Commentary on Political Economy

Saturday 6 August 2022



China’s President Xi Jinping waves following his speech at a ceremony to inaugurate Hong Kong’s new leader on July 1, the 25th anniversary of the city’s handover from Britain to China. Picture: AFP
China’s President Xi Jinping waves following his speech at a ceremony to inaugurate Hong Kong’s new leader on July 1, the 25th anniversary of the city’s handover from Britain to China. Picture: AFP

China is now struggling on many fronts, let alone rising. But it has magic on its side.

At the core of its discourse – whose control it seeks under Xi Jinping to extend globally – lies what magicians call misdirection.

Misdirection guides an audience to look over there, distracting them, while conducting the real business of trickery covertly, here.

The Chinese Communist Party has conjured many great survival skills in its century of existence, and among them it has become especially adept at misdirecting, including about the inevitability – based on Marxist determinism – of its rise.

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Continued success with such wizardry is crucial during the coming months as plans are finalised covertly for the watershed five-yearly party congress, probably in November.

This event – whose dates are held secret – is intended to cement Xi in his core position as general secretary until at least 2027, to appoint new Xi loyalist leaders across the board in key jobs, and to reinforce the present abrasive policy paths at home and internationally.

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But the party will seek to divert attention and interest away from these plans – as ever, away from itself and its vulnerabilities.

The oath that members take on joining the CCP includes a vow to “guard party secrets”. Xi’s hero Mao Zedong listed China’s three “magic weapons” as comprising the armed struggle, party building, and the united front – a secretive political strategy to neutralise or co-opt sources of potential opposition, at home and abroad.

The party’s cadres are rarely if ever prepared even to discuss the CCP’s pervasive role – or to acknowledge its unaccountable power – to people outside China. Just as magicians never divulge the secrets of their acts.

Misdirection is especially important right now since Beijing needs to conceal that it is struggling on many fronts, pushing on pieces of string in the hope they will move under the sheer force of its determination. Yet the vital pull factor – the desire to help the CCP achieve its ambitions – is widely missing, not only abroad but also to a degree at home.

Despite this, the dominant “fact” assumed in much Australian discussion about China remains that it is rising inexorably and, as a result, we must adapt to this supposedly unstoppable economic, military and thus also strategic rise, constantly trumpeted by Xi: “The East is rising, the West declining”.

Children play basketball in front of a housing complex by Chinese property developer Evergrande in Beijing. Picture: Noel Celis / AFP
Children play basketball in front of a housing complex by Chinese property developer Evergrande in Beijing. Picture: Noel Celis / AFP

China clearly has risen rapidly in material prosperity in recent decades. Taking its continuation as a given, together with the welcome restoration of civility in diplomatic relations, prompts some Australian opinion leaders to argue that Canberra should now take the lead in a “reset” with China, rather than Beijing needing to roll back its coercive measures.

The genuinely charming new Chinese ambassador to Australia, Xiao Qian, used misdirection brilliantly to tell a public University of Technology Sydney event that the restrictions on Australian exports were driven not by his government but by upset Chinese firms and consumers whose righteous indignation China’s party-state is apparently unable to defy.

We should seize our opportun­ities to intensify relationships with fellow Australians who come from China, as well as – Covid permitting – with friends and contacts in China itself. But we also should be wary of being misdirected from discovering the ways in which China is faltering as it enters the business end of an excruciatingly challenging 2022.

Xi needed stability to ensure success for his ambitious hopes as the year began, but the settings soon turned sour. Now those troubles have deepened, but Xi characteristically has ploughed on, determined to vindicate himself and his party.

Here are five fault lines that are opening ever wider in Xi’s New Era:

No. 1

First, while China’s power certainly has risen in many areas this century, its economy has pretty much peaked already.

This raises new challenges. Presumptions, including those based on straight-line graph projections from its old high-growth era, should be cast aside by economic planners, diplomats and military strategists. Beijing will need to review spending programs – including its overseas loans or grants largesse. It will prioritise new military hardware as long as it can, but even the CCP cannot shield the People’s Liberation Army from economic constraints forever.

Partly this is due to the inevitable slowing as a large economy matures, but is also exacerbated by the CCP’s back-to-the-future push, centralising policies under Xi’s redistributive “common prosperity” priority.

Xi seems to have been convinced by China’s economic resilience through the global financial crisis that it can keep growing comparatively rapidly even as he rewires it on socialist lines. However, a groundbreaking 60-page report by Roland Rajah, lead economist at the Lowy Institute, and Alyssa Leng, researcher at the Australian National University’s Development Policy Centre – widely commended, including by American Nobel laureate Paul Krugman – concludes that China’s economy will “likely experience a substantial long-term growth slowdown owing to demographic decline, the limits of capital-intensive growth, and a gradual deceleration in productivity growth”.

Chinese nuclear-powered missile and attack submarines. Picture: PLAN
Chinese nuclear-powered missile and attack submarines. Picture: PLAN

They say that “even assuming continued broad policy success” – a heroic presumption given recent policy-driven dilemmas – their projections suggest growth will slow sharply to about 2 per cent to 3 per cent a year on average across the three decades to 2050. They say this is a “somewhat optimistic assessment”.

This is a Japan-style scenario, but Japan got rich before getting old. China will remain a massive, unavoidable economy important for Australian business, but many Chinese people who had hoped their families would leap into prosperity now seem fated to remain disappointed.

Singapore-based business analyst IMA Asia – which forecasts that Australia’s economy will grow faster than China’s this year – is concerned that “local demand from households and businesses has collapsed”, while the banks are awash with money that no one wants to borrow.

While supply is slowly picking up under government pressure and incentives, underlying demand in key sectors such as retail continues to contract and exports are slowing.

Gavekal Dragonomics says “the biggest question mark hangs over the property sector”, where Chinese households have parked 80 per cent of their savings.

The research company’s Ernan Cui also says “there is no indication officials will reverse the generally more burdensome regime that has been put in place over the past 18 months” for China’s most globally successful sector, its tech giants, which have made significant lay-offs. She says they are becoming more policy-driven and less entrepreneurial, their “golden age of growth firmly in the past”.

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Thus many talented graduates who formerly flocked to private, especially tech, firms are turning instead towards party and public sector careers, which offer more security under Xi’s socialist priorities. Job search website Yingjiesheng reports a 20 per cent rise in positions advertised that require a Marxism degree.

The government is cranking up yet again its stimulatory mechanisms, but today each new project funded by local government bonds – many bought by government banks – appears to provide an ever-shrinking productivity gain while blowing public debt higher.

Nevertheless, Xi pushes on, determined to drive China towards economic self-reliance, especially in the tech sector – adopting the new phrase “development independence”.

Daniel Rosen, founding partner of the Rhodium research group, wrote in Foreign Affairs that if China meets the fate of other middle-income nations that failed to reform their way out of declining productivity, “the picture will darken” into one of painful austerity – not only for China but also for its dependent overseas partners who, for instance, sell it most of their products such as Australian iron ore, or lean on its loans for development.

No. 2

The second big fault line facing Beijing comes from the costly, high-risk game of global musical chairs now under way.

Russian president Vladimir Putin Xi Jinping pose during their meeting in Beijing in February. Picture: Alexei Druzhinin / Sputnik / AFP
Russian president Vladimir Putin Xi Jinping pose during their meeting in Beijing in February. Picture: Alexei Druzhinin / Sputnik / AFP

The old era of reform and opening under Deng Xiaoping saw China – which largely benefited from the post-Cold War world architecture – eager to join, and to seek steadily to reshape, as many international organisations as it could.

Xi was frustrated with such global capacities, which his New Era China inherited. He sought greater agency in military projection, in controlling discourse, in deciding the diplomatic and commercial rules.

The liberal democracies he views as rivals widely enjoy multiple alliances and treaty arrangements. So Xi launched, in a masterstroke, his Belt and Road Initiative that, while organisationally inchoate, delivered vast geopolitical benefits by bringing many developing countries into China’s influence zone, through weaponising its economic heft.

That heft is now subsiding steadily, and even establishment economist Yu Yongding is warning of “debt traps in BRI investments” – not so much now for the borrowers but for the lenders, China’s already overburdened banks.

And Xi’s only non-mainland travel since early 2020 has been to Hong Kong to praise the stricken city on its 25th handover anniversary for “rising from the ashes” and adopting “true democracy”.

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The Ukraine invasion that swiftly followed the signing of the 5000-word “no limits” China-Russia pact between Xi and his “best, most intimate friend” Vladimir Putin has rapidly intensified the competition between the authoritarian and liberal democratic blocs.

Blogger Liang Jing laments: “China in the 2020s should not, as it did a century ago, have let external conflict and crisis yet again dominate its people’s choices. But Xi Jinping has … exposed China’s fragile internal order to the enormous risk of changing international conditions.”

China, in return, has adopted a classic misdirection tactic – blaming Washington for driving Russia to invade Ukraine, for instance. This “whateverist” ploy also points observers of Beijing’s subjugation of the Uighurs, Hongkongers, human rights lawyers or journalists to look instead at what the US has done over its history.

Zhang Weiwei, a professor at top Shanghai university Fudan, has branded Chinese critics of Xi and the CCP as “spiritual Americans … working as tools of Western ideological hegemony”.

This misdirection uses the all-encompassing national security law imposed on Hong Kong two years ago to prosecute democracy and human rights champions such as publisher Jimmy Lai for being Americans agents – feigning that Chinese people could never autonomously advocate such principles but must have been suborned, especially financially, by malign foreigners.

China is concerned about fast-growing linkages between the Indo-Pacific region and NATO, with the leaders of Australia, Japan, South Korea and New Zealand flying to NATO’s recent Madrid summit, prompting English-language Chinese newspaper Global Times to editorialise that “the sewage of the Cold War cannot be allowed to flow into the Pacific Ocean”.

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NATO had said China posed a “systemic challenge”, deepening Beijing’s discomfort in the international arena from the strengthening of the Quadrilateral Security Dialogue and from the G7’s unwelcome 14 references to China in its recent summit communique, the latter, tellingly, blamed by Foreign Ministry spokesman Zhao Lijian for “clinging to ideological bias and pursuing small-clique politics”.

In partial response, Beijing is working to renovate the BRICS grouping that also includes Brazil, Russia, India and South Africa by adding Saudi Arabia, Argentina or Iran, despite the concomitant acronymic challenge.

In the Pacific, the multilateral settings keep China slightly distanced, with Australia and New Zealand being full members of the Pacific Islands Forum. While Anthony Albanese participated in its recent annual leaders’ summit, China’s Foreign Minister Wang Yi failed to persuade PIF countries to sign up to a new security arrangement. But the 10 members of the Association of Southeast Asia Nations and the 14 Pacific Island members of PIF favour hedging between external powers, reluctant to diminish or divert China’s economic appetite.

No. 3
The third fault line facing China is the pandemic. Xi asserts that his “dynamic zero” policy must persist until Covid is completely crushed and somehow disappears, a prospect most scientists view as unachievable.

Recently, Beijing announced the easing of draconian border restrictions to still-tough rules: seven days’ quarantine at a government-operated facility, followed by three days of self-isolation at home, the latter readily policed through a mandated mobile phone app. Numerous tests also are still required.

A woman has a sample taken for Covid testing in Beijing. Picture: AFP
A woman has a sample taken for Covid testing in Beijing. Picture: AFP

China has been slow to vaccinate its elderly, and has not yet accepted the use of mRNA vaccines developed overseas.

In Nature magazine Yanzhong Huang, a US-based Chinese health policy expert, blamed politics: “There’s no other reason to explain the delay except techno-nationalism.” But, at last, China is close to approving a homegrown mRNA vaccine, ARCoV.

Growing numbers in China are now more anxious about the government constraints than about the pathogen itself – potentially broadening disaffection with the party.

Tech entrepreneur Zhou Hang has asked his nine million social media followers: “What caused such widespread negative sentiment across the society? Who should be responsible?”

No. 4

The fourth China fault line is its demography. Its rapid ageing is diminishing the workforce and placing huge stress on the untested pension system, as the state’s focus shifts 180 degrees from the harsh one-child policy scrapped only six years ago, to a pro-fertility campaign.

The median age rose from 21.5 years in 1978 to 38.4 years last year, older than that of the US, and is set to exceed 50 by 2050, when more than a third of the population is likely to be over 65. Life expectancy is now 77.

Local governments that bear most of the burden for providing pensions fund them unsustainably from current contributions from workers. The official retirement age for men is 60, for white-collar women 55, and blue-collar female workers 50. Many women, especially, wish to keep working longer since promotion opportunities tend to beckon most in their 50s. Working longer would help build retirement savings. But Beijing fears “mass incidents” if it extends retirement age.

Workers at a liquor factory in Suqian in China's eastern Jiangsu province. Picture: AFP
Workers at a liquor factory in Suqian in China's eastern Jiangsu province. Picture: AFP

Carl Minzner, a law professor and China expert at Fordham University, and the author of End of an Era: How China’s Authoritarian Revival is Undermining its Rise, explained at a recent University of Sydney China Studies Centre web­inar that such demographic dilemmas apply pressure to “slide as in Russia towards perceiving feminist or LGBTQ issues as problematic”.

Women are blamed for reluctance to have children, he says, with those over the age of 27 often branded as “leftover”. It is proving, however, much harder to force women to have children than to limit them, as in the past. Times have changed, and even male cadres struggle to set examples by persuading their wives to have more children. Very few children are born to unmarried parents in China.

China’s East Asian neighbours face similar dilemmas but are starting to establish immigration programs, something China shuns. Solutions might include providing benefits to single women and extending IVF for same-sex couples. But, Minzner says, the initial instinctive policy thrust has been to steer back towards a form of Confucianist model of family.

No. 5

The fifth fault line is China’s increasingly centralised and strained CCP-owned governance structure.

Politics is upstream of everything in China. As Xi says: “Government, army, society, education, East, West, South, North and the centre, the party leads all.”

The party’s membership has reached about 96.7 million, with 53 per cent holding degrees – compared with about 15 per cent in the general population. About 29 per cent are women, who have never been represented in the party’s peak grouping. It rarely exposes itself internationally. In a classic misdirection arrangement, when foreign politicians meet Chinese leaders, they seldom encounter true counterparts.

In China, the party determines policy, the state implements it.

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For instance, while Defence Minister Richard Marles’s conversation in Singapore with China’s Defence Minister General Wei Fenghe was acclaimed, rightly, as a breakthrough, Wei is not in charge of China’s defence policy.

As the US Department of Defence’s latest China Military Power Report explains: “Wei is the PLA’s third-most senior officer, and manages its relationship with state bureaucracies and foreign militaries.”

But “he is not part of the chain of command, and his primary policy influence is derived from membership in the Central Military Commission and State Council”.

There is diminishing oxygen left in Chinese public life for anything that does not prepare for the 20th five-yearly national CCP congress in November, when 2300 delegates are expected to acclaim Xi’s groundbreaking third five-year term as general secretary and his blueprint for China’s future.

This congress should complete the appointment of a wave of Xi loyalists to the leading heights of party and state.

But important questions remain, relating to the rules on eligibility for office. Xi shocked many in China, including party members, in having the national constitution changed in 2018 to permit him to remain as state president, and close ally Wang Qishan as vice-president, beyond the previous two-term limit.

Xi Jinping speaks at the West Kowloon Station in Hong Kong in June, his first trip to the city since overseeing twin crackdowns on political dissent and Covid-19. Picture: Justin Chin/Bloomberg
Xi Jinping speaks at the West Kowloon Station in Hong Kong in June, his first trip to the city since overseeing twin crackdowns on political dissent and Covid-19. Picture: Justin Chin/Bloomberg

Xi now will push past the party convention that also sets a two-term limit on the general secretary – Xi’s core role since 2012 – and allows those aged 67 and younger to receive appointments while those 68 and older must step down. Xi is 69. Will he ring-fence the changes to himself and Wang, or might he ordain their relaxation more broadly to permit other allies to maintain their roles?

Xi’s fierce commitment to an anti-corruption campaign drove his ascent to party leadership and he continues to churn any deemed insufficiently loyal as he institutionalises that campaign through the creation of the powerful National Supervisory Commission.

This is a key element in Xi’s strategy – to instigate Mao-style campaigns, then to institutionalise them so they remain operational and available to his direction.

Thus he has turned the anti-terrorism, anti-secession campaign in Xinjiang into an institutional arrangement enforced by massive internment centres that constantly “re-educate” the Uighurs, and he has used the zero Covid campaign to institutionalise enhanced surveillance and control in all China, including via compulsory smartphone apps that have become “digital handcuffs”.

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University of California, San Diego associate professor Victor Shih says such autocratic structures create incentives for rulers such as Xi to build “coalitions of the weak” – promoting officials who will not challenge them. Policy setting inevitably suffers.

Jude Blanchette, the Freeman chair in China studies at the Centre for Strategic and International Studies in Washington, DC, has written in Foreign Affairs that “it would be ironic and tragic if Xi, a leader with a mission to save the party and the country, instead imperilled both”.

Xi’s direction for China will remain largely and defiantly unchanged, though. Some failure is already palpable on the economic, Russia-alignment, zero Covid and demographic fronts. But failure can be concealed by discourse control and thus tolerated, while policy change may well be perceived as weakness and thus play into the hands of potential, younger, rivals.

Especially now, then, our attention is being misdirected towards China’s spurious “rising” narrative, while its fault lines steadily widen and deepen.

Rowan Callick is an industry fellow with Griffith University’s Asia Institute

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