The Completed Construction of the Xi Jinping System of Governance
China just concluded the first session of the 14th National People’s Congress (NPC), which saw the announcement of the line-up of new government leaders and the adoption of a series of institutional reforms. The annual NPC – often called the “Two Sessions” in local parlance because a second parallel meeting of government advisors occurs at the same time – is often a boring affair with some hyperbolic statements about recent achievements and future successes. But last week’s meeting, while having some of the same theatrics that make one’s eyes roll, marks a genuine historic turning point for the country. Xi Jinping long ago consolidated his own power, reflected in his receiving a third term in October 2022 of General Secretary of the Chinese Communist Party (CCP), stuffing the Politburo with officials entirely dependent on him, and restructuring the military to be firmly under his control. But this session is significant because the decisions announced at NPC show that he has now absorbed the entire governmental apparatus into his orbit and direct control. Governance in Xi’s “New Era” is now fully developed.
In this jointly authored analysis, Scott Kennedy first provides a brief summary of the features of this system and how these characteristics were reflected at this year’s NPC. Several of his Trustee Chair colleagues then offer their own takeaways from the NPC on several critical policy fronts, including the economy and U.S.-China relations (Claire Reade), technology policy (Paul Triolo), technology and national security (Jeannette Chu), Cross-Strait relations (John L. Holden), and energy and climate (Ilaria Mazzocco).
The Xi Jinping System and the NPC
Trustee Chair in Chinese Business & Economics
The “Reform Era” was launched by Deng Xiaoping in the late 1970s and lasted through the reign Xi’s predecessor Hu Jintao (2002-2012). Although there were changes and inconsistencies during those decades and there is some continuity between then and now, broadly speaking, Xi Jinping has changed many fundamental facets of Chinese governance. As Figure 1 shows, the changes are reflected across many dimensions, including leadership dynamics, ideology, CCP-government ties, state-society relations, economic policy, and foreign affairs.
Figure 1: Shifting Governance Across Eras
|Governance Direction||Reform Era (1978 - 2012)||New Era (2012 - )|
|Leadership||Collective||One dominant individual|
|Party-Government Ties||Some government authority||CCP dominates|
|State-Society Relations||Constrained civil society||Repressed civil society|
|Economic Policy Focus||Growth||Growth and security|
|Foreign Affairs||Integration into existing order||Revise the existing order|
The annual NPC session reflects the changes in each of these areas. Xi Jinping figuratively and literally was omnipresent. Speeches by each of the leaders and many of the reports issued emphasized Xi’s unique role as the “core” of the leadership. Following a trend going back at least a decade, new Party-based bodies were announced to take a more direct role in establishing policies in both science and technology and finance.
The appointment of top officials reflects Xi’s control. New appointees, such as Vice Premier He Lifeng, are all close to him, and those who were reappointed, such as central bank governor Yi Gang, are not associated with any other faction (see Figure 2). While some well-known financial technocrats remained in their positions (at least for now), a new group of “military-industrial” technocrats, such as Liu Guozhong, were elevated to senior posts. A critical question to be answered is whether these technocrats will simply serve as Xi’s tools to implement his ideological vision or whether they will use his trust of them to advocate for pragmatic policies.
Figure 2: China's New Economic Leadership
Ideologically, there has been a significant shift in the last decade, which is visible through changing emphasis of different words and phrases. As Figure 3 shows, the “word clouds” for the government work reports of 12th NPC (2013) and the just concluded 14th NPC reflect some similarities, with “development” being the dominant term in both. However, the earlier emphasis on “reform” and “markets” has faded; in their place are more references to “employment,” “unemployment,” “innovation” and “stability.” As noticeable as these changes are, they pale in comparison to the differences in the political communiques of the Party congresses. In the political communique of the October 2022 conclave, by our count, “security” was mentioned 91 times and “struggle” 22 times.
Finally, in the Reform Era, the NPC had begun to develop some institutional influence. The NPC’s Standing Committee and functional committees initiated some legislation and held substantive hearings, and individual deputies occasionally displayed policy entrepreneurship. But those days seem long gone, or to the extent such activity remains, it pales in comparison to the current top-down dynamic. It is hard to see the NPC now as anything but a “rubber stamp.”
One clear sign of this change is the drop in “no” votes deputies cast when considering the various work reports submitted to the NPC for review by State Council and other parts of the government. As Figure 4 shows, the handful of “no’s,” which used to signify an implicit vote of no confidence, have all but disappeared. And, of course, Xi Jinping was “elected” President of the PRC by a vote of 2,952 to 0.
The Economy and U.S.-China Relations
Senior Associate (non-resident), Trustee Chair
Two of the most striking - and unsettling - statements for business from the Two Sessions came from President Xi Jinping’s speech to Chinese business delegates.
First, Xi went out of his way to say that private entrepreneurs “belong to our own family” or are “our own people.” It seems both ironic and worrying that the members of the longstanding vibrant engine of the Chinese economy and employment have to be told that they belong in the family. Hamlet comes to mind: “the lady doth protest too much.” Xi’s comment underscores the reality that state-owned enterprises (SOE) are the favored children, even if it is one large family. It may seem a positive step to at least say that private enterprise needs support, but Xi’s elaboration of this family status also incorporates a warning. The CCP will continue to guide the private sector, including to use private sector assets to improve SOEs and to ensure the private sector acts to increase common prosperity. It seems this is a Confucian family hierarchy, with clear obligations to do what the father of family decides is proper. It will be very difficult to operate freely, like a market enterprise, in this environment. Private entrepreneurs, whether Chinese or foreign, need to beware.
Second, Xi went out of his way to explicitly call out the United States and the West for all round suppression against China’s development. He and others spoke throughout the meetings of the critical need to develop technological independence, as a result. China, of course, has long officially pushed for technological independence for both defensive reasons (to reduce costs and to have more control over key technology) and to be in a position to exert more global power in these industries. The task of becoming independent is more urgent now, with technology key to many national security issues and with the lines between civilian and military technologies disintegrating. Further, the West has developed enough concerns about China’s desire to be dominant internationally and has seen enough damage to market economies from China’s tactics to take concrete steps to restrict certain technologies China wants and needs. So, Xi is correct that the developed world is constraining China in some ways.
However, the explicit naming of an enemy also diverts attention from Xi’s policy failures that have harmed the Chinese economy and people, from Covid to the sudden, severe crackdowns on education and tech industries. Employing this “enemy” tactic raises the specter of its reemergence or expansion in the future, squeezing out foreign companies or restricting their ability to function with demands for information, more active Communist Party cells supervising the companies, constraints on data flows – or some other action. Xi’s demonstrated willingness with both the education and tech sectors to massively disrupt an industry with no notice offers a cautionary tale. The global business community would be smart to plan for more uncertainty and volatility longer term, notwithstanding the Ministry of Commerce’s (MOFCOM) upbeat comments a few days ago that they would welcome a visit from Commerce Secretary Gina Raimondo. The short term need to reinvigorate the Chinese economy should not overshadow the concerning signals about China’s long-term goals.
Senior Associate (non-resident), Trustee Chair
It is clear that Beijing is trying to balance competing objectives: doubling down on support for core technologies while also keeping the investment environment positive.
Despite the harsh comments coming from President Xi Jinping and Foreign Minister Qin Gang about the United States mentioned by Claire Reade, new Premier Li Qiang clearly tried to use his concluding press conference to play down tensions. Li, known for attracting investment in technology sectors as Party boss in Shanghai, stressed that talk about decoupling of the U.S. and China is overhyped. Li did make a nod to “suppression and containment,” but he cautioned that no one would benefit from conflict and broader decoupling. Chinese officials, including Xi and Qin, are reacting in part to substantial new U.S. controls on Chinese company access to critical technologies. But Li’s management of the economy and the focus in Beijing and the organizational restructuring coming out of the NPC will be to finer tune the economy to support progress in “hard” and “core” technologies, while punitive measures in response to recent U.S. actions will be carefully calibrated to avoid further damage to the investment environment.
In an acknowledgement that China’s current S&T structure has not produced the anticipated results in key technology domains, the Party has moved to take a greater role in S&T policy via the new Central Technology Commission, while the Ministry of Science and Technology (MOST) has had some key functions transferred to other organizations. Meanwhile, the new National Data Administration will oversee efforts to leverage data as the “fifth factor of production” in a nod to the continued digitalization of the economy and the release of ambitious blueprints recently such as “Digital China.” The bottom line: Beijing is clearly girding the bureaucracy and key technology sectors for what will be a long-term struggle to reduce dependence on foreign sources of technology, and revamping the national innovation ecosystem to support what will need to be a sustained effort. Whether they will achieve the success they are striving for is another question.
Technology and National Security
Senior Associate (non-resident), Trustee Chair
The NPC sought to convey a clear two-point message on issues of technology and national security: defensive defiance and a glass-half full.
President Xi's characterization of recent U.S. actions as "suppression and containment" was reinforced by Foreign Minister (and former Ambassador to the U.S.) Qin Gang. This is certainly not new and perpetuates a domestic narrative of China as victim of U.S. hegemony. Continued affirmations that China will not send weapons to Russia for use in Ukraine suggest that China does not perceive overt aggression to be in their best interests for the time being.
Meanwhile, China doubled down on the need to achieve technological self-reliance and independence from foreign technology. This move includes further improving manufacturing capability in key technologies and comes in the wake of broadening U.S. export controls and sanctions. There is also a sense of greater urgency around military modernization and engagement with the private sector to achieve these ambitious technological, manufacturing and military goals.
The appointment of Li Shangfu as Defense Minister can be seen as another act of defiance, given that Li was sanctioned by the U.S. in 2018. Ultimately, Premier Li Qiang's more conciliatory tone on U.S.-China trade leaves the door cracked open but may not do much to turn down the temperature in both capitals.
Senior Associate (non-resident), Trustee Chair
I caught snippets of the PRC's annual “Two Sessions” during breaks in an intense, four-day schedule in Taipei, and have been reminded of just how differently the PRC and the ROC (Taiwan) are governed. It is therefore natural that they profoundly disagree about important issues and principles. At the same time, however, there has been a long history of cross-Strait dialogue that has helped preserve peace and facilitate sizable flows of trade and investment.
Whether the two sides can continue to find ways to peacefully manage their differences is a topic of enormous import, which is why observers have looked for signs at the “Two Sessions“ of a new approach to Taiwan. Some observers have worried that Beijing might come forth at the NPC with a tougher strategy, hinting at greater impatience and willingness to use force. Instead, the NPC stuck with the same language on Taiwan (as opposed to sharper language about the U.S.), reiterated its preference for “peaceful unification“, and even emphasized the importance of cross-Strait commercial ties. In that regard, perhaps the continuity is reassuring. In Taipei, I heard some analysts argue that China appears keen to encourage investment and trade and sees the island's businesspeople as important to the key task of fixing the Chinese economy. Whether or not Taiwan's business leaders respond positively remains to be seen.
There is some wariness about where China may be headed during Xi Jinping's third term, but there is a general sense among those with whom I spoke in Taiwan that deterrence and commercial ties are still sufficient for the status quo to be maintained for the foreseeable future.
At the end of the day, some level of mutually beneficial interdependence between Taiwan and the mainland is a good thing. It is not sufficient to guarantee peace, but it does ensure that it has advocates and must be considered in any calculation of the costs of war.
Energy and Climate
Senior Fellow, Trustee Chair
The most important policies to emerge from this legislative session for energy and climate may well be those that do not explicitly mention energy and climate. Setting a GDP growth target of around 5 percent, which many economists believe to be achievable given last year’s poor performance, was an important signal that the government will likely limit its use of investment in carbon-intensive infrastructure to boost growth rates. At the same time, the message was clear: economic recovery is the most important objective for this year, alongside energy and food security. The National Development and Reform Commission’s (NDRC) report on the economy indicates that the clean-energy transition will continue to proceed cautiously and that the coal industry is unlikely to be restricted any time soon. While a problem from an emissions standpoint, the lack of hard policies on coal is not new and will not affect the continued growth of renewables in China, which will continue to be installed at a fast pace, helping the country get closer to meeting its climate commitments.
Energy policy may have been somewhat muted, but the restructuring of the Ministry of Science and Technology (MOST), with some functions being delegated to a new commission, is one of the most consequential announcements made during the NPC session. The restructuring and renewed focus on industrial policy will likely important implications for China’s clean energy technology industries. Chinese companies are already global leaders in several clean-energy technologies, including electric vehicles and solar, but will need to continue to innovate to remain competitive at a time when the economic outlook is uncertain and when a growing number of countries are trying to support the growth of their own domestic industries and reduce reliance on Chinese production.