Can China still prosper under Xi?

Ben Bland

Good afternoon, everyone joining us in the room and online. Welcome to this Chatham House discussion on whether China can still prosper under Xi Jinping. My name is Ben Bland. I’m the Director of the Asia-Pacific Programme here at Chatham House. We often talk at Chatham House and in the circles we move in, about what Xi Jinping’s leadership means for the world. We spend a lot less time, at least in the UK, thinking about whether the General Secretary of the Chinese Communist Party is delivering for his primary audience, the 1.4 billion people of China.

I think probably most of you here and watching online would be aware that Xi, General Secretary Xi, has amassed great power in the 12 years since he got the top job. He’s eliminated many of his elite opponents. He’s projected a much more strident foreign and security policy around the world, and he’s helped China’s enhance its position as the world’s factory floor and producer of some key emerging technologies, like EVs, solar cells and the rest.

We also know that economic growth in China has become sluggish and the private sector has been hobbled by repeated crackdowns, which date almost from Xi Jinping’s accession to power in 2012. Young people are frustrated by lack of quality jobs, especially for graduates, and Washington’s, sort of, intensifying efforts to contain China are definitely casting a long shadow over China’s future.

Earlier today, good timing for our discussion, the Chinese authorities also announced a range of stimulus measures to try and address the sluggish economic growth, as well. And we’re fortunate to have a really smart and insightful panel to address Xi Jinping’s handling of these major challenges. So, to my left is Desmond Shum. He’s a businessman who had a seat at the high table of party politics, dealmaking and corruption in China and wrote about his experiences in the acclaimed memoir, “Red Roulette.” Next to Desmond is Winni King. She’s a Senior Lecturer in Chinese International Political Economy at the University of Bristol. And lastly, but not least, we have David Lubin, who is the Michael Klein Senior Research Fellow in our Global Economy and Finance Programme.

So, today’s ground rules. I’m going to fire some questions at the panellists for about 35 or 40 minutes and then I’ll turn to questions from you in the audience, here in person and online. If you have a question online, please use the Q&A function on Zoom, and I’ll try and get to your questions. And just before we begin, I’d like to give a final reminder that this event is on the record, it is being livestreamed and we will be posting a recording online later.

So, Desmond, I’m going to come to you first. Given you had a seat at the – some of the highest tables, where business and the business of politics was done in China, and just ask a really simple question. Do you think Xi Jinping is doing a good job for China?

Desmond Shum

I think it’s – I think by now, it’s, I think – but probably the whole world is seeing China has really taking a different – you know, we – taking a different trajectory since he came to power a decade ago, I think. You know, we, in China, always say, you know, he was – he inherited a great hand, you know, in poker game, and so to speak, and then he – you know, it’s amazing how badly he has played his hand and then turn a country – and take the country on a completely different trajectory.

Ben Bland

At the end, quick reflections on this question from you, Winni and David, and before we dig deeper?

Dr Winni King

I think it depends on what perspective you’re looking from.

Ben Bland

That’s not an acceptable answer.

Dr Winni King

I know, but I haven’t finished yet. I think from the perspective of what Xi Jinping has been trying to achieve for himself in establishing his position and consolidating his power, I think he’s been quite successful. I think in terms of the international system’s expectations of China and their initial expectations of what Xi Jinping would bring when he first came to power, from the international perspective, I think were quite disappointed, mainly because there was a lot of hope that he would bring in reform, and he was much more liberal, and that’s shown that not to be the case.

Ben Bland

And David?

David Lubin

I mean, I think if the question is, is he doing as much as he can do for the welfare of Chinese households? The answer clearly is no, but I don’t think that’s the question he’s asking himself. The question he’s asking himself is, “What can I do to promote the interests of the Chinese nation?” And it’s interesting that those two ideas are so separate in the Chinese context, and they are – and they’re separate, I think, because of the way Xi Jinping feels himself to be encircled geopolitically. And so, the economic policy is oriented around the need to protect China from geopolitical risk, and I think from that point of view, he probably thinks he’s doing quite well. But household welfare becomes a, sort of, sideshow in that story.

Ben Bland

And we’re going to come back both to those questions of, kind of, broader welfare, the Chinese people and the geopolitics, but I want to dig a bit deeper first into Xi Jinping the man. I mean, it strikes me that he’s been one of the world’s most prominent figures over the last ten/12 years, but there’s been so little insight, to be honest, into what drives him as a person, what kind of leader he is. I mean, we hear a lot about him amassing power, but Desmond, I mean, do you think that’s just a, sort of, Machiavellian plan to advance his own, sort of, personal interests or personal agenda? Is there a, kind of, deeper ideology? Is there a vision there? What in Xi – what’s behind Xi Jinping’s thinking? What do you think is driving him as a leader?

Desmond Shum

Yeah, I actually, on this specific question, I gave a lot of thought. I wrote a piece, actually, for myself five years ago and I put it on my Twitter, like, a couple of days ago, yeah. I think the first thing of the first – first and foremost, we really need to see him as a man of conviction and belief. I mean, he is a man of conviction and belief and, you know, to – seeing him purely as a power hungry dictator, I think really missing the point. I mean, I think, you know, he’s – he has a vision. His vision for China is we need to be the primary geopolitical power, rival the US. He has a belief. He believed the Chinese Communist Party should be the eternal ruler of the China – China as a nation.

So, he – I think that’s the first point to see him. It’s like he has belief and he has conviction. You may not agree with his belief and you may not agree with his conviction, and then, some of the worst tragedy of the human kind happen in history are people like Mao, like Hitler, like Stalin, they are – those are men of belief. Those are the men that, you know – and men of the belief can – you know, with the wrong kind, can do the most damage to humanity, and I tend to believe he is that sort. And then, in term of, like – well, I will stop here, actually.

Ben Bland

Yeah, and I mean, digging a bit deeper, then, what do you mean? Is he a communist or a Leninist Marxist? I mean, sort – we talk about how, you know, there’s been a lot of pressure to, you know, reinforce ideology under Xi Jinping to – what elements of, sort of, Marxism, Leninism, communism, do you think that Xi Jinping a) believes in, and b) is trying to enact?

Dr Winni King

I think I would describe him more as a combination of a Marxist and a nationalist, and a lot of what he’s trying to do, I would agree with Desmond in terms of the fact that he is ver – he’s a ver – he’s a man of conviction in terms of what he wants to achieve for the Chinese nation. And the nationalism – the ideology side, excuse me, plays a very big role in that, but I think the nationalism side is something that’s very underdiscussed in terms of not just the fact that – you know, with the global financial crisis in 2008, the Chinese, with their economy, was facing something fundamentally different than they had actually envisioned. Because they were working within a system that was seen to be quite stable and the global financial crisis demonstrated to the Chinese that there was actually something that didn’t fit for them, necessarily.

And with that, shifts in the geopolitical arena, beginning with Trump, but actually not beginning with Trump, but even before Trump, with Obama’s Asia Pivot, growing efforts to militarily contain China, suggested to the Chinese leadership, to Xi Jinping, that the context of how the Communist Party was going to legitimise themselves and ensure their regime’s security, needed to be something that was multifaceted. More than just to do with ideology and the economy and economic strength and growth, but actually, something that involved much more secu – much more – a much more multifaceted security basis. So – and all of that is very much rooted within the Marxist line and the nationalism line.

Ben Bland

And David, how have you seen – I mean, you’ve been a Market Economist for a long time, now you’re at Chatham House. How have you seen these, kind of, questions of Xi Jinping’s style and ideology? How does that – how has that actually come out in his, sort of, real economic policy? Like, what – do you see…

David Lubin

Hmmm.

Ben Bland

…you know, elements of Marxism there, I mean, or what elements do you see, what elements of nationalism? How do you understand, sort of, China’s economy, particularly in relation to other, kind of, large…

David Lubin

Yeah, yeah.

Ben Bland

…fast growing and emerging markets?

David Lubin

Winni went for Marxism and nationalism. I’m going to go for Leninism, in the sense that, you know, it seems fairly clear that Xi Jinping is an ideological leader, but the way one needs to understand ideology in this context is to understand it in a Leninist way. In other words, it’s not a pure set of ideas. It’s the set of ideas that’s needed to keep the ruling party in power. That is, you know, quintessentially a Leninist approach and I think that’s his approach. And that – the effect of that on economic policy is evident in the change in the balance of power under Xi’s leadership between state-owned enterprises and private se – on the private sector

Starting in 26 – 2015/2016, you got this sense that the economic policy was emphasising the idea of bigger, better, stronger, state-owned enterprises and the state sector, the, sort of, balance of relevance, if you like, between the state sector and the private sector started to tilt from that, you know, from that time on. Particularly at the 19th Party Congress in 2017, you know, this concept of state-owned enterprise reform and promoting the interest and the relevance of state-owned enterprises became much more important.

Then in 2021 – you know, so you had, first of all, the, sort of, promotion of state-owned enterprises and then, in 2021 you had the, sort of, crushing of the private sector. So, the whole thing happened in a, sort of, chronology, and in 2021, I think, you know, the most relevant or most important, sort of, policy phrase, policy slogan, in this context, was this, sort of, struggle against the unrestrained expansion of capital. The idea that, you know, the private sector was taking advantage of its position, was doing things that were not in the national interest or certainly not in the interest – the national interest as the parties saw it.

And so, this, sort of, attempt to, kind of, crush the unrestrained expansion of capital, the crackdown on the private education industry, on the gaming industry, on the – on Jack Ma, was all, sort of, part of this effort. That by the end of 2021 led to a proposal which was – which I think died a death, but it was a very interesting proposal and it was a good reflection of policy thinking at the time.

The proposal in December 2021 was to create a traffic light system and the idea was that, you know, the party would decide what kind of investment was good, what kind of private sector investment was good, got a green light, what kind of private sector got a red light. And so, you got this sense that, you know, the insertion of party into the allocation of private sector resources were becoming much more evident. And so, this is all about what it takes to keep the party in power and that, I think, is quintessentially a Leninist approach.

Ben Bland

Yeah, we – so, we’ve had Leninism and Marxism. I won’t go into whether he’s a Menshevik or a Bolshevik. We can leave that for another day, but Desmond, you wanted to come in.

Desmond Shum

Yeah, just one thing to add. I agree with David, it’s very – I think too – that it’s a Leninist system. I think one – two things I want to say here. One is the party interest comes first. I mean, national interest, how do you define national interest? It’s fussy. I mean, even when you ask party member how you define national interest? I would say Xi Jinping probably a very different definition from previous administration. So, that’s a fussy one and that’s not equivalent and that party interest and national interests aren’t the same thing.

The second thing is actually come back to Winni’s point earlier. In my experience, 2008, the financial crisis, a watershed moment for modern Chinese history, especially last one is 15 years, is that’s the moment that – it’s not they realised that West doesn’t – its model doesn’t fit them. It’s they see the failing of the Western model and that changed everything, because at that moment, you know, before that, you know, the discussion within China, it was, you know, “We are moving their direction. The only question is different people have different opinion on what pace are we moving. We are moving the direction of capitalism, we are moving in the direction of a democracy.” Even today they are not dropping the democracy under Xi Jinping, the term, although they – the liberal, they define it any way they wanted to.

But that was – that – the direction – the entire country would agree with that. What happening in the financial crisis where we see the – you know, what’s happening, is that, basically, the entire Western democracy are in desperation. And people are looking – at the moment, was looking to China, to say are Chinese going to hold their currency? If they don’t current – hold their currency, if they do a round of devaluation and then it would lead to another new round devaluation across Asia and we don’t see – we don’t know where that that one – what’s the end of that. So, the – and when [inaudible – 16:26] stood firm and come out with the four trillion revitalisation plan and then stabilise the entire situation. So, the world see China as a hero, rescue the world, so to speak, and to extent, and that’s the moment that the leadership really think, it’s like, hey, their system is not that great, our system may not be that bad, we find – and we need to find our own way.

And that’s the moment, like, everything changes since then. I mean, in term of divided state enterprise advancing and private enterprise forced to retreat, that’s – it started in 2008. It start even before Xi Jinping. I mean, I have a company, like, I have a joint venture with the Capital Airport Group, which is the biggest airport group in China, they own 40 airports. And I have – like, after that, you know, I have a party cell installed in my enterprise, I have Party Secretary assigned to my company and I need to, like, have dialogues, you know, in a org – with the party organisation within my company. I was the CEO. And so, you are already feeling that, are already seeing well, whoa, things are changing. So, it really – this starts before Xi Jinping and then, obviously, when Xi Jinping came, it bring it to another pace and then, you know, then we are developing a different story.

Ben Bland

And what’s, I mean, what’s been the reaction? Because yeah, as you say, this crackdown on the private sector, you know, it predates Xi Jinping. It definitely intensified very early on. When he came into power, we saw, you know, the Heads of, you know, organisations like Fosun, Anbang and others, sort of, disappearing, sometimes reappearing, sometimes reappearing in prison. I was a Financial Times Journalist in Hong Kong when Xiao Jianhua was kidnapped and taken across the border. I mean, is this personal for Xi Jinping? Does he see these, sort of, tycoons as people challenging his authority? Is it more ideological? And then the other part of it is, yeah, how has that affected the, kind of, attitudes of, you know, the private sector in China, because it’s been, yeah, almost a decade?

Desmond Shum

If I talk from my experience, what happened was, like, by the second term of [inaudible – 18:39] Hu Jintao time, so, you know, five years previous with Xi Jinping’s time, the discussion was already the country’s going more diverse. You know, you have the commercial elites, you know, business people were having the success. We are all building NGOs. We all set up NGO because we, sort of – you know, they were copying the Western model. Like, we want to spend money, you know, we are the generation that we want to push the society to a direction we think it’s really integrating with the rest of the world.

You are seeing, you know, political figures, you know, obviously, in my book I talk about it, and it’s like how they profiteer from the development economy and they, sort of – each one have a whole, you know, commercial interest in different spheres. And so, you seeing a diffusion of political power throughout a society and that is a problem from the party. And then, every par – and not – all the entire leadership sees that as a problem, but people are not sure what to do about it. So, we were the – but at the time in Beijing, there was this talk like [mother tongue], so essentially, you know, this music game that as the music play, everybody run around and then music stops, somebody’s going to run out of a chair? And then – so, well, the discussion in Beijing is like, “Who’s – which leader, you know, future leader, will be, you know, holding – you know, not going to – getting a chair?” And so, that was the discussion. It’s like, you know, we know there’s a problem, but how do we deal with it? Does anybody have the guts to deal with it, to the extent they’ll bring the heavy hand onto it? And there doesn’t seem to be, and that was the mood in Beijing.

Ben Bland

Yeah, and to what extent, then, Winni and then maybe David after that, do you think this crackdown has then killed the animal instincts of China’s economy? Because we know that, you know, these Chinese private sector large conglomerates were really key to, you know, Chinese growth numbers, but also, some of them – yeah, most dynamic tech companies that came out of China, profited in this period when they had huge leeway to do whatever they wanted. So, to what extent do you think the crackdown is responsible for, kind of, sluggish growth and lack of opportunities that younger people are feeling in China?

Dr Winni King

Okay, so you have two main questions in that, then. First would be the response or the feeling of the major tech companies, for instance, and then the second question would be the general population, such as students, right? So, with the first one, I would say, given how – I mean, it’s complicated. Given how the state has particularly targeted innovation, tech, artificial intelligence, as a key driver for the Chinese economy, it offers two, kind of, contrary things that create tensions. One is the fact that yes, you are concerned about whether or not the Chinese state will react negatively to the, kind of, economic strategies and economic decisions that you make for your company.

And one of the main problems you had, for instance, with Jack Ma or Pony Ma, was it was the idea that these individuals began to see – whether or not they saw themselves this way, but definitely within the international economy and within Wester – the – within Western powers and Western elites, to be seen as bigger or beyond the party state. And that’s particularly problematic if, you know, the main goal is to ensure that the party state maintains hold over the reins of power and influence in decision-making. And so, there is that, kind of, problem in terms of whether or not they can act freely, but the emphasis on these sectors by the Chinese Government in terms of the level of investment that’s going in, them becoming the major priority for the next stage of the Chinese economy, also provides support, right? So, it just depends on what it is you want out of it, right?

I would say that for – and I guess David says at the very beginning, is what it means for the general population, however, it becomes – that’s the key question. There are significant levels of – significant programmes and levels of investment in certain areas, such as with regards to the civil economy, to – for redressing issues and sectors. To retrain individuals or workers that are in sectors that are no longer able to work at capacity anymore because of issues of overcapacity. The extent to which that feeds into consumption, into developing robust and effective services sector, is another question. But China’s demographic issues, obviously, feeds into all of this, become things that for a nation of 1.4 billion people, are not – is not something that we can resolve easily.

I mean, South Korea has announced that, you know, they have the lowest ever level of fertility and it’s something that’s occurring across the developed world, so, yeah.

Ben Bland

Yeah, low productivity and also, wondering how we control our uber powerful tech tycoons…

Dr Winni King

Yeah.

Ben Bland

…who are bigger than our governments.

Dr Winni King

Yeah.

Ben Bland

Also a common problem. And David, I mean, what does the, kind of, economic evidence bear out then about the causes for China’s slowdown, because there are so many factors that people talk about?

David Lubin

Yeah.

Ben Bland

Is it possible to, sort of, have a hierarchy of causation?

David Lubin

Yes, I mean, I think – well, I think that at the top of that hierarchy is the determined effort that Chinese policymakers are making to wean the economy off of its dependence on real estate investment. Real estate investment had come to account for some 30% of GDP and the project to reduce Chi – the Chinese economy’s dependence on real estate investment I think is the central goal, or a central goal, of Chinese policymaking and goes a long way to explain certainly why the level of confidence among Chinese households is so weak. And to some extent also goes to explain why the level of confidence amongst Chinese firms is so weak.

There are a couple of ways of thinking about what they’re trying to do. I mean, from a purely economic point of view, it’s just crazy that 30% of your eggs are in this basket, you know. In other words, it – to diversify the economy away from dependence on real estate makes all sorts of sense in a pure economic framework. But there’s a, kind of, geopolitical element to what’s going on, which is that I think that what’s really at work here is an effort to reduce the economy’s dependence on real estate investment in order to allow capital and credit resources to flow to sectors of the economy that the authorities consider more relevant today. Namely hi-tech green energy and all of the investment that’s required to turn in – to turn China into what they themselves describe as a ’manufacturing powerhouse’.

And from that point of view – and you can see, you know, that the investment in real estate has gone down over the last four years, investment in manufacturing has gone up, so from that point of view, the project is successful. And indeed, you know, China is – you know, accounts for 35% of global manufacturing. The G7, as a whole, accounts for way less than 30%. So, from that point of view, the strategy has been incredibly successful, but it does – you know, as I say, you know, you have to, kind of, carve up the way you analyse the Chinese economy, because certain sectors of the economy are really unhappy and certain sectors of the economy are doing quite well.

As – you know, for the private sector as a whole, I would say, you know, to answer your original question, you know, animal spirits are really, for the most part, very weak, indeed. A couple of ways of looking at that, or making that point, first of all, the demand for credit is, kind of, on the floor. The growth rate of credit has been collapsing for quite some time. But in a way, more strikingly, when you look at foreign direct investment flows in and out of China, what we have now is a situation where the net outflow of foreign direct investment in the last 12 months is about $200 billion. $200 billion of real capital has left China. That’s more than 1% of Chinese GDP.

There are different ways of explaining that net outflow of FDI. To some extent, it’s, kind of, China Inc. trying to embark on a, sort of, project of geopolitical arbitrage. You know, Chinese facing sanction – you know, facing tariffs, you want to find manufacturing locations that are less at risk of tariff actions on the part of the US or the EU. So, some of it’s, sort of, geopolitical arbitrage, you know, relocating manufacturing capacity to deal with tariff risk, but I think a lot of it is just capital voting with its feet. And so, you know, that’s a good bit of evidence, I think, that animal spirits in the private sector are weak.

Now, of course, you do have some bright spots. You know, the most obvious are what are called the ‘Three New’, electric vehicles, lithium batteries, solar panels and in general, exports are a real bright spot of the Chinese economy. I mean, and the growth rate of export volumes at the moment is around 10% year-on-year. When you sit that against the fact that global import growth is less than zero, you can see how Chinese exporters are capturing global market share, which in a way, is exactly the point.

It is exactly the strategy that they’re trying to achieve in the sense that, you know, the broad strategy, I think, or a way of describing the broad strategy, is a Chinese effort to simultaneously, on the one hand, reduce China’s dependence on the rest of the world through import substitution, while at the same time, trying to make the rest of the world more dependent on China. And so, that capturing of global market share through creating this trade powerhouse, this manufacturing powerhouse, is a core element of what they’re trying to do. And from that point of due – from that point of view, they’re doing it quite well.

Ben Bland

And where do you think this goes, then, Desmond? I mean, do you think China can, sort of, continue, you know, pushing towards these new productive forces without, you know, unleashing the animal instincts of the private sector? Can Xi Jinping, kind of, keep the private sector in a box, you know, have more state control and keep, you know, developing these new technologies and these new productive capacities? Or do you think, you know, there comes a point in which he’s going to run out of road there?

Desmond Shum

Well, the other thing I would like to add. First of all, I was a Real Estate Developer. I, you know, I built a third of the Beijing Airport, I have hotels, office, apartment buildings, in Beijing. I think the real estate sector – I mean, sort of, taming the real estate sector, it’s has been, like, you know, sort of, the wishes of the previous administration, before Xi Jinping, too. But it because the society, as David was saying, relies so much on real estate and nobody has the – have the, sort of, guts to tank it.

And I – but I think Xi Jinping has to wish to tame it down, but his heavy-handed approach and his, may I use the word ‘stupidity’, because he didn’t know the final – the severity of the consequence of his heavy-handed approach, push it down so much that now it becomes a major problem, right? I mean, when you have 90% of the residents own their own homes, 80% of the res – the private wealth are tied up in real estate, when you tank that thing to the extent it’s tanking now, that’s a huge problem. I think the wealth effect it’s just playing out now. I mean, this is very early stage of the wealth effect playing out.

So – and then, the second thing is the animal spirit. I think the first three – you know, I left China 2015/2016 because I seeing things are going different way. And I mean, I’m just as an example of, like, private entrepreneurs, because I think some people see it later, some people see it a little bit earlier. You know, the biggest problem today, in today’s China, it’s not the – you know, like, the stimulus plan that it just came out today. That’s not going to cure the thing. The problem in China today is a political problem. It’s how – you know, they have been pushing down on the private entrepreneurs for the past decade, you know. You give some lip service, say, “Oh,” you know, “he” – you know, basically, what do you say? “A private ent – we treat private entrepreneur as a family member.” Then, the wee – the way we read it is that okay, you treat us as a family member, so we are not actually a family member, right? I mean, really, literally, that’s what’s happening.

So, he has, like, you know, beating around the head for the whole decade now. Now, you say, “Well, we need you, we need you.” It’s like – we’re like – you look at it. You know, this – so, this – the overall package, it’s not going to really – you know, you will have, you know, market jump, a little bit, you know, the market jump 4% today, but it still doesn’t take – you know, it doesn’t cure the root cause of the issue is people don’t have the confidence. You can do this today, you can – tomorrow, who knows what you’re going to do?

Ben Bland

Yeah.

Desmond Shum

Right? And then we got – you know, a lot of people go disappear, right? Jack Ma got disappeared for four weeks. I got friend, you know, who is the Banker for the tech industry, he is still disappear, more than a year now, right? And no – that’s no – you know, my – and the reason I published my book is because my wife got disappeared for four years, right? When you have these kind of things – and this is just examples, you know, I can go on with the list, then it’s – then if you’re a private entrepreneur, it’s like, what – you know, I’m definitely, I’m voting with my feet. And that’s why, yeah, if I can get money out, the first thing – if I’m going to have capital, the first thing is how am I – how can I get my money out?

Ben Bland

Yeah.

Desmond Shum

Nobody is going to say, “Well, how can I invest more?” So, the problem with China’s polit – the economy is a political issue. The stimulus plan today maybe help for the next few weeks, maybe help a quarter. It’s not going to, you know, much beyond that. So, that’s the bigger problem of China, is the – I think the private entrepreneur, which account for 50% of the economy, has no confidence and no belief in this administration. You know, I – we talk about – you know, with my friends, we’re like, “The biggest rescue for China is somebody give Xi Jinping a bullet in the head, the market going to jump. The market going – really, really going to jump tomorrow.”

Ben Bland

And that’s obviously not a Chatham House view to declare. David, I’m not going to ask you about that. But I mean, on this broader question of whether China can innovate, you know, with this more controlled model, I mean, I guess Xi Jinping would say, “Great. I’m glad people like Desmond have left. I’m glad you’re feeling the pain. You were all just,” you know, “stealing our money and exploiting the people. We’re going to have this state-led tech development. Everyone wants our EVs, everyone wants our batteries.”

Desmond Shum

But just a point.

Ben Bland

Sorry, guys.

Desmond Shum

Just one more thing, sorry.

Ben Bland

Sorry, let me just come to David first, yeah.

David Lubin

Yeah, yeah.

Ben Bland

Yeah, so, yeah, I mean, what’s your sense on, yeah, can they keep going? ‘Cause, you know, a lot of people in the West have repeatedly bet against, you know, China’s ability, and, yeah, as the state’s taken more control, they’ve still succeeded in a lot of areas, economically.

David Lubin

Yeah, I mean, I think it probably reflects the fact that we don’t know much about what constitutes innovation, you know, what is the basis for an inno – for an innovated economy? Because, you know, if you just look at the domination of Chinese EV manufacturers of that industry, yes, you know, you can argue that, you know, they’ve benefitted hugely from industrial subsidies and for sure, those have been an important part of the story of how Chinese EV industry came to dominate the rest of the world. But it’s surely not just about subsidies. You know, you can subsidise to – you know, until you’re blue in the face, but if you don’t have the actual skills and capability and willingness and in – you know, innovative capacity, then it won’t deliver any results, and this clearly has.

And I – so, I think that, you know, one of the reasons why trade conflict is now sewn in to China’s relationships with the rest of the world – and the rest of the world needs to be defined very broadly. And what occupies most people’s attention is trade conflict between China and the United States, Chin – trade conflict between Chin and EU, but it’s important to bear in mind that China’s – the most rapidly growing part of China’s trade surplus is with developing countries.

Developing countries now account for about half of China’s trade surplus and that’s a – that’s not been true in the past. And what you also see, when you look at hostile trade policies implemented against China, what you see is that the fastest growing source of host – of trade policy hostility towards China is not coming from the G7, it’s coming from emerging economies. And so, you know, you’ve got this, kind of, optimistic view that, you know, if Brazil say it can import tonnes of cheap solar panels, then that should create the conditions for a manufacturing revival in Brazil. Maybe that’s true. I think it’s a bit too optimistic.

I think the reality that we’re actually seeing is that more and more developing countries are becoming irritated with this effort that China is making worldwide to dominate global manufacturing. And so, yeah, it’s a very succ – they’re very successful at it and I think we shouldn’t underestimate China’s innovative – you know, the combination of China’s innovative capacity plus the, you know, the economics of subsidisation. But it – in a way, what seems to be a very clear short-run success should be questioned a long – in the longer term, because it induces so much hostility towards China from both developed and developing countries.

Ben Bland

Yes, okay, Winni, and then I’ll come back to you, Desmond.

Dr Winni King

Yeah, I think David makes a really good point. Xi Jinping’s – one of the main things he talks about when it comes to China’s economy and how he envisions China’s place in the world economy is, basically, trying to create this, like, this world factory, right? And I think that for – and I mean, that’s one of the things that I really wanted to highlight, was that when we talk about the world, we tend to talk about the G7, but China’s relationship with the developing world and emerging economies are – emerging markets, are fundamental in terms of not just where China’s – the di – China’s efforts to diversify its markets and its market access in its supply chains, have a really – have a central role.

The Belt and Road Initiative was one key way in which it’s done that, right? I mean, we can talk about overcapacity in steel and infrastructure and all that kind of stuff, but when it comes to “The Digital Silk Road” and the role that telecommunications, for instance, has played in – and undersea cables, kind of, agreements. And production, has played a role in, basically, locking in China’s place and China’s relationship with these growing economies, and obviously, then, as they develop, future consumers, right? That’s something that cannot be underestimated in terms of helping China achieve the things it wants to do for its economy.

I think another – on the flipside of that is also the fact that we’re look – rather than just looking at emerging economies and developing economies as just, kind of, the recep – recipient of Chinese investment or goods, is also the fact that the BRICS+ nations are increasingly becoming major investors in China itself, as there’s gaps left behind by the G7 nations, as, you know, companies – conglomerates start to leave. So, that kind of investment going into China also not only embeds the relationships and the, kind of, geopolitics that’s going on in the shift away from a pure G7 neoliberal, kind of, economy, but into, potentially, the establishment of no – new multilateral economic organisations, which potentially elevated China’s role within the international system.

Ben Bland

Exactly. Desmond?

Desmond Shum

Yeah, I think the China – the situation is – I’ve been downbeat on China for a long while now. It’s because there’s still, like, so many nega – it’s like a perfect storm. So many negatives that were coming in at the same time. Yes, there is those New Three, then – as David was mentioning, but New Three is 6% of the GDP. How much it can grow? How much you can grow to replace, now, the real estate sector, which was 30%? Like upstream and downstream together, it’s about 30% of economy. When that has gone – go into major contracture and you have a 6% is growing. Right, okay, how this replace anything? So, that’s the – I think that’s the first thing.

The second thing is the – also, as David was mentioned, that China is now, it’s over – just over 30% of global manufacturing. Yes, you mean your labour need to, you know, feed the household and then, what about rest of the world? How much you can – how much market more – how much more market share you can take? And, you know, you already want a third of global manufacturing, with what? With, like, you know, less than 15% of global population, about 15% of global GDP, how much more market share you can take, you know? And then, you put in geopolitical situation with Europe and all that.

And also, you know, we were – I was just looking at the list, the top ten foreign country investor in China. Like, China, essentially – you know, led by the Americans and then, Japan, I think its came in third, I think, like China is having political issue with all your major investors. You know, we’re, in China, we’re looking at a – we’re talking like, you know, if you’re running a firm, you know, you’re in trouble with every one of your major accounts, are your firms going to survive, right? I mean, how can you a run a firm, like, you know, funding everyone with every one of your major accounts, how does that work? So, I think it is a – it’s a perfect storm. You know, we’re not tal – we haven’t even started on, like, you know, the population issue and, you know, all those things. So, it’s a perfect storm, it’s right now.

Ben Bland

But how do you see that playing out? ‘Cause obviously, there’s very few signs – there’s no signs of, sort of, elite dissent. There’s very few signs of, sort of, widespread popular dissent. We know that, obviously, the information environment in China is very controlled. That’s a given. So, how do you see this playing about? ‘Cause, you know, again, if we look back in recent history, people predicting the collapse of the CCP haven’t got a very successful career, right?

Desmond Shum

Well, first of all, you know, I think two things. One is I don’t believe this, like, collapse. Collapse is strong word. It’s – I think that the concept to look at, it’s a long decline. I don’t see – because CCP have such a hold and such a complete hold on the country and throughout the society and the economy and its ruthlessness. And then modern technology, we, you know, we read it all on the newspaper all the time, how much monitoring is going on in China. And then, you have the Great Wall of China coming completely, you know, controlling information in and out of China. It – I think this will be a long decline and collapse is really a wrong word. So, I think that’s the first thing.

The second thing is I think, as – you know, I – earlier, I used the word ‘stupidity’ because Xi Jinping really set himself up, you know. You know, back in 2015, you know, I was the – one of the reason, you know, I was leaving China was back in 2015, you can say, you know – you can see he’s not going to get out. He’s – can – it’s not like he doesn’t want to come out. Even he want to, he cannot get off the phoneline, because it’s like riding the tiger, right? And by now, he had arrested, what, five million bureaucrats, pun – arrest and punish five million bureaucrat. These are the people previous have a hold on power.

You know, you figure, like, if one have – each have five/six close associate, you know, parents, brothers and sisters, people who – you know, they were protégé of somebody, somebody grooms their close colleague, relative. Let’s say, you know, one person have five close people, that’s 20 million people have agenda against you. How the hell you going to get off the – you know, and yes, he looks fantastic, he’s, you know, riding the tiger and then say, “Oh, I’m going to punish this guy, I’m going to punish that guy.” But the moment you try to get off, one of you get off, the backslash coming back, it’s going to be tremendous. Like, even by 2015, he originally – already done a million people. How the hell you going to get off the tiger? It’s just no way.

So, the – and I think that what’s going to happen is as the economy, you know, go down, the, sort of, the – his craw – the control is more dictatorial, it’s more control. He’s going to strangle the society, because that’s the only way he’s – because he’s so afraid of, like, something going to – somebody going to overthrow me, because when this backslash, if it comes, it will be so severe, and, you know, it’s not just him. It’s, like, everybody who – his close associate going to go down. That’s how the China politics works. It’s never a single person. It always a clans thing. Why? Because all your cons – close associate going to go down with you.

Ben Bland

So, I’m going to come to your questions in a second. Just one very quickfire question for you all. Given all this, do you think Xi Jinping will still be in power after two more party congresses? Let’s say after 2032, in whatever it is, eight years’ time, do you think he’ll still be in power, just a yes or no?

David Lubin

Yes.

Ben Bland

David?

David Lubin

Yes.

Dr Winni King

No.

Desmond Shum

So, you say ten years from now?

Ben Bland

Eight years, after two more party congresses.

Desmond Shum

Eight years from now? I don’t know, I mean, it’s hard to tell.

Ben Bland

Okay, so a yes and a no and a hard to tell.

David Lubin

The full spectrum.

Ben Bland

Yes.

Desmond Shum

No, no, because I think what’s going to happen is by next term – well, right now, he is, like, just over 70. By next term, you know, by end of this term, he’s close to 75. And what’s going to happen is he’s not going to desin – you know, in the past, we all – right, we know – have heard of the – who are the top two guys of the administration, right? I mean, the – because those, they are in the Politburo, they groom from them for over a decade. What he’s going to do and by – I think by the next term, is instead of, like, two guys designate it, he going to have, like, you know, five/six guy – no, not five/six, it’ll be two – like, three/four guys.

So, he will keep you – he – I will have some succession play in place, because I’m 75, but I will keep you guessing which one will be the, kind of, top guy. Because at the moment, in China politics, the way – the moment, like, who knows – like, it’s obvious who is going to be successor, allegiance sway, like, change hands. Because I cannot get, you know, I cannot get close with Xi Jinping, then I’m going to, you know, I’m going to pledge my allegiance early to the next guy and hopefully, by he – by the time he comes up, I’m going to be in favour. So, he doesn’t want that, you know, to happen too early, so he going to have, like, two, three, four guys, you know, as all, sort of, designated possible successors and that he going to play that game.

Ben Bland

Yeah, so…

Dr Winni King

Yeah, and I, kind of, want to come in here, and the main reason I said no is because number one, because of age. Two is because you asked the question as to whether or not he would still be in the position. I think, if anything, he would be more like a Deng Xiaoping, where he would still have his fingers in the pie, yeah, but not necessarily maintaining the position.

Ben Bland

So, President of the Chinese Ping Pong Association or something?

Dr Winni King

No.

Ben Bland

Controlling things…

Dr Winni King

Football.

Ben Bland

…in the background.

Dr Winni King

Football.

Ben Bland

Football, yeah, it would be football for Xi Jinping. Okay, great. Well, I’m going to come to your questions now, so please just put your hand up and – or tell us who you are and any affiliation, and please make sure it’s a question, not a statement. So, yeah, I’ll start there, at the front.

Damian Chunilal

Damian…

Ben Bland

So, just wait one sec for the microphone.

Damian Chunilal

Sorry. Damian Chunilal. I used to run Merrill Lynch (Asia-Pacific). My question is, 20 years ago, China, you know, consumption was being encouraged, the economy – everyone was saying, sort of, push the economy. The private sector was doing really well. Elements of – you know, some protectionism, but elements of conversion. Obviously, now it’s very different, we’re picking national winners, the private sector, in some strategic areas, being crushed. My question is this, it’s very hard for outsiders, even people in Hong Kong, to feel this, what are the private householders, these middleclass houses – householders who’ve done very well over the last 50 years or so, what do they really feel? How do they feel in China? Are they happy? Are they not happy? What do they feel about the administration?

Ben Bland

Who wants to take that? Desmond, do you want to take that, or Winni?

Desmond Shum

I think – I mean, if you listen to all the story, nobody is happy. I mean, you know, it’s – why I report it, you read – you, almost like, these days, you open every newspaper, you talk about the [inaudible – 48:58], downgrading the consumption, right, everybody. And then you can see that whether, you know, there’s a lot of, you know, high restaurants, listed restaurants, you know, luxury goods listed. You do look at the – even, like LVMH, right? I mean, across the board, all the luxury house really get angry that – when you look at how LVMH, like, the result, it’s China. Like, everywhere else it’s, like, either – like, Europe has been fat, America grows a little bit. China is, like, major down, right? So, it – you can see that it’s in a situation like that.

And then, you look at the housing market. The housing market, tier one city is down 20-30% and then, tier two, tier three is, like, major down. Some of them, like, 50% down or more. How can be – yeah, how can anybody be happy in this kind of situation, when most of the wealth – you know, how we’re talking about 80% of the household wealth tied up in housing?

Ben Bland

Okay, next question. Maybe there, in the middle, yeah.

Thomas Apostolou

Thank you. Thomas Apostolou. I’m just an international relations student at the School of Oriental and African Studies. Over the summer, I was working at the United Nations, just an internship, and I sat in on a WTO TPR meeting and a Chinese Diplomat said something very interesting. He said, “China will always be a developing country.” And we just spoke earlier about innovation and development, and I was wondering what the panel thinks about how China’s placing themselves on the international stage and if they’re saying they will always be a developing country, how are they seeing themselves in ten to 20 years? And when they joined the WTO in 2001, could you have predicted now that they would be saying that they want to be a developing country forever? Thank you.

Ben Bland

Yes, it seems, you know, particularly, China’s, you know, part of this G77 group of developing countries, ‘cause they call it “G77 Plus China,” which is interesting. So, it’s both in and out, sort of, Schrödinger’s developing country, but I don’t know, David, you take this one.

David Lubin

It’s a super interesting question because it exposes this, kind of, dilemma that China has. On the one hand, China’s bid to establish itself as an alternative pillar of global order relies on its ability to sell itself as a spokesperson of the developing world. So, identifying itself as a developing country is a hugely important source of international global legitimacy for the CCP, but at the same time, the second centenary goal for 2049, without question, is that China will be a fully developed economy and a major superpower. And there’s a, kind of, intermediate goal of 2035, by which time, I can’t remember the exact phrase, but it – the 2035 goal certainly indicates, to me at least, that China doesn’t see itself at that stage, which isn’t that far away, as a developing country anymore.

So, the one thing that it, kind of, needs to shore up, its – in other words, its states as a developing country, in order to maintain this, sort of, magnet for other developing countries, that magnet will weaken over time, according to China’s own plans. And so, how it manages that dilemma, how it manages the, sort of, geopolitical consequences of it no longer being able to claim that it’s a developing country, very interesting.

Dr Winni King

Oh, and can I just add to that? I think there is something to come when you’re a developing – when dor – you’re a developed economy, with that comes a certain expectation with regards to your responsibilities within the international system. The extent to which you come in to – for bailouts. The extent to which you’re willing to take on military action. Like, all those kinds of things, and so, with regards to foreign policy, that becomes problematic from the Chinese leadership’s line of being a developed economy.

Ben Bland

Do we have any questions from women, ‘cause I want to be a bit more diverse than Chinese – China’s Politburo? Not to put pressure on, but it’d be great if there are any. In the meantime, one at the front.

John Wilson

[Pause] John Wilson, I’m a Journalist and a member of Chatham House. My question is this, what effect will be caused to China’s economy when it attacks Taiwan in order to subjugate that nation?

Ben Bland

Okay, who wants to take this when or if question?

Dr Winni King

So, what was the question again? Sorry.

David Lubin

What happens to Chinese economy…

Desmond Shum

What…

Ben Bland

Economy.

Dr Winni King

Oh, okay, okay.

David Lubin

…after, yeah, after Taiwan?

Ben Bland

David, do you want to go – you’re an Economist. I mean, do we – forget the ‘when’ maybe, but if.

David Lubin

Yeah, yeah, but I think the answer is so beyond economics and it’s – I’m – I’ll have a go, but don’t rely on what – anything I say. I mean, I think the consequences of any effort to integrate Taiwan into the PRC, you know, it’s potentially an event of global conflict. And so – and, you know, the reason I, kind of, think that this is just beyond economics, in other words, trying to isolate the answer, you know, what is the effect of that effort on the Chinese economy? It’s difficult to isolate it, because we’re in – we’re – you know, that scenario is one in which we’re in, kind of, just untold consequences for the global economy. Untold consequences for, you know, certainly the G7’s hostility towards China. And so, I think the – I mean, the economic consequences for China in the immediate – in the very short and in the immediate term, I think would be extremely bad. The – in the longer term, if you accept the scenario that Chinese occupation of Taiwan might be the precursor to some, you know, global conflict, understanding the economic consequences of that, I think are beyond us, beyond us all.