How US-China trade war could chip away at the ‘cult of Xi’

He is the most powerful leader in modern Chinese history since Mao Zedong. Last October, President Xi Jinping’s Thought on the Socialist Economy with Chinese Characteristics for a New Era was enshrined in Communist Party dogma at the 19th National Congress in the fabled Great Hall of the People.

Only Chairman Mao had been honored in this way while he was still alive. Deng Xiaoping, the architect of China’s economic miracle, joined the Great Helmsman after his death in 1997 with his “Socialism with Chinese characteristics” Theory.

These fundamental doctrines are now at the heart of the CCP constitution and are taught at universities across the country. The cult of Xi was firmly in the ascendancy.

Fast forward 10 months, and this has turned into a summer of protest instead of a summer of love for the president.

There are questions already being asked about his policy decisions as the trade war with the United States drags on, the economy cools, and ‘crown jewel’ programs, such as “Made in China 2025” and the Belt and Road Initiative, become controversial topics.

Critics have even branded these ‘New Silk Road’ superhighways as “debt traps.”

“Recent evidence provides plenty of data to justify US disappointment and rising concern over Xi Jinping’s policies and practices,” Robert Sutter, a professor of international affairs at the George Washington University, wrote in a commentary for the Center for Strategic and International Studies, a think tank based in Washington.

“There are [also] gaps and shortcomings in China’s international economic policies, [while] there has been pervasive hedging among independent-minded Asian governments that makes Chinese dominance difficult,” added Sutter, the author of Foreign Relations of The PRC: The Legacies and Constraints of China’s International Politics.

On the domestic front, Xi has tightened Party-control, especially in academia, and refined the Great Firewall to stifle debate.

An essay entitled Imminent Fears, Immediate Hopes by Xu Zhangrun, a professor of constitutional law at the influential Tsinghua University, which is the president’s alma mater, highlighted the feeling of “anxiety” spreading across society.

“People nationwide, including the entire bureaucratic elite, feel once more lost in uncertainty about the direction of the country and about their own personal security, and this rising anxiety has spread into a degree of panic throughout society,” he wrote on the website of the Unirule Institute of Economics, a rare independent think tank in Beijing.

‘Patriotic spirit’

Since then, the Communist Party has launched a crackdown, or a “campaign,” to promote a “patriotic striving spirit” among the country’s intellectuals,” Xinhua reported early this month.

At the same time, Beijing has come under pressure from the vaccine scandal, which has seen dozens of officials sacked or disciplined, after triggering protests from angry parents. Many anxious families even traveled to Hong Kong to inoculate their children after the crisis erupted.

Xi was out of the country on a tour of Middle East and African countries when the affair broke, but he still came in for flak in oblique comments on social media. Yet, it is the economy and the trade conflict with the US that is causing consternation.

For more than two decades, China was the poster child of economic development and during the past 10 years a major driver of global growth during the Great Recession in the West after the financial crisis in 2008.

But as Europe and the US gradually recovered, cracks in Beijing’s progressive image started to appear. The program of reforms, which had turned the country into the world’s second-largest economy, started to slow, and government subsidies for key industries and state-owned enterprises gathered pace.

Intellectual property violations continued along with the practice of “forced technology transfer” for foreign companies doing business in the country. “Promise fatigue” also set in as Xi constantly talked about further opening up the economy to overseas competition without producing a detailed timetable of when the changes would be implemented.

Concerns started to emerge that China was simply manipulating, and at times shredding, the Word Trade Organization rulebook.

“[There is] a sense of disappointment that China’s WTO accession didn’t do more to transform the rules of the game inside China’s own market,” Brad W. Setser, a senior fellow for international economics at the Council on Foreign Relations, wrote in a blog post.

“Expectations that China would have to change, politically and economically, to succeed in the global economy haven’t been born out, as Ely Ratner and Kurt Campbell argued in Foreign Affairs,” he added. “[In fact,] China’s Communist Party hasn’t been tamed by commerce. The Party-State still has firm control over the commanding heights of China’s economy – both directly, and indirectly.”

Massive subsidies for the “Made in China 2025” program, which aims to turn the world’s second largest economy into a technology superpower, is another area of contention and intrinsically linked to US President Donald Trump’s trade assault on Beijing.

Despite low-level talks in Washington this week, it will continue to rumble on after a third round of tit-for-tat tariffs, worth a combined US$34 billion, came into effect on Aug. 23.

Trump has even threatened to impose added duties on all Chinese imports worth $500 billion.

Naturally, Chinese markets have reacted and wobbled, with the benchmark Shanghai Composite Index down nearly 25% at one point from its January high. Technology stocks have born the brunt of the sell-off. Bricks and mortar companies and financial shares have fared slightly better.

But then, with 100 million retail investors, the SSE has always been prone to turbulence, as many of them regard the market as little more than an online casino.

“Regulators have been making massive efforts to help retail investors change their investment strategies,” Ma Hongman, a director of the corporate studies institute at the Antai College of Economics and Management, said. “Unfortunately, those efforts [have] yet to pay off.”

As for the broader economy, Xi is in a tight spot. The State Council, the de facto cabinet, has rolled out new plans to boost infrastructure spending in the second half of the year to maintain GDP growth at around 6.5%, the official target.

The decision was made despite a warning from the International Monetary Fund that this could exacerbate already excessive debt levels at a time when Beijing is realigning from low-cost manufacturing to technology-fueled growth through the “Made in China 2025” policy.

But any suggestion these trails and tribulations will force Xi to step down, after being handed the presidency for life in March at the National People’s Congress, are premature.

He controls all the levers of power along with the more important titles of General Secretary of the Communist Party and Chairman of the CPC Central Military Commission.

Moreover, most of his rivals, such as  Bo Xilai, Zhou Yongkang, Sun Zhengcai, are now languishing in prison after falling foul of the president’s anti-corruption drive.

Choppy waters

It was a sharp reminder to other senior CCP officials that there was only one captain of the SS China. Of course, navigating choppy international waters with a Trump ‘trade war’ iceberg bobbing around will test Xi’s skills.

“Although a trade war would hurt both countries, the country with the trade surplus is usually hit harder and thus is more likely to be driven to compromise,” Cheng Li, the director of the John L. Thornton China Center, and Diana Liang, a research assistant and communications coordinator, at the Brookings Institute, pointed out.

“This was true of Japan in the 1980s, for instance. China’s ability to inflict pain through tariffs alone is limited,” they added on the Brookings Institute website, a think tank based in Washington.

Pain has become a reoccurring theme in China’s state-run media during the past month.

Zhao Changmao, the former deputy head of the Central Party School, which is the leading academy of the Communist Party of China, laid out the options that appear to be on the table.

Speaking to the Study Times, a weekly newspaper affiliated with the Party School of the Central Committee of the CCP, Zhao said:

“China only has two options: Give in to America’s bullying … or let the other side know that Chinese people are not easily pushed around. This trade war is different. It’s a strategic game concerning the country’s fate.

“[We] have no reason to compromise. [We have to] take the moral high ground, further open the economy and make more friends internationally. [We should also] take targeted measures to hurt the US, [but we] need … to be prepared to accept a heavy cost for fighting with the world’s number one country.”

So far, Xi is showing no signs of buckling. This week he strengthened his hold on the People’s Liberation Army by demanding “absolute loyalty” to the CCP. After all, what is at stake is his vision of the future, embossed with Chinese characteristics for a new era.