President Donald Trump just completed a relatively upbeat swing through Asia, but made some ominous references to future trade action in his speeches, policy changes that could be focused primarily on China. This week in The Institutional Risk Analyst, we feature a discussion with Leland Miller, CEO of China Beige Book International and one of the best observers of China in the West. He’s also a Non-Resident Senior Fellow for the Asia Security Initiative, Brent Scowcroft Center on International Security, at the Atlantic Council. We spoke to Lee in New York.
The IRA: Lee, let’s pick up where we left off more than a year ago, talking about the progressive accumulation of political power under Xi Jinping. How do you assess his success and did he exceed your expectations in terms of the ease with which he has consolidated his grip on power?
Miller: He’s fulfilled all of them and probably more. Everyone was pretty much of the mindset over the past year that this consolidation of power by Xi was a done deal. The question was to what degree and how was he going to memorialize this power? How would the systems change to reflect that power? He went just about as far as anyone thought he would go and actually had his thought elevated to the same level as Mao Zedong.
The IRA: What does that mean? Is Xi now a demigod in the communist pantheon?
Miller: The Chinese Communist Party adopted Xi’s thought as part of the Party Constitution. As long as Xi Jinping is alive, he calls the shots – period. Being part of the constitution puts him on a level that only Mao Zedong himself has achieved, and ensures that his views alone provide the intellectual foundation for all of the Party’s actions. From here on out he is “the man,” whether he holds the title of President or Party Secretary. This is his show going forward.
The IRA: Describe how this evolution from collective leadership to cult of personality occurred? Is this just another example of the model of one man rule in China? We are reminded of George Orwell’s classic “Animal Farm,” where the character of the pig Napoleon gradually murders all of his rivals.
Miller: Well, it has not happened in a long-time, at least since Deng Xiaoping. There has been a default towards consensus leadership for decades. The people in authority had balancing needs. There were various personalities and factions who jockeyed for position within the Party in a compromise process. This time around, however, it was not a consensus process. Xi has been working for the past five years to take down potential rivals in the Communist Youth League, as well as Bo Xilai and his cabal in Chongqing, who were purged after building up a rival power base. Xi’s ally Wang Qishan went after all the other rival power bases via the anti-corruption campaign, taking them down one by one. Xi is now in control of all of the organs of power in China and that is virtually certain to be the case going forward.
The IRA: Well, that’s fascinating, especially with the coincidence of the dynastic purge underway in Saudi Arabia. Is there a power base behind Xi or is he now moving solely by the sheer supremacy of his personality?
Miller: Xi was once part of a group that included a number of prominent princelings. His father, Xi Zhongxun, was a famous revolutionary. Then for years he was closely associated with has been called the Zheijiang faction, which refers to the group of people around Xi who served in trusted positions when he was Party Secretary of Zheijiang province. These people now make up a good chunk of the people in Xi’s inner orbit. But even so, there is no real challenge to his power anywhere in the party or the government. He even purged the military and replaced the top officials with younger officers more beholden to him for their positions and influence.
The IRA: And created many enemies in the process.
Miller: There was enormous turnover in the military, unprecedented changes. There were changes not just in the Central Military Commission, but in the top ranks of the military itself. As I said, this leaves Xi a virtually unchallenged leader and it means that if China is going to do any large-scale restructuring of its system, it is much better positioned to do it now. That doesn’t mean he will opt to do that, it just means that this is a better situation for making such changes if that ends up being what Xi decides to do.
The IRA: So how does this change the equation for the US? Or the Russians?
Miller: I don’t think it has much effect on Big Power relations. The only real change is that other powers now understand that they are dealing with a core decision maker and that consensus leadership is a thing of the past.
The IRA: There are more and more analysts in the West seemingly willing to believe that China will not grow at 7% annually forever. Does the rise of Xi have any impact on the Chinese economy, either immediately or the longer term?
Miller: It’s funny, two years ago the people who had been proclaiming that China could grow at 7% forever completely re-wrote their forecasts and started calling for a dramatic economic slowdown or crash. Now, with things looking much sunnier of late, most of those folks have gone back to their old thinking—predicting that China can keep up relatively high growth indefinitely. But they misunderstand the broader context, what was given up to get China this 2017 burst of growth. Analysts have become so ebullient about China that they miss the forest for the trees.
The IRA: How so? What is wrong with the never ending China bull case?
Miller: They had a great 2017 performance. A year and a half ago we were in the midst of a global contagion that resulted from a crisis in China over currency worries and capital outflows. This type of weakness was obviously unacceptable entering into a year of political leadership change, so they stepped up their interventions and made sure the economy recovered—and then some. So no question, there was an unmistakable on-year recovery in the Chinese economy virtually across the board.
The IRA: Where is the catch?
Miller: Everyone is on the same page right now in terms of seeing a strong 2017 economy, but the mistake analysts make is seeing this as the “new normal” for China. The Party decided that it would pull all of the stimulus levers over the past year and that’s what made 2017 such a great year for the economy. But this was done at a considerable cost—no deleveraging, an outright reversal of rebalancing, huge stimulus on both the fiscal and monetary sides—so naturally the economy will slow in the coming year as the anxiety cools down. And that’s assuming all else stays the same, which is extremely unlikely.
The IRA: We had talked a few months ago about Xi wanting no surprises in 2017 and that seems to be the case. Why is it that the foreign analyst community fails to appreciate the political dimension in China?