Trivium’s Guide to

The 19th Party Congress

This autumn, the Chinese Communist Party holds its most important political event in five years. The congress will select a new set of Party leaders and set policy direction for the next half-decade.

What’s the big deal?

This autumn the Chinese Communist Party will hold its five-yearly Party congress. Likely to take place in October, this year’s congress will be the 19th since the CCP’s founding in 1921, and it will accomplish two important tasks:

  1. Setting the direction of policy for the next five years
  2. Selecting a new Party leadership

Much of the analysis around Party congresses focuses primarily on the second question, but the issue of policy direction is equally important for China’s trajectory.

19th Party Congress Basics Report: Chinese National Communist Party Conference

How to Think About the Congress

This year’s congress can be best understood as a referendum on Xi Jinping’s first term, which has seen Xi promote a conservative agenda that has attempted to reinsert the Party more forcefully into politics, society and the economy. The outcomes of the congress will indicate how successfully (or not) Xi has consolidated power, how much support there is for his agenda, and how this agenda will evolve in the coming years. In order to conceptualize the potential impact of the congress, we look at six questions:

19th NPC Report: 2017 China National Party Congress Xi Jinping

Image source: Wikimedia Commons

Section I: Gauging Xi’s power

Question 1: Will Xi’s theories on governance be elevated to the same level as former leaders Mao Zedong and Deng Xiaoping? | jump

Question 2: Will Xi lay the groundwork for staying on for a third term? | jump

Question 3: Will Xi succeed in installing a majority of allies in the Politburo and its Standing Committee, thereby ensuring dominance of the policy-making apparatus? | jump

Section II: Setting the course for the next five years

Question 4. What will the attitude towards economic reform be in Xi’s second term? | jump

Question 5. Will Xi signal a move away from the growth target? | jump

Question 6. Will Xi signal the continuation of the current tightening over the financial sector? | jump

I. Gauging Xi’s power

The outcomes of the 19th Party Congress will provide the clearest indication to date of Xi Jinping’s ability to dominate Chinese politics.

I. GAUGING XI’S POWER

Question 1: How will Xi Jinping thought fit into the theoretical cannon?

Traditionally, top Party leaders have made theoretical contributions to official Party ideology. The adoption of their pet theories enhanced their authority and bolstered their legitimacy as leader.

Leader Ideological Contribution Date enshrined as guiding theory in Constitution Notes
Mao Zedong Mao Zedong Thought 1945 Taken out of constitution in 1956 and put back in 1969
Deng Xiaoping Deng Xiaoping Theory 1997 (15th Party Congress) Posthumous
Jiang Zemin Three Represents 2002 (16th Party Congress)
Hu Jintao Scientific Outlook on Development 2012 (18th Party Congress) The theory was designated an important concept in the constitution in 2007 (but not a guiding theory)
Xi Jinping ??? ???


But not all theories are created equal. At the upcoming Party congress, Xi will endeavor to have his own ideological contribution adopted by the Party. There are two things to watch:


1. Whether Xi’s contribution includes his name.
Only Mao Zedong and Deng Xiaoping have eponymous theoretical contributions (Mao Zedong Thought and Deng Xiaoping Theory, respectively) enshrined in the Party Constitution. Contributions of the two most recent leaders Jiang Zemin and Hu Jintao did not include their names, reflecting their relatively less important status. The question for this year’s congress is whether the newest addition will be “Xi Jinping’s New Governing Concepts” or something more anonymous like “The Four Comprehensives”. Should Xi be granted an eponymous contribution, it would establish him in the same league as Mao and Deng.

Whether Xi’s theory (regardless of the name) is not just added, but fully enshrined in the Party Constitution. With the exception of Mao, previous leaders had their philosophies officially designated as a “guiding theory” in the Party Constitution only after they had stepped down. Hu Jintao’s Scientific Development Theory, for example, was introduced into the Party Constitution as an important concept at the end of his first term, but was not recognized at the all-important level of guiding theory until after he had left office. Should Xi’s thought be given recognition as a guiding theory in the constitution this year, it will establish him as the most powerful leader since Mao. That may seem like semantics, but those types of designations are incredibly important signaling devices in Chinese politics.

Our Prediction

Xi will get it all — an eponymous guiding theory designation in the Party Constitution.

Why it Matters

An eponymous theory fully enshrined in the Constitution would officially confirm what many China watchers (including us) have argued for years. Namely, that Xi has a level of power unprecedented since Mao, and that there is consensus among the Party elite that a powerful leader is needed. It would represent a strong endorsement of Xi’s first term, and would signal a mandate to continue his program of tighter Party control. Should he fail, it would imply that he still faces resistance among segments of the Party elite.

I. GAUGING XI’S POWER

Question 2: Will Xi lay the groundwork for staying on for a third term?

By law, the PRC president (a title which Xi holds) cannot serve more than two consecutive terms. There are no legal limits on one’s tenure as general secretary, but it is customary for a general secretary to serve only two terms, meaning that Xi should step down in 2022.

Given Xi’s concentration of power and view of himself as a transformational leader, there has been much speculation that he may attempt to stay on for a third term. The congress will give important indications of whether or not that is in the cards. The two key things to watch in this space are whether or not a successor is appointed and whether or not current retirement rules are amended.

Searching for a Successor

This one will be easy to gauge. If Xi has anointed a successor, we’ll know it as soon as the new Politburo Standing Committee (PBSC) walks onto the stage for the first time. Both Hu Jintao and Xi Jinping were appointed head of the Party Secretariat at least five years prior to taking over as general secretary. If Xi is to step down in 2022, we would thus expect to see a successor appointed to head the Secretariat at this year’s congress.

By virtue of their age and experience, there are two frontrunners to replace Xi:

    • Guangdong Party Secretary Hu Chunhua
    • Chongqing Party Secretary Chen Min’er

Hu is already a Politburo member and has long been groomed for a leadership role. But Hu’s position looks increasingly uncertain following the recent takedown of Sun Zhengcai, former Party Secretary of Chongqing. Like Hu, Sun had been groomed as a potential successor, and Sun’s dismissal is a clear sign that Xi is not content to play the hand that was dealt to him. Xi is seeking to control the succession. That reality casts some doubt on Hu’s prospects to take the top spot, in part because he is not a Xi Jinping mentee but a protégé of former General Secretary Hu Jintao.

Chen, on the other hand, is Xi’s protégé. Moreover, Chen’s appointment to replace Sun as Chongqing Party Secretary all but guarantees him a place on the next Politburo and firmly establishes him as successor material.

Our Prediction

The most likely outcome is that Chen emerges as the likely successor. But it is far from a done deal, and there are multiple possibilities here.

Why it Matters

The indication of a successor would be a sure sign that Xi plans to follow precedent and step down in 2022. Should that successor be Hu Chunhua, it would create an alternate power center in the Party, potentially muddying the policymaking process. Should that successor be Chen, it would mean that Xi and his people are firmly in control of the Party – and likely will be for the next 15 years.

If no successor is appointed, the implications are less clear. It could mean that there is disagreement within the Party, implying that gridlock will be the order of the day. Or it could mean that Xi has orchestrated such a scenario to pave his way towards staying on past 2022.


A Change in the Retirement Norms

According to current Party norms, officials 68 years and older are not eligible to start a new term on the PBSC. This means that Xi – who will be 72 in 2022, is currently ineligible to serve a third term.

But Party retirement norms are relatively new. The current 68 and over norm only dates to 2002, so it is not inconceivable that Xi could change it.

It will thus be important to watch whether or not the norms are changed (or bent) at the upcoming congress. The most likely candidate to break the norm this year is Wang Qishan, current PBSC member and head of the Party’s discipline commission. Wang will be 69 at the congress, but there have been persistent rumors that he may stay on, which we discuss in more detail below.

Our Prediction

Earlier this year Wang’s continuation looked inevitable. But it now looks like a coin flip in the wake of allegations that his family is corrupt.

Why it Matters

If Wang – or anyone else over the age of 67 – stays on, it’s a clear sign that the old retirement rules no longer apply. That increases the chances that Xi stays on past 2022.

China’s Top Policymaking Body: Seats Over Time

Number of seats at beginning of term

Introduction to China NPC National Party Congress 19th: Standing Committee

I. GAUGING XI’S POWER

Question 3: Will Xi succeed in installing a majority of allies in the Politburo and its Standing Committee, thereby ensuring dominance of the policymaking apparatus?

The 19th Party Congress will see a large amount of turnover at the top of the Party leadership. According to retirement norms, 5 of 7 PBSC members, 11 of 25 Politburo members and around half of the 200-odd Central Committee members will step down. Amidst this turnover, there are four things to watch that will determine Xi’s power over the policymaking apparatus:

  1. What happens to Li Keqiang
  2. What happens to Wang Qishan
  3. Whether or not Xi shrinks the Politburo Standing Committee
  4. Whether or not Xi gets a majority on the PBSC and/or the Politburo

a. Li Keqiang: the embattled premier

Image source: Wikimedia Commons

Li is already the weakest premier since Hua Guofeng (1976-1980). Much of the premier’s traditional portfolio has been taken over by newly created leading small groups headed by Xi Jinping. What’s more, Li does not seem to be on board with much of Xi’s conservative agenda.

All of the above has led to speculation that Xi wants to replace Li and/or that Li – tired of being marginalized – would prefer to step down.

There are essentially three scenarios here:

  • Li retires
  • Li retains a seat on the PBSC, but moves over to head the legislature (the National People’s Congress or NPC)
  • Li stays on
Our Prediction

We think the most likely scenario is that Li stays on the PBSC. But as to whether he remains as premier or moves to the NPC, we are less sure. In fact, we are having a robust internal debate as to which position he will take. At this point we think it is coin flip between premier and head of the legislature.

Why it Matters

If Li leaves or moves over to the NPC, it will be a very strong sign of Xi’s power. The further Li gets from power, the less of a check there will be on Xi’s agenda, and the less impetus there will be for market-oriented reform. On the contrary, if Li maintains his current role, it will be proof that Xi, while powerful, does not have the ability to remake the system in his image, thus implying that in all matters, including policy, he is still constrained by a need to achieve consensus with competing factions.


b. Wang Qishan: will the Party’s enforcer bend the rules?

19th Party Conference China: National Committee Congress

Image source: Wikimedia Commons

As mentioned above, there have been persistent, credible rumors that Xi may seek to have the 69-year-old Wang stay on, either in his current role or as premier, should Li Keqiang step down.

Our Prediction

As we stated above, it’s a coin flip at this stage. Should Wang stay on, we think it more likely that he would retain his current role rather than taking over the premiership.

Why it Matters

Wang is a tenacious and capable official. Should he take over the premiership, this would be positive for economic management. Should he retain his current role, that would bode well for the institutionalization of the anti-corruption campaign.


c. A smaller table

The most powerful body in China is the PBSC. That body currently consists of seven men, but its size and composition has changed over time. For instance, during the Hu Jintao years (2002-2012), the PBSC had nine members. For most of the 1980s, it had only five.

There has been speculation that Xi might seek to reduce the size of the PBSC at the coming congress. The rationale would be to further strengthen his hand, as he’d have fewer top-tier peers with which to contend.

Our Prediction

The table stays at seven.

Why it Matters

A smaller PBSC makes it a more efficient body – and gives Xi more power. But given the current makeup of the government and the Party, shrinking the standing committee is difficult for technical reasons around proper institutional representation on the committee. If the body stays at seven, it should not be overinterpreted as a blow to Xi – the most important thing is not how big the table is, but how much control Xi has over it.


d. Securing a majority

As we stated above, 5 of 7 PBSC and 11 of 25 Politburo members are set to step down at the 19th Party Congress. Traditionally, it would be relatively easy to predict who will ascend to these vacated positions, as there is a certain logic to promotion in the Party’s hierarchical system. If promotions at the congress go according to plan, we would expect Xi to secure one trusted ally on the PBSC, and another seven on the Politburo.

This would already be a remarkable achievement, but there appears the possibility that Xi may achieve much more. It is possible to envision scenarios in which Xi achieves a majority of allies on both the PBSC and the wider Politburo. This would give Xi an unprecedented amount of power in the post-Mao years.

Our Prediction

Xi does better than the status quo, but does not get a full majority. Simply put, while Xi will be relatively successful, there are still a lot of powerful people who have worked for decades to be in line to be Politburo members – they are not going to go quietly.

Why it Matters

Like any other political system, the more unanimity you have, the more likely that things get done. China’s consensus-based system has led to gridlock in many areas of economic policy over the last 15 years; a more unified leadership should be more effective.

PBSC

Xi allies

status quo scenario
Name Primary Position
Xi Jinping Party General Secretary
Li Keqiang Premier
Li Yuanchao Chairman of the NPC
Wang Yang Chairman of the CPPCC
Hu Chunhua First secretary of Party Secretariat
Li Zhanshu Chairman of the CDIC
Zhang Chunxian Executive Vice-Premier
xi majority scenario
Name Primary Position
Xi Jinping Party General Secretary
Wang Qishan Premier
Li Keqiang Chairman of the NPC
Wang Yang Chairman of the CPPCC
Chen Min’er First secretary of Party Secretariat
Li Zhanshu Chairman of the CDIC
Hu Chunhua Executive Vice-Premier

Party Organizations

STATUS QUO SCENARIO
Name Primary Position
Guo Shengkun Head of Politics and Law Commission
Wang Yong Head of Organization Department
Liu Qibao Head of Propaganda Department
Ding Xuexiang Director of General Office
Wang Huning Director of Policy Research Office
XI MAJORITY SCENARIO
Name Primary Position
Guo Shengkun Head of Politics and Law Commission
Chen Xi Head of Organization Department
Huang Kunming Head of Propaganda Department
Ding Xuexiang Director of General Office
Wang Huning Director of Policy Research Office

Government

Status Quo Scenario
Name Primary Position
Han Zheng Vice-President
Sun Chunlan Vice-Premier
Yang Jiechi Vice-Premier
Zhao Leji Vice-Premier
Xi Majority Scenario
Name Primary Position
Han Zheng Vice-President
Sun Chunlan Vice-Premier
Zhang Chunxian Vice-Premier
Liu He Vice-Premier

Provincial Chiefs

Status Quo Scenario
Name Primary Position
Cai Qi Beijing Party Secretary
Ying Yong Shanghai Party Secretary
Chen Min’er Chongqing Party Secretary
Wang Dongming Guangdong Party Secretary
Li Hongzhong Tianjin Party Secretary
Chen Quanguo Xinjiang Party Secretary
Xi Majority Scenario
Name Primary Position
Cai Qi Beijing Party Secretary
Ying Yong Shanghai Party Secretary
Zhao Leji Chongqing Party Secretary
Li Qiang Guangdong Party Secretary
Li Hongzhong Tianjin Party Secretary
Chen Quanguo Xinjiang Party Secretary

Military

Status Quo Scenario
Name Primary Position
Xu Qiliang Central Military Commission Vice-Chairman
Zhang Youxia Central Military Commission Vice-Chairman
Xi Majority Scenario
Name Primary Position
Xu Qiliang Central Military Commission Vice-Chairman
Zhang Youxia Central Military Commission Vice-Chairman

NPC

Status Quo Scenario
Name Primary Position
Shen Yueyue  NPC Vice-Chairman
Xi Majority Scenario
Name Primary Position
Liu Qibao NPC Vice-Chairman

II. Setting the course for the next 5 years

Beyond signaling Xi’s level of control over the Party, the congress will also provide insights into what exactly Xi plans to do with his power.

II. SETTING THE COURSE FOR THE NEXT 5 YEARS

The Party Work Report

On the first day of the congress, Xi – in his role as Party general secretary – will deliver a work report summarizing the Party’s achievements in the past five years and setting the direction of travel for the coming half-decade.

The importance of this document cannot be stressed enough. It is the most authoritative document in the Chinese system, and all policy flows from it.

Party work reports are best conceptualized as a wish-list of the CCP’s goals in the coming term. It’s the most logical place to detect shifts in policy and new priorities. Looking back at the last Party congress in 2012, for example, we see that much of what has happened in the past five years was foreshadowed in the congress report. The following goals were stressed at that time:

Politics

  • Cleaning up and tightening the Party apparatus to be more responsive to the top leadership
  • Inserting the Party more forcefully into policymaking and implementation
  • Codifying the roles of the Party and government through laws and rules

Economy

  • Elevating the market’s role in the economy
  • Removing red tape
  • Supporting greater innovation
  • Fostering industrial champions
  • Continuing promotion of consumption and the service sector
  • Ramping up environmental protection

Although progress has been uneven, the above have been the major themes shaping economic and financial policy over the past five years.

That’s why it will be important to watch the report carefully at this year’s congress.

“The market in China should operate like a bird in a cage. The cage must not be too small, lest the bird suffocate, but there must be a cage to contain the bird, otherwise it will fly away.”

Chen Yun
Party elder and counter-balance to Deng Xiaoping during the 1980s

 

Some Context

Chen Yun’s conception of the market as a caged bird has driven the Chinese State’s relationship with the economy for the past three decades. That won’t change at this Party congress. But the cage may be enlarged or the bars may be strengthened as the Party continually reassess and refines the relationship between the market and the State.

II. SETTING THE COURSE FOR THE NEXT 5 YEARS

Question 4: What will the attitude towards economic reform be in Xi’s second term?

The first thing to look for is how the report frames the relationship between the Party and the government. Xi’s first term has seen a marked increase in the role of the Party in government affairs, reversing a three-decade-long trend to separate the two. This has served to politicize policymaking and undermine the technocratic style of government that had developed in recent decades.

Our Prediction

Further blurring of the lines between Party and government will be codified at the congress.

Why it Matters

A stronger Party role gives Xi more power to dictate policy, but also marginalizes technocrats and makes the entire system more opaque.

Role of the market

It will also be important to watch how the report describes the role of the market. Xi’s instincts are towards state control, but several of his advisors are liberal-minded reformers. That’s why Xi’s first term has seen a somewhat schizophrenic economic policy that at times pushes to make the market play the “decisive role” in resource allocation, while also promoting increased Party control over SOEs.

Our Prediction

We are genuinely curious to see what happens here. Xi has changed tack several times and the debate over economic policy is still raging with no obvious conclusion. Stay tuned.

Why it Matters

Further market-oriented reform is necessary to put the economy on a more sustainable path. Failure to do so will result in continued misallocation of resources, lower growth and greater risk of a hard landing.

GDP GROWTH: TARGET VS. ACTUAL

The Party has lowered the GDP growth target in recent years, but it is still too high, so policymakers have to pile on debt to achieve it.

19th NPC: China 2017 National Party Congress Intro

II. SETTING THE COURSE FOR THE NEXT 5 YEARS

Question 5: Will Xi signal a move away from the growth target?

China’s growth targets are the root of all evil when it comes to economic policymaking. The country is currently committed to average 6.5% growth through 2020, but there is an increasingly loud chorus calling for Xi to move away from this target.

Our Prediction

Xi signals a relaxation of the target through more emphasis on the “quality” of growth as opposed to quantity. But no official change will come until the National People’s Congress in March 2018.

Why it Matters

If China continues to try and grow above potential, it will only add to its already high debt levels. That increases the risk of a financial crisis and a hard landing. On the other hand, should Xi signal a move away from the growth target, it would show that Xi is not afraid to change course depending on the situation.

INTEREST RATES

Since the beginning of this year, tighter financial regulation has pushed up market interest rates. Going forward, watching these rates will be one key to understanding if Xi and company are staying the course in fighting “financial chaos”.

China National Party Congress: 2017 19th China NPC Report

II. SETTING THE COURSE FOR THE NEXT 5 YEARS

Question 6: Will Xi signal the continuation of the current tightening over the financial sector?

Speaking of debt, we’ve been impressed of late at the regulators’ attempts to tackle speculative finance, though we have seen some easing off in recent weeks.

It will be important to see what the congress report says about the financial sector to gauge whether the current tightening is a momentary blip or the start of a large-scale effort to bring China’s financial sector to heel.

Our Prediction

Xi’s report signals that leaders are serious about deleveraging and cracking down on the financial sector.

Why it Matters

Dealing with the bad debt is only going to get harder the longer they wait. But – ironically – addressing the issue could also lead to a liquidity event if regulators go too far too fast.

Conclusion

Wrapping it up

This year’s Party congress bears particular attention. Xi Jinping views himself as a transformational leader who is ushering in a new era in Chinese politics. After nearly four decades of movement towards a more open and pluralistic political system, Xi is now attempting to reimpose ideological and political conformity. It’s a bold gambit that, if successful, will move China in a more nationalist, statist and authoritarian direction.

This year’s congress comes at a time when it has become increasingly apparent that China’s economic model is unsustainable. But until now, there has been no consensus on what comes next, with some advocating for further liberalization and others arguing for increased state control.

In his first five years, Xi has, for the most part, not waded into this debate, instead concentrating on Party matters and foreign relations. But following from the 2015 stock market correction and subsequent large scale capital outflows, economic policy is increasingly on Xi’s radar. We expect that this congress will provide clarity on how Xi plans to manage the economy in the coming five years.

Bear in mind that nothing is settled yet, so we end with a note of caution: China is now entering its most intense period of political jockeying, and everything is still up in the air. Developments in the coming months will almost certainly shift the political calculus in various ways. We will be monitoring the run up to the congress, and will let you know what happens and what it means. It’s going to be an exciting few months.

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