Resurrection day arrives: Why China business will get even tougher after Xi's 20th Party Congress -- China Boss update 9.30.22
Update
What happened.
Forbes’ staff reporter Russell Flannery last week wrote that “[f]oreign companies doing business with China that have endured heightened risks this year from geopolitical tension and Covid-19 pandemic fallout aren’t likely to get much of a break after the Communist Party’s much-awaited party congress in October.” Flannery based his sober prediction on a recent interview with Bates Gill, a long-time China scholar and newly appointed executive director of the Center for China Analysis at the New York-based Asia Society Policy Institute.
Gill interview, Forbes:
[Gill:] The big obstacles are obviously the domestic political situations in both countries, which I think makes it difficult for either side to accommodate the other and try to come up with a formula that, maybe, could set a floor under the relationship or establish a somewhat more moderate tone for the two sides. But that wording is going be difficult to come up with. They're still in the earliest days of trying to actually work out what that might be.
Why it matters.
What to expect from China in the future
Gill, who released his new book "Daring to struggle," in June, noted that part of the challenge facing foreign companies as geopolitical tensions between the US and China continue to rise is President Xi's "increasing confidence, increasing risk-tasking, and increasingly nationalistic positions."
Forbes:
[Gill:] I think they are born of two things. One is an outward-facing confidence in his position and the ostensible support he enjoys within the party, which then lends him the authority and mandate and resources to take on more risky, assertive, and nationalistic positions.
Second, that is born of a calculation he and his supporters have reached. While it's understood that this more assertive, nationalistic, confident posture clearly has risks and is getting more difficult, they are seen as less risky than not taking this approach to their international relations. The relationship with the United States has not gone well; almost every major relationship that China has internationally has not improved over the last 10 years — it has actually gotten worse, save perhaps the relationship with Russia, which has clearly deepened, but which also carries with it enormous risks.
In other words, Xi’s risk-taking and achievements in bringing back state power after more than two decades of an extraordinary period of openness that injected new blood, often in the form of powerful business tycoons, like billionaire real estate investor Ren Zhiqiang and Alibaba founder Jack Ma - as well as more progressive Party members into the heart of Chinese policy-making - is self-reinforcing. That leaves little hope of improvement in China’s increasingly poor relations with Western democracies.
The Party’s resurrection under Xi’s leadership
Julian Gewirtz, author of the soon-to-be-released book “Never Turn Back: China and the Forbidden History of the 1980s,” last week gave a striking account in Foreign Affairs of how the lack of a “grand plan or blueprint” in the 1980’s turned party ideology on its head. “Perhaps no subject attracted greater interest [at the time]—and debate—than reforms to China’s political system,” he said. But that all changed with the 1989 uprisings at Tiananmen Square, after which party elites spent the better part of the following decade struggling to figure out how to remain relevant and in power while economic reforms were underway.
Gewirtz, Foreign Affairs:
Whereas during the 1980s China’s rulers had considered many forms of liberalization and modernization, now they recommitted themselves to a new, narrower, and more authoritarian path. Political reforms could be allowed only if they served the goal of strengthening the CCP. And no matter how official or authoritative they had once been, alternative voices—and alternative histories—were silenced. “Some matters should be limited to only a portion of people to know and master,” Jiang Zemin, Zhao’s successor as CCP general secretary, said in late 1989. “What can be transparent and what can’t be transparent [all] depends on whether it is conducive to social stability, political stability, economic stability, and stability in the people’s hearts.”
This rectification continued and broadened in the autumn of 1989 and the following years. For the CCP leadership, the stakes only grew as the Berlin Wall fell and political changes swept across eastern Europe. Deng said, “So long as socialism does not collapse in China, it will always hold its ground in the world.” Especially after the Soviet Union’s collapse, China’s rulers saw their country as a socialist survivor in a dangerous capitalist world.
Their new enemies were both domestic and foreign. Among the perceived villains was the Hungarian American financier George Soros, who was accused of plotting with Zhao’s advisers to promote the “peaceful evolution” of China from socialism to capitalist democracy. Domestically, broader purges of wrong-thinking intellectuals, officials, and workers were widespread, brutal, and conducted largely in secret.
It always seemed odd to China Boss why Xi Jinping should ascend to power over better-connected and more capable princelings, and, odder still, that he should succeed in amending China’s two-term constitutional limit on the presidency and in displacing the hallowed Asian tradition of elder-statesman advised policy-making, when, even by insider accounts, his leadership is “killing a country,” and spurring the wealthy and powerful to emigrate.
But in December 2020, she stumbled upon Zach Dorfman’s three-part Foreign Policy series on the U.S.-China data war that shed light on just how close the CCP came to self-extinction and how that was a defining moment in Chinese politics that gave Xi Jinping his chance.
Dorfman, Foreign Policy:
Corruption was increasingly seen as the chief threat to the regime at home; as then-Party Secretary Hu Jintao told the Party Congress in 2012, “If we fail to handle this issue well, it could … even cause the collapse of the party and the fall of the state,” he said. Even in China’s heavily controlled media environment, corruption scandals were breaking daily, tainting the image of the CCP among the Chinese people. Party corruption was becoming a public problem, acknowledged by the CCP leadership itself.
But privately, U.S. officials believe, Chinese leaders also feared the degree to which corruption had allowed the CIA to penetrate its inner circles. The CIA’s incredible recruiting successes “showed the institutional rot of the party,” said the former senior CIA official. “They ought to [have been] upset.” The leadership realized that unchecked corruption wasn’t just an existential threat for the party at home; it was also a major counterintelligence threat, providing a window for enemy intelligence services like the CIA to crawl through.Within the CIA, China’s seething, retaliatory response wasn’t entirely surprising, said a former senior agency official. “We often had [a] conversation internally, on how U.S. policymakers would react to the degree of penetration CIA had of China”—that is, how angry U.S. officials would have been if they discovered, as the Chinese did, that a global adversary had so thoroughly infiltrated their ranks.
Emphasis added.
“There was never any romanticism about Xi,” a former national security official later told Dorfman, but “no one was able to foresee the kind of leader he was to become,” and “the Communist Party leadership didn’t see it either.”
“There was some wishful thinking that Xi would come in and promote some kind of continued reform,” this source said. “But the vast majority [within the agency] thought the party was moving toward the strongman model, [the idea] that China should stand up and become more aggressive in its viewpoint. Within elite party corners that was a big debate at the time.” But “what CIA was hearing from sources pointed to a re-centralization for the party to maintain power,” this person recalled.
“There was concern in Washington about what Xi was going to pursue, both in terms of domestic liberties, but also his approach to America,” said Gail Helt, a former CIA China analyst. “The Chinese Communist Party is corrupt, to put it mildly, but there were initial indicators that he was going to clean up that corruption, there was a little glimmer of hope. Then it was clear that he was going to purge and create a personality cult.”
Emphasis added.
And what to make of the other 95 million members of the Chinese Communist Party? Best get on board with the new totalitarian’s upcoming coronation, as well as with all parts of his program - lest they are also caught in the terrifying dragnet of his incredibly powerful surveillance state. Else get themselves, their families, and their treasure chests out of Dodge - if they can.
And that’s exactly what’s happening, which is why Gill and a growing list of other China experts, including China Boss, are telling foreign companies who insist on doing business with China: “Proceed with due caution.”
Watch on YouTube.
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Have a great weekend.