China’s New Guard Bodes Change for Beijing’s Interaction With the West
By Lingling Wei, Oct. 24, 2022, WSJ
The changing of the guard in China will likely alter how Beijing interacts with the rest of the world, especially the West.
Gone from the new leadership are the pro-market pragmatists who for decades helped pilot the country’s integration into the global economy. Instead, Xi Jinping is starting his third term in power with a slate of senior Communist Party apparatchiks
known for their loyalty to the supreme leader.
Officials who combined political standing with technocratic skills, a mix that gave them global market credibility, are no longer in the upper echelons of the party, including figures such as Liu He, Mr. Xi’s economic adviser who negotiated a trade
deal with the Trump administration, Guo Shuqing, for decades a reform-minded banker and financial regulator, and Yi Gang, the U.S.-trained central-bank governor.
The generational change in the makeup of China’s mandarins reflects how Mr. Xi’s emphasis on ideological purity, national security and party control has prevailed over the kind of pragmatism that had been a hallmark of China’s policy for decades.
On Monday, stocks in mainland China and Hong Kong fell as investors voted with their feet in reaction to the new leadership lineup, even though China’s newly released third-quarter economic data beat market expectations.
Previous Chinese leaders such as Deng Xiaoping embraced capitalist forces, built relations with the U.S. and other developed economies, and put economic development at the center of the party’s task. Mr. Xi puts politics first, even when it hurts China
s growth, upending the calculation for the West of what to expect from Beijing.
In a speech Oct. 16 as he opened the just-concluded Communist Party congress, Mr. Xi indicated a main development goal for the next five years amid rising tensions between China and the West is to build a geopolitically resilient economy that is much
less reliant on foreign markets and technology.
He has signaled his quest for China to be self-sufficient before. But notably, Mr. Xi dropped from his latest political report a phrase used by the party leadership for the previous two decades, that China was in a “period of important strategic
opportunity.”
Minxin Pei, editor of quarterly journal China Leadership Monitor, said that phrase had represented Beijing’s signaling that it would aim to keep its relations with the rest of the world—the U.S. in particular—on an even keel and focus on growing
the economy.
“Xi is basically saying, China is not afraid of fighting a Cold War with the U.S.,” Mr. Pei said.
For Mr. Xi, a key consideration for who should be in the leadership, on top of political allegiance, is whether a candidate has the “courage and ability to fight the U.S.-led Western sanctions and safeguard national security,” according to a report
released Sunday by the official Xinhua News Agency.
China is experiencing the worst economic slowdown in decades, much of it of the leadership’s own making.
In the run-up to the leadership transition over the past week, many investors and business executives, both inside and outside China, had yearned for a stronger presence of more pragmatic and technocratic officials that could help swing China’s policy
pendulum back toward growth.
Mr. Xi’s campaign last year to steer China away from Western-style capitalism has eroded business confidence and caused a plunge in private investment. His strict “zero-Covid” policy has hurt consumer spending and disrupted goods supply. His
decision to align Beijing with Moscow has led to more foreign businesses divesting out of China.
The gathering economic gloom earlier this year had created an opening for Mr. Xi’s No. 2, the outgoing Premier Li Keqiang, who helped roll back some of Mr. Xi’s initiatives including a near-blanket crackdown on private technology firms. According to
people close to decision-making, Mr. Li had been trying to influence the decision on who would succeed him. The lineup unveiled on Sunday indicates he failed.
Both candidates the people said Mr. Li backed—Wang Yang, a moderate seen as one of the few remaining torch bearers of Deng’s “reform and opening” policy, and Hu Chunhua, a vice premier in charge of trade and foreign investment—were shut out of
the new lineup of the Politburo, the senior leadership.
Instead, Mr. Xi’s desired candidate, Shanghai party secretary Li Qiang, is going to get the job.
Some business people in China took comfort in Mr. Li’s experiences of working in Zhejiang, an eastern province known for a vibrant private sector. Others noted that Mr. Xi himself also rose through the ranks by running economically prosperous
localities such as Zhejiang, but over time, Mr. Xi has placed priority on exerting state control over market forces.
Mr. Li’s main value to Mr. Xi is as a loyal executor of his vision. Importantly, Mr. Li fits the bill of someone Mr. Xi could rely on to gird for intensifying competition with the U.S.
Washington has been steadily tightening the restrictions on the sale of technology products to China. Most recently, the Biden administration has unveiled regulations that limit the sale of semiconductors and chip-making equipment to Chinese firms,
potentially dealing a blow to China’s effort to become a global leader in the technology of the future.
In recent years Mr. Li has urged semiconductor companies in Shanghai to “develop an innovation chain and put more efforts in realizing technological breakthroughs,” according to official statements put out by the Shanghai government.
In 2018, at the height of the U.S.-China trade war, Mr. Li heeded the top leader’s call to make China the world’s future innovation and industrial center and helped get Tesla Inc. to open an electric-vehicle plant in Shanghai.
Mr. Li directed local authorities to shower the American EV pioneer with cheap land, low-interest loans and tax incentives, and in return, Tesla has since groomed local suppliers and bolstered lagging Chinese EV players, helping turn China into a global
leader in EV manufacturing.
In 2019, Mr. Li helped start a new stock exchange in Shanghai aimed at enabling Chinese tech firms to raise money and better compete with their American counterparts. According to officials with knowledge of the process, Mr. Li was one of the few people
Mr. Xi consulted before deciding to set up the STAR board, dubbed Shanghai’s equivalent to the Nasdaq.
The overall shake-up of Beijing’s economic team is more radical than many China observers had expected, throwing management of several institutions into uncertainty.
Neither Mr. Guo, the top banking regulator who has overseen an initiative to fend off financial risks in the past few years, nor Mr. Yi, governor of the People’s Bank of China who has led an effort to make China’s financial markets more accessible to
foreign investors, are at the retirement age informally observed for officials. Nonetheless, both were dropped off the party’s elite Central Committee, which mean they will step down from their positions.
A leading contender for the central-bank post, according to officials familiar with the matter, is Yin Yong, deputy party secretary in Beijing who previously had worked at the People’s Bank of China. Mr. Yin holds a doctorate in engineering from
Tsinghua University and a master’s degree in public administration from Harvard University. But he hasn’t had the kind of experience dealing with Western peers that Mr. Yi had.
His foreign training isn’t seen as a plus in the new atmosphere: His bio posted on Chinese search engine Baidu doesn’t mention his Harvard experience, an omission that suggests an increasingly hostile environment in China toward foreign influence.
Mr. Liu, Mr. Xi’s right-hand economic man, known for his pro-market leanings, is retiring at age 70. While serving as Mr. Xi’s trade envoy in the past few years, Mr. Liu, English-speaking and with a reputation as a reformer, was well respected in
Washington despite rising tensions between the two countries.
But Mr. Liu had to offer a Mao-style self-criticism last year for not having stopped Didi Global Inc., the Chinese ride-hailing company, from launching a $4.4 billion U.S. initial public offering, according to people with knowledge of the matter. Didi
delisted from the New York Stock Exchange earlier this year amid heightened Chinese regulatory scrutiny.
Mr. Xi is expected to replace Mr. Liu with He Lifeng, a confidant he has known for decades but who doesn’t have much of an international profile. Mr. He heads the country’s powerful economic-planning agency, which last year pushed hard to implement
Mr. Xi’s goals to cut China’s carbon emissions and helped contribute to a coal shortage, disrupting industrial production across the country.
The Xinhua report Sunday said that when it came to the selection of leadership posts, Mr. Xi “personally took charge of the planning and personally took charge of the gatekeeping.”
As Mr. Xi is surrounding himself with his loyalists, said Paul Haenle, a China expert at the Carnegie Endowment for International Peace, “We’ve witnessed the end of any resistance to Xi’s dominance.”
https://www.wsj.com/articles/chinas-new-guard-bodes-change-for-beijings-interaction-with-the-west-11666651217
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