PRC leaders stick to rhetoric at key forums and avoid substantive discussions of economic rescue; analyzing Ray Dalio’s read of Xi’s power consolidation and the PRC’s troubles

  1   PRC leaders stick to rhetoric at key forums and avoid substantive discussions of economic rescue

  Li Qiang’s China Development Forum speech

March 24
State media reported that PRC premier Li Qiang attended the 2024 China Development Forum in Beijing and delivered a keynote speech. The theme of the forum was “The Continuous Development of China.”

In his speech, Li claimed that the PRC has “withstood external pressures, overcame internal difficulties, and satisfactorily achieved the main goals and tasks of economic and social development” for 2023 under Xi Jinping’s leadership. He added that the Chinese economy has “strong resilience, great potential and vitality, while the fundamentals of its long-term sound growth remain unchanged.”

Li said that the PRC government has “always regarded respect for the market and services for enterprises as an important focus in planning economic work,” and has “always been an advocate and a good companion for the development of enterprises.” He added that the PRC authorities had “established a regular communication mechanism with enterprises, and conscientiously responded to and addressed their concerns” since 2023.

Li said that the international environment is currently undergoing profound change and the world economy is facing severe challenges. Under such circumstances, the PRC authorities plan to:

• Take “practical and effective actions to promote high-quality development” and “inject more certainty and positive energy into the recovery and stable development of the world economy.”
• Intensify macro-policy adjustments, expand domestic demand, advance the national unified market, promote “new urbanization,” and advance large-scale equipment renewal and trade-ins of durable consumer goods.
• Continue promoting industrial innovation through scientific and technological innovation, accelerate the development of new quality productive forces, and advance green transformation.
• Address both symptoms and root causes of challenges to “prevent and defuse risks and hidden dangers.”
• Make continuous efforts to create a world-class business environment that is “market-oriented, law-based, and internationalized,” and steadily advance “institutional opening up and link with the world at a higher level of openness.”

Notable foreign attendees of the China Development Forum include:

• Apple CEO Tim Cook
• Blackstone CEO Stephen Schwarzman
• Citadel CEO Ken Griffin
• HSBC CEO Noel Quinn
• Mercedes-Benz CEO Ola Källenius
• Pfizer CEO Albert Bourla

  Xi meets US CEOs

March 27
State media reported that Xi Jinping met with representatives from the U.S. business, strategic, and academic communities at the Great Hall of the People in Beijing. The attendees included National Committee on U.S.-China Relations chairman Evan Greenberg, Blackstone CEO Stephen Schwarzman, Qualcomm CEO Cristiano Amon, Harvard John F. Kennedy School of Government Douglas professor Graham Allison, and U.S.-China Business Council president Craig Allen.

Xi reportedly listened attentively to the American representatives’ feedback before responding to the issues brought up. Notable responses include:

• China’s economy is “healthy and sustainable.”
• China’s economic growth ranked among the top in the world’s major economies, and China contributed over 30 percent to global economic growth.
• China overcame various difficulties and challenges to reach where it is today in development. China has not collapsed despite the “China collapse” theory, and has not yet peaked despite the “peak China” theory.
• The outlook for China’s development is bright, and the PRC authorities are assured and confident in this.
• China will not stagnate in reforming and will not cease opening up. The PRC authorities are planning and implementing a series of comprehensive and deep reforms to provide development space for enterprises from all countries, including those from the United States.
• American enterprises are welcome to have more participation in building the “Belt and Road,” participate in major economic and trade activities such as the China International Import Expo, and continue investing in China.
• China-U.S. relations have experienced many ups-and-downs and encountered severe challenges in recent years, from which lessons should be drawn. China-U.S. relations cannot return to the past, but may have a better future.
• Under current circumstances, the common interests between China and the U.S. have not decreased, but increased. Both sides should facilitate each other’s development instead of throwing up obstacles.
• The U.S. should meet China halfway, establish correct strategic perceptions, handle sensitive issues properly, maintain the momentum of stabilizing China-U.S. relations, actively explore the right way to get along, and promote the sustained, stable, and healthy development of China-U.S. relations.

Footage from CCTV’s evening primetime “Xinwen Lianbo” program showed Xi shaking hands with the American representatives at the meeting on a red carpet. Commentators criticized the representatives for appearing overly deferential towards Xi and mocked some of the representatives for taking notes during Xi’s speech like PRC officials.

***
CNBC contributor Michelle Caruso-Cabrera wrote in a post on X that she had interviewed an American CEO who attended the China Development Forum and Xi’s meeting with American representatives. According to the CEO:

• “Business is still terrible” in China and confidence in the economy is very low.
• The CEO saw no indication that the PRC is backing away from centralizing the economy after spending about a week speaking with the CCP leadership and members of the Chinese business community.
• Wealthy Chinese are “fearful and selling items that are seen as ostentatious, such as private jets” because it is “dangerous to be rich in China.” Also, wealthy Chinese are trying to get their money out of the country.
• There were passing references to the private sector at the China Development Forum, but the focus “always returned to support of the large, state-owned enterprises which dominate the economy.”
• The meeting between American CEOs and Xi lasted about an hour and a half. The American CEOs asked him tough questions, and Xi gave the following replies:
  • China’s economy has not yet peaked.
  • Every economy has difficulties and the PRC has the capacity to fix theirs.
  • Xi repeatedly said that the PRC knows how to fix its economy, and that the authorities know how to address their problems despite everyone else having an idea of how they should go about doing so.
  • The PRC authorities know how to provide at least 10 million new jobs every year to new graduates.
  • It is not right for the U.S. to try and constrain the Chinese economy.
  • China is not a threat to the United States.
  • The U.S. should not try to hinder China’s growth.
  • Taiwan is a red line. Also, other countries should not try to interfere with China’s borders because China does not interfere with other countries’s borders.
  • Nuclear war would destroy humanity and the world should never wage one.
  • The “Thucydides Trap” is not inevitable and has to be avoided at all costs.
  • The PRC’s governing system is not going to change.
  • The PRC respects other forms of government and hence other governments should respect theirs.

  Zhao Leji addresses Boao Forum

March 28
Zhao Leji, the chairman of the Standing Committee of the National People’s Congress, gave a speech at the opening ceremony of the 2024 Boao Forum for Asia. Zhao’s speech was entitled, “Unity and Cooperation, Jointly Addressing Challenges, and Creating a Better Future for Asia and the World” (團結協作, 共迎挑戰, 攜手開創亞洲與世界美好未來).

Zhao said that the “acceleration of changes in the international landscape, weak global economic recovery, successive conflicts and contradictions, and the serious harm caused by hegemony and power politics pose severe challenges to peace and development.” He added, “The choice between strengthening unity and cooperation to jointly address various risks and challenges or adopting zero-sum thinking and pushing the world towards division and confrontation is crucial for the future of humanity and the world.”

Zhao said that the PRC’s answer to the question of “where humanity is heading” is the construction of a “community with a shared future for mankind.” He also called for the construction of an Asian community with a shared future.

Zhao said that China’s economy is steadily recovering and improving, and the PRC authorities are comprehensively promoting Chinese-style modernization with high-quality development. He added that China will also adhere to innovative development, open development, green development, and inclusive development. Zhao further welcomed all countries in joining the “express train of China’s development.”

A handful of world leaders were in attendance according to state mouthpiece Xinhua, including Cambodia president Hun Sen, Sri Lanka prime minister Dinesh Gunawardena, Kazakhstan president Kassym-Jomart Tokayev, Russian deputy prime minister Alexey Overchuk, and the leaders of the island nations Nauru and Dominica.

  Backdrop

March 14
House Committee on Oversight and Accountability Chairman James Comer (R-Ky.) launched a government-wide investigation into the CCP’s ongoing efforts to “target, influence, and infiltrate every sector and community in the United States,” including education, agriculture, critical infrastructure, research, energy, business, space, and technology.

According to a press release, the Committee on Oversight and Accountability sent nine letters to various federal agencies regarding the investigation and to seek information from those agencies on what they are doing to “protect Americans from the CCP’s ongoing political warfare.” Committee Chairman Comer also plans to call on more U.S. agencies to provide similar information and will lead several hearings to address the national security threat. “Without firing a single bullet, the Chinese Communist Party is waging war against the U.S. by targeting, influencing, and infiltrating every economic sector and community in America,” Comer said.

In the letter to the Department of Justice, the Committee on Oversight and Accountability noted that the American business community is one of the CCP’s targets for elite capture. The Committee also noted that “Silicon Valley is a prime target for CCP economic warfare against the business community.”

March 27
The Shanghai Composite Index fell below the psychologically important 3,000 level less than a month after rebounding on Feb. 29:

• The Shanghai index closed at 2,993.14 points, or down 1.26 percent (38.34 points). On March 28, the index rebounded to close at 3,010.66 points.
• The Shenzhen Component Index closed at 9,222.47 points, or down 2.4 percent (226.96 points).
• The ChiNext Index closed at 1,789.82 points, or down 2.81 percent (51.72 points).
• Trading volumes in Shanghai and Shenzhen decreased by 888.8 billion yuan, with 134 stocks falling by more than 9 percent.
• Northbound funds recorded net sales of 7.249 billion yuan during intraday trading, a new high since Jan. 17, 2024.

  Our take

1. The speeches of Xi Jinping, Li Qiang, and Zhao Leji, as well as the feedback from the anonymous American CEO who spoke to the CNBC contributor, suggest that Beijing had mostly avoided addressing in a substantive manner what policies it is looking to implement to turn around the Chinese economy, which is what many Western companies and investors are concerned about. Instead, the CCP authorities stuck to their usual tactics of painting a rosy picture (畫大餅) about the Chinese economy, making unrealistic promises, and promoting the CCP’s ideology.

The Xi leadership sought to convey the following:

• China’s economic growth in 2023 was “relatively good” compared to that of other countries despite the Chinese economy’s lackluster recovery after “zero-COVID.” This is likely an attempt to gloss over the unimpressive official economic data.
• China’s development has continued despite many “internal and external difficulties.” Beijing is likely looking to signal that the PRC is undaunted by Western pressure and that China’s prospects remain positive even though the PRC’s geopolitical situation is worsening.
• The PRC authorities are looking to improve the business environment and open up China even more. This is aimed at alleviating concerns by the U.S. and its allies about the CCP’s focus on strengthening national security and social controls.
• Beijing acknowledges that the China-U.S. relationship is strained and “cannot return to the past,” and the current geopolitical environment is not favorable to China. However, Beijing also signaled to the American business and academic representatives that it does not want to escalate bilateral tensions and is actively seeking cooperation in multiple areas.
• The PRC authorities persist in promoting its hegemonic agenda (“community with a shared future for mankind”) as an alternative to the U.S.-led global order. Beijing is also signaling to countries that having a close standing with China will lead to benefits as the Chinese economy improves and recovers.

2. We see two possible reasons why Li Qiang did not meet with U.S. business, strategic, and academic representatives in Beijing after the China Development Forum and did not attend the Boao Forum.

First, the status of the PRC State Council and premier have clearly been downgraded since the 20th Party Congress as Xi Jinping made further inroads into centralizing power. As such, it became appropriate for Xi to personally meet with the U.S. representatives and take their questions instead of Li Qiang.

Second, the CCP authorities are likely looking to avoid having the PRC premier provide substantive answers to sensitive questions that would likely be directed to him at events like the Boao Forum and in meetings with top U.S. executives. Instead, having Xi or Zhao Leji take questions gives the CCP leeway to provide vague and ideologically-centered responses to tough questions about the economy and other issues. If Beijing is indeed pursuing this strategy, then it further reinforces the view that the CCP authorities lack effective measures to rescue the economy and have to resort to a form of “filibustering.”

3. The U.S. executives, academics, and other representatives who met with Xi Jinping, as well as the governments of other countries, are unlikely to be assuaged by Beijing’s pledges of greater economic openness, economic recovery, and other propaganda.

First, China’s economy is in visible decline, with weak domestic demand, unrelenting deflationary pressures, increasing idle funds in the financial system, the real estate sector facing a “hard landing,” and spreading financial contagion. China’s poor economic situation is in turn affecting the ability of local governments to resolve their debt problems and generate revenue. Also, propaganda and manipulated figures are increasingly losing their effectiveness in propping up the CCP’s “great, glorious, correct” image and maintaining the illusion that the Chinese economy is doing fine as the U.S. and the international community gradually acknowledge the CCP threat and grow wary of the CCP’s narratives.

Second, the 20th Central Committee has yet to announce a date for its Third Plenum and Li Qiang’s government work report at the 2024 Two Sessions introduced lackluster economic rescue policies. Both developments are indications of the CCP being at a loss about how to fix the economy given the severity of problems.

Third, there is growing political consensus in the U.S. and elsewhere about the danger posed by the CCP and the need to address the issue. The political environment at home would make U.S. executives and investors increasingly hesitant to invest in or work with China as the domestic repercussions of being labeled “pro-CCP” come to outweigh the benefits that the CCP authorities can provide them. A similar phenomenon is likely to occur in countries whose politicians and governments are knowledgeable about the CCP threat and start taking action to guard against PRC subversion, shore up national security, and block the export of critical technologies to China. While U.S.-China and some of the PRC’s other key bilateral relations could improve to a degree and tensions will fluctuate, great power competition and the “new cold war” would ensure that the PRC faces rising geopolitical pressures in both the short and long-term, as well as increasingly dim economic prospects.

  2   Analyzing Ray Dalio’s read of Xi’s power consolidation and the PRC’s troubles

Ray Dalio, the founder of Bridgewater Associates, posted a nearly 5,000-word post on LinkedIn on March 27, 2024 where he analyzed why Xi Jinping made the assessment that the PRC faces “great changes unseen in a century.”

Some notable points in Dalio’s piece include:

• Dalio wrote that from 1978 to until Xi took power, China had a “joyous and productive environment in which there was a relatively large increase in freedom, civility, and creativity, and in which people could make their dreams into great realities and most people benefited, though the rich benefited more than the poor.”
• Dalio wrote that “Xi and the leadership’s main goals were to reform the economy and eliminate corruption” when he came to office. However, “how to do these things was debated and some people benefited from the changes while others were hurt by them.” Therefore, Xi sought to “consolidate power via a move to ‘core leadership’” during his first term.
• Dalio observed, “In 2015, Xi put out his bold 2025 plan, which was viewed as aspirational by the Chinese and threatening by Americans. China could no longer ‘hide power.’ Americans viewed the Chinese as a threat. By the time Donald Trump came to power in 2017 and Xi began his second term in 2017, the great power conflict had begun. In 2019-20, COVID-19 emerged. At the same time, the debt bubble and the wealth gaps had grown—so the classic convergence of forces led to the formation of the ‘100-year big storm.’ In 2021, about halfway through Xi’s second term, China’s domestic debt bubble burst and the international great power conflict intensified. At the beginning of Xi’s third term in October 2022, China’s leadership changed from reform-minded globalists to loyal communist nationalists, and purges and crackdowns ensued, which brings us up until now.”
• Dalio argued that “it is important to distinguish between the hand that Xi was dealt and how he has been choosing to play it. It is also important to understand what is happening now and how Xi is playing his hand without judging these things, because judging them can stand in the way of understanding them.”
• Dalio wrote, “History shows that in all countries through all times during these very difficult 100-year-storm-like periods, leaders go to much more autocratic policies because the alternative becomes great internal conflict and disorder, and typically there are forced changes of leadership that those in power fight against … The legalist approach with Marxist/Maoist characteristics appears to be the approach Xi has chosen.”
• Dalio laid out “five big forces” currently impacting China:
  • “There are big debt and economic problems that are depressing economic activity, prices, and psychology.”
  • “The internal wealth gap and the resulting conflict over wealth and values are intensifying, which is fear-inducing.”
    • Dalio wrote, “It appears that the ‘elites’ are most concerned and least supportive of Xi, while many who feel Xi is trying to take care of them from being exploited by the elites are strongly supportive of him.”
  • “The great-power conflict between China and the US is having a big negative effect.”
    • Dalio observed that Sino-U.S. tensions are causing “foreign investors and businesses and domestic investors and businesses to want to diversify or leave China and to fear being discriminated against globally for being friendly to China. In trade and capital flows, a cat-and-mouse game has developed that has led companies and people to move to neutral countries and to try to appear to be non-Chinese or not Chinese sympathizers, so much so that the Chinese are having problems getting other countries and companies to accept them being there and/or investing in them.”
  • “Climate and climate-related issues are big, threatening, and top-of-mind.”
  • “While technology development has always been a critical defining force and while it is well known that whoever wins the technology war wins the economic, geopolitical, and military wars, this has never been truer than now, and China and the US are the leaders and big adversaries.”

  Our take

Ray Dalio’s observation of why Xi Jinping consolidated power and grew increasingly autocratic is mostly aligned with our long-term observation of CCP elite politics and factional struggle during the Xi era. In particular, we concur that it is important to understand why Xi is doing what he is doing and how he is playing his hand in analyzing PRC-related developments to better comprehend what Beijing is really up to, make more accurate forecasts about China, and correctly weigh and assess the risks China is facing. By contrast, simply viewing Xi as a “dictator,” an “aggressor,” or “another Mao Zedong” puts observers at risk of reaching inaccurate conclusions in understanding why Beijing is acting in certain ways, affecting decision-making about China.

We believe that Dalio is mostly correct in observing that the CCP “‘elites’ are most concerned and least supportive of Xi, while many who feel Xi is trying to take care of them from being exploited by the elites are strongly supportive of him.” However, we believe that those who are “strongly supportive” of Xi are likely to shrink in number by the day as the Xi leadership’s policies lead to one failure after another and worsen China’s domestic situation. Xi’s allies and loyalists are also likely to be less “strongly supportive” of him and could have grown more paranoid since the sudden purge of former foreign minister Qin Gang and former defense minister Li Shangfu, both of whom can be considered to have been in the Xi camp. Meanwhile, the number of Party elites who are opposed to Xi will likely grow as the Xi leadership takes the anti-corruption campaign into so-called “deep-water territory” with rectifications of the financial sector and system. We previously analyzed information that emerged at the start of 2024 about how some Party princelings are allegedly plotting against Xi Jinping and why they might be doing so (see here and here).

Dalio comes close to identifying the root cause of factional struggle during the Xi era. He observed that “Xi and the leadership’s main goals were to reform the economy and eliminate corruption” during Xi’s first term, but Xi moved to consolidate power as “how to do these things was debated and some people benefited from the changes while others were hurt by them.” We have noted on numerous occasions that Xi moved to centralize power more aggressively after finding that he was unable to push through much of his agenda due to interference (including early problems with the Shanghai Free-trade Zone and the 2015 “financial coup”) and inaction from the Jiang Zemin faction and its associates, as well as officials who were steeped in the way things were done during the Jiang faction’s era of dominance.

We believe Dalio is partly mistaken in observing that “China’s leadership changed from reform-minded globalists to loyal communist nationalists” at the beginning of Xi’s third term. There were and are no “reform-minded globalists” in the CCP, and especially not Deng Xiaoping who is lauded in the West for introducing “reform and opening up.” The CCP and its leaders have chiefly worked to ensure that the Party survives and dominates, including allowing quasi-capitalistic operations at home for some decades and pursuing various external initiatives and operations to strengthen the PRC’s push for global hegemony.

We believe that Dalio is perceiving the period between 1978 to before Xi took office through rose-tinted lenses that obscure the gross human rights violations and other brutal realities of the CCP regime. For instance, migrant workers and the lower classes in China would hardly describe the aforementioned period as “joyous” even though their standard of living might have gone up. It is also debatable how much more “freedom” and “civility” the average Chinese had as compared to the Mao years as the CCP gradually ramped up its techno-totalitarian control over society. Finally, Jiang Zemin and his associates, in starting the campaign against Falun Gong in 1999, marked an estimated 100 million Chinese for decades-long persecution (including live organ harvesting, labor camps, and torture), and deepened the control and persecution of Uyghur Muslims in the Xinjiang region that were later expanded during the Xi years. The CCP’s authoritarianism and ideological brainwashing never went away under Xi’s predecessors; rather, the West and the rest of the world mostly ignored the CCP’s repression of the Chinese people, overseas subversion and influence operations, and gradual military build-up as there was money to be made in China by going along with the Party line.

Dalio’s post reveals that he lacks a clear understanding of the nature of the CCP regime. This is most noticeable when he states that “no one knows how far the pendulum will swing back toward the more Maoist/Marxist ways of doing things” in the PRC. Yet the CCP has never abandoned Marxism-Leninism as the state ideology or moved away from its brainwashing education even during the most “liberal” periods of Party rule. Nor has Xi Jinping embraced “Maoism” or become excessively “Marxist”; Xi is pushing ideology more vigorously than Deng, Jiang, and Hu because he is hewing to Party orthodoxy to consolidate power and create a more loyal cadre, but he has not abandoned private capital or stopped courting foreign investments. Dalio’s misunderstanding of the PRC is a common one among observers who mistakenly believe that China operates as a normal country when it is in fact a communist regime that has never ceased clinging to localized forms of Marxism-Leninism.

The Xi leadership’s inability to resolve the many internal and external problems plaguing the PRC is not due to Xi Jinping being more Maoist or Marxist, but because of the systemic deficiencies of the CCP authoritarian dictatorship. Put another way, the CCP is itself the root cause of the regime’s woes today, and hence cannot carry out self-rescue. Xi has a chance of weathering the “100-year big storm” if he abandons the CCP and truly sets China on a new path, but it remains to be seen whether he has the courage to put the country before the Party.

Finally, we concur with Dalio’s assessment that great power conflict between the PRC and the U.S. is having a hugely negative effect on China and the technology war between the two will be consequential. The PRC’s many problems will likely worsen going forward as the Sino-U.S. “new cold war” drags on and the regime increasingly falls behind in building and acquiring advanced technologies.