Panelists discuss what we learned from the twentieth National Congress of the Chinese Communist Party.
MCMAHON: Hello, everybody. Welcome to the CFR virtual briefing, obviously, where we’ll begin discussing the just-concluded 20th National Congress of China’s Communist Party. There is a vast amount of ground to cover. Luckily, we have a formidable trio of expert navigators ready to take us through what happened at the Congress and what it means.
I’m Bob McMahon, managing editor of CFR digital content. And we will be speaking with Ian Johnson, who is the Stephen Schwarzman Senior Fellow for China Studies at CFR; Zoe Liu, who’s the fellow for international political economy; and David Sacks, CFR research fellow, who will be speaking to us from Taiwan this morning. I will hold a discussion with them for about thirty minutes, and then around 9:30 we’re going to open to questions from you all. So please have questions ready by about that point, and then we will wrap up around 10:00.
I’d like to start off with Ian. Most attending this call will know that Xi Jinping took a major step forward towards consolidating his leadership. He is referred to as the great rejuvenator core of Chinese leadership in society. He’s stocked the Politburo with, you know, allies. And you came out with some initial analysis on what that means, but perhaps you could tell us a little bit what you think in practical terms, what this Politburo lineup means in terms of what these individuals now mean for China going forward.
JOHNSON: The economic front, it shows that the go slow or no go attitude toward market-oriented reforms that we’ve seen over the past decade is going to continue, and maybe be even more pronounced in the years to come. People who were identified as more reform oriented have been sidelined. I don’t even want to call them necessarily reformers—people like the Premier Li Keqiang or the economic czar, Liu He. I’ll leave some of this analysis really to Zoe but let me say one major takeaway. I think the maybe overarching—including economics, foreign policy, and domestic politics—is this sense of a party and a country under siege, where there are rough and stormy days ahead, weather approaching, et cetera. And that China has to sort of batten down the hatches, almost like an extension of the zero COVID that we saw—that we’ve seen over the past couple of years is being extended to the rest of society, economics, and foreign policy.
I think, you now, foreign—these kinds of congresses are not necessarily turning points, per se. They’re more like coronations or things that we knew were going to happen, kind of. But they are useful moments when we can look back at what’s happened and look forward. But we should also keep in mind that they also represent trends that have been going on for a while. And I think in all these areas we’ve seen this happening, but it will just become probably more pronounced in the future.
MCMAHON: So the—can you talk a little bit more about this sense of “under siege,” Ian, because I do think that’s an interesting element. And certainly, some of the language coming out, reports right after the Congress concluded, about the concern about people speaking up on certain issues and, again, the reinforcing of Xi’s role as the steward. I’m wondering why China feels this way, given that it’s—in so many other ways, it seems to be in such a strong position.
JOHNSON: Yeah. From overseas we think of China as being very strong. However, I think that from the Chinese leadership point of view there are a lot of problems. And, you know, you do have a technocratic—it’s still somewhat of a technocratic leadership, people who are—who can recognize problems. And I think that domestically they see what a lot of other people see, which is that the economy is slowing, there is high unemployment among some sectors of the population, demographic problems, et cetera. And then overseas, I think the main change is that they no longer view the—as being in a favorable environment overseas.
For the first few decades of China’s reform era—say, the ’80s to ’90s and the 2000s—China could rightly say that it was in a very favorable international environment. The Cold War was winding down, and then it ended. There were favorable policies for China—foreign policies, say, especially in the United States and other countries—that allowed China to develop an export-oriented economy. All of this didn’t sort of dramatically end, but it has begun to end, or get more difficult, over the past decade. And what I think probably leadership doesn’t recognize is that they’ve created a lot of this themselves, especially the more hostile international relationship.
A decade ago it was still possible to find people who spoke of China as a strategic partner. I don’t know anybody really in a mainstream political party, not just in the United States but in most major developed economies or democracies, say OECD countries, who would think of China like that. There’s and overwhelming sense, again, not just in the United States, where we tend to focus—where we tend to see this, but also in the EU of China being a strategic or systemic competitor. Not just an economic competitor, but a competitor in terms of systems. And I think this is because of the completely counterproductive wolf warrior diplomatic initiative or policy, strategy, of extreme bellicosity. I mean, I’m sure David can speak about Taiwan, but I feel that the policy there, and also in Hong Kong, has been counterproductive.
A lot of people have been shocked by China. I mean, everybody knew that China didn’t have a great human rights record, but I think that the situation in Xinjiang and Hong Kong has made many countries uneasy in the world. And then, you know, the policies in the South China Sea and elsewhere have made countries that were once—that are still huge trading partners with China, much more nervous about China. Countries that tried to straddle the fence, like Singapore, are now—you see the noises coming out of there are much more pro-U.S., in a way that you didn’t see before, where people thought they could sort of play both sides. Now they realize that’s getting harder and harder.
MCMAHON: So as you said, not a lot of big surprises. A number of things were expected. Still some result. There’s a concern about what kind of China is now emerging. Certainly, that seemed to be the case among some in the investment community, from what I’ve been reading in some of the financial papers.
Zoe, I wanted to turn to you with the next question, on that front. And you have a piece for cfr.org where you mention that the Congress showed, you know, Xi very much reinforcing kind of the sense of state control or management of the economy, which could pose a serious threat to China’s growth. Can you talk a bit about what this Congress—the signaling from the Congress and the steps already underway mean for trade, what we should look for, and how the country will be approaching some of its biggest economic challenges, Zoe?
LIU: Yeah, sure. Thank you very much, Robert. And it’s a great pleasure to be here. So I will just begin by saying that the current composition of the seven-man Politburo Standing Committee does show, on the one hand, exactly as Robert and Ian pointed out, there is a lack of reform—pro-reform, or reform-oriented minds on the Politburo Standing Committee. And then, on the other hand, it does show that—so the repercussion of that in the United States would be Washington probably would be viewing that as a very strong-handed—a heavy-handed, state-oriented approach going forward, and then a less reform-oriented Chinese leadership.
On the other hand, they also prioritized domestic circulation, which is one aspect of President Xi’s dual circulation approach. So this will likely to—will likely invite additional criticism from Washington, D.C., as well as invite U.S. business to reevaluate their political risk exposure in the Chinese market. And in practice, that probably also means that the Biden administration probably is going to go ahead with expansion of additional or more stringent export controls in strategic sectors, or the sectors that China considers strategic sectors. That would include semiconductors, obviously. But then there might also be areas such as AI and quantum computing.
Now, Xi Jinping, at least if we view it from the market perspective, apparently the Asian market so far does not or have not reacted to Xi’s third term positively. The first day of his third term, the Asian market, or Hong Kong in particular, tumbled to its lowest point since global financial crisis. And then the renminbi as well weakened to a fourteen-year low point. So all this speaks to the broader point that on the one hand, the composition of the Politburo does not signal that they are pro-reform, pro-liberalization.
And I find that, you know, people here all probably see the political drama where Hu Jintao was escorted out. And when I watch that, especially a lot of the details, I realize, you know, man, Hu Jintao is the person that was appointed as the leader by Deng Xiaoping, right? So when he was escorted out, I was telling myself, does this mean this is probably the iron curtain within China itself? In a sense that the Deng Xiaoping era, four decades-plus reform and open up, is probably putting to an end. And I guess I’ll just stop there.
MCMAHON: Thank you, Zoe. And what you’re getting at with the U.S. export controls I think maybe gets to a little bit what Ian was saying about the feeling of being under siege. Those controls were announced right around the time of the start of the Congress. China knew it was—I think new it was coming. There was some initial responses that they had sought—they were maybe seeking to discuss the matter with U.S. officials. But do you get a sense of any sort of, you know, Chinese response that will be an attempt to create that domestic—you know, maybe redouble domestic efforts? And to maybe even, you know, drive what some people are terming a “great decoupling” further, eventually? Although, it’s going to take a while for China to catch up on the semiconductors.
LIU: Right. So I guess I would respond firstly by a—with the NDRC’s new fifteen point measures to attract foreign investment into China. So yesterday the NDRC put out these fourteen points, one of which—you know, obviously these fourteen measures—fifteen measures are all targeted at making doing business in China logistically easier, and one of which is related to attracting foreign investment, foreign expertise. And they are also having specific measures to say they are going to make the families of foreign experts relocating to China, making it much more easier. And related to that, you know, the COVID measures, and all that.
And so this is something new. And but it fits to the broader policy strategies, in the sense that Xi Jinping, exactly as, Bob, you were talking about, he definitely has seen it coming. And over the past—or, especially in the past three years, his policy initiatives have been focusing on two things, right? One is to focus on the so-called—establish a unified domestic market, as part of his initiative to boost the internal circulation, to boost consumption in particular. As well as at the local government level he established this so-called supply chiefs command system. The idea is, you know, local officials should be in charge, and they should be hold—they should be held responsible in terms of making sure that strategic industries in their particular area, they get that secured.
And then on the other hand, he also recently have been proposing this new idea of establishing this whole of state or whole of nation approach to tackle critical science and technology breakthroughs. The idea is really to focus on developing China’s indigenous innovation technology at home. However, I would say, a lot of Biden administration’s export controls really are focusing on exactly the pinpoint where China really need critical technologies, and input, and even the mirrors that are sent on—putting into the lithographic machines, like in the semiconductor industry, right? So a lot of these really are aimed at limiting China’s indigenous technology capacity.
MCMAHON: Got it. Thank you.
David, I want to turn over to you. And for starters, could you give us a sense of how the Congress was viewed in Taiwan? Maybe a palpable sense of change, or maybe not so, in how the island views its security?
SACKS: Yeah. I mean, so I think what was notable in the reports coming out of the Party Congress is that there was a lot of continuity with longstanding cross-strait policy from Beijing. So there wasn’t a timeline on achieving peaceful reunification—or, unification with Taiwan. The emphasis remained on prioritizing peaceful reunification, but not taking the use of force off the table if all else fails. So there’s a lot of continuity there, language we’ve heard before. The emphasis here was on opposing separatist activities aimed at Taiwan independence, as well as foreign interference, which is a code word for essentially U.S. actions to strengthen ties with Taiwan, and what China defines as interference in its internal affairs.
Taiwan was still linked, though, and unification was linked to the great rejuvenation of the Chinese nation and described as a historic mission of the Chinese Communist Party. So again, you know, that is, I think, ominous in the long term, because that, to me, demonstrates that Xi Jinping is determined to make some form of progress on this issue on his watch, given that he is linking it so intimately with the great rejuvenation of the Chinese nation. And there was an amendment made to the party constitution on opposing the containing Taiwan independence.
So from what I’ve kind of seen and observed here in Taiwan, and in conversations I’ve had, are, I think, three takeaways. Number one, there is concern about the concentration of power in Xi Jinping’s hands, in the sense that this increases the chance of miscalculation or potentially even a conflict. And essentially there aren’t any checks and balances in the Politburo Standing Committee. And so cross-strait relations is really at the whim of one man. And we don’t know what he might have in mind. But he if he decides to act on Taiwan and to significantly escalate, you know, the conflict with Taiwan, then there’s basically nobody who’s going to stand in his way or say maybe we should rethink this.
The other thing is that—and Taiwan’s foreign minister publicly said this today—is that Taiwan expects to be on the receiving end of more pressure from Beijing going forward, now that Xi Jinping has secured his third term. So this could manifest itself with Beijing attempting to peel away more of Taiwan’s diplomatic partners, which it has done repeatedly throughout the Tsai administration. And there are some that Taiwan believes are vulnerable to flipping and establishing diplomatic relations with Beijing. But I also think that a new kind of thread line that goes through the white paper that we saw released after Speaker Pelosi’s visit, as well as the reports issued at the Party Congress, is an effort, I think, to sow divisions on Taiwan.
So there are essentially carrots and inducements for those who are seen as being pro-China, that they’ll have more business opportunities or other things on the mainland. But those who China deems are pro-independence or separatists, in their view, you know, will be the subject of sanctions and other pressure, you know, from the mainland. So I think that those are all, you know, being picked up on Taiwan.
And the final thing that I would note is that there was an interesting selection to the Central Military Commission, which Xi Jinping heads as the chairman of the CMC. But one of the generals who he elevated to a vice chairman of the CMC was the head of the Eastern Theater Command for the People’s Liberation Army, which is the command that would be tasked or have the overall leadership of a Taiwan contingency. And he oversaw the PLA’s response to Speaker Pelosi’s visit. And some on Taiwan interpret that as while not Xi Jinping establishing a sort of war council that shows that he’s, you know, ready to start a conflict with Taiwan tomorrow, but it shows that there will be an uptick in, you know, military activities around Taiwan, gray zone pressure on Taiwan, and other forms of coercion.
So I think the bottom line takeaway is that—for me, at least—I don’t think that this reveals a new urgency on Taiwan, that this is something Xi Jinping believes has to be accomplished in the next year or two years, or has an explicit timeline attached to it. But I do think that we now have a certain new normal in cross-strait relations where tensions are going to remain quite elevated. You know, the median line has been erased in the Taiwan Strait following Speaker Pelosi’s visit. Beijing has normalized military activities much closer to Taiwan. So I think going forward that’s what we’re going to see, a lot more pressure on Taiwan in multiple domains. And I don’t think that Xi Jinping is really going to let his foot off the gas, so to speak.
MCMAHON: David, just a sort of quick question about process. To what extent are there communications between the Taiwan leadership and the leadership in Beijing? And is this an opportunity, after a congress like this, for there to be any sort of dialogue or the attempt to create a dialogue? I’m just kind of curious about that.
SACKS: So since President Tsai was inaugurated around six years ago, there hasn’t been any official communication between the mainland and Taiwan. President Tsai has not endorsed the so-called 1992 consensus, which in Beijing’s mind is the fundamental prerequisite to having a dialogue between both sides of the Taiwan Strait. And therefore, on the day she was inaugurated they cut off official communications. There are some, you know, unofficial communications between, you know, academics, for instance.
China still keeps channels of communication open with the KMT or nationalists. Under President Ma, who was in the KMT Party, you know, he did endorse the ’92 consensus. And that was the basis for a period of cross-strait rapprochement. So after Speaker Pelosi’s visit, for instance, the vice chairman of the KMT actually went to China. He was heavily criticized in Taiwan for doing that, but those channels of communication are open. So Beijing does continue to speak with certain politicians, who it believes are, you know, amenable to its positions or kind of say the right things publicly about cross-strait relations. But it’s clearly attempting to isolate the party in power, the DPP, and there haven’t been official communications.
MCMAHON: That’s interesting. And then also on the communications front, what is your sense of how frequently there are discussions at the high levels between the U.S. and China? And one thing I’m looking towards also is the potential for any sort of high level, as in summitry, type meeting at the G-20 meeting coming up in Indonesia.
SACKS: Yeah. I mean, you know, there is continued speculation that President Biden will meet with Xi Jinping at—you know, at that point. But, I mean, I think that, you know, the Chinese still haven’t accepted that meeting. And for me, it’s hard to believe that the Chinese will accept that after the big export controls that the Biden administration slapped on China. I still think we haven’t seen China’s response to that move. You know, it came as China was locking down for the Party Congress. Curious to hear what Zoe or Ian have to say about this, but, you know, I don’t think that China’s going to let this go by without responding.
I think I was a huge decision made by the Biden administration. Something that will really hurt China and its long—and Xi Jinping’s long-term goals of achieving, you know, technological breakthroughs, especially in areas like semiconductors. And so I think that there’s going to be a pretty robust response to that—to that step. And, you know, given that backdrop, you know, I would be a little surprised if the Chinese agreed to a face-to-face summit meeting.
MCMAHON: Thanks, David.
I wanted to go back to Ian to touch on something that you focused your initial analysis on, after the Congress concluded, which is this sense of Xi exposed in a way unlike other Chinese leaders, at least in recent history. Could you talk a little bit about what you meant by that, and why there are—what the pitfalls are for Xi now in this sort of really uncontested authority, or apparently uncontested authority?
JOHNSON: Yeah. I think he’s made himself the center for several key policies in China that a couple of years ago looked pretty good, but now are looking increasingly problematic. And that means, you know, he has no one who he can hide behind. So in terms of the economic policies, again, Zoe can talk about this better than I can. But I think that the—he’s seen as spearheading this kind of skepticism toward the market, and a series of policies over the past decade that in some ways—I don’t think the realization has hit many people. I think the leadership and probably most Chinese people would still ascribe the slowdown in the Chinese economy to the zero-COVID policy, which many people still accept as necessary.
But I think with time, people will see that this is more of a long-term slowdown, in economic terms more of a secular slowdown, some of which was inevitable as the Chinese economy matured. But some of it, I would argue, probably also came from a lack of ambitious reforms, a lack of ambition on reform or sort of gutsy reforms that characterized earlier decades in the reform era. And so I think that that may eventually come to be—become clearer in the next couple of years, that this slowdown is really Xi’s slowdown. Zero COVID is also obviously something that he’s closely identified with.
And I think the Taiwan policy, as David said, you know, by making it, according to his policy paper, this white paper, that was issued in August, indispensable to the rejuvenation of the Chinese nation—and the rejuvenation of the Chinese nation is sort of Xi’s slogan. You know, make America great again. He’s making China great again. Although, I always thought China was great. But anyway, he’s making China—wants to make—you know, rejuvenate China. And this is now indispensable. So it doesn’t—as David said, it doesn’t—there’s no direct timeline. But there is some kind of clock ticking that if he’s going to see his policy successful, that he has to do something about Taiwan. And if he’s not able to do anything, I think this, again, in the medium term, comes back to haunt him.
So I think you have one short-term problem sort of percolating up, which is zero COVID. And then you have a couple of medium-term problems, the economy and Taiwan, which are all closely identified with Xi. And I guess the other point I sort of made in the paper, that people often say Xi is the most powerful leader since Mao. You know, Mao founded the People’s Republic of China in 1949, ran it till 1976. I mean, Xi Jinping would like to see himself as the most powerful and most consequential leader since Mao. This is certainly what his idea is, why he elevated his thought, his ideology on a par with Mao.
But when you look at how other leaders, including Mao and also Deng, radically transformed China, Xi has not really done that yet. And he’s also—so there’s that sort of lack of real successes. And I think that also the way—so, getting back to the original point on him being exposed—he doesn’t have any intermediaries he can jettison if things go wrong. Deng was a master of this. Deng ruled by proxy behind three general secretaries of the Communist Party. And in some ways, he was so powerful that he didn’t have to be in the forefront. And to me, it’s almost a sign of weakness when you have to grasp all the reins of power in your hand. It makes you exposed and I think it also shows that you’re not able to relax in any way because you don’t really have confidence in the system that you’ve created.
MCMAHON: Thank you. That, I think—all three of you have done a great job of really teeing up the big issues here. And I know there are more, and I look forward to the questions from those on the virtual call now. So with that, I wanted to move into the second phase, which is the Q&A portion of this discussion. And could we have the first question, please?
OPERATOR: (Gives queuing instructions.)
We will take our first question from Jim Winship.
Q: Yes, thank you. I’m with Diplomatic Connections magazine.
Ian, first, thank you, because you answered the first part of my question, which was has Xi Jinping put himself, in effect, in a more tenuous position than he would have been if he hadn’t been trying to consolidate all the reins of power? So let me turn to the second part, which is regarding the fact that Xi has essentially sidelined the opposition. So my question is really, does that in fact incentivize the opposition voices to Xi to begin, in fact, to strengthen their position? To be—you know, to take some risks, become more assertive?
JOHNSON: Right, so they would become more assertive because they don’t have any direct channels to power, let’s say. That’s possible. I think it will depend on things going south for Xi. Right now things are still OK. So we—there’s some hypotheses I’ve put out there about problem scenarios that could be problematic for Xi in the medium term. I think if there were some problems, then I could see people rumbling. But right now, I don’t think we’re at that point yet. I think he’s still very much unopposed.
MCMAHON: Great. Thank you. I don’t know if, Zoe, you wanted to field any aspect of that. OK, great. Can we have the next question, please.
OPERATOR: We will take our next question as a written question from Si Yang at Voice of America.
Who asks: What do you see China’s cooperation with the U.S. and the West on China—or—on issues like climate change, given the fact that Xi said that China’s facing an increasingly dangerous strategic environment?
MCMAHON: Yeah. This was posed, I think, to John Kerry yesterday when he was at CFR. Zoe, you want to weigh in on that one initially?
LIU: Sure. I can take the first stab at it. And so with one of China’s more—or, Xi Jinping, specifically, his regime’s response to Nancy Pelosi’s visit to Taiwan, one of that was—or, so far has been—the shutdown of climate-related exchanges with the United States, right? So could that kind of cooperation restart in his new term? I would say a lot of this would hinge upon how the politics plays out, because right now by a lot of measures when we talk about global energy transition.
I think there is a very strong case can be made that China already established its dominance in a lot of this renewable sectors that are very critical to achieve net zero. And more specifically, China dominated solar panel, wind turbine. And China is also building a lot of dams, not just inside China but also around China—outside China, right? And then finally, China also prioritize—or, Xi Jinping, more specifically—also prioritizes the export of nuclear power plants along the Belt and Road, and more specifically as his—one of his export priority.
So all this means is that so far China has already established a lot of dominance in the renewable transition, making the rest of the world more dependent on China than China’s dependence elsewhere. But obviously, you know, there is—China is a supplier, but on the other hand the global market is supposedly, you know, the buyer. So in the hypothetical scenario, could there be a buyer’s alliance to say, you know, the entire world is boycotting Chinese solar panel or wind turbines, things like that? Theoretically or hypothetically, that is not entirely unimaginable. But it’s going to be extremely difficult to be implemented, especially this is what we are talking about, extremely cheap transition. If you were able—if you can get access to Chinese supply and then, on the other hand, collective actions always takes a lot of—a lot of coordination cost, right?
And then finally, I was just going to say with regard to U.S.-China, and especially with regard to, you know, climate change, again, I think this touched upon a lot of the issues that David and Ian talked about with regard to—again, with regard to what China has in terms of leverage. Now here, China’s leverage really is in critical minerals, especially the refining capacity, as well as China’s battery production. Right now, you know, China controls more than 50 percent of copper, close to 70 percent of lithium, and more than 70 percent of cobalt. And when you think about the entire battery manufacturing production, that is also close to—close to 80 percent of global battery manufacturing is in China.
So a lot of this really speaks to the fact that if China—depending upon how the politics work out, if the politics—could Xi Jinping change his mind overnight and realizing he’s probably making not necessarily the best option for the Chinese economy going forward? If he and his cadre realize that, politics might work in favor of cooperation. But if politics do not work out, relatively—you know, not as optimistic as it was before.
JOHNSON: Can I—
MCMAHON: Yeah, please go ahead, Ian.
JOHNSON: You know, on questions like climate change, we tend to look at this as something that is both of our interests, and therefore we can work together while we still compete pretty vigorously in the technology space and while we, you know, have our differences over questions like Taiwan. But the Chinese still tend to look at this as a favor that they’re doing to the United States. So talking about climate change is something that we want, and they’re willing to do it as long as we don’t talk about Xinjiang, or Tibet, or do things with Taiwan, or in the South China Sea.
And therefore, they have shown, as Zoe mentioned, after Speaker Pelosi’s visit that they are willing to, you know, exercise some form of linkage between these issues. So if we continue to do certain things with Taiwan, they are, you know, happy to cut off these dialogues, even though we’re argue that it’s in both of our interests for them to continue. And presumably, if we were to do less to kind of push China on what it defines as its core interests, then it would be more willing to revisit these conversations.
So I don’t really see much scope for having, you know, productive, you know, long-standing conversations with China on these issues, because they’re going to continue to try to use them as leverage and link it to other policies that we have vis-à-vis China.
MCMAHON: Yeah. And there’s also the symbolic impact now of upcoming COP-27 climate summit meeting, where you have the two largest emitters in the world seemingly not ready to make common cause in ways that they could, or at least were doing in the lead-up to the Paris climate agreements. Thank you.
I wanted to go and see if we have another question, please.
OPERATOR: We will take our next question as a written question from Richard Foster, who asks: After the Ukraine war, will China increasingly attempt to use eastern Russia as a friendly direct military access route to the Arctic, which has been a quiet but increasingly important objective for Chinese leadership?
MCMAHON: David or Ian? Is that something either of you have been looking at?
JOHNSON: Yeah, I can speak generally about Russia. I don’t know specifically about using Russia to get to the Arctic, but I do think that China—even though we see this, and it is in many ways, a debacle for China and for Xi Jinping’s policies, very closely identified with the alliance—or, not the alliance—but the partnership with Putin, it does give China leverage over Russia. Russia’s much more—it was always the weaker member of the alliance, which is a change if you look back over the past decades. But I think now especially, Russia’s in a weak position.
And it could be that in exchange for—well, China will definitely have leverage in terms of buying more energy, the energy that they aren’t selling to Western Europe. China will happily step in and buy that. And depending on the prices that they offer, they can exert leverage in different ways. One of them might be access to the Arctic. You know, it could also be in more favorable prices that they get for the energy, et cetera. But I do think that does change the dynamic in the relationship between Beijing and Moscow.
MCMAHON: You know, we haven’t talked—we hadn’t up to now talked about the Russia-Ukraine question, which has all sorts of ramifications, obviously, for China. And much was made of the discussion—we don’t have a transcript from it—but the discussion that Xi and Putin had at the China Cooperation Organization Summit.
Ian, I’m wondering if you—if there was anything you’ve seen further on that front in terms of the dynamic. Is China sort of telling Russia to be careful at all? Or what sort of—if there was an earful, what sort of earful would China have given—would Xi have given Putin at that meeting?
JOHNSON: I mean, feel free if David or Zoe want to weigh in. My feeling is I don’t think we know exactly what was said. But I doubt that he was able to give—I don’t think they would—have a relationship where he’d be giving Putin an earful. I think that for China this is a problem that they wish would go away, that this is certainly not what they signed up for when they thought they were getting a major P-5 ally. And so I think that this is a—this is a problem for them. They want the Russians to fix it. But I don’t think he would be dressing down Putin or telling him—I don’t think they have that kind of relationship.
MCMAHON: Zoe, anything—your takeaways from China? I think you were watching that summit pretty closely too.
LIU: Yeah, thank you, Bob. I agree with Ian. And I would also put a footnote there, adding something related to—along the line of economics. I find it’s very interesting that a lot of the Central Asian -stan countries, plus Russia, you know, on the one hand they are very large natural gas exporters. And China has been a very major buyer. And then, on the other hand, you have Iran officially become a buyer as well. And so noticing all of this, in particular with Iran. Iran now has a very strong interest in expanding its natural gas export and, more specifically, strengthening its LNG, liquified natural gas, exports, right?
So a lot of these—from my observation—is that on the one hand you have this—collectively, these countries are going to be the largest group of gas exporting countries in the world. It’s, like, you know, although we are not a natural gas OPEC, but, you know, they have the capacity to form their own, you know, grouping. And then on the other hand, you also have a China who—a country that is, under Xi Jinping’s leadership, very much interesting in building a natural gas trading hub in Asia. You know, the nature of natural gas trading in global market is that there is no one market, but very much fragmented.
Now, could China take this opportunity to spearhead—use SCO and use natural gas as two vehicles to accelerate the regional use of renminbi? I think that’s possible. On the one hand, you can use the natural gas—if China were able to use the opportunity to price natural gas, at least in the Asian market, to build a renminbi-denominated natural gas trading hub, and more specifically natural gas futures denominated in renminbi, now we are talking about a China not only just have oil-denominated—renminbi-denominated oil trading future in Shanghai, but also natural gas.
So that gives the renminbi a lot of power for—in terms of, you know, commodity trading and invoicing, right? And on the other hand, from SCO as the institution itself, SCO behave increasingly, you know, along the lines of the other group called the BRICS. You know, the BRICS has its own development bank and development fund and all that. The SCO is moving along the same direction. They are talking about establishing their own SCO development bank. And they are talking about their dedication to promote the use of local currencies in trade. So I find that direction is very much in the collective interests of China, Russia, and Iran, in particular, in terms of building an alternative system to bypass or hedge against the sanctions.
MCMAHON: That’s a great reminder of all the different ways China is looking to expand on, as you say, create alternative, parallel system.
David, you were going to add something?
SACKS: Yeah. I mean, just to get back to where we started this conversation, I mean, the China-Russia partnership is incredibly closely tied now to Xi Jinping. You know, Xi Jinping signed the February, you know, no-limits partnership with Russia prior to the Ukraine invasion. And so given, you know, the extent to which he has centralized power, and the extent to which he is now unchallenged in these judgements that he’s made, I don’t see how he revisits what is a pretty critical strategic judgement that he made, you know, just earlier this year.
So I think, you know, clearly China is in a situation where it can’t square two things—you know, its continued instance on the respect for sovereignty and the territorial integrity of states, as well as its broader strategic interest in aligning with Russia and, you know, undermining or, you know, trying to deflect U.S. power around the world. And so, you know, it has chosen to prioritize the latter over the former, and basically in practice its—you know, its statements about sovereignty, et cetera, have basically gone by the wayside. And I think that China will continue to prioritize basically working with Russia, and whoever else it can work with, to try to blunt U.S. power where it can, because I think in China’s view, that’s the more serious threat that it faces.
MCMAHON: Thank you.
Could we go to another question, please?
OPERATOR: We will take our next question as a written question from Jenny Tang of Radio Free Asia, who asks: How will Xi’s third term change China’s foreign policy? Will wolf warrior diplomacy continue? Moreover, if Xi and Biden meet, who will be more likely in a position of strength, and why?
MCMAHON: So this is a big power question. Ian, you were the first to bring up the term “wolf warrior.” I’m sure there are other views on this as well, but do you want to field this one first, Ian?
JOHNSON: Yeah. I mean, I think it was pretty clear from the Congress that they’re not planning to back away from this policy. There are some signs that they aren’t quite as bellicose in some parts of the world. The ambassador to the U.S. has been more moderate. You know, so I think it’s possible that they back away from it a little bit, but I think overall we’ll see China continue along this line. Which is basically that it’s—we are now able to say what we’ve always thought. Now we don’t have to take lip from other people. And we can—if we don’t like what you’re saying, we’ll just make sure you understand it absolutely clearly.
This goes over pretty well in China. I think we shouldn’t forget that there are domestic constituencies in China also for what’s said. And it plays well to the crowd. I think it’s sort of part of Xi’s popularity, that he’s a guy standing up for China. He's kind of, like, a real man. You know, and in some ways, at least the people I knew—I had quite a number of friends in different walks in life in China. And a lot of people in working class circles really like him as a real guy. You know, and he stands up for China, and so on and so forth. So I think that this kind of thing will—this policy in general will continue, even if it’s modified maybe in regards to certain countries.
MCMAHON: And then vis-à-vis Biden, if and when they have a meeting again? You know, or David, any thoughts about, you know, this question of who is more of a position of strength? That’s obviously kind of a subjective type of view, I guess, at this point.
SACKS: Yeah, I mean, I don’t know. I think Xi Jinping obviously is going into it with everybody knowing that he ran the tables at the Party Congress, and that he was able to basically move aside any rival faction or other kind of groups. And so we know that. And he knows that we know that. So in that sense, he is able to project an aura of strength. And also, you know, something that we didn’t mention at the outset, I mean, there is no kind of successor waiting in the wings. So Xi Jinping can basically say, you know, you’re stuck with me. And it’s not just five years. It could be ten years, fifteen years. So in that sense, you know, I think clearly that’s the kind of aura Xi Jinping would try to project through a meeting.
But I would say, like—I would say, conversely, what the export controls that the Biden administration has put on China shows that we still are the technological superpower. And we still have the ability to basically, you know, put major roadblocks in Xi Jinping’s plan to achieve the rejuvenation of the Chinese nation, and to achieve, you know, self-reliance, as well as become a science and technology superpower. So, you know, in that sense, I think that if there was serious self-reflection in Beijing, which I don’t think is occurring, but if it was occurring, you know, I think there would be questions of, you know, did we move too fast, too soon here, before we were ready? And did we overestimate our strength and our leverage, vis-à-vis the United States? But I don’t think that conversation is occurring in Beijing.
MCMAHON: Great. I think we have some more questions, so can we turn to the next one, please?
OPERATOR: We will take our next question as a written question from Paul Maidment.
Who asks: Is there now a realistic chance that China will fail to clear the middle-income trap? And which would pose the greater problem for the rest of the world—a China that clears the middle-income trap, or one that fails to do so?
MCMAHON: Zoe, could you field that one for us, please?
LIU: Sure. I can take a stab at it.
MCMAHON: And maybe you can give us a little bit of sense of what the middle-income trap is as well.
LIU: Sure. So the middle-income trap is an idea or an economic development theory in that, you know, a country that is especially export-driven or export-oriented growth, the wage rise inside the country would rise to a point that the future growth potential in this export-oriented economy is sometimes—you know, more specifically focusing on low-value added and low-skill manufacturing—this kind of growth potential is going to become exhausted, or peak before it—this country would be able to obtain its science, technology, innovation capability that it might need to boost its productivity to the next level in order to compete with developed countries, to compete in the high value-added value chain industries.
And so if—I think this is a great question, right? If we are having this question before the Party Congress, I have to say—(laughs)—literally before the weekend, I would say there is still hope. And I would still be relatively optimistic, although I have my qualifications. But now I’ve become increasingly—I find it’s increasingly difficult to make the argument to say that China would be able to successfully reach to clear the middle-income gap anytime soon. And the timeline could be running out. And I think there are many people who would probably be agreeing with me on that there.
And the reason I think they’re—the time might be running out, there are two issues more specifically. And we just think about a simple economic development model, right? You need basically three factors of productivity. You need resources, you need technology, and you need people. And resources include, you know, the—anything like land, capital, and everything like that. But so domestically speaking and internationally speaking, China is facing a demographic challenge. And on the other hand, there is also a technology export control coming from United States.
Therefore, these two factors do not bode well for China to quickly clear the middle-income gap. And the reason I think that time might be—also be running out, is because Korea, Taiwan, respectively, takes about—around twenty-five years to clear it. And Taiwan might be taking about—Taiwan might have taken something around thirty years. So between twenty-five years to thirty-five years—to thirty years. China’s reform and open up have been so far more than forty-plus years. And if forty-plus years China so far suddenly decides to turn away, turn its back from its relatively liberal and reform-oriented approach, I don’t think this is, you know, speaking well to China’s economic future, especially with regard to close the middle-income gap.
MCMAHON: So, yeah. So, as you said, the signals from this Congress are that the trap is very much something that could be—China could be confronting much more seriously and not avoiding.
We have another question, I believe, in the queue. Could we have that, please?
OPERATOR: We will take our next question as a written question from Taylor Becker, who asks: The unveiling of China’s top leadership body shows that Xi is surrounded more and more completely by loyalists. We’ve seen a danger of that with Putin vis-à-vis the war in Ukraine. Are you similarly worried about groupthink in China’s leadership leading to mal-informed decisions with regard to Taiwan or otherwise?
MCMAHON: Thank you for that question. And we touched on it a little bit but, David, could you sort of come back at that again? About the sort of—you know, you mentioned even the military leadership being—you know, doubling down on that in terms of taking a hard line on Taiwan. Could you talk a bit about what one uber-powerful individual means for foreign policy and potentially aggressive actions?
SACKS: Yeah. I mean, I think, you know, again, from what I’m kind of hearing and seeing in Taiwan, I think that’s clearly the fear here, is that Xi Jinping doesn’t have any checks on his power and that he could choose to do something vis-à-vis Taiwan that, you know, under, for instance, more of a collectively leadership in Beijing, they might have shown more restraint. And I would just say, you know, looking at Xi Jinping and his own personal background, you know, his kind of path to power was paved in China’s coastal provinces, where a lot of Taiwanese businessmen are based and where they have factories and other kind of operations on the mainland. And so as the party chief of these provinces, you know, he would have been meeting with a lot of these people, trying to recruit investment and expansion of their businesses in China.
All of which is to say, Xi Jinping does believe that he personally has a very good handle on this issue. He thinks that based on his conversations and interactions with Taiwanese businessmen, you know, living and operating on the mainland that he understands them, that he gets them. And therefore, you know, in my view, Xi Jinping is less willing to defer to the bureaucracy on the mainland, whether it’s, you know, officials in the Ministry of Foreign Affairs, but more importantly the Taiwan Affairs Office on the mainland, which is tasked with cross-strait relations. So Xi Jinping, I think this is a portfolio that he, you know, believes that he can handle on his own. And so this is, to me, something that he’s going to run with and trust his gut and his own judgements, and not really defer to others.
And so really, do we know what Xi Jinping has in mind? No. You know, do all but a handful of—you know, all but a handful of people, if that, know what he might have in mind vis-à-vis Taiwan? But he could choose to do any number of things that we might perceive as irrational but, from his perspective, are totally rational and consistent with his worldview.
MCMAHON: Does that extend also, David, the sense of sort of confidence in decision making to a little bit broader to the South China Sea and even, like, East China Sea, Senkaku/Diaoyu Island disputes, and things like that?
SACKS: I think, so, to a lesser extent. I mean, I think, you know, the East China Sea and South China Sea issue, in a sense, predates Xi Jinping, to some extent, and began under his predecessor, Hu Jintao. So I don’t think that this is something that he initiated. But clearly the big militarization that we saw did occur on his watch. And I think that he views that as a largely successful policy, right? I mean, this is an example where Xi Jinping accomplished his objectives with very little pushback. And now he has changed the status quo in such a way that we can’t reverse, right? We’re not going to be able to erase these essentially military bases in the South China Sea. They’re there, and they’re going to stay.
And similarly, vis-à-vis Taiwan, you know, after Speaker Pelosi’s visit the mainland erased the median line. And as I said before, they normalized a degree of military activity that we haven’t seen prior to that visit. And we can protest that and talk about how it’s destabilizing and changes the status quo. But the fact of the matter is, we’re not getting the median line back. We’re not going to get it back. Taiwan’s not going to get it back. These are new facts on the ground that we now all have to live with. So Xi Jinping, you know, I think in both of these situations, has accomplished something that he can point to and view as a success.
MCMAHON: Thank you. If we can maybe squeeze in a final question. I think we have a written question. And then we will wrap it up. Could we have the written question, please?
OPERATOR: We will take our final question from Cameron Thomas-Shah of the State Department, who asks: What can we surmise about the state of the PRC-Vietnam relationship with Vietnam Communist Party General Secretary Nguyen Phu Trong announced to be the first foreign leader to visit the PRC since the National Congress to visit Xi?
MCMAHON: So a Vietnam question. Who would like to take on Vietnam? It is an interesting, intriguing, first meeting after the congress.
SACKS: I mean, I’ll—I guess I’ll take this, even though I’m not a Vietnam expert. But I mean, I think that, you know, clearly there’s a lot of tension in the China-Vietnam relationship over the South China Sea, as we just discussed. You know, Vietnam is a claimant in the South China Sea, you know, and has been moving closer to the United States, you know, as a hedge against China, so to speak. But I think that what this shows is that, you know, part of diplomacy under Xi Jinping is also party-to-party diplomacy. That’s something that the CCP really does value, especially over the last decade or so under Xi Jinping, whether that’s with North Korea, or Vietnam. And so to me, this is another manifestation of the value that Xi Jinping places on party-to-party diplomacy and, you know, working with other communist parties around the world. So I think that this does have an ideological bent, from China’s perspective. And we can read part of it through that lens.
MCMAHON: Thank you, David.
And that is going to be a wrap for us on this wrap-up of the 20th Party Congress. We went through the domestic underpinnings, the foreign policy implications, and the trade and economic consequences as well of what we just saw play out—or, what we think we saw play out in Beijing. We really want to thank Ian Johnson, Zoe Liu, and David Sacks for their time in helping us kind of understand what happened and how we should read it. Thanks to everyone on the call as well. This concludes this CFR virtual briefing. Thanks, everybody.