Signals from China’s 20th Party Congress: balancing between development and security

China’s National Party Congress, the highest ruling body of the Chinese Communist Party (CCP), held its 20th meeting in October. President and General Party Secretary Xi Jinping was front and centre at the opening session with a two-hour landmark speech in which he delivered the most important messages on China’s economic, political, and diplomatic policies during his history-making third presidency term from 2022 to 2027.

The messages sent by the opening report highly aligned with policies emerging in China in recent years, despite a number of new rhetoric compared to his presentation at the 19th Party Congress five years ago. The report also cemented the continuity of some of China’s current policies including the “Dural Circulation” strategy, “Wolf Warrior” foreign policy, and multilateral trade. However, the report allegedly failed to address more substantive issues such as economic growth slowdown and reform. Overall, it was made clear that doubling down on government-led development and indigenous technology innovation is the hallmark of Xi Jinping’s third-term administration in the face of worsening domestic economic and external geopolitical conditions.

Overall, President Xi’s report has sent out important signals heralding a more complicated and challenging relationship with other countries in regard to diplomacy and trade, even though it was concluded as the continuity of the CCP’s policy directions. In this light, it can be expected that China will be turning toward an inward economic development strategy and a hardball stance on foreign policy.

Worsening external environment

Aside from hailing the historic achievements the Party and country has secured, President Xi paired his confidence with warnings of looming threats to China. He particularly alluded to the “drastic changes in international landscape and external attempts to exert maximum pressure on China”. The frequent use of the word “security” throughout the report reflects Xi’s anxiety and caution about the deteriorating external environment. China is currently facing bouts of tensions with western countries that have undermined China’s political image and economic influence accross the world. In the report, President Xi warned to “be prepared to deal with worst-case scenarios” and highlighted the necessity of maintaining a fighting spirit to safeguard security.

While the report never explicitly mentioned any countries, its bleak rhetoric of China’s external environment is a clear reflection of Xi’s growing concerns on the tense relationship with the U.S. and its democratic allies. Xi also stressed the role of multilateralism as a solution to geopolitical conflicts in his speech. This was an indication of China’s need to strengthen its connection with neighbouring countries and the developing world to counter the strained relations with the Western world.

Rising national security concern

The changing landscape of international relations certainly contributed to Xi’s rising national security concerns, together with woes weighing on China’s internal economic and social development, particularly in the domains of food security, energy, and supply chain. Security was mentioned 91 times in the Party Congress and was ranked as the most-frequently mentioned phrase in President Xi’s report, in contrast to 54 mentions in his 19th Congress report, 35 in the farewell report by Hu Jintao (Xi’s predecessor), and only 4 in the first Party Congress of the Deng Xiaoping era in 1982.

In this report, Xi introduced a new national security architecture, more comprehensive and multidimensional, designed to cover political, economic, public, food, energy, military, technological, cultural, social, and international security. The report also made it clear that China’s answer to ensure national security and social stability is doubling down on the Party’s centralized leadership in all areas and stages of its work all over the country, safeguarding economic, major infrastructure, financial, cyber, data, biological, resource, nuclear, space, and maritime security.

The prioritization of national security and social stability marks a vital shift in China’s policy agenda, going from an agenda focused on economic development to one focused on national security. Also, the emphasis placed on external dangers, national security, and the importance of a “fighting spirit” seem to make excuses for the country’s troubled economy and intend to shift the public’s focus from economic stagnation to defending the country’s security.

Continuity on common prosperity

In the report, “common prosperity”, the notable guiding principle of China’s policy making over the past year, was cemented as another high priority alongside “security” on China’s economic agenda. In the past two years, China’s sweeping regulatory reforms and crackdowns have impacted a wide range of sectors, including private education, platform economy, video game industry, and entertainment industry. The purpose of these reforms was ostensibly to build a more equal and balanced social and economic environment for all people. In this same spirit, Beijing also implemented ambitious socioeconomic policies, such as rural revitalization, all-inclusive finance, and multi-tiered old-age insurance system in order to extend public service to the rural population, small & micro-businesses, and elderly population. In other words, the 20 th Party Congress marks a revival of the “common prosperity” ideal with the objective of reducing inequalities and achieving a more balanced society with shared wealth for all citizens in China.

The frequent mentions of “common prosperity” at the Party congress aroused fierce debate about whether Beijing is shifting towards inward economy to counteract widening socioeconomic inequality as economic problems mount at home. Since the Deng Xiaoping era, economic development has been highlighted as the Party’s top priority. Although President Xi reiterated the role of development in the Congress report, he seemed to place greater focus on the quality of the economy and downplay the growth rate. This change coincides with China’s slowing economy, and more importantly, it reveals the economic stagnation of the world’s second largest economy for an undetermined period of time. The concepts of a unified national market, fair competition, and balanced development gained more buzz at the Party Congress. This is because they were expected to help the Party in realizing its ultimate goal of income and wealth distribution—that is the common prosperity for all in China. On the other hand, what was left unstated and thus fuelled speculation, was the mounting policy uncertainties and potential increase of more government interventions in the near future as suggested by the Party’s slogan. In this scenario, actions such as potential regulatory storms may lead to a worsening business and investment environment for private companies and global investors.

Multilateralism as a solution to external economic headwinds

The report also gave a clear answer on how to tackling the mounting structural problems at home and complexity from abroad: multilateralism, which had already been advocated and practiced in China since its relations with other great powers went sour in recent years. In diplomacy, China reaffirmed its intention to pursue a “major-country diplomacy with Chinese characteristics” and called for “a global network of partnerships and foster a new type of international relations”. Notably, Xi’s report gave prominence to enhancing ties with neighbouring countries and other developing countries, in response to China’s deteriorating relations with Western countries.

The role of multilateralism is also significant in securing China’s trade and investment relations with the rest of the world. Neighbouring countries, such as ASEAN members, have become China’s most important economic and trading partners. Meanwhile, the Belt and Road Initiative is expected to continue to play a critical role in China’s trade and investment in the next five years. Advancing bilateral, regional, and multilateral cooperation in global trade and investment appears to be a core principle of China’s trade policy of Xi Jinping’s third term.

Doubling down on self-reliance in Science and Technology

Local technological innovation has long been one of the policy priorities for the Party and a key driver for China’s fast-growing science and technology sector. The 20 th Party Congress reemphasized its significance and raised its goal to attain “self-reliance in science and technology”. Placing technological self-reliance at the heart of China’s development plan is not surprising given the increasing tech rivalry between the U.S. and China over the past two years. Meanwhile, Xi stressed the roles of education and talent in building China’s self-reliant innovation.

An important measure is the rollout of China’s science and technology deployment and resource allocation plan. Last year’s policy storm on China’s internet companies sent a clear signal of the centralized control of the tech sector and a shift of resource towards security-related core technologies such as semiconductors and aircraft. Although the list of “core technology in key fields” remained veiled, Xi underscored that scientific and technological research should “meet China’s strategic needs”. Defense-related technologies and new growth engines such as next-generation information technology, artificial intelligence, biotechnology, new energy, new materials, high-end equipment, and green industry may be the key priorities on China’s technology policy agenda.

Xi also stressed “the unified leadership over science and technology work”, suggesting a state-led approach instead of market-led one, featuring massive R&D spending in so-called key fields and projects (namely next-generation information technology, artificial intelligence, biotechnology, new energy, new materials, high-end equipment, and green industry in his report) and government backed programs to attract overseas talents in technology.

Party-led new growth pattern

In terms of growth, Xi reiterated that economic development is the Party’s “top priority” and its “overarching task”. Optimists interpreted this as Beijing sticking to economic development and not sacrificing growth to safeguard security, even as the economy is plagued by prolonged COVID-19 policies. Words like “market economy”, “supply-side structural reform”, and “opening up” also appear in his report, albeit with a lower frequency and prominence.

A key difference from the 19 th congress’ report is that economic development was redefined through the addition of “new” or “high-quality” as qualifying terms. The “new development philosophy”, or “new development pattern”, are economic terms coined by Xi in 2021 to differentiate his economic strategy from previous ones, particularly his being more focused on domestic demand rather than export. This may stem from the growing concern on China’s economic decoupling from the western world.

Although the report shows that Xi Jinping appears to seek a balance between growth and security, the overstressing of security appears to eclipse economic growth and causes concern that China is quitting economic development and embracing a “security first” model in the next five years.

Conclusion

Many agree that the 20 th Party Congress indicates an increasing centralization in China with a remarkable strengthening of the power of Xi Jinping, the CCP, and the state. This may suggest an increased role of geopolitics and ideology in China’s economic decision-making with the potential of weakening economic connection with the rest of the world.

The Party Congress report affirmed that China would continue to grow its economy, although it may not be able to address the deep-seated structural problems such as high debt, industrial overcapacity, dwindling private business, unemployment, and poverty, without an institutional reform of its economy. It is very likely that China will stick to its growth path determined two years ago, guided by President Xi’s thoughts on China’s economy, also known as “Xiconomics”. Consumer spending and the domestic market are the backbone of this new growth model.

All in all, weak domestic demand and a troubled supply chain are two current impediments to the Chinese economy, and an inward development model makes the pressure more difficult to alleviate. Balancing between security, stability, and growth will be a difficult task for Xi Jinping and the Party. Demand for manufactured goods from China has remained strong, at least in the short term. China’s trade partners may be relieved as China’s foreign trade rebounds from their lowest levels in the first quarter of 2022 due to the rigorous zero-COVID policy, yet they should stay alert about policy uncertainties within China and the geopolitical risks involved in their relations with China. The two potential “shifts” --from development to security and from efficiency to equality—are the top two risks that threaten China’s economic and trade relations with its important trade partners.