Despite the twists and turns of wrestling with President Donald Trump, the Chinese Communist party has entered its summer recess and its senior leaders have gathered at the Beidaihe beach resort, 300 kilometres from Beijing, for the annual summer meeting to determine its domestic priorities for the rest of 2019 and in the lead up to the party’s centenary in 2021.
While the Beidaihe meeting is a secretive affair, it is no less important than other conclaves of the party’s senior leadership. Judging by the last public gathering of the politburo on July 30, 'stabilizing employment, boosting household consumption and mitigating major risks' are likely to dominate the Beidaihe meeting agenda, and the much discussed trade war and Sino-US decoupling has become a secondary concern.
Why have the three intertwined domestic policies identified been prioritised? To President Xi Jinping and his successors, managing economic transition while maintaining social stability is far more important than following and responding to the frivolous tweets of the man occupying the White House.
As the People’s Republic’s 70th birthday approaches, the world’s largest political party must tell a convincing story that its policies will work for everyone in China. That story is not about a victorious conclusion for Xi himself but rather a story that continues to legitimize the party’s rule by providing jobs and social stability.
As for stabilizing employment, already this year China has generated 8.34 million fresh university graduates, not to mention millions of other youngsters still yearning to make ends meet. Without proper jobs, they could potentially turn into a hugely disruptive force capable of challenging societal stability as seen in Hong Kong. As the Chinese economy switches gears to depend less on exports, can the party guarantee everyone a salary?
As for increasing household consumption, it would certainly help to boost employment in service sectors and rebalance the economy if Beijing sets the right direction. In the past 40 years of economic opening-up, a pointed lesson for the Chinese economic planners is when Chinese populations are unsatisfied with the standard of goods and services, they will turn to Western brands and entities with loyalty and enthusiasm.
While trying to avert major risks, the party must now answer the permanent question — to what extent it will allow the market to play a decisive role in determining economic activities. Implementing market economic reforms has always been an uncomfortable process for the party and the state. That is largely because it usually causes a relative loss of political control, as the party’s ideological apparatus has had to yield the political ground to a growing cohort of economic technocrats.
The bruising trade war with the US has seemed to puncture some of the confidence in the robustness of China’s economic successes. This led to something of a step back from what was getting close to becoming a triumphalist political atmosphere.
It therefore provides an unconventional opportunity for the Chinese government to accelerate much-needed reforms in various sectors. Beijing must embrace a highly anticipated structural reform agenda as much as the US and other advanced economies need to insist on it. China itself will benefit immensely from restoring internal structural adjustment and external stability in its relationship with the US and its other trading partners.
There is hope that reform-leaning officials will seize the opportunities from the current external challenges, combined with the domestic economic hardship, to defend their policy positions and to promote market reforms. These reforms, if successful, will be the best solutions to combat the highs and lows of the trade war.
The party has always been a master of storytelling to its own population. In 1949 Mao Zedong was able to tell different groups of Chinese exactly what they wanted to hear and insist that the party was on a historic mission to decide the fate of the nation. In 1979, Deng Xiaoping presided over an economic transformation that lifted hundreds of millions of people out of poverty and converted a poor, inward-looking country into a global power — no small achievement.
By 2019, Deng’s story of 'let part of the population get rich first' is no longer sufficient for Xi’s China. This economic miracle has not benefited all segments of the population equally nor all of the geographical regions. China has eradicated absolute poverty but still fallen short in fighting relative deprivation among 1.4 billion people.
Staggering economic growth alone is no longer seen as a panacea to surmount all of the challenges faced by the party. Rather, the ruling party is required to answer a puzzle that is key both to economic progress and its own position — how to manage the risks involved in a debt-addicted economy without reducing the disposable income of the ordinary people.
History doesn’t repeat itself but often rhymes. If one examines the past century of China’s history, many years ending in the number nine have profoundly changed China and shaped the world’s perceptions of the Middle Kingdom. The years 1919, 1949 and 1979 are the ones that, in the view of the party, have defined modern China. It prefers to forget the years 1959, 1969 and 1989. One can only hope, by setting the Chinese economy in the right direction, 2019 is the year that both the party and its own population prefer to remember.
Dr Yu Jie, Senior Research Fellow on China, Asia-Pacific Programme, Chatham House.
This article was originally published in the Financial Times.