Every five years, during the National Congress of the Communist Party of China (CPC) the Party elite gathers to elect new leadership. Traditionally, China’s President delivers a lengthy report summarizing its progress since the last Congress and shares the outlook on international and domestic developments.
The 20th National Congress, which closed on the 22nd of October 2022, broke with tradition in an unprecedented way: President Xi secured a third five-year term as the Party’s general secretary. The most important outcome of the congress was the selection of the 20th Politburo and its Standing Committee, which make up the CPC’s power center. The Politburo members plan and implement the Party’s political, economic, and social agenda.
To no one’s surprise, President Xi filled the seven-man Politburo Standing Committee with six of his loyalists:
- Li Qiang (Party Secretary of Shanghai)
- Zhao Leji (former Secretary of the Central Commission for Discipline Inspection, new post to be confirmed)
- Wang Huning (former First Secretary of the Central Secretariat, new post to be confirmed)
- Cai Qi (First Secretary of the Central Secretariat, former Party Secretary of Beijing)
- Ding Xuexiang (former Director of the general office of the Central Committee, new post to be confirmed)
- Li Xi (Secretary of the Central Commission for Discipline Inspection, former Party Secretary of Guangdong Province, China’s economic powerhouse)
The departures of Li Keqiang and Wang Yang, seen as more liberal and pro-market figures, were another sign of Xi’s grip on the Party.
The Party Congress underscored the absence of major policy changes on the horizon, with President Xi’s opening remarks providing little new direction. The Party leadership’s long-term goals are not likely to change: China is amidst its 14th Five-Year Plan (2021-2025), which broadly appears a continuation of the previous approach. Regarding China’s Dynamic Zero-Covid policy, a reopening of the country will probably be delayed until at least Q2 2023 after the national parliamentary congress, with a gradual loosening of measures in places.
That said, Xi’s speech placed security, self-reliance, and ideological goals above economic objectives. The speech painted a gloomy geopolitical picture and hinted at a more defiant, less tolerant China. On Hong Kong, the speech reiterated the principle of “one Country, Two Systems,” while on Taiwan Xi restated the pledge that China must achieve reunification. Xi emphasized his desire for a peaceful reunification first, but kept military options on the table, sparking concerns about an increasingly intractable situation.
From a Western perspective, China appears increasingly authoritarian: ongoing human rights abuses in Xinjiang, Hong Kong, and Tibet; a Taiwan stance that may result in military conflict and humanitarian disaster; a “no limits” strategic partnership with Russia; no freedom of the press; and a “Dynamic Zero-COVID” policy which has exhausted its people.
The unprecedented third term of Xi and the ousting of moderate economic reformers Premier Li Keqiang and Vice Premier Wang Yang from the Politburo Standing Committee have created concern that China will become a threat rather than a stabilizing influence on the world stage.
Coming at a time when the EU has shifted its position on China from collaboration to being a systematic rival, the debate around how best to engage will only increase. Many democratic countries and multinational companies will be considering decoupling with China, but those are decisions that cannot be made overnight. While the situation in China has not deteriorated completely, the mood music is hard to ignore.
Excluding a country of China’s size from the world stage however would be disastrous, and would drive China towards a more aggressive stance given the current mutual economic interdependencies. At a minimum, the world will need to think about how to adapt to a more aggressive and assertive China. Meanwhile, it will watch the impact of extended COVID lockdowns, structural reform, and increasing authoritarianism – all contextualized by sluggish economic performance – with some nervousness.
What it means for business
Western business, especially small and medium enterprises, should be mindful that doing business in China will be more unpredictable than ever, as the policy environment and regulatory changes in China become more opaque. The same could hold true for large multinational corporates, who may be viewing the developments in China with a measure of pessimism, and may have a growing desire to wind back their exposure to China.
On the positive side, Western investment, technology, and expertise will remain vital for China’s goal to become a mid-level developed country by the next decade. The opportunity to thrive still exists, though it comes with greater sensitivities and more caveats — and the need to manage the expectations of stakeholders in home markets, while anticipating and preparing for the potential reputational challenges of the future.