Analyzing Xi’s 20th Party Congress work report; notice on ‘three public expenses’ hints at the PRC’s deepening financial crisis

     SinoInsight  1     

Oct. 16
1. The week-long (Oct. 16 to Oct. 22) 20th Party Congress opened in the Great Hall of the People in Beijing. Premier Li Keqiang chaired the opening session, where he announced the 2,296 delegates and 83 specially-invited delegates. While there were a total of 2,379 official delegates, only 2,340 were in attendance.

The presidium standing committee was seated in the first row from the speaker’s rostrum. A body of elite cadres responsible for supervising proceedings of the Party Congress, the presidium standing committee includes all 25 members of the 19th Politburo, PRC vice president Wang Qishan, United Front Work Department director You Quan, first vice chairman of the National Committee of the Chinese People’s Consultative Conference Zhang Qingli, as well as 18 retired national leaders. Five of the 46 presidium standing committee members were missing at the opening ceremony, notably former Party boss Jiang Zemin and his premier Zhu Rongji; the other three absent members are Luo Gan (Jiang faction), Wu Bangguo (Jiang faction), and Wang Qishan (Xi ally).

Xi Jinping delivered his 20th Party Congress work report, which was titled, “Holding High the Great Banner of Socialism With Chinese Characteristics, Struggle to Comprehensively Build a Modernized Socialist Country” (高舉中國特色社會主義偉大旗幟　為全面建設社會主義現代化國家而團結奮鬥). From CCTV’s live broadcast and Xinhua’s transcript, Xi spoke for about two hours and read out just the key points (nearly 15,000 characters) of his full report (about 32,000 characters). In contrast, Xi spent nearly three hours reading out the full work report (more than 32,000 characters) at the 19th Party Congress.

Xi said at the beginning of his speech that the 20th Party Congress comes at a “critical time” for the Party and the Chinese people as they “embark on a new journey to build China into a modern socialist country in all respects and advance toward the Second Centenary Goal.”

The report was divided into 15 segments, namely:

1. “The Work of the Past Five Years and the Great Changes in the First Decade of the New Era”
2. “A New Frontier in Adapting Marxism to the Chinese Context and the Needs of the Times”
3. “The New Journey of the New Era: Missions and Tasks of the Chinese Communist Party”
4. “Accelerating the Creation of a New Development Pattern and Pursuing High-Quality Development”
5. “Invigorating China through Science and Education and Developing a Strong Workforce for the Modernization Drive”
6. “Advancing Whole-Process People’s Democracy and Ensuring that the People Run the Country”
7. “Exercising Law-Based Governance on All Fronts and Advancing the Rule of Law in China”
8. “Building Cultural Confidence and Strength and Securing New Successes in Developing Socialist Culture”
9. “Improving the People’s Wellbeing and Raising Quality of Life”
10. “Pursuing Green Development and Promoting Harmony Between Humanity and Nature”
11. “Modernizing China’s National Security System and Capacity and Safeguarding National Security and Social Stability”
12. “Achieving the Centenary Goal of the People’s Liberation Army and Further Modernizing National Defense and the Military”
13. “Upholding and Improving the Policy of One Country, Two Systems and Promoting National Reunification”
14. “Promoting World Peace and Development and Building a Human Community With a Shared Future”
15. “Exercising Full and Rigorous Self-Governance and Advancing the Great New Project of Party Building in the New Era”

Reading from the key points of his report, Xi said that Party Central (with himself at the core) had since the 19th Party Congress coordinated the “overall strategic situation of the great rejuvenation of the Chinese nation” amid “great changes unseen in the world in a century.” Party Central made “major strategic deployments” and “dealt effectively” with the “severe and complex international situation and the enormous risks and challenges that followed,” overcame many “problems that remained unresolved for a long time,” completed many “matters of long-term importance,” and allowed the CCP regime to achieve “major achievements that have caught the world’s attention.”

In summing up his work over the past decade (“new era”), Xi said that his leadership had accomplished three major things of “great practical significance and profound historical significance, namely, “embracing the centenary of the CCP, ushering in a new era of socialism with Chinese characteristics, and eradicating absolute poverty and completing the construction of a moderately prosperous society in all respects, thus completing the First Centenary Goal.” Xi added that these were “historic feats accomplished by the CCP and the Chinese people striving in unity, feats that will be forever recorded in the Chinese nation’s history, and feats that will profoundly influence the world.”

Xi noted his predecessors made “great achievements” in “reform and opening up and socialist modernization,” as well as attaining “remarkable results” in “new great project of Party-building.” However, “a number of prominent issues and problems — some of which had been building for years and others which were just emerging” also occurred under his predecessors and “demand urgent action.” In contrast, Xi’s ten years in power resulted in “landmark achievements” that have “withstood the test of risks and challenges from politics, economics, ideology, nature, etc.,” while the Party and the country made “historic achievements and underwent historic changes.”

Xi then heralded the “great transformation” of his “new era” as a milestone in “the history of the Party, the history of New China, the history of reform and opening up, the history of socialist development, and the history of the development of the Chinese nation.”

2. A count of keywords in Xi’s full report shows the following:

• “Security” (安全, 91 times)
• “Modernization” (現代化, 86 times)
• “Reform” (改革, 50 times)
• “New era” (新時代, 39 times)
• “Strong country” (强國, 36 times)
• “Marx” (馬克思, 30 times)
• “Coordination” (統籌, 25 times)
• “Struggle” (鬥爭, 22 times)
• “Peace” (和平, 22 times)
• “Market” (市場, 18 times)
• “Risk” (風險, 16 times)
• “Self-confidence” (自信, 14 times)
• “Great rejuvenation” (偉大復興, 14 times)
• “Reform and opening up” (改革開放, 11 times)
• “The Party’s leadership” (黨的領導, 9 times)
• “Strictly govern the Party” (從嚴治黨, 8 times)
• “Self-revolution” (自我革命, 5 times)

Analysis: Xi is clearly very concerned about regime security as the regime enters a “period of development in which strategic opportunities, risks, and challenges are concurrent and uncertainties and unforeseen factors are rising.” Xi also warned that “various ‘black swan’ and ‘gray rhino’ events may occur at any time,” and the regime has to be ready to “withstand high winds, choppy waters, and even dangerous storms.”

Xi’s continued mention of “reform” also suggests that he is not planning to abandon it even as he prioritizes the “coordination of development and security.”

3. In the afternoon of Oct. 16, Xu Qiliang and Zhang Youxia, the two vice chairs of the Central Military Commission, spoke at a group discussion session for delegates of the People’s Liberation Army and People’s Armed Police. Both generals lauded Xi’s 20th Party Congress report and stated that they would obey his command.

Xu said that Xi’s decade in power “shined through the annals of history” (彪炳史冊) and “powerfully demonstrated” and “profoundly revealed” the “decisive significance” of the “Two Establishes.” He added that the military must most closely unite around “Party Central with Comrade Xi Jinping at the core” in the “new era” (i.e. Xi’s tenure) and “new journey” (i.e. the next five years), and “resolutely follow President Xi’s commands” in all their actions.

Zhang Youxia said that Xi’s report “opened up” a “new realm of Marxism modernization in China.” He added that the military must “more internally and deeply” (更內在更深層地) firmly support the “Two Establishes,” as well as ensure that the “barrel of the gun always follows the Party’s command.”

Oct. 17
1. Xi Jinping participated in a group discussion with delegates from the Guangxi Zhuang Autonomous Region. According to official media reports, Xi stressed during the discussion that the 20th Party Congress work report “points out the direction for the development of the Party and the country’s cause, and serves as a political declaration and program of action for the Party to unite the Chinese people to uphold and develop socialism with Chinese characteristics.”

2. Zhao Chenxin, deputy director of the National Development and Reform Commission, answered questions from Chinese and foreign journalists at the first press conference on the sidelines of the 20th Party Congress.

Zhao said that the world has misunderstood what the CCP regime means by “building a new development pattern” and “taking the domestic cycle as the main body” under Beijing’s “dual circulation” policy. Instead of “significantly shrinking opening up” or creating a “self-sufficient economy,” the “new development pattern” is an “opening up” of “domestic and international dual circulation, not a closed domestic single circulation,” Zhao said, noting that Xi had emphasized this point on several occasions. He added, “the trend of economic globalization is irreversible in today’s world, and no country can engage in construction behind closed doors.” Zhao further said that China has long been deeply integrated with the global economy and the international system, and has a “relatively high degree of industrial correlation and interdependence with many countries; demand from domestic and foreign markets are interdependent and mutually reinforcing.”

“We will advance high-level opening up and strengthen policies attracting foreign investment to better unleash the potential of foreign investment in promoting high-quality development and smoothing domestic and international circulations,” Zhao said. He also took a jab at the United States in noting that economic globalization has encountered “adverse winds and countercurrents” for some time, with “some countries” wanting to implement “decoupling and breaking [supply] chains” to create a so-called “small yard, high fence.”

In addressing a query about stabilizing industrial production, Zhao Chenxin said that the CCP regime will strictly implement the “nine prohibitions” in carrying out epidemic prevention and control, make every effort to prevent the arbitrary shut down of key enterprises in the industrial chain and key enterprises “involved in ensuring people’s livelihood,” and resolutely avoid “simplification and one-size-fits-all” approaches in epidemic prevention and control. He added that the regime will also work to ensure the orderly operation of industrial parks and that companies can carry out normal production and operation. Zhao also said that the regime will look to ensure the smooth flow of logistics, focus on guaranteeing the supply of energy and raw materials, and ensure smooth supply chain operations for important industrial chains.

3. Xiao Pei, deputy head of the Central Commission for Discipline Inspection (CCDI), gave a breakdown of the CCP regime’s anti-corruption figures at a second press conference on the sidelines of the 20th Party Congress.

Xiao said that 4.648 million Party members have been investigated for corruption over the past decade. Of the total, 207,000 were leading cadres (一把手) at all levels of government. Of the 553 senior officials under the management of the Central Organization Department who were punished, 49 were members or alternate members of the 18th Central Committee, 12 were from the 18th CCDI, 12 were from the 19th Central Committee, and 6 were from the 19th CCDI.

Xiao added that discipline and supervisory organs have investigated and punished more than 74,000 Party members for corruption since the 19th Party Congress in 2017. Officials who committed their first corruption acts before the 18th Party Congress accounted for 48 percent of all those who were probed, and 11 percent after the 19th Party Congress. Meanwhile, 80,000 Party members surrendered themselves to the authorities under pressure and when confronted with specific policies.

4. Xu Qifang, the deputy director of the Central Organization Department, introduced the situation regarding the “strict governance of the Party” (從嚴治黨) at the second press conference on the sidelines of the 20th Party Congress.

Xu said that the Organization Department conducts checks on the personal matters of leading cadres, with the rate of random checks increasing from 3 to 5 percent a year to 10 percent. All candidates nominated for a new leadership term will be checked, and all cadres under the management of the Central Organization Department were checked once before the convening of the 20th Party Congress.

Oct. 18
Four members of the Central Military Commission praised Xi Jinping’s 20th Party Congress work report during the group discussion session of the PLA and the PAP.

According to state mouthpiece Xinhua, defense minister Wei Fenghe credited “Party Central and the strong leadership of President Xi” for the CCP regime’s “extraordinary achievements and great miracles” over the past decade, as well as its “successful embarkation” on a “Chinese-style modernization path.” He added the PLA will “achieve the ‘Two Safeguards,’ implement the CMC chairman responsibility system, and resolutely obey the commands of Party Central, the CMC, and President Xi.” Wei also noted that “the road ahead is full of difficulties, obstacles, and even perilous situations (驚濤駭浪).”

Li Zuocheng, chief of the CMC joint staff department, said that with Xi at the helm, there will be “no insurmountable hills or hurdles that cannot be overcome,” and the CCP regime will definitely be able to achieve its set goals. He added that the next five years will be a critical period for the development of the regime, and the military “must fully and accurately understand and implement the strategic deployments of Party Central and President Xi.”

Miao Hua, director of the CMC Political Work Department, described Xi’s work report as “another programmatic document of Marxism.” He added that in looking back at Xi’s decade in office from the perspective of the CCP’s first centenary, “the formation of the ‘Two Establishes’ was a historical necessity,” and in looking towards the Party’s second centenary, “the ‘Two Establishes’ is history’s choice.” Miao said that defending this “major political achievement” is to defend the Party’s “national line” (i.e. the fate of the Party and the country) and prospect of national rejuvenation.

Zhang Shengmin, secretary of the CMC Commission for Discipline Inspection, said that Xi’s report “gave the Party a firm direction, gave the people great strength, and gave confidence and hope to a world today that is full of contradictions and challenges. Zhang also lauded Xi’s “new era decade” as a “splendid chapter” in the “history of the Party, the history of New China, the history of reform and opening up, the history of socialist development, and the history of the development of the Chinese nation.” He added that the military was “loyal to the (Xi) core.”

OUR TAKE
1. There has been some speculation that all is not well in the Party elite because some prominent Party elders were absent from the 20th Party Congress opening ceremony. Also, former Politburo Standing Committee member Li Ruihuan was seen only nodding his head instead of clapping along with the other officials when Xi Jinping walked past where the presidium standing committee was seated in the Great Hall of the People.

While it is tempting to read those developments as signs of factional strife breaking out into the open, there are more plausible explanations for them. With regard to Li Ruihuan, he was later seen clapping along at appropriate times on state media footage. If Li meant to deliberately not applaud Xi, he would have been caught doing so on more than one occasion. As Li is 88 this year, his momentary display of “political incorrectness” seems more likely to be a lapse of old age than a show of protest. Also, Li could have done a lot worse than nod placidly if he had wanted to show defiance to Xi.

Meanwhile, poor health seems to be the reason why Jiang Zemin (96), Zhu Rongji (93), Luo Gan (87), and Wu Bangguo (81) did not show up for the opening ceremony of the 20th Party Congress. Party elites are well aware that making public appearances are much more important than staging boycotts in demonstrating one’s political strength; Jiang and the other members of the faction that takes his name would have attended the opening ceremony if they could to show their supporters that the Jiang faction is still a viable force. It is also unlikely (but not implausible) that Xi decided to bar prominent Jiang faction members from attending the 20th Party Congress opening ceremony; Xi would not even have included them in the final list of delegates to begin with, and it does not make sense to exclude Jiang Zemin but allow Zeng Qinghong (another key figurehead of the Jiang faction) to join the proceedings.

As for Wang Qishan, he had just returned from a diplomatic trip to Kazakhstan and is likely in quarantine per the CCP regime’s epidemic prevention and control measures.

Statements of support for Xi by the two CMC vice chairmen and the four CMC officials during the PLA and PAP’s group discussion session indicate that the notable absentees from the opening ceremony and Li Ruihuan’s nodding are more mundane developments. The military’s backing of Xi shows that he still has the Party’s “gun” firmly in his control and that there was no overt factional struggle taking place at the opening ceremony of the 20th Party Congress.

Another indication that the notable opening ceremony absentees and Li’s nodding less likely to be signs of open dissent can be found in Central Organization Department deputy director Xu Qifang’s statements on checks on leading cadres. The Xi leadership would have ensured that all cadres under central government management (an estimated 4,000 to 5,000 officials) were screened before the 20th Party Congress. Senior Party officials would likely also have been kept under strict surveillance and have their movements monitored “for their safety.” Such control measures and checks would be partially meant to intimidate Xi’s factional rivals and deter them from publicly or covertly opposing his bid for a third term and other political agenda items, as well as ensure their “loyalty” to the Xi “core.”

2. Xi’s 20th Party Congress report is basically the summation of various propaganda narratives and initiatives (Xi’s “historical resolution,” “four new histories,” etc.) rolled out since the Sixth Plenum of the 19th Central Committee to justify his taking of a third term.

Xi first distinguishes his decade in office from that of his predecessors by calling it a “new era.” He then argues that while “great achievements” were made under his predecessors, they also left “a number of prominent issues and problems — some of which had been building for years and others which were just emerging” that require his urgent attention. Xi is qualified to clean up the problems left by his predecessors and take the regime into the “second centenary” because he faced and overcame huge risks and challenges, including “problems that remained unresolved for a long time,” during his 10 years in charge. Because Xi has the “second answer” to the “dynastic cycle” of rise and fall, the CCP regime needs him to stay at the helm to carry out “self-revolution,” weather the “great changes unseen in a century,” achieve its “second centenary” goals, and accomplish the “great rejuvenation of the Chinese nation.”

Xi’s 20th Party Congress work report reaffirms our assessment that his “quan wei” (authority and prestige) is established on propaganda rather than solid achievements. The Party elite, however, will almost certainly accept Xi’s bid to extend his tenure in view of his high degree of power centralization, their current lack of ability to effectively mobilize politically against him, and mounting internal and external problems for the PRC making it tricky to balance undermining the Xi leadership while preserving regime security.

3. Xi’s work report continues to “spin tragedy into victory” and uphold his controversial policies. For instance, the full report called for “adhering to the principle that houses are for living in and not for speculation” (this did not make the shortened version that Xi read out), a policy that led to the ongoing property sector crisis in China. The report also called for “persevering with dynamic zero-COVID” despite great domestic and international resentment towards the policy and Beijing for sticking with it. The 20th Party Congress work report’s unwavering stance on the Xi leadership’s policies has caused many observers to declare that the “ideological” Xi Jinping will likely stick with them rigidly for the foreseeable future as politics trumps pragmatism.

Observers, however, may be underestimating Xi and the CCP’s ability to make adaptations to ensure that the regime survives and dominates. Once Xi has secured his 20th Party Congress political objectives, he will have more leeway to make adjustments to his policies and let pragmatism trump politics. We previously elaborated in the Oct. 11, 2022 newsletter on how Xi could move quickly to “rehabilitate” his image by tweaking the “zero-COVID” policy, for example. Another sign has emerged recently which suggests that Beijing is preparing to loosen “zero-COVID” restrictions after the 20th Party Congress despite its rhetoric about “persevering” with the policy. On Oct. 18, mainland media Beijing Business Daily reported that China Eastern Airlines, China Southern Airlines, and several other airliners have announced the opening and resumption of some international flights at the end of the month.

Meanwhile, Zhao Chenxin’s comments about advancing “high-level opening up and strengthening policies attracting foreign investment” suggest that Beijing has not entirely abandoned “reform” as it pursues survival and domination. The Xi leadership is likely planning to step up efforts to lure foreign capital to China and take measures to keep global supply chains in the mainland to stabilize the Chinese economy. Keeping China deeply integrated with the world also buys the CCP “breathing room” to implement measures to prevent the economy from derailing and wait out its prediction that “the East is rising, the West is in decline.” Until the CCP is in a stronger position and the deterioration of America and the West is very severe, the Xi leadership will likely strive to avoid head-on conflict with the U.S. and its allies, including over Taiwan.

4. Xi’s work report said that the CCP will “continue to strive for peaceful reunification” with Taiwan “with the greatest sincerity and the utmost effort,” but will “never promise to renounce the use of force” and will “reserve the option of taking all measures necessary.” The report added that the threat of force is “directed solely at interference by outside forces and the few separatists seeking “Taiwan Independence” and their separatist activities; it is by no means targeted at our Taiwan compatriots.”

Xi very likely brought up the issue of using force to achieve the CCP’s “reunification” agenda in light of increased Western pressure and provocations over Taiwan in recent weeks (see here and here). This includes news that the Biden administration has in its “contingency planning” for a PLA invasion the evacuation of TSMC engineers to the United States and the demolition of TSMC facilities, as well as Taiwan’s warning that PLA aircraft or vessels that cross the median line will be destroyed.

A comparison of Xi’s statements about military defense in the 19th Party Congress and 20th Party Congress work reports also suggests that while Beijing intends to build up and modernize the PLA, it does not plan to engage in full-scale conflict with the U.S. and its allies for the time being:

• 19th Party Congress: Xi’s work report called for improving the PLA’s “combat capabilities for joint operations based on the network information system and the ability to fight under multi-dimensional conditions” to “effectively shape our military posture, manage crises, and deter and win wars.”
• 20th Party Congress: Xi’s work report called for the PLA to become “more adept at deploying our military forces on a regular basis and in diversified ways” to “remain both steadfast and flexible” as it carries out operations to enable the CCP regime to “shape our security posture, deter and manage crises and conflicts, and win local wars.”

Notably, the Xi leadership has subtly downgraded the PLA’s warfighting emphasis from requiring the military “fight under multi-dimensional conditions” to being “flexible” in its operations; from “deter and win wars” to “deter and manage crises and conflicts”; and from “winning wars” to “winning local wars.”

We assess that the Xi leadership will try to avoid courting conflict with the U.S. over Taiwan while it struggles to reverse rapid economic deterioration and in considering the currently sizable disparity in capabilities between the U.S. military and the PLA.

     SinoInsight  2       

• Strengthen the source management of budget preparation.
  • In 2023, central and local government finance departments will arrange their “three public expenses” in accordance with an “only decrease and no increase” arrangement.
• Impose rigid constraints on budget implementation.
  • Expenditures shall not be arranged without a budget or over budget. No “budget flushes” are allowed. The budget for non-staff personnel shall not be increased in a covert form through government purchase of services.
• Strengthen the implementation of “three public expenses” monitoring.
• Increase transparency into the “three public expenses.”
• Do in-depth and detailed assessments of the belt-tightening situation.
• Accelerate the construction of an expenditure standardization system.
• Realize whole-process budget performance management.
• Implement together the prevention of inflated fiscal revenue and strict control of general expenditures.
  • Resolutely prevent excessive tax collection; end arbitrary charges, fines, and apportionment; and do not increase the burden of market entities. Resolutely implement various tax reduction, tax refund, and fee reduction policies as determined by Party Central and the State Council. It is strictly forbidden to borrow money to buy land and hoard it (舉債儲備土地); forbidden to get state-owned enterprises to purchase land and use other methods to artificially increase land supply and sales revenue; and forbidden to make up shortfall in fiscal revenue by deceptively inflating fiscal revenue. Further standardize the management and control of local public institutions’ debt, establish a strict loan approval system, prohibit the addition of various types of implicit debt, and effectively prevent the risk of institutional debt.
• Strengthen supervision, inspection, and accountability mechanisms.
  • Includes strengthening the monitoring of inflated fiscal revenue in the locality; cases that are uncovered will be dealt with and officials held to account.