C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations; Author, The Third Revolution: Xi Jinping and the New Chinese State
Reporter and Former Hong Kong Correspondent, New York Times
Chair of the 21st Century China Center, School of Global Policy and Strategy, University of California, San Diego (via videoconference)
Editor, Forbes Asia
Speakers discuss the proposed amendment to China’s constitution to eliminate presidential term limits, allowing President Xi Jinping to remain in power indefinitely, and the implications for China’s domestic politics and its relationship with the United States.
FERGUSON: Welcome, everyone, to today’s meeting at the Council on Foreign Relations. The discussion is the lifting of China’s presidential term limits, unrivaled power. I’m Tim Ferguson, of Forbes Asia. I have with me an expert panel today, beginning with Elizabeth Economy, the C.V. Starr senior fellow and director for Asian studies here at the Council, and author, most appropriately, of The Third Revolution: Xi Jinping and the New Chinese State. Also, Michael Forsythe, investigations reporter and former Hong Kong correspondent with The New York Times. And by video conference, Susan Shirk, chair of the 21st Century China Center at the School of Global Policy and Strategy at the University of California, San Diego. And I think not beset by snow in La Jolla, is that correct?
SHIRK: That is quite correct.
FERGUSON: Welcome, Susan.
Well, the Chinese famously think and act long term. Notwithstanding that, the past several Chinese presidents have observed a 10-year limit of two five-year terms that, by contrast with Mao Zedong’s 27-year reign after the ’47 revolution until his death. And I verified this on the internet, that the second emperor of the Qin Er Shi, reigned for 61 years. Of course, he ascended at age eight, so he had somewhat of an advantage there.
Now, Xi Jinping is age 64, five years into his rule. And to my knowledge, no health problems that are known. So the duration of his tenure could extend a good way. He’s been aggregating personal power through the Communist Party for some time now, but in recent weeks and months formalizing it and rather methodically ensuring that his tenure will not be arbitrarily limited in duration. He has appointed in recent days a key team around him, but it’s obvious that they are going to defer to the—as he’s now known, the national helmsman.
Elizabeth Economy is just barely back from Beijing. So she has an up-to-the-minute perspective. Can you, Liz, on the basis of not just that but your deep knowledge of the field put some significance into what we’re seeing, other than obviously the transcendence of one individual?
ECONOMY: Thanks, Tim. And it’s great to be here, be here with Mike and Susan out in San Diego.
You know, I think, to my mind, this National People’s Congress meeting, what’s transpired over the past few weeks, is really a natural progression from what we’ve seen over the past five years. You know, first in terms of Xi Jinping’s just accretion of power, right? So the term limit—the amendment, or I guess the removal of the provision within the constitution that limited the president’s term to two five-year periods, you know, was just the next step in that process. So now he holds all three significant positions—presidency, the central military commission, and the general secretary—you know, for an indefinite period, because the other two positions had no term limits associated with them.
I think the bureaucratic organization, which also got a lot of attention, that has come out of the National People’s Congress. And that happens virtually every time there is a National People’s Congress, every five years. So that’s nothing new. But I think the new agencies that were formed, the enhancement of certain ministries also spoke to Xi Jinping’s priorities, right? So a national supervisory commission that, you know, expands the scope of the anti-corruption campaign.
So whereas the anti-corruption campaign over the first five years was dedicated to going after party members, now the anti-corruption campaign has expanded so that managers in any kind of institution—in hospitals, or educational institutions, universities, et cetera—can be targets of the anti-corruption campaign. And it also formalized sort of a rule that a person can be detained for up to six months without access to a lawyer. And you had a number of other—you know, the environment ministry was enhanced and took on climate change. That’s another priority for Xi Jinping. A new ministry—or, an agency, not a ministry—for international development. I think that’s going to be very much focused on trying to ensure that as the Belt and Road initiative develops, it develops in a better way than it has perhaps.
So I think there are—you know, financial regulation I can—I mean, Susan and Mike I’m sure want to talk more about some of these things as well. So I think, you know, that’s a second set of important changes that we saw out of—out of this National People’s Congress that, again, speak to Xi Jinping and his effort to advance his priorities. And I guess the third one is really just China’s place on the international stage. And I think he referenced that on a number of occasions, that China wants to have a larger voice, more influence on the international stage.
You know, warnings on sovereignty to Taiwan and to Hong Kong, you know, not to think about, you know, trying to move further away from China but encouraging, and perhaps a little coercion, in, you know, moving them, you know, towards a sort of greater integration with the mainland. And then finally, this new Voice of China, right, this merging the media elements, the radio and the television, into one big new agency that’s going to be responsible for enhancing the Chinese narrative globally. So, for me, I guess, I see all of the past two weeks very much in keeping with the priorities that Xi Jinping has established over the past five years and, again, speaking to his own consolidation of personal political power.
FERGUSON: We can come back to some of the external implications of his emergence a one-man ruler of China in many ways. But I want to ask about the Communist Party, 89 million members. He’s obviously emphasizing the party as the transmittal mechanism for his power. Is there a change do you think that will affect China in that regard, with respect to the party itself?
ECONOMY: I mean, from the very beginning, I think, you know, Xi’s Chinese dream has had a—the essence of that has been a robust Chinese Communist Party at the forefront of the political system. I mean, if there’s one thing you see about Xi Jinping from the time that he was a young man, it was his commitment to the party. And, you know, reportedly he applied, I don’t know, between eight and ten times before he was accepted as a member of the Communist Party, despite all of the hardship that his family endured during the Cultural Revolution. You know, he said corruption could be the death of the Chinese Communist Party, the death of the Chinese state. I think there is—you know, it’s like a pyramid, you know, Xi Jinping at the top, and then the Chinese Communist Party.
And I think one of the other things we’ve seen over the past five years is much greater party penetration into Chinese society and into the Chinese economy, right? So you can see it through surveillance mechanism. You can see it with this new social credit system that’s being rolled out, the enhanced role for party committees in state-owned enterprising, looking to have the party take stakes in private enterprises. So I think the party is essential to Xi Jinping’s rule. And I think he sees that as, you know, the only really legitimate governing agency within the—within the country.
FERGUSON: Mike, is this a natural juncture at which Xi should make this move? Or is there some other temporal explanation for why he is executing on this push for personal power at this moment?
FORSYTHE: Well, first of all, I’ve got to say, you know, it’s—studying China, analyzing China can be very humbling because it’s really hard to divine what are the real reasons for this, what is the reason for the timing. But I think there are—you know, and I don’t—I’m not an apologist for China, but I do want to kind talk a little bit about maybe some of the reasons why Xi Jinping did this at this moment. And I think you have to kind of understand a little bit of the background. You don’t want to underestimate the level of paranoia—or the role of paranoia and conspiracy theories in the Chinese Communist Party.
Just think of all the conspiracy theories that are running around the United States right now. We are a completely open society with information up the wazoo, and still we have large percentages of our population believing what many construe to be conspiracy theories. You could imagine in a closed system, like the Communist Party how these things can brew. And I think there were two events in the last six years that may have led Xi Jinping to think that I really need to really solidify my control, and I want to get rid of the question of a successor. I don’t want people to be jockeying for power to be the next successor. I don’t want people to be, you know, brown nosing to the next designated successor. I need to be in charge.
One of who was what happened in 2012, which was the last succession when Xi Jinping took power. Quite frankly, we don’t know what happened that year. I was in Beijing. Something happened that March. Something crazy happened that March. And someday, maybe we’ll be able to all read about it. But it might have been very, very scary. There were members of the Standing Committee, Zhou Yongkang in particular, who we know were, you know, wanted their own power. We know there was a guy out of Chongquing, Bo Xilai, who was ambitious. God forbid a politician being ambitious, you know. But he was. And a little bit corrupt too, but they all were corrupt.
In fact, that’s one of the things—and Liz alluded to this as well—right after the 18th Party Congress, Xi Jinping—like, literally the seats were still warm from the Congress and he got up and he told his new Politburo members, you know, that the state and the party could collapse if we don’t address corruption. And I don’t think now, six years later, five years later, I don’t think that that’s completely solved yet. Many of the people that were on the Standing Committee, the nine people in the 17th—I guess it would have been the 17th Politburo and the Standing Committee have not been brought to justice. At least eight of the nine families accumulated considerable wealth. I think the only one who didn’t that we know of is the current premier, Li Keqiang.
And so there was a lot of corruption. There was a lot of possible instability with the last transition. And so I think that’s a—you know, something they wanted to avoid. And just really quickly, the other point, would be the stock market collapse in 2015 in China. And there were conspiracy theories about that too. Were these enemies of Xi Jinping who were seeking to undermine his rule? They were very serious about this, that there could be, you know, a conspiracy against him. So I think, for all those reasons, I think at this point maybe that could explain why—may be one of the explanations. And, again, this is just conjecture on my part. I don’t know for sure. I’m not an insider or anything. But maybe that would be one reason to explain why he moved at this time to do that, to shut off any debate about any success—and to get the job done as far as corruption goes, and so many other things.
FERGUSON: If the anti-corruption drive is widened, as Liz suggests may happened, are there particular interests that have reason to fear at this point? Perhaps people who are not in fact corrupt, but might fall into the sweep?
FORSYTHE: You know, I mean, it’s almost—I mean, there are a lot of people who are corrupt. And a lot of people got swept up in the craziness that was really rampant during the last five years of Hu Jintao’s general secretaryship. And certainly, the last premier, Wen Jiabao, his family we wrote about in January, that, you know, that investigators might start to be looking at that family. And also, I think you do need to look at some of the big, you know, billionaires out there, the CEOs. Given that Xi Jinping has accumulated so much power, is there room in the Chinese universe for another bright sun, you know? And so they need to be careful. You know, people from Zhejiang province, for example from Hangzhou, may want to be a little bit careful there. If they get too much fame, if they’re seen, you know, as being a separate power center, I would be—I would be careful. And I would make sure that I was very nice to the general secretary.
FERGUSON: Susan, I want to bring you in here. This is globally kind of an era of the strongman, it seems, but are there unique Chinese characteristics to what we’re—what we’re seeing at this moment?
SHIRK: Well, I think there are. And I think the return to personalistic rule under Xi Jinping is really a very big deal. It’s very audacious of Xi Jinping to declare his intentions, his ambitions so openly at this point, because he could have, even without appointing a successor in training—which is what we saw at the 19th Party Congress. He didn’t follow precedent in appointing a successor in training. So that was one clue to his intentions. But he didn’t have to go this far. And the fact that he declared it so openly and revised the constitution I think shows that he really wants to lock in his power through the constitution. And he wants to eliminate any obstacle to his continuing to rule and dominate Chinese politics for a long time in the future.
You know, you notice that one name that you don’t hear very much anymore is Deng Xiaoping. I mean, Deng Xiaoping used to have almost the same status and respect that Mao Zedong had. And yet, Deng is the one who warned about the overconcentration of power that Mao held and that was responsible for the tragedies of the Mao era, the Cultural Revolution and the Great Leap Forward. And now, I think Deng Xiaoping’s words could in the future become a focal point for some form of resistance to what Xi Jinping has tried to pull off because term limits, retirement ages, they mater to other Chinese politicians not just because they’re rules, but because they help them protect their own security. And right now, they are completely vulnerable. Xi Jinping could wreck their futures, ruin their lives and families at any moment. And I don’t see this as a very stable situation.
FERGUSON: Susan, is there anything in this centralization of power for all of us global liberals to be hopeful about? Could it—could it in fact be the first that Xi and some of the economic reformers need to push through at least changes in that space, if not in the civil liberties of China?
SHIRK: Well, that’s what people have been hoping for five years. But I don’t think there’s anybody who studies the Chinese economy who has much hope left for that anymore. For one thing, it’s pretty hard to think how you would carry out a more market-oriented reform by strongman top-down leadership of the government. You don’t give orders to marketize. And you have to build a political strategy of economic reform that finds the constituencies that would benefit from it. And that’s what we’ve all been waiting to see from Xi Jinping. And we haven’t seen—we haven’t seen it. So I’m pretty dubious about that. One thing he can do with this kind of authority, however, is try to reduce financial risk. And I think my colleagues here in the 21st Century China Center think that he has made some substantial progress in that regard.
FERGUSON: In terms of the civil liberties and dissent, the crackdown that has been underway for some years now—it’s been an unbridled series of bad-news events. In reaction to Xi’s emergence as a long-time ruler, there were various memes and allusions on social media in China, hieroglyphics of various sorts that seemed to poke fun at him, to the degree that was possible. Where does dissent stand now in China, Liz?
ECONOMY: I mean, I think there are certainly pockets of dissent. And we heard with the, you know, end of the two-term limit that there was significant discontent, for example, among party elders—you know, people like Jiang Zemin and Zhu Rongji and others were very unhappy with this. And I think I spoke with somebody who is in the Chinese People’s Political Consultative Conference, a senior person in that organization—which is a sort of shadow, reform-oriented legislature to the National People’s Congress. And it seems that there are people who are unhappy there as well about this, and believe that this is really going to cut off dissent, you know, in terms of the policy making process, right? That this is going to have a chilling effect on the expression of alternative views.
I think, you know, certainly lawyers and I think some entrepreneurs—I think there are a lot of, again, activists within civil society—as I said, pockets of discontent. And you’re right, there were humorous memes. You know, Xi Jinping as Winnie the Pooh, et cetera. And a lot of funny little things. But they got shut down very quickly, right? The censorship apparatus in China is quite strong. And people were telling me that, you know, even when you try to send something you just—you get a message saying—basically it’s not going anywhere, right? People just won’t receive what you send. The sensors get to it quickly enough.
So I think it’s a tough time for dissent. It’s difficult to see how those pockets of discontent and dissent could coalesce to actually bring about change at this point in time, unless you have some critical group within the top leadership that feels similarly. I mean, one of the things about all of this consolidation into one man, into Xi Jinping, is that he does become a lightning rod. I mean, he is now responsible for everything, basically. He has said: I am in control. The economy, or whatever happens in these various realms, he sits on top of all of these important supervisory commissions and committees, leading groups and such. So if something goes wrong, I think that’s when, you know, these discontent people might smell blood and go after him.
FERGUSON: I assume, Mike, no improvement on the media front in terms of freedom of information, both for Chinese and for those of us on the outside who would like to get more information about China?
FORSYTHE: No, I mean, it’s been a pretty sad story for the last five years or so. And it started really right after Xi Jinping assumed power. It was just in the months after that they started cracking down on some of the major and kind of free-wheeling newspapers in southern China. And so it’s been—it’s been pretty grim there, especially for Chinese reporters. I mean, for foreign reporters in China, we’re protected by our foreign citizenship and our visa. And, you know, China is not Russia. China’s still a proper country where they tend not to murder foreign journalists. (Laughter.) And, you know, if we—you know, if I were writing the stories about Putin that I wrote about Xi Jinping five years ago, you know, I would—I don’t know if I’d be here today or, you know, speaking at the Russian equivalent of it. So it’s much safer for us. We’re in a very privileged position. But the Chinese journalists are—yeah, it’s not—it’s not a good environment at all.
FERGUSON: Susan, the newly-christened president for however he wants—long he wants, Xi, gave a fiercely nationalistic speech on the heels of this. Is this going to open the door to a period of even more ardent nationalism, either being led by him or in response to what he perceives to be some popular sentiment?
SHIRK: That is really, of course, an extremely important question. Theoretically, he could exercise restraint over a lot of these bureaucratic actors who, in the Hu Jintao era, started going their own way and overreaching, say, in the South China Sea, or the relationship with Korea. But it’s highly unlikely. I think what we’re more likely to see is hubris, because Xi Jinping is clearly very, very ambitious for China’s global leadership. And, you know, China would achieve a lot of respect by pursuing global leadership in a constructive way. And Liz has worked a lot on this, contributing to global public goods, and even things like Belt and Road initiative, if they are carried out in a way where the infrastructure projects are really welcomed by other countries and they get the publics in those countries involved. That all could be a positive thing.
But what’s a little bit scary is the muscle-flexing on Taiwan right now, of course in response to the Taiwan travel bill that was just passed by the U.S. Congress and signed by the Trump administration. And, you know, people are—in China—are talking about Xi Jinping wanting to, quote, unquote, “solve” the Taiwan problem during his time in power. So that really is something to watch very closely. Taiwan issue has been pretty quiet for quite some time, which is very much in U.S. national security interests. But it may get a lot hotter and more tense in the next year or two.
FERGUSON: So Taiwan’s a significant potential rub with the U.S. Let’s talk about some other potential outgrowths from this, trade being very much on the front page. Seven hundred and twenty-five points down on the Dow today. Largely attributed to fears of a trade war. Is Xi Jinping now in a position to launch a counter-Salle to President Trump?
ECONOMY: I think certainly. I mean, apparently he’s been preparing for it for at least a month. And the ministry of commerce has been considering what kinds of retaliatory measures they might take. And it looks like agriculture is going to be a primary target, soybeans and sorghum and live hogs. (Laughs.) But also, you know, new orders for airplanes can shift from Boeing to Airbus. And I think for Chinese—for American companies in China, you know, the sort of response can be, you know, quiet but challenging, right? Things like just not approving new licenses or doing, you know, surprise inspections of American companies. I think there are a lot of ways that the Chinese can retaliate.
I think they’re—the Chinese are surprised by President Trump at this point, I will say, just from my—this visit that I just took to Beijing. I think, you know, on the one hand they’ve gotten used to the idea that, you know, this was a very—there was a lot of disorder in the Trump administration and he’s not very competent at governing, he’s withdrawing the U.S. from all of these, you know, international organizations and, you know, not investing—we heard this—not investing in, you know, new technologies the way that China is. So the developed a certain level of comfort—(laughs)—almost, I think, with the sense that while he was retreating they were rising.
My sense from this visit was, however, that he—you know, his sort of unpredictability, that they thought they’d kind of gotten a handle on, they don’t feel that way anymore. And it’s about the tariffs. It’s about the Taiwan travel act, or bill. It’s about the revisions of CFIUS, these new potential visa restrictions. It’s just a whole slew of initiatives that are now coming out of the administration, even as he talks about how much values the U.S.-China relationship and his great friendship with—(laughs)—you know, Chinese President Xi Jinping.
He’s upending a lot of the sort of expectations and understandings that the Chinese have had—the Chinese government has had about how the U.S. will conduct business, which is to say we’ll sit around and wait for China to, you know, implement all those promises. They just keep talking, we’ll just keep listening and believing that things will change. And, you know, now that’s not the case anymore. So there’s a danger, of course, here, that this does product a trade war and that our administration doesn’t actually have a plan for de-escalation in some way, or an end point in mind. But hopefully they do. (Laughter.)
FERGUSON: China has a—(laughs)—China has a new technocrat in charge of the central bank. And I suppose we can look forward to more pragmatism from that quarter. But he also has a very tight, new economic committee headed by his long-time advisor Liu He, who apparently is going to guide him, to the extent he will take any guidance, in establishing these economic policies. Mike, do you have any insight into what we’re going to see?
FORSYTHE: You know, I don’t mean to brag, but I think I was the very first person—when I was at Bloomberg in 2009 my colleague and I, Dune Lawrence, wrote a profile of Liu He. We called him China’s Larry Summers. (Laughter.) And I actually think—maybe Li Cheng actually came up with the Larry Summers thing. But he went off on that. And he is a—you know, a very soft-spoken—I’ve met him before. You know, very soft-spoken, intelligent, reasonable guy. Did go to Harvard for a time. I think he was only there a year or so, if I’m not mistake, maybe two. You know, but he’s also from the state planning apparatus. That’s his background. So, you know, you’ve got him. You’ve got Wang Qishan obviously now as the vice president, you know, who’s also got an incredible amount of experience dealing with the United States, friends up the wazoo, probably in this room. You know, some of you guys have probably hung out with Wang Qishan. He knows everybody. So he’s got people around him that are very schooled in economics that, you know, are not known to be real hardliners and pragmatists. So, you know, there is that, definitely.
FERGUSON: Well, we’ll open the floor to members’ questions. Starting right near the front. Let’s make sure we have the microphone. Please identify yourself and use the mic so Susan can hear you.
Q: Michelle Caruso-Cabrera from CNBC. And my question is for Susan Shirk.
You mentioned that one area that maybe there has been some progress made is the reduction in circumstances that might lead to economic instability or financial crisis. Could you talk about that a little bit more? What are they?
SHIRK: Really not something that I know a whole lot about. But my office is right down the hall from Victor Shih, who is usually one of the more critical and pessimistic people on the Chinese economy. And he thinks the financial risk has been reduced by some of the measures of financial control, control over financial institutions, certainly the banking sector, as well as capital controls. I mean, it doesn’t get you to financial liberalization. It’s not a market-oriented move. But it may reduce the risk of a financial crash, which would be catastrophic not just for China but for people all around the world.
FERGUSON: China, by dint of its circumstances as well as its very innovative nature, is probably the world leader in fintech now, with its own people—its billion people trying to find ways to transact and borrow money. If this empowered Xi Jinping wants to try to put a damper on that, I suppose he can. But that might be one of the most challenging areas.
SHIRK: Well, he already has, actually. You know, I mean, there are—and the insurance industry, where there was a lot of development of wealth investment products that were not really insurance, there’s been a strong control put on them now. And I believe the insurance regulatory commission is merging with the rest of the financial supervisory commission. And, you know, so I think—I think that’s basically a positive thing for the short term. But it’s not great for transforming China into more of a market economy.
FERGUSON: Question here. Robin?
Q: Robin Meredith.
It seems to me that Deng Xiaoping, you know, sort of started the process of separating the Communist Party from the state apparatus. And what we’re seeing is a reconnection of it. I’d love to hear a bit more about that. But I’m really concerned about what it might mean about Xi Jinping’s ambitious militarily, because also Deng had sort of—you know, one of his sayings was that he would hide China’s—what China was doing—Liz knows what I’m talking about—and build up in the military very slowly. And now we—what we’ve seen in the recent years is the military is building up much more quickly and, of course, a boldness around South China Sea and Japan Sea neighborhoods. Can you guys talk about that a bit.
SHIRK: Can I jump in on the party government relationship? Would that be OK?
FERGUSON: Yes, sure.
SHIRK: OK, sure. Well, what—in the last couple of days, as I’ve read about the reorganizations, I’ve just been staggered at how many government bodies are being subsumed under party bodies. And basically the delegation, this principle agent relationship between the Communist Party, which of course has ultimate authority in this system, and the state, the government, the state council, which Deng Xiaoping—this was a big part of the reform push, was to delegate more authority to people who actually knew something about the areas that they were regulating and managing within the government. And now the party is swallowing the government. That’s the way it looks to me.
FERGUSON: Back to the future.
SHIRK: And I think there’ll be—that’ll be really a very new model of how to govern a modern, open to the world, large economy. It’s just hard to imagine it. It seems very non-modern to me. But there is a quote in a piece I read this morning in the South China Morning Post, from a Chinese political scientist, who said that the—that the—too much delegation from party to government was why the Soviet Union fell. And I think Xi Jinping has made that diagnosis.
ECONOMY: Just in response to the part about the—question about the military, I would say, you know, along with Xi Jinping wanting a robust Chinese Communist Party at the forefront of the political system, he has also said repeatedly that he wants a Chinese army that is capable of fighting and winning wars. And so I think we’ve seen there are a number of different ways to look at it. A you suggest, there is the militarization of the island features in the South China Sea, and the continued press in terms of advancing Chinese sovereignty claims. I think, you know, there is certainly thinking, you know, as Susan mentioned, you know, the reunification of Taiwan, Xi Jinping wanting to accomplish that before the end of his tenure. He has said he thinks the question ought to be resolved sooner rather than later, which I think sends a certain type of signal. And, you know, economic coercion may be one part of that but, you know, over time the ability to blockade, an economic blockade or something else, I think is certainly something that the Chinese PLA Navy is working on, in additional to cyber, you know, attacks against Taiwan, I think would be another, you know, element of that.
You know, and then there’s simply Chinese, you know, much larger expansionism, right? So, you know, the new logistics base in Djibouti, the Chinese PLA’s helping to build a base in Afghanistan. There are extensive contacts and exchanges with militaries all over the world at this point. I believe China’s the second-largest arms exporter now after the United States. They’re either second or third, but I think they’ve surpassed Russia to become the second-largest. So, to me, it seems pretty clear. You know, and there’s a certain rationale to it, of course, which is, you know, as China’s economic interests expand, as its people are global and everywhere, they want to have the capacity to protect their people, protect their economic interests.
But it is interesting, because at the same time as they’re doing all of this, they’re also talking about, you know, the idea that the U.S.-led military system of alliances is an anachronism at this point, right? And that it’s a relic of the Cold War and we have our vision of the shared community of common destiny, or whatever it is. Susan, what is that? Anyway, so, you know, whatever phrase, that basically means we don’t need your alliance system anymore. So but I think there’s no doubt that Xi Jinping has this kind of view of a military that is quite robust.
FERGUSON: Has Xi cleared the decks within the People’s Liberation Army, putting loyalists at top command?
ECONOMY: Yeah, so—you may want to say something.
FORSYTHE: He seems to have but go ahead.
ECONOMY: I was going to say I think early on in this tenure he began the process of reforming the military, equalizing certain parts of the military, and pulling people out, anticorruption drive, you know, hit hard in the Chinese military, and, you know, promoting people that he believes are loyal to him.
FORSYTHE: Yeah. I mean, Tim, I wanted to add one thing, it’s just kind of going back a little bit. But back to the reasons of why Xi Jinping did this at this time. And I think just talking about the external environment I think is really important. You all might remember that Steve Bannon went to Beijing last September. And he met with Wang Qishan. Now, why would Wang Qishan want to meet with Steve Bannon? And I think one of the reasons might very well be that, you know, he wanted to suss out America. And has America changed? And it does seem like the consensus—you know, there seem to be just very little gap between the Bush 2 administration, W, and the Obama administration. That turnover was very smooth. A lot of the same people stayed on, you know, for a while in the Obama administration.
Those days are over. And, you know, has U.S. politics changed too? Far more populism on the right and the left. The middle’s kind of a little bit muddled. So things are a little bit more dangerous externally and perhaps again—again, this all conjecture—but, you know, since China’s external environment may not be as stable as it once was, there might be a rationale for extending the leadership of one person, especially given the fact that there’s so many headwinds against the Chinese economy right now. They’ve got a demographic timebomb there right now. You know, the working force—the working-age population in China is shrinking right now. They have a ton of debt, even though, you know, as Victor Shih at UCSD, that they’re trying to deal with that. You know, but there’s an incredible amount of headwinds against them right now. So that might also be an explanation for why they want to—why Xi wanted to consolidate his power and extend it indefinitely.
ECONOMY: That’s a very benign explanation, but yeah. (Laughs.)
FERGUSON: I think I see a question toward the back—one row back. I think you were ahead of the group. Thank you.
Q: Thanks. I’m Arlene Getz.
I wanted to ask you about North—relations with North Kore and Russia specifically. Liz, I guess because you’ve just come back, what kind of response were you seeing to the notion that there might be this Kim Jong-un-Donald Trump summit? And more broadly, is Xi’s extension of power going to change any of the calculus that China is currently sort of looking at in terms of its relationship with Russia who, you know, is stepping into some of its role in North Korea?
ECONOMY: Well, I’ll give some impressions on the Korea issue. And I’m sure Susan will, and maybe Mike as well, will want to say something as well. So it was quite interesting in the discussions that I had. So I was there as part of a CFR delegation, actually, to meet with a range of officials and scholars to think about areas of potential cooperation between the United States and China in this challenging time. And I can say, that was not a particularly fruitful avenue of discussion although we, I would say, tried our hardest. The Chinese actually just didn’t have much to bring to the table.
But in terms of North Korea in particular, it was really interesting. I think they were caught by surprise. They kept saying: Why did President Trump decide to do this? Why did he say that he would meet with Kim Jong-un? They were very taken aback by this decision. Then there was kind of like, well, we said this is what we wanted. And then there was—of course, early, there was some feeling that we might be marginalized. And then there was, and, by the way, you really need to hold the summit in Beijing if you want anything to be accomplished, right? You shouldn’t be looking elsewhere because we’re the only ones that can ensure, in fact, that something positive comes out of this meeting.
So there was a mix of sort of feelings, emotions, and responses. But I think overall, pretty taken aback. Very unclear as to what might come of this. A little worried about being sidelined or marginalized. And at the same time, a desire to sort of keep themselves in the process and, you know, ensure that they’re not cut out of whatever might happen. There was even some odd discussion about how the fact that Kim Jong-un and Xi Jinping both spoke English—I mean, sorry, Kim Jong-un and Donald Trump both spoke English might make them, you know, sort of more compatible than Donald Trump and Xi Jinping, which I found very strange. But this is the kind of thinking that was going on there on that front.
FERGUSON: Susan, you want to jump in on that?
SHIRK: Well, Liz, did you hear anything about keeping the heat on during this period? Because I think the one thing we really worry about is that China might feel, oh, gee, they’re talking. You know, we’ve accomplished the goal, and stop enforcing the sanctions.
ECONOMY: No, they didn’t—they didn’t seem to say that they were going to be in retreat on keeping the pressure on. I don’t think there was much appetite for any, you know, more ratcheting up of sanctions, but there didn’t seem to be a comment that they would be stepping back from that.
FERGUSON: I saw another—
SHIRK: Well, that’s good. We need to maintain—you know, we shouldn’t expect miracles overnight from the first encounter of these leaders.
FERGUSON: (Laughs.) We’ll hold down our expectations, difficult as that may be. (Laughter.)
Question in the first row.
Q: To whoever wants to address this—Robert Pietrzak from Sidley Austin.
Do you have any sense of what the ultimate role of the new national security apparatus will be with the Xi government? Is it going to be simply a prosecutor of corruption, and extension of that to a broader perhaps private as well as governmental basis? Or will it become a broader enforcer of Xi Jinping thought?
ECONOMY: Do you want to say something, Susan?
SHIRK: Yeah. Well, the National Supervision Commission is broadening the anti-corruption effort, first of all, beyond party members. So people who are administrators in state firms, government-affiliated offices, universities, hospitals, whatever, TV stations—all of those people how are potential targets of anti-corruption efforts on the past of the national supervision commission. It’s not—you know, I think my colleagues at Tsinghua and other places will be relieved to see that it doesn’t extend to ordinary professors. But it does extend to administrators in universities.
But you’re right. It’s not just corruption. It’s also a kind of policy implementation arm. They’ve already started using the central discipline commission that way, that if officials or managers of firms are not implementing central policies, then they can be targeted for discipline, for punishment. Well, first of all, being rounded up and detained. And the supervision commission will have those same powers. And so that definitely gives Xi Jinping more new tools to try to have his will be carried out throughout the country.
FERGUSON: On the foreign affairs front, what should a thoughtful Western leader do in response to this newly empowered and tenured Xi? That leader will probably not outlive Xi as a—as a governing official. What kind of response in terms of different diplomacy or outright actions might be useful?
FORSYTHE: We’re talking about a rational Western leader? (Laughter.)
FERGUSON: (Laughs.) Supposedly.
FORSYTHE: Well, I mean, there’s always Angela Merkel and, you know, in Germany. And you’ve seen recently in Germany there’s a newfound caution towards the Chinese, and a little bit more, you know, protection of, you know, German economic interests. A little more caution, concern about Chinese influence. And, you know, I think I’ve got pretty good, you know, cred as far as being critical of the Chinese government and leaders when I can be, but I do have to say that I think that personally—and this is my own opinion—that we’re kind of in a little bit a Sputnik kind of moment here right now, where our confidence is down. It’s like the Russians just launched a rocket.
But really, people, I mean, you know, the Western—you know, not—I’m just going to call it the democracies of the world, have an incredible amount of soft power. And as I said, you know, in our last—when we met last, you know, Liz, I mean, nobody—no normal human being with a soul around the world is inspired by, you know, what’s going on in China and will go out onto the public squares in Cairo or, anywhere, you know, and say: We want to be like China. But plenty of people, you know, maybe with—you know, with a little bit more, you know, new leadership maybe in the West, you know, would do that for democracy and freedom. That’s what stirs the soul.
It's so easy to forget that now because of the funk we’re in. But I think, you know, we were in a funk back in—you know, in the late ’50s when Sputnik went up too. And there’s a lack of confidence. And I think—you know, so maybe the right policy—this is a long-winded way to answer your question, though—maybe one of the best policies is, you know, to be a little bit sanguine. Be very cautious, be very alert, be, you know, aware of, you know, any economic, you know, encroachment by China or anything that you could defend against. But also, be a little bit confident in what we have, and shore up what we have, because it’s pretty good.
ECONOMY: OK, can I take a different perspective?
ECONOMY: So I think what you’re suggesting is that we need to be nuanced in our response, which I agree with. But I do think Xi Jinping has a vision. And he’s strategic and opportunistic, which you can see in the Belt and Road initiative, which is, you know, this—like, he tosses out this big idea of infrastructure connectivity among however many nations, 30 nations to begin with, then it goes to 69. Then the next thing you know we’re talking about a digital Belt and Road, right? We’re going to satellite systems and fiber optic cables and ecommerce through all these countries. There’s going to be soft power. There’s going to be financial liberalization in terms of the renminbi—sorry, international—you know, internationalization of the renminbi.
And all of a sudden you have this, you know, very extensive plan for interconnectivity with, you know, China at the center. You have Xi Jinping pushing forward on sovereignty claims, right, in the South China Sea, I think with Taiwan, you know, coercive policies with regard to Hong Kong. You know, you have Xi Jinping championing globalization, when there’s no free flow of information and there’s no free flow of capital. And yet, he gets kind of a free pass as the defender of globalization because, you know, our leader is not going to be standing up there and defending that.
So in terms of a response, it seems to me, you know, we have to be strategic. So, you know, one of the things I’ve found in this most recent visit was that, you know, the Chinese had this sense of, you know, oh, well, the U.S. isn’t investing, you know, in terms of—you know, long-term in technology. And we’re looking back to coal and steel. So, you know, we obviously need to be switching our line of sight, looking forward and ahead instead of backward. I think we need to be working with our allies more because, you know, as you suggest, there are—the Germans and others have become concerned about some Chinese actions—economic and security. We need to be partnering more aggressively and not going to them after the fact, like, here’s some tariffs. Oh, we’ll exempt you and will you join us? You know, that’s not a good strategy.
And then I think we should hold Xi Jinping to account. I mean, maybe the one advantage that we have with such an ambitious Chinese leader, who is so willing to put himself out there and say, you know, we must remain open, et cetera, et cetera, is to say: OK, you said it. It’s see it. So I think that does offer some opportunity, but I think, you know, we can partner with China on Belt and Road projects, you know, if they change the way to do business. There are some opportunities there. But I think we need to develop a strategy that is, you know, equally as compelling as the Chinese strategy.
FERGUSON: Susan, do you think Xi is putting a kind of strong face on a weak poker hand internationally, diplomatically?
SHIRK: No, I wouldn’t say weak hand internationally, because if you—China has huge market power. And it’s kind of China, Incorporated, with Xi Jinping as the CEO. And they can really throw their weight around and to reward and punish other countries. And that’s something that really takes some getting used to. And we shouldn’t be cowed by it. The U.S. also has a lot of market power and we see that we’re—look like we’re going to be more willing to use it now in terms of regulating inbound investment. I’m not sure that’s necessarily the right thing to do, but, you know, I think that as China does have a lot of leverage, and we are trying to figure out how to deal with that. But the way to deal with it is not to become more like China, but to become more like our best selves. So let’s make this Sputnik moment—and that’s sort of what we did in that Sputnik moment.
ECONOMY: Well said.
FERGUSON: Question back here.
Q: What do you see—
FERGUSON: Please identify yourself.
Q: Oh, Steve Kargman (ph).
My question is, in terms of the political consolidation, what do you see that portending for reform or rationalization of unprofitable state-owned enterprises, and the balance between state-owned enterprises and the private sector? Do you see state-owned enterprises having an even higher profile?
FORSYTHE: Yes. No, absolutely. And you’ve seen this recently. There’s been an incredible amount of mergers going on, you know, with SOEs. You know, there’s a lot of emphasis on, you know, the primacy of the centrally administered enterprises. I think there’s 97 of them right now. Those are the vanguard of China’s going out. And I think, you know, Susan alluded to this earlier, you know, there’s a huge contradiction between the tendency for—you know, to increase the Communist Party’s power and any, you know, market-oriented reforms. And I’ll get back to the 2015 stock market. So they let things loosen up a little, look what happens, the market goes down. That’s the free market work. They couldn’t countenance that. They could not tolerate that. So there’s a real—there’s a real conflict there.
FERGUSON: Question, the gentleman with the beard.
Q: Thank you. I’m Aaron Back with The Wall Street Journal.
I wonder, we often hear rumblings about Xi Jinping wanting to bring back more traditional Chinese culture, and maybe even some kind of official embrace of Buddhism. And I just wonder if you guys have heard anything about that lately, if there’s some movement towards that now that he’s consolidated power? And might that be something maybe even a little bit positive that could come out of the Xi Jinping era?
FERGUSON: Susan, you want to rise to that?
SHIRK: Yeah. Actually, in happy coincidence, Ian Johnson was just here yesterday speaking at UCSD. And we had a conference on religion in post-Mao China, in Xi Jinping’s China. And there is a kind of a loosening up of some forms of political control over what are reviewed as more native—not really native—but Asian, Chinese religions, like Buddhism, like folk religion, like Daoism. And pilgrimage for—pilgrimages, for example. This whole pilgrimage movement where people go out to monasteries and have a retreat and things like this are OK now. And fortune tellers around the temples, that’s OK now, things like that. But the religions that are—have the foreign taint, like Islam and Christianity, control remains much tighter.
FERGUSON: Or certainly sects, such as the Falun Gong, would not be—(laughs)—anymore welcome probably in this environment.
I’ll get to this question for a moment—in a moment, but, Liz, I thought about your interest in the environmental policies, and just in terms of reform a strongman being able to push faster reform. Do you have any hopes that the Chinese environmental progress will be speeded up by this power?
ECONOMY: Well, I think we’ve seen already that China has made progress, you know, in many respects, in terms of tackling the air quality issue in a number of major cities, especially in the coastal provinces. I think that, you know, there are other challenges looming in terms of, you know, what they do for certain cities and, you know, what they do in other places. So, you know, there’s still—even as they’re cutting down, you know, the coal-fired power plants in the coastal provinces, they’re still doing a lot of chemical development in the western provinces. They’re still exporting coal fire power plants globally.
But I do think for the first time—and I’ve studied this issue for a very long time—I do think you have a leadership that is more committed to—than any other leadership that I’ve seen to addressing the environmental problems. I think, because it has become an issue of legitimacy for Xi Jinping. I think—and that was pre-Xi Jinping. I think that was as a result of, you know, 2011, 2012. And I can’t resist but point out that Jian Xin (sp) is in the audience, and her husband, Pang Xue (ph), was one of the most vocal sort of supporters and leaders in the sort of civil society element of environmental protection before Xi Jinping. That part of it is a lot quieter. But the top-down part is moving aggressively.
FERGUSON: Question in the front row here. Oh, I’m sorry, I thought, right there.
Q: Hi. Paul Podolsky from Bridgewater Associates.
Given what their stated goal is of a moderately prosperous society, and the title of today’s thing, the lifting of the term limits, to what degree do you think it could be explained by the lessons that they derive by studying periods of other turbulence, such as the collapse of the Soviet Union or the 2008 financial crisis here, or even the Great Depression? That that learning has informed their behavior now. I’d be interested in your comments on that.
FORSYTHE: I mean, I think you answered the question in your question. You know, certainly stability is paramount. It’s always—you know, more so in the last decade. It’s stability, stability. I can—it’s almost this theory that can almost explain every political action in China, is the desire to maintain stability. And certainly—you know, just two months after Xi Jinping took office, he gave his famous speech in January 2013, where he said that the leaders of the Soviet Union were not man enough and they let the party, you know, collapse. And so I think that experience, probably his own experience in his youth with the chaos of the Cultural Revolution, you know, has a big bearing. And the financially—with the financial crisis, all these things, you know, they want to avoid. And certainly, centralization and increased Communist Party control, in their view, is the solution. The price, obviously, they would pay, you know, is probably lower economic growth, if you’re going—if you’re going to have so much central control.
ECONOMY: I think it’s worth remembering, though, that with the exception of Tiananmen, China has been stable, you know, since 1982, since 1979. And so, you know, as I look at it, I think this is largely a function of Xi Jinping’s vision, right? It’s Xi Jinping’s vision, Xi Jinping’s vision for himself and his own power too. You know, one could imagine that a different leader in China, like Le Keqiang or Wang Yang, someone like that, might have a very different response than this one of centralizing all power into one person. I think the lesson of the Cultural Revolution could as easily be the opposite, right, is that you would allow too much power, and in the Great Leap Forward, in the hands of Mao Zedong. And look what you ended up with. So depending on how you look at it think you can take away two very different lessons.
FERGUSON: We’re just about out of time. But enough time remains for me to do what some of you know I love to do, which is put a pop question at the end relating to our topic. Susan, I’m going to make you go first. And what would be your best guestimate as to how many additional years we will in fact see Xi Jinping in power?
SHIRK: Well, I think he probably plans to have at least 10 more years in power, but I really think he may not make it because of some domestic crisis, a split in the leadership. And, you know, so that—but, of course, you don’t want to hear my predictions because I have many times predicted more dramatic political change in the Chinese system. And I’ve been wrong every time.
FERGUSON: Noted. Mike?
FORSYTHE: Yeah. It’s a—China’s a very humbling place. And we’ve all been so wrong about so many of our predictions. But, you know, his father was not really long lived. You know, he lived into his 80s, I think. But, you know, 10 years I think sounds pretty reasonable, I think, for how long he wants to be around. That’s just a guess.
FERGUSON: Going with 10.
ECONOMY: You know, 10 sounds good. I would—I would say he wants to see the realization of his vision. So I would say, you know, he’d like to see some real progress made on Taiwan reunification, for example, South China Sea, I think. He’s got some things he wants to get done. You know, could go 15, if he lasts.
FERGUSON: Yes. OK. Susan and panelists here, thank you very much. Please join me in giving them a round of applause. (Applause.)