Life of the Party

An Interview with Elizabeth Economy

Thomas Demand. Space Simulator, 2003, (detail). © Thomas Demand, VG Bild-Kunst, Bonn / ARS, New York.

Thomas Demand. Space Simulator, 2003, (detail). © Thomas Demand, VG Bild-Kunst, Bonn / ARS, New York.

Octavian Report: What are the big takeaways from the Party Congress in China in October?

Elizabeth Economy: I think the biggest takeaway from the 19th Party Congress is that Xi Jinping has cemented his institutional authority. He's done this by having his thought added to the socialist canon in the constitution in a way that is only equaled by Mao Zedong. That means that his name is attached to it — “Xi Jinping thought” — and the word "thought" is used.

That's one significant element. The second is that he didn't signal who would succeed him as General Secretary in 2022. This is something that has become a Party tradition for about the past two-and-a-half decades. It's an informal tradition, but the fact that he didn't signal successors suggests that he's leaving open the possibility that he would continue on for a third term.

In addition, he managed to put in place a number of his allies. Four of the seven members of the top governing body, the Politburo Standing Committee, are closely allied to Xi. Within the Politburo itself, that number is as high as 18 out of 25. It's also quite significant because that means that the overall policy direction in which he wants to take the country is likely not to face significant challenge.

I think the other thing that came through quite clearly in his three-and-a-half hour speech is that he largely believes he's on the correct path. That the country has achieved some success but there's still a long way to go. The priorities that he has targeted for the next five years are pretty much the same ones that he outlined over the past five years.

Those include still continuing to address corruption within the Party. I think that's one of the hallmarks of his administration to date. The fact that there's been absolutely no letup in the prosecution of this anti-corruption campaign. It's unprecedented not only in terms of the scope and scale but also duration. Every year, more officials have been detained and prosecuted than the year before. I think that's significant.

I think the environment and addressing, in particular, China's air pollution problem is a second priority that's become a real issue for the legitimacy of the Chinese Communist Party. There’s also rectifying economic inequality. He made a grand pledge to eliminate poverty by 2020. That's on top of his pledge to double income between 2010 and 2020.

Then the other signature element in the speech was his saying that China could serve as a model for other countries. That's the first time we've heard that since Mao Zedong. That's also I think pretty significant. What that model actually means has yet to be fully explained or understood.

OR: Given recent noises that the government would be possibly be taking stakes in major private enterprises, is it possible that Xi is rolling back China’s informal capitalism?

Economy: I think one of the things that has distinguished the Chinese economy under Xi Jinping has been the much greater inclusion of the Party into economic life. First, what we saw was a much stronger role for Party committees within state-owned enterprises.

Before they were kind of rubber-stamped. Xi Jinping now wants to have the Party committee actually approve, for example, investment decisions by SOEs and to have the Party committee in joint ventures play that same role — which is causing a significant concern among multinationals. In addition to that, there is, of course, this most recent discussion or move to have the Party take formal stakes in some large technology companies.

It’s important to understand the Party already has informal stakes through different funds and ventures in these companies. They also have been fairly successful in pushing these companies to take mixed ownership states in Chinese state-owned enterprises.

For example, China Unicom just opened a large subsidiary to private investment and you saw Alibaba and Tencent and JD all take stakes in this. What's interesting about it is it's not the companies themselves taking stakes in this money-losing China Unicom venture — it's the founders and some of the senior managers taking stakes. That, I think, is a signal that the heads of these companies want to protect their companies from these money-losing ventures even as they recognize that in order to be seen as supportive of the Party, they need to undertake this investment.

Then there is this effort to take a one percent to two percent stake in these companies. The Party will take a formal stake and get a position on the board. That's what they really want. That, I think, serves two purposes. Number one, it helps makes it easier for the government to push these companies to do the same type of thing that I just mentioned, which is to take stakes in state-owned enterprises and to help capitalize them and give them some greater legitimacy.

Also, it helps the Party ensure that these companies, as they go global, don't begin to develop alternative ways of doing business. One of the complaints of an Internet company like Baidu is that in order to operate globally, they would have to operate differently from the way that they operate in China.

You find that some of these companies push back against some of the more restrictive Internet regulations that the Chinese government has put in place over the past five years. While they know they have to accede to them, they push back. To go global, to be competitive globally, they really can't operate that way. That means they're going to have to develop two very different operating systems, which is quite challenging.

The Party now has a greater role in these companies to ensure that whatever they're doing at home or abroad is not running afoul of political requirements of the government. Is it the same kind of effort we saw with Putin and the oligarchs in Russia? Maybe there's some of that, but I think there's a much stronger political element in the Chinese effort than there was in Putin's effort — there’s an ideological component to this in addition to a power play on the part of the Chinese government.

OR: What concrete actions should we be looking out for on the domestic political side for the next few years?

Economy:  For me, one of the most defining features of the Xi administration is this deeper penetration of the Party into Chinese society. At the same time, there’s an effort to develop a wall of restrictions and regulations that keep foreign ideas and culture from coming in to the country. I think that is what I expect to continue above all.

That means greater controls on Chinese society whether it's through improved surveillance tech or the social credit system. That's where they're going to be gathering all this personal data, information about people in order to then reward or punish them. If you participate in a protest that gets a big black mark. If you don't pay your debts, you can't get on a plane.

I think that increasingly there's going to be discontent among some segments of Chinese society — scholars and entrepreneurs — about the increasing intrusion into the way that they do business. These are two groups that thrive on openness of information and an ability to travel freely, to move their money freely and to engage freely with the international community. That's really the bread and butter of their work.

To the extent that Xi Jinping continues to clamp down on this, I think you'll see more pushback. Indeed, you have. Again, if you look at what's going on in the National People's Congress or the Chinese People's Political Consultative Conference, you actually see a lot of dissent and a lot of pushback against the more extreme politically repressive moves that Xi has made.

I think sometimes we tend to overestimate Xi's authority, which is why I said at the outset that he had a mass institutional authority. That doesn't mean that he commands everybody's personal loyalty.

On the environmental front, I have to give the regime credit. I think they are going further to make some of the institutional changes that are necessary to improve the environment than any previous Chinese leadership. That means revising the laws, trying to enhance enforcement, rooting out corruption in the environmental protection system.

The place obviously where it is falling short still, I would say, is in the role of nongovernmental organizations and the media. Being able to freely report and criticize and hold accountable officials. I think we'll see some progress over the next five years. Maybe I would be cautiously optimistic there.

OR: What does China’s overall foreign policy look like over that same period?

Economy: I would say Xi Jinping has two broad objectives. The first is to promote himself and China as leaders on the global stage. You see that in his speech at Davos, his previous speech at APEC where he talked about China as a defender of globalization and open for business. Somebody that can be counted on to step up and to help address global challenges like climate change.

I think Xi Jinping very much wants to promote the idea that China is stepping forward even as, say, the United States and other powers are seen to be retreating from leadership on the global stage.

The second thing I would say in terms of broad strategic initiatives is his idea of the “community of common destiny.” Which, on the face of it, sounds like one more aspirational statement of intent that doesn't really have much content behind it. What it really is at its heart, though, is an effort to undermine the U.S.-led system of alliances, because it says quite explicitly that what you want are partnerships, not alliances. Alliances are a Cold War relic. All of this is to say that the fundamental underpinnings of international relations are changing. That China is leading this transformative process and it's all about integration and interdependence and globalization. Therefore, the United States, as the world superpower, is no longer needed in that capacity.

OR: What are the big weak points that he will seize on?

Economy: One he has already seized on, which was the TPP. That was an effort in which the U.S. was basically defining trade rules for 40 percent of the global economy. Now, the U.S. has obviously taken itself out of that. While the TPP is moving forward, it's moving forward not only without the United States, but without the environmental and labor elements of it. China has proposed its free trade area of the Asia-Pacific, which actually was a U.S. initiative many years ago.

I think that's one element of it. Another we can see in the North Korea crisis, where China basically lifted its economic boycott on South Korea and agreed to recognize THAAD in exchange for South Korea agreeing not to join a trilateral security alliance with the United States and Japan and not to accept further THAAD launchers.

That's China being preemptive. I think from the Chinese perspective, the greatest leverage that it has is its trade and the fact that it is the largest trading partner for a vast number of countries.

This is seen as a way not only to compete with the United States, but really to demonstrate that the U.S.'s security blanket may not be as necessary as countries believe. If China is a positive and forward-looking and economically beneficial partner for them, what is, really, the utility of the United States?

OR: What's your take on the thesis of the so-called “Thucydides Trap” — the idea that the U.S. and China are on an inevitable collision course?

Economy: I do not subscribe necessarily to the Thucydides Trap. I don't see them on an inevitable collision course, because I don't also believe that there only two players in the world. I think one of the great mistakes that many people make is to put everything into this binary equation. If you look at the Asia-Pacific region, for example, it's not all about the United States and China. There is Japan. There is India. There is Australia. There's Vietnam.

One of the great challenges, frankly, is helping to prevent everything from being looked at through that lens. For example, people will often say, "Oh, China is beating the U.S. in clean energy. China is investing more in clean energy in United States." Or, "China has higher math scores on the PISA exam than the United States." To me, that is not a fruitful way of engaging an issue.

OR:  Do you think there is the chance that a miscalculation might lead to confrontation?

Economy:  There's always a chance of miscalculation. If the United States were to launch a preemptive strike and North Korea retaliated and attacked South Korea, then the the United States might get into a war and China might join in on the side of North Korea. Is that possible? Yes.

It is possible that China might undertake some kind of a coercive military action with regard to Taiwan at some point in the future. Then the United States would have to decide whether it would step up and help defend Taiwan.

I think the reality of China's behavior is very different from its rhetoric. I'm always one for holding China accountable. When China says that it's the defender of globalization, I say, "You don't allow for the free flow of information or capital. How is China a leader in globalization?" If China says its rise is peaceful, I say, "Then why are you scrambling jets in the East China Sea and developing oil and gas fields in a contested area?"

Even when people say, "Oh, China is now a leader on global climate change," I say, "How is China leading on global climate change? Its emissions continue to rise. It is the largest contributor to global climate change. It has stepped up to the plate to forge a new agreement on some other greenhouse gases, like methane. What does it mean to lead?" That's where I come out on all of this.

OR: What would lead them to do something around Taiwan?

Economy:  Xi Jinping has said on a couple of occasions that the reunification of Taiwan is a historic inevitability, and that it should happen sooner rather than later. I would guess that as with Hong Kong, the more that Taiwan appears to be moving away from an understanding that it is part of China's sovereign territory, at least in China's mind, the more Xi Jinping is likely to look for means of economically or politically or diplomatically trying to coerce Taiwan.

I think those would be the first steps and he's already done that. He stopped formal political discussions between Taiwan and the mainland. He reduced the tourism. At the same, he said, "Those of you on Taiwan who support a reunification will find a very happy investment environment in the mainland."

That's his general strategy at this point in time. Now, would he undertake some kind of military action? Again, I think if he feels as though that Taiwan is moving in the right direction, then no.

OR: How would you assess Xi’s performance on prosecuting One Belt, One Road and the AAIB as strategic economic initiatives?

Economy: A for vision and B- for execution. He's generated enormous enthusiasm throughout Asia and Europe and beyond for the idea that China is going to be additive in terms of helping to develop infrastructure within Asia and also for this idea of interconnectivity and making everything easier, faster, and better.

They're very attractive notions and pictures. I think the execution has been less dramatic than the conception. I think three of the four initial projects out of the AIIB were in conjunction with other development banks. It's not clear that AIIB is playing that significant role as of yet in the infrastructure needs of the region or in doing things in a different or better way than the World Bank or the AIDB.

The Belt and Road Initiative is a very big deal. If fully realized, I do think it has the potential to reconfigure international relations in a pretty significant way. I also think we're already beginning to see some of its limits, which is to say Pakistan and Nepal both cancelling big projects that China had outlined.

I think there is concern within China. You can find many scholars and even officials who are worried that China is going to be putting good money after bad. They don't understand how many of these projects are going to make money. Indeed, some of them are not necessarily designed to make money. They're there for strategic purposes.

Sometimes, they're in heavily conflicted areas like Pakistan. They're putting Chinese people at risk for this great vision. Again, I think much of the Belt and Road Initiative is really a very traditional Chinese way of doing business, which is to say some resources, some infrastructure, and a lot of nontransparent backdoor dealing.

I think that's another element to this when you get down to the nuts and bolts of it, i.e. China's export of overcapacity. How much of it is really very different from what we've been seeing since 1999 with Jiang Zemin and Zhu Rongji's “Go Out” strategy in search of natural resources? I think the Belt and Road Initiative has a long way to go to realize its ostensible potential, but if it does, then I think it's pretty significant.

OR: Has there has been an American withdrawal in the Pacific?

Economy: Putting aside the TPP, I don't know that there has been as significant a step back as many people might think.

If anything, our military presence is only increasing. We have done more freedom of navigation operations in the South China Sea in the past several months under the Trump administration than we did during the entire Obama administration. Not only that, but the Pacific commanders announced that we are going to have a regular schedule of these freedom of navigation ops.

That's really important in terms of asserting U.S. presence. We've reinvigorated this quadrilateral strategic dialogue with Japan and Australia and India. We'll have to wait to see what comes of it. We have this notion of a free and open Indo-Pacific. Again, that's rooted very much in traditional U.S. principles: freedom of navigation, free trade, and also political freedom.

If you put aside President Trump and his rhetoric, a lot of what's taking place on the ground is very similar. I would say the greatest surprise for me was Rex Tillerson going to Myanmar and pushing on this issue of the refugee crisis. I had thought that we had basically taken ourselves out of the game of addressing these global challenges and crises. That was an important moment I think signaling that, again, perhaps the response is not as robust as many people would like, but that the U.S. is still, at some level, committed to playing the same role in the region that it has.

OR: What do you make of Xi’s relationship with Putin? Do you see Russia and China growing closer together?

Economy: I think it's a complicated relationship. I think there are very strong common interests. Clearly, they've given each other space: China in terms of Russia's invasion of Crimea and Russia in terms of China's actions in the South China Sea. They don't criticize each other. I think Putin has recognized that he has claimed the larger ground globally.

China has been more responsive when it comes to North Korea than Russia has. Typically, the two of them work in concert, but generally speaking, China has been willing to ratchet up sanctions in ways that the Russians have not been as amenable to. Is there competition between the two? I think absolutely: Central Asia is still an area of competition.

I think the Russians have been disappointed by the failure of the Chinese to live up to all of the promised investment that they thought they were going to get from them. On the one hand, they don't want to be flooded with Chinese in the Far East of Russia, but by the same token, they thought they were going to get more out of the Chinese than they have.

I think there are some places where they see things differently and some places where they compete, but overall, they place enough of an emphasis on keeping the relationship a positive one that they're willing to play down their differences in favor of their common interests and objectives.

OR: Does Xi’s drive to consolidate power rise from China’s own political atmosphere or is it part of the growing authoritarianism around the world?

Economy: I think both are true. I think there's something happening globally in the sense that the forces of globalization have left people in many countries feeling disenfranchised. Those could be both in terms of commerce but also terrorism and other things.

I think that is true for much of the world. I think it plays out less in China than almost any other place, though, because China was less subjected to much of that when Xi emerged. I think Xi came out of something very domestically rooted, which was a sense that the inheritance of Hu Jintao and Wen Jiabao was what the Chinese call a “lost decade.”

They were weak leaders who had little global presence in many respects, even though the whole idea of the “peaceful rise” started then. People believe they didn't capitalize on China's rising economic greatness. I think Xi Jinping came out of that. That sense that the Party was corrupted and if they didn't address the corruption, it would be the death of the Party and the death of the Chinese state.

I think that kind of strong leader came out of a sense of the weakness of the Party and the fragmentation of China domestically. I think that's where that came from — a little bit different, maybe, from the other kinds of forces of globalization.

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