When it comes to the impact of COVID-19 on the People’s Republic of China (PRC), the conventional wisdom seems to be that the emergence of the virus was mishandled and the Communist government has yet to be transparent about it, but that the spread was arrested through aggressive public-health practices and the economy has rebounded.
As usual with the PRC, the reality is more complex. In fact, recent signs of tension between President Xi Jinping and other leaders, notably Premier Li Keqiang, indicate the additional impact the pandemic had on an underlying soft economy and the country’s growing isolation because of Beijing’s poor handling of the crisis and other factors.
Some tension between the Chinese premiere — responsible for economic performance — and the Chinese president is not unique to Xi and Li. In 2007, then-president Hu Jintao was a Time magazine runner up for Person of the Year, feted for being the leader of the “most . . . economically dynamic . . . nation in the world,” even as then-premier Wen Jiabao had declared earlier that same year the Chinese economy may look strong but in reality was “unbalanced, unstable, uncoordinated, and unsustainable.”
Differences between Xi and Li are not new, either. The Wall Street Journal in 2016 reported that “signs of disagreement” between the two men were “spilling into the open.” At that time, the debate was about the degree of state intervention in the economy, with Xi calling for greater state control and Li urging greater reliance on market forces.
Just the same, the situation today is without recent precedent. In the past few years, Xi has centralized his personal authority to a degree not seen in a Chinese leader since Chairman Mao. In 2017, Xi took control of the country’s military and often appears in public in a military uniform. He is, in effect, the head of the National Security Council, the head of the foreign policy apparatus, and of multiple economic commissions. In recent public appearances, the state news agency Xinhua has referred to him as “People’s Leader.” Can “Chairman Xi” be far off? In additional to title inflation, in 2018, he imposed constitutional changes on the National People’s Congress that removed a term limit preventing him from seeking a third term in 2023. Xi’s moves and power consolidation mean he is responsible and accountable for both the good and the bad. And lately, there’s been far more bad than good.
Starting with the economy: However the government may have controlled the pandemic, the economy remains weak. Economic growth prior to the pandemic — according to China watchers skeptical of government numbers — was probably flat or negative, notwithstanding official statistics that had it closer to 6 percent. Government at every level and households had combined debt of about 300 percent of GDP. U.S. debt/GDP even after trillions in coronavirus relief spending is less than half China’s level, which leaves fewer levers for Beijing to pull to help stimulate the economy.
While the U.S. Federal Reserve and Congress have injected more than $6 trillion into the economy through massive purchases across many asset classes, the People’s Bank of China balance sheet has remained flat this year. The U.S. Congress provided about $630 billion in direct support to small businesses, compared with less than one-tenth that amount the PRC made available to small businesses in China. Retail sales in China for each month of 2020 are down compared with the same month the year prior. The real data are certainly worse than what the government discloses. In the U.S., retail sales in July were at all-time highs, eclipsing their pre-pandemic levels. According to economist Carlos Casanove at French insurer Coface, the PRC “recovery narrative has been overplayed.”
This is contributing to the tension between Xi and Li. At a press conference in May, the prime minister acknowledged that 600 million people in China — about half the population — subsist on 1000 yuan ($140) a month. This number includes the estimates of 80 million who lost work due to the virus who may have no income and no meaningful social safety net in China. Li’s data track with World Bank data which show a vast disparity in income between the urban elite and the mostly poor rural population. Even so, his comments were out of step with other government-touted figures, including a central bank survey in April of 30,000 urban residents who have an average of nearly half a million dollars in household assets. This figure generated so much controversy that the central bank withdrew it.
Li’s comments also contrasted with Xi’s longstanding commitment to creating middle-class prosperity. Shortly after Li made his comments, Xinhua announced that the influential party organ Qiushi would soon publish an article by Xi on “building a moderately prosperous society.”
In his press comments, Li also encouraged the advance of what he called a “street vendor economy” as a way out of the coronavirus economic malaise. That, too, undermined Xi’s prosperity push. Within days, party organs in Beijing and elsewhere published pieces criticizing “street vendor” economics as inappropriate. The term had gained a hashtag following on Weibo, the country’s Twitter equivalent. Western journalists reported that the hashtag disappeared and was no longer searchable after a few days. The following month, Xi convened a business council to reinforce the prosperity messaging and Li, a member of the council and nominally responsible for the economy, was not invited.
To add humiliation to the upbraiding, on July 31 at a ceremony in Beijing to recognize party leaders after the successful launch of a satellite for China’s independent Global Positioning System, the party took a deliberate stab at Li. As he was introduced, Xi’s multiple titles were read one after the other, and he stood for recognition to hearty applause. Immediately following, Li’s name was quickly read and as participants began to applaud — except Xi who sat staring straight ahead — Li began to stand in recognition. Before he could do so, the next name was read. Li made an awkward half-stand to tepid, interrupted applause and sat back down quickly. It was a clear and intended snub.
The tension reflects the growing pressure Xi is facing for the mishandling of the coronavirus. This is compounded by the economic impacts of the Trump trade pressures, the global backlash of the Hong Kong National Security Law, the declining fortunes of national technology champion Huawei, and other reactions to growing China militance and chauvinism. Xi’s problem is that, as “President of Everything for Life,” there are fewer scapegoats.
That is not stopping him from trying to shift the focus. This includes additional purges of party elite, which has been a characteristic of his regime since the beginning. When he first took power, Xi’s purges were dressed up for western business leaders and others as an “anti-corruption” drive and he was lauded for them. In fact, Xi was wringing the system of any potential future challengers, many of whom were acolytes of former president Jiang Zemin. Jiang had restored credibility and stability to China after the Tiananmen massacre in 1989, presided over China’s explosive growth in the 1990s, and managed the handover of Hong Kong from Great Britain. At 94, the “paramount leader” still wields influence by virtue of longevity, allegiance, and nostalgia.
Xi’s current purges are meant to stamp out any criticism of his consolidated power and the ways in which he is using it. In August, that included Cai Xia, a long-time instructor at the Central Party School, who was expelled from the party. Among other criticisms, she had called the party under Xi a “political zombie” and warned that “the systems . . . has to be jettisoned.”
Xi also is on guard for any signs of popular unrest. There are plenty of potential sources for it, including the heavy-handed methods used to address and contain the coronavirus breakout. Well past the point at which the government had reported the virus under control, citizen journalists were providing vivid reports about forced isolation, relocation, and quarantining, overloaded hospitals and morgues, and other accounts suggesting the situation was worse than the world was being told — even allowing for the initial obfuscation.
There are other storm clouds for Xi, literally, in the torrential rainfall and flooding that has beset the Yangtze river basin in country’s central and southwest regions. The Three Gorges dam — the world’s largest — is some 20 meters above its maximum warning level and just shy of its maximum physical level of 175 meters. To control it, officials are discharging record volumes of water. Controlled and uncontrolled flooding has caused tens of billions of dollars in damage and some 63 million people have been impacted according to Reuters. Upstream of the dam in Chongqing, a city of 30 million, hundreds of thousands of people have been relocated. The flooding is damaging agriculture, and there is growing concern about food security. Catastrophic failure cannot be ruled out; the dam was controversial during its twelve-year construction for the social and environmental infrastructure damage it caused, and persistent doubts about the quality and integrity of the project have simmered since its inception.
The western political philosophy of the Divine Right of Kings held that sovereigns gained their authority from God, not by the consent of the governed. Ancient Chinese philosophy has a twist: The ruler has a Mandate of Heaven to rule and loses the mandate if he fails to serve the people. Successive Chinese dynasties drew their legitimacy by having declared that their predecessor had lost the Mandate of Heaven. Those seeking to supplant one imperial ruling class with another would point to natural disasters, famine, and other phenomena as proof that heaven may be losing patience. In a March Washington Post piece, Beijing bureau chief Anna Fifield wondered if the coronavirus and subsequent challenges are testing Xi’s Mandate of Heaven. The question she raised in her provocative article was whether the public might be turning on Xi. Fifield cited scholars who subsequently went missing, including a Tsinghua University professor who wrote about “the rotten core of Chinese governance; the fragile and vacuous heart of the jittering edifice of state . . .”
Since then, things have only gotten worse for Xi. While there is no basis to conclude that his hold on power is in imminent danger, neither should we assume that his longevity is assured, as many did when the term limits were removed. The Chinese economy is soft; the man most responsible for the economy has acknowledged that half the population is in poverty. The world accepts that Beijing’s disingenuous handling of COVID-19 led to a global pandemic which has caused global economic recession.
Xi’s bluster in the face of Li’s truth-telling offers a stark contrast not just for western observers but for party and government officials in China at every level. The likely outcome will be policy paralysis, forcing Xi to take even harsher measures to maintain his hold on the party and the government. He also is likely to intensify his external actions, including the hardline we are seeing in Hong Kong, more pressure on Taiwan, and more regional and international belligerence.
This is the landscape that awaits the next U.S. president. Whoever wins should be under no illusions about China. The country and its leader are in trouble, and U.S. policy should reflect that by being prepared for standoff and further tension.
Xi Jinping has cloaked himself with the mandate of a modern emperor. It remains to be seen if heaven can wait.