Reading the NPC Tea Leaves: Xi in Firm Control of Party Elite

The inaugural session of China’s 14th National People’s Congress convened on March 5-13, 2023.  Following on the 20th National Congress of the Communist Party of China in October 2022, the meetings confirmed the composition of China’s new government and unveiled a restructuring of certain governmental agencies.  

We asked three faculty members of the Fairbank Center to weigh in with their observations on the recent National People’s Congress:  Robert Ross, Fairbank Center Associate and Professor of Political Science at Boston College; Tony Saich, Daewoo Professor of International Affairs at the Harvard Kennedy School and author of From Rebel to Ruler: One Hundred Years of the Chinese Communist Party; and Mark Wu, Henry Stimson Professor of Law and director of the Fairbank Center. 

Q: As expected, Xi Jinping secured a third term as President and installed many of his loyalists in key positions.  What, if anything new, did we learn about Xi’s political power and intra-Party dynamics at the National People’s Congress?

Saich: Primarily it was a confirmation of his domination of the state sector. The Premier’s work report contained plentiful praise for Xi and the guidance of his thought. This was far more extensive than in the past. Administrative changes strengthened the control of the Party in crucial areas.

Q:  Some other China analysts suggested that Xi’s power, although still very strong, may have diminished following the abrupt end of the zero-COVID policy.  Were there any signs that this may be the case?  

Saich: There were no signs of any decline in Xi’s control over the Party elite. The meeting praised the success of dealing with Covid, claiming its great victory and stressing that its principle of putting people first, over the economy and profits, was correct. The work report echoed the themes of the Twentieth Party Congress and Xi’s acolytes were appointed to all the key positions.  All ten members of the executive council of the State Council are his supporters and are joining the body for the first time, a remarkable situation.

Wu: This last point is an important one. The executive council is the core group that steers the policies of the State Council. What we just witnessed was its complete overhaul, with Xi successfully placing all of his own men into key positions to shape the day-to-day functioning of the government.

Q: The National People’s Congress appointed a slate of Xi loyalists for key economic positions, none of whom have reputations for pushing market-oriented reforms.  It also set relatively modest economic growth targets.  What does this suggest about challenges ahead for China’s economic recovery and how the new team will steer the economy?

Saich: I think it reflects a reality that reviving the economy after an initial spurt will be tough. Further, it indicates the preference for the state sector to drive development. Last but not least, it reflects his concern with security and stability to accompany economic development.

Wu: The leadership is doubling down on the economic strategy of focusing on industrial policy and technology development that has generated much friction with the West. They are counting on this strategy to move China up the technology value chain in order to surmount the numerous challenges ahead. 

In the near-term, once the post-COVID burst of economic activity subsides, the economic team faces an unenviable set of problems.  Not only do they need to manage debt levels and contain the fallout unfolding in property markets, they also face an increasingly difficult external environment. Against this volatile backdrop, the Party is concluding that it is important to maintain control and safeguard security interests, while also promoting advanced technology initiatives and preventing slowing growth and increasing youth unemployment from causing social unrest.  At the same time, they don’t want to go too far. They can’t afford to scare off foreign multinationals, whose technology and global supply chain ties remain important.  So it will be a matter of juggling a set of competing priorities in the near-term, without losing focus on the long-term goal of achieving greater technology autarky.

Q: How should we understand the direct criticism and aggressive rhetoric that Xi directed against the U.S. during the meetings?  

Ross: Xi Jinping’s reference to U.S. policy and State Councillor and Foreign Minister Qin Gang’s strong statements at his lengthy press conference at the National People’s Congress signal the onset of a new Chinese response to America’s effort to slow or reverse the rise of China.  Since 2018, when the Trump administration pivoted toward a more competitive China policy with trade and technology restrictions and with greater security cooperation with Taiwan, China has maintained a relatively low profile.  It has tried to avoid fanning the flames of U.S.-China conflict to minimize the costs of a hostile U.S. policy to its economic development and to maintain cooperative relations with U.S. security partners important to its success, including countries in Europe and East Asia.  But as the Biden administration has intensified restrictions on international technology cooperation with China, sustained Trump’s trade war, and strengthened security cooperation with Taiwan, China has concluded that its effort to sustain cooperation with the U.S. and its allies has failed and that it is time to impose costs on U.S. policy, both to try to compel the U.S. to alter it strategy and to weaken the U.S. in its competition with China. 

Saich: The leadership has concluded that, no matter what, the U.S. is determined to hamper China’s development and to contain it. It is also usual to deflect attention from internal problems with economic recovery by blaming the U.S. for creating problems for China’s economic growth. 

Q:  During the NPC, China brokered an agreement between Saudi Arabia and Iran – one of several recent foreign policy initiatives.  What does this tell us about China’s ambitions for greater global influence?

Ross: The effect of Xi’s speech is already reflected in a host of policy initiatives that China has rarely or not before pursued.  First, China is now intent on actively challenging U.S. influence in the Gulf region.  China’s promotion of the restoration of Saudi-Iran diplomatic relations is one example of this new trend in Chinese policy.  Recently China also promoted a Beijing summit of Gulf countries, and this week it is conducting naval exercises in the Gulf of Oman with Iran and Russia.

Second, China’s recent peace initiative for the Russia-Ukraine war reflects its effort to challenge U.S. leadership on the Ukraine war and to offer a moderate alternative to U.S. policy for resolving the war with a Ukraine victory.  The Biden administration’s harsh summary rejection of China’s initiative reflects its concern for China’s challenge to U.S. policy. This week China will hold its first conversation with Ukraine President Zelensky.

Third, this week China warned the Philippines that it should restrain cooperation with the Biden administration effort to strengthen U.S.-Philippine alliance cooperation against China.  Before this, China had refrained from issuing direct warnings, cautious not to make relations worse with the Philippines and with other countries in the South China Sea. We should expect increasing Chinese resistance to Philippine policy and heightened tension in China-Philippine relations.

Fourth, China’s expected “theft” this week of Taiwan ‘s diplomatic partner Honduras, which it could have done at any time over the past few years, reflects its intent to impose greater costs on Tsai Ing-wen and her growing cooperation with U.S. policy against China.  This could well augur greater Chinese pressure on Taiwan as campaign season opens in Taiwan.  The United States is lobbying Honduras not to finalize establishing diplomatic relations with the PRC.

Q:  The Ministry of Science and Technology (MOST) is being overhauled to bolster efforts to promote technology self-reliance in the wake of growing export sanctions.  What are China’s biggest challenges in technology development?  Will stronger government-led efforts help or hinder China’s technology drive?

Saich: The decision of October 2022 by the U.S. to restrict sales of semiconductors and advanced chips is a major blow to China’s progress. It has been heavily reliant on the international community to develop its high-tech sector. Despite all the investment to date, it has not been able to develop the high-quality components that it needs if it wants to dominate the realms of key technologies for the future. Certainly, China can mobilize significant funds for investment, but whether they will be used effectively is another matter. The track record so far is not impressive. Beijing has relied on outsourcing development in the key sectors to private enterprises and foreigners. 

Wu: The Party is reasserting greater control in order to advance its goal of developing Chinese capabilities in key technologies and decreasing reliance on foreign technology. Whether this will work better remains to be seen.  We don’t know yet the operational details and who will be tasked with implementing them. What is clear that they’d like to achieve more breakthroughs than they have to date. 

The creation of the new Central Technology Commission and the streamlining of MOST’s role is an acknowledgment that more needs to be done to coordinate policymaking and allocate resources in line with Party priorities. One other interesting restructuring is the creation of the new National Data Administration. This move aims to coordinate government policymaking on data, which China has long recognized as a key factor of production in the expanding digital economy.

Q:  Coming out of the NPC, China is enhancing the power of its financial regulator to centralize control and oversight of the banking, insurance, and other financial sectors, while also strengthening the role of its securities regulator.  At the same time, Yi Gang was reappointed as head of the People’s Bank of China (PBOC), in a move to reassure entrepreneurs and the business sector.  What do these moves mean for business?

Saich: Against expectations, both PBOC Governor Yi Gang and Finance Minister Liu Kun were retained. China needs continued access to global financial markets, and the retention of two people who have experience in the international sphere is important domestically as well as, perhaps, providing comfort to foreign investors. It remains to be seen how long they will stay in post. 

Wu: With the departure of Vice Premier Liu He and Guo Shuqing (the outgoing Chairman of the China Insurance & Banking Regulatory Commission), China lost two long-standing interlocutors with the foreign business community. So the retention of Governor Yi and Minister Liu, as well as others such as Yi Huiman (Chairman of the Securities Regulatory Commission) is designed to provide some continuity and reassurance, for now. Even so, I think business understands that there’s a new economic team in charge, with Vice Premier He Lifeng taking over the reins. And they will need to make sure that their activities align with Xi’s priorities.