previous party conference reports, there was no mention of future GDP growth targets. Rather, Xi emphasized “quality development” as opposed to continued rapid economic growth that has led to unequal wealth distribution, environmental externalities, and excessive production in certain industries.

Challenging Transition Ahead

To better cope with slowing economic growth, the Chinese leadership is attempting to transition its manufacturing-based economy to a consumption-driven and service-based one. In 2015, the service industry reportedly accounted for 4% of China’s 8% growth and the industry creates new jobs at twice the rate of manufacturing-based industry. Moreover, the industry creates new jobs at twice the rate of manufacturing-based industry. The inflow of foreign capital will be the main catalyst for this transition. In his work report, Xi vows to increase the amount of foreign investment, further liberalize market access, and deepen protection of investment rights. This commitment has been backed by the promotion of Mr. Wang Yang, known as a market reformer, to the party’s Standing Committee.

However, the Chinese government’s pledge to liberalize markets is contradicted by its proclivity for interventionist economic measures. One example of this is the lackluster reform of the heavily subsidized, inefficient and bulky state-owned enterprises (SOEs). Declining demand for Chinese goods means that the government cannot rely on investments, exports and consumption to boost growth, areas where SOE’s have traditionally relied on to continue growing. Instead, China needs to increase the productivity and efficiency of industries to maximize gains. Despite their inefficiency and ballooning corporate debt burden, Chinese SOEs will be preserved because they are an invaluable political tool for leaders to advance economic policies and direct Chinese overseas expansion. The Chinese government has executed merger and mixed-ownership strategies to try and address SOE competitiveness and profitability. In spite of these new strategies, it is clear inefficient SOEs are here to stay, which weakens reform commitments and shows that political control triumphs economic efficiency.

What’s new for China’s foreign policy

The 19th Party Conference also held major implications for Chinese foreign policy. The Congress set the overall goal of building “a community with a shared future for mankind”. This is not the first time the central government explicitly placed an emphasis on promoting mutual benefit and common development for peace in its foreign policy. Yet this time China has shown its innovation and determination in the revision of the main goal, which includes taking on a leading role in the international community that has more “Chinese” characteristics – economic development comes before differences in opinions.

The resolution enriches the idea of what kind of international community China is pursuing, including maintaining long-term peace and security, promoting common development, keeping openness and inclusiveness, and building a clean and beautiful world. The last part is notable because it is the first time government concerns about environmental issues has become one of the major components in the report.

The report also shows that the country has more intersecting and mutually influencing sectors in its domestic and foreign policy initiatives than in the past. For example, the Belt and Road initiative has been formalized in the party’s constitution, which composes a major part of the central and local governments’ domestic policies while serving as a leading foreign policy at the same time. As Abraham Denmark, director of the Asia program at the Wilson Center, pointed out, the initiative is obviously seen as “a very long-term major effort by China for decades to come”, and it is highly unusual for the Chinese government to put its foreign policy initiative into the party’s constitution. In the past few years, China has certainly shown its shifting focus on global affairs and economic development, including its efforts on establishing the Asian Infrastructure Investment Bank and on implementing the Belt and Road initiative.

On the Belt and Road initiative

The Belt and Road initiative, first proposed in March 2015, is one of the most important actions undertaken by China. With hundreds of billions of dollars invested as part of the plan, it has generated worldwide attention and speculation. For the Chinese, the plan has the hope of common development and “top design”, a concept that was first introduced in the 12th Five-Year-Plan, that encourages Chinese firms and individuals to enter the world stage by providing knowledge about where opportunities and risks lie.

When the Belt and Road initiative was first enacted, the initiative served to guide China’s foreign policy towards East and Southeast Asia. It has more recently transformed into a much larger strategic development framework that binds the Eurasian zone. To some extent, the initiative has the characteristics of a public good, which suggests that China, as the founder, welcomes all countries willing to work towards shared goals. From a domestic Chinese standpoint, the initiative is seen as a necessary effort to bring China out of its own economic problems, and to enable its domestic industries to build more connections around the world. The initiative also serves as a guideline for domestic industries and individuals, providing information on which countries and areas they should engage in to exploit business opportunities.

On Sino-US Relations

Regardless of the motivations China has behind the initiative, it is without question that under Xi Jinping’s administration, China has entered a new era of taking on a stronger and more active role in the international community than it had in the past. Meanwhile, the United States under President Trump’s administration is seen as wanting to slow down the trend of globalization. At the time this article was written, President Trump had just started his “marathon tour” to Asia. The major issues being looked at include North Korean nuclear proliferation, Sino-American trade relations, and the relationships between top leaders. There was speculation about whether America will press Japan and South Korea to unite against China in an attempt to force it to punish North Korea, despite the huge obstacles for the two countries to cooperate and move on from the past. In spite of these challenges, America and China actually have many shared goals, and both may experience better outcomes by working together instead of resorting to finger-pointing.

The U.S. government has always criticized China on trade-related problems, taking issue with the country’s protection of its market and the restraints on the exportation of certain technologies. Some of the criticism is legitimate, especially as most American firms find that doing business in China is getting harder because of Chinese protectionism. The challenges aside, the two countries’ economies are still complementary in many ways, including China’s need for developing service and environmental protection industries and the U.S. need for infrastructure improvement.

Conclusion

Though it is still unclear where the Sino-US relationship is heading and whether China will carry through on its commitment to economic liberalization, it is clear that Chinese foreign policy aligns with domestic economic interest and political stability. The Chinese government has stated it is resolute on domestic economic policy reform, though the process may conflict with maintaining political power, which the party sees as paramount. Now the question of how the CCP balances political monopoly and economic reforms remains.

[1] The Resolution of the 19th National Congress of the Communist Party of China on the Report of the 18th Central Committee will be referenced extensively throughout this article.

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