China’s Reality Check

China’s authoritarian President Xi Jinping faces a crucial test on 16 October. The Chinese Communist Party (CCP) will hold its 20th National Congress in Beijing from 16 October 2022 to hand Xi a precedent-breaking third consecutive term as China’s president and the CCP’s general secretary.

The CCP’s National Congress is held once every five years. To be attended by over 2,300 delegates of the CCP in the Great Hall of the People in Beijing, the 2022 National Congress comes at a crucial time for both Xi and China.

Xi’s third successive term will put him in the company of Mao Zedong. No other Chinese leader since Mao has wielded the absolute power Xi does today: not even Deng Xiaoping, the father of China’s economic revolution.

However, the horizon beyond Beijing is darkening. Xi’s ascent has alienated powerful groups within the establishment. Social media is tightly controlled in China but some blogs critical of Xi have for brief periods escaped censorship.

The decision to hand suspended death sentences to two senior CCP leaders (both ex-ministers) and put several others, including five former police chiefs, in jail has caused serious disquiet among CCP members. 

The rumours of a coup against Xi were allowed to gain currency for nearly a week before the Chinese president put them at rest by appearing on national television on 27 September accompanied by Prime Minister Li Keqlang.

Xi knows that the immediate threat to China comes not from within but from a rapidly decelerating economy. The real estate sector has collapsed. Half-built buildings litter cities across China. Developers don’t have money to complete them. 

The real estate industry led China’s economic boom from 2010. Along with associated ancillary industries in the construction sector, realty accounts for over 30 per cent of China’s GDP. 

For a nation used to economic growth in double digits for over a decade, likely three per cent GDP growth this year and possibly in 2024 comes as a reality check.

Underlining the seriousness with which Chinese authorities view the crisis in real estate, Bloomberg reported: “China Construction Bank Corp will set up a 30 billion yuan (USD 4.2 billion) fund to buy properties from developers, as policymakers beef up efforts to contain a real estate crisis that’s weighing on the economy. The fund will ‘invest in existing assets’ of real estate companies and renovate the properties into rental housing, the lender said in a statement to the Shanghai stock exchange. The fund lasts for 10 years, with a possible extension, according to CCB, which is one of China’s big four state-owned lenders.”

Beyond the economy, China faces geopolitical tensions. Its support of Russia’s war in Ukraine has isolated it globally. Indian business leaders are normally paragons of political correctness. They rarely criticise governments whether foreign or their own. Gautam Adani is clearly different. The world’s third richest person was his candid self at a conference in Singapore on 27 September 2022.

Bloomberg reported: “Billionaire Gautam Adani said China will feel increasingly isolated as rising nationalism, shifts in supply chains and technology curbs threaten the world’s second-biggest economy. China’s Belt and Road Initiative has run into resistance in many countries, challenging Beijing’s global ambitions. The property market meltdown has drawn comparisons with what happened to Japan during the last decade of the 1990s.”  Adani added: “While I expect all these economies will re-adjust over time – and bounce back – the friction looks far harder this time.”

Though still muted, dissent is building up against Xi’s dictatorial leadership. Since he took office nearly 10 years ago, Xi has jailed, exiled or sidelined potential rivals. Mid-level officials have been punished for corruption.

Xi’s stand on Taiwan has, however, softened in recent weeks following his hyperbolic reaction to the visit to Taipei by United States House of Representatives Speaker Nancy Pelosi. Chinese leaders are now talking more emolliently about reunification with Taiwan.

Why the change in tone? There are three reasons. One, Beijing has noted with consternation Russia’s military reverses in Ukraine. Invading and occupying Taiwan, which has a 110-mile water buffer to protect it from China, will be an even harder task for the People’s Liberation Army (PLA) and navy, both of which are ill-equipped for an amphibious military assault.

The second reason for taking a step back over Taiwan is China’s spluttering economy. Till it is set right, military adventurism is ruled out. Finally, Beijing knows that the global isolation Adani spoke of at the Singapore conference could stall its stated bid to be the world’s leading superpower by 2049, the centenary of the founding of the People’s Republic of China (PRC). 

Beijing is also watching closely how India is bolstering logistical infrastructure along the Line of Actual Control (LAC). Equally worrying for the Chinese is India’s continuing military build-up along the LAC. Howitzers, advanced rockets and missile-carrying drones have added to India’s 50,000 soldiers arrayed across the border.  Strategically placed squadrons of Rafale fighter jets and the S-400 air defence system have dispelled any thoughts Xi might have had of India succumbing to Chinese military pressure in disputed territories.

India’s strategic global alliances have also given Beijing a wake-up call. China’s favourite weapon to destablise India was Pakistan. But with Islamabad itself in dire straits, that option has withered. Meanwhile, India’s alliances with the US, Israel and the United Arab Emirates (dubbed 12U2) and India-Brazil-South Africa (IBSA) as well as trilaterals with France-UAE and France-Japan have signalled that while India will lean West, it will also build multilateral relationships on security, trade and intelligence sharing.

Turkey, a staunch Pakistan-China ally too has meanwhile modified its stand on Kashmir.  At the United Nations General Assembly (UNGA) last week, Turkey’s hawkish President Recep Erdogan simply said: “We hope and pray that fair and permanent peace and prosperity will be established in Kashmir.” 

China’s place in a rapidly changing world will be on the minds of CCP delegates as they gather in Beijing on 16 October to give Xi a third successive term. Xi will be 74 by the time his new term ends in 2027. For a man who aspired to be president-for-life, the candid deliberations at the CCP’s National Congress on China’s faltering economy could prove a sobering experience.