24 October 2022
Enodo Insight
Xi Jinping Wins Big at China’s 20th Party Congress
    • Xi stacks the party’s top bodies with his own loyalists
    • Hu Jintao and the moderate China Youth League are out
    • Expect state-centred economics and nationalist foreign policy
    • Taiwan is in Xi’s sights
    • Our main investment theme - the Great Decoupling - gets a big boost

    Just before the end of China’s 20th Party Congress, aides escorted former Chinese leader Hu Jintao, looking aged and confused, from his honorary place at the rostrum. The humiliating eviction underscored, visually and dramatically, the results of the Congress. The moderates are out. Xi Jinping and his men have uncontested control over the Communist party. 

    President Xi’s overwhelming victory at the 20th Party Congress ensures that most of his conservative, quasi-Maoist economic and political policies, including an ironclad Covid lockdown policy, will endure for the foreseeable future. 

    With no obvious restraint at the top levels of the party, the return to “one-man rule” portends an administration that will prioritise national security and “waging struggles” against both domestic and foreign enemies ahead of economic development or international economic integration. This priority comes despite several nods to Deng Xiaoping’s “reform and open door policy” in Xi's report to the Congress. 

    Enodo's analysis suggests that China will emphasise quasi-Maoist, autarkist economic values such as “internal circulation” (code for self-reliance particularly in advanced sectors such as semiconductors and artificial intelligence) and party control of the economy, including both public and private firms. Expect slogans like “common prosperity” (expanding control of the state under a pretence of addressing poverty) and nationalist propaganda that prepares the population for the age of a “complex and challenging global situation.” 

    By the year 2049, the centenary of the establishment of the People’s Republic of China, the CCP’s goal is to have closed the gap with the US, and become the most powerful country in the world. 

    In pursuit of this goal,  the Xi team will ratchet up its rhetoric in relation to Taiwan (which the PRC views as a renegade province) and in terms of resuming the role of the “Middle Kingdom” as a global rule-setter. 

    The 20th Party Congress did not make explicit reference to the US, but the sense of competition with the world’s remaining superpower was there nonetheless. Rhetoric by Xi and other senior officials seemed geared at exacerbating all-out competition with the party’s chief bogey-man, the American-led “anti-China” coalition. Xi repeatedly called on Congress members and Chinese to counter “hegemonism and bullying” by other countries (he was not talking about the Russian invasion of Ukraine). “Be brave enough to wage struggle, and to be good at waging struggle,” he exhorted. 

    For the first time, the CCP’s Constitution (revised at the party congress) declared that Beijing would “resolutely oppose and stop Taiwan independence.” 

    This contrasts with the old version, which simply states that the CCP has responsibility for national “reunification”. Given that Xi’s  new Politburo will likely funnel more resources to the military, the chances for an outbreak of a “hot war” over Taiwan or the South China Sea have increased. 

    Even in international business, or normal interaction between Chinese and Westerners, Xi said the Chinese authorities should put national security well before economic gains. 

    All the President’s Men

    The new Politburo Standing Committee - the seven-member body at the top of the party – is stacked with Xi’s men. 

    • Xi Jinping remains General Secretary 
    • Li Qiang, the party secretary who presided over the Shanghai lockdown, is almost certain to become prime minister in March. Li had worked with Xi when they were both in Zhejiang Province, more than fifteen years ago, and has been marked as a rising star for several years
    • Zhao Leji, whose grandfather was a close friend of Xi’s father, becomes chairman of the National People’s Congress, or legislature
    • Wang Huning, the chief ideologue for Xi’s two predecessors, becomes chairman of the Chinese People’s Political Consultative Conference, an advisory body
    • Cai Qi, the draconian party secretary of Beijing, becomes head of the Central Committee Secretariat, a central administrative position
    • Ding Xuexiang, director of the CCP General Office who handled Xi’s personal office, will likely become executive vice-premier
    • Li Xi, party secretary of Guangdong, heads the Central Commission for Discipline Inspection (CCDI), the party’s internal 

    Inquisition that was wielded to great effect during Xi’s anti-corruption campaigns

    At the next level, the 24-person Politburo and the 205-member Central Committee are also stacked with Xi’s men, with half or more of each body composed of new members loyal to Xi. A few members of the Politburo come from the newly ascendant military-aerospace sector, once closely associated with former leader Hu Jintao. 

    At the top levels of the military, Xi also reigns supreme. The seven-member Central Military Commission (CMC) is made up of men who are personally trusted by Xi, and too old to pose any threat. They are:

    • Xi remains chairman of the CMC
    • Zhang Youxia, aged 72, stays on as vice-chairman. Zhang’s father has a close relationship with Xi’s father, and the two men have known each other since childhood
    • He Weidong (b. 1957) also becomes vice-chairman. He is a former commander of the Eastern Theatre Command (in charge of planning to attack Taiwan), and currently the Director of the Joint Operation Command Centre, a key unit of the CMC. General He’s career has overlapped with Xi’s for decades. He served in the 31st Group Army based in Xiamen, Fujian as well as the now-defunct Nanjing Military Region, which used to cover the provinces of Fujian and Zhejiang
    • Miao Hua (b. 1955) remains political commissar and will continue in his current post of director of the PLA Department of Political Work for five more years. General Miao, like General He, is an alumnae of the 31st Group Army as well as the Nanjing Military Region 
    • Zhang Shengmin (b 1958) remains head of the military disciplinary inspection commission (or anti-corruption agency). He is a former political commissar in the Rocket Forces, a modern division whose importance has grown
    • Liu Zhenli (b 1964) is a candidate for promotion to the Chief of the Joint Staff Department. Former Commander of the Ground Forces and the People’s Armed Police is a rare military leader whose career has spanned the two divisions 
    • Li Shangfu (b 1958) is the newest member of the CMC, representing the rising aerospace establishment

    Moderates, exeunt Stage Left

    This party congress saw the departure of a host of Western-educated and market-oriented officials, a generation that had a clear sense of the failures of the Communist economy and the urgency of China’s economic reforms. 

    Outgoing premier Li Keqiang, the stalwart of the Communist Youth League faction, recently remarked that “the waters of the Yellow and Yangtze Rivers won’t flow backwards.” The comment was seen as a rebuke of Xi’s statist policies. 

    But Li’s preferred candidate for premier, Hu Chunhua, didn’t make it onto the PBSC, leaving the moderates without a standard-bearer. 

    Gossip in China-watching circles claims that Hu – who state media later claimed had fallen ill – was evicted from the party podium because he had openly expressed his dissatisfaction with the complete removal of his China Youth League faction from the new party listings. But if anything, the spectacle of the confused old man being led off the stage was evidence of a faction that has lost its patron, and can’t oppose anything. 

    Also retiring are central bank governor Yi Gang, who once taught economics at an American University; and top banking regulator Guo Shuqing. Both are closely associated with vice president Wang Qishan, who helped Xi consolidate power only to be squeezed out himself. 

    He Lifeng, the director of China’s state planning agency the National Development and Reform Commission, is likely to replace Li He as vice-premier in charge of economics. He gained Xi’s trust mainly because they worked together in Fujian Province for many years, and has very few reformist credentials. 

    The party constitution has been revised to enshrine “Xi Jinping Thought on socialism with Chinese characteristics for a new era” as the guiding principle for the party and state in the future. This is part of the “two confirmations.” The other confirmation is that Xi will remain the “core of the central party authorities and the core of the entire party,” thus elevating Xi to practically the same status within the party as Chairman Mao Zedong.  

    While these slogans may seem opaque to outsiders, they have real policy implications. 

    A key element of Xi Jinping Thought is “Chinese-style modernization”, which simply means that only Marxist and socialist precepts that have been rendered suitable for Chinese conditions in the 21st century will be followed in policy-making. 

    According to Xi’s own definition, “Chinese style modernization” includes stern party leadership; upholding Chinese-style socialist precepts; realising “high-quality development”; enriching the “spiritual world” of the people; attaining common prosperity and seeking a balance between man and nature. Internationally, it means pushing forward global peace and the goal of a “common destiny for all mankind.”  


    Enodo has consistently held that Xi Jinping would raise his men to the top of the party in the 20th Party Congress, setting the stage for five more years for the statist, repressive policies that Xi has favoured at home, and for an unrestrained mandate for his international goals for conquering Taiwan and placing China at the centre of an Asia free of US interference. Now the stage is set.

    Our main investment theme - the Great Decoupling - has received an even bigger boost. 

    New investments by multinationals in China will require a bold commitment, and it is more likely that they will seek to diversify their supply chains. China’s top-down economic approach means that the only growth sectors, going forward, are likely to be those the state has identified and the only beneficiaries will be those the state sponsors. But do not expect Beijing to achieve the needed rebalancing of the economy towards consumer spending. 

    Even more troubling is the international prospects. Frictions are on the rise, and the conflict in Ukraine is only the first of many fronts that will open between China and its allies, and the West. The most obvious of those is Taiwan, but investors would do well to plan and prepare for decoupling on many fronts.