what the analysts must have missed

Leadership changes once every five years in China’s party-state routinely follow a two-stage process – the first takes place in the ruling Chinese Communist Party (CCP) and the second involves the government. Last October, Xi Jinping consolidated his tight control over the top leaders of the CCP at the 20th Party Congress. Loyalty to Xi was clearly the first and foremost criterion for elite promotion, demonstrated by the formation of the Politburo and the Politburo Standing Committee.

This past weekend, the new National People’s Congress (NPC), China’s legislature, began its first annual session. The eight-and-a-half-day meeting will end with the announcement of the President and Vice President of the People’s Republic of China and appointments to the new State Council, the executive branch of the central government. Xi will serve his third term as president, and Han Zheng, former executive vice chairman of the State Council, is expected to become vice chairman.

Public attention will be focused on the composition of the Council of State. Headed by an “Executive Committee” of 10 officials, the State Council manages 31 provincial-level administrations and 26 constituent ministries. While the final decisions in China undoubtedly rest with the Politburo, the State Council is usually given a certain amount of leeway in determining the implementation of policy, especially in economic matters. It is widely expected that the new executive committee will consist entirely of turnover for the first time for this leadership body, which will be the largest in its history (see Table 1).

With such a drastic change in the leadership of the State Council, China watchers around the world will be interested in exploring the political and policy implications of this leadership team. In particular, there is some widely circulated “conventional wisdom” about personnel trends in Xi’s third term.

Namely, 1) Xi is surrounded by “yes men”; 2) the new leadership is busy with the security and social stability of the state, on economic issues; and 3) policy priorities in Xi’s third term focused on the development of state-owned enterprises (SOEs) at the expense of the private sector. There is truth in these views, but they deserve a more balanced and far-sighted analysis. A discussion of the composition of the new State Council can shed valuable light on the nuanced and contradictory nature of the Chinese leadership.

Assumption #1: Xi Jinping is surrounded by “yes men”.,

Loyalty to Xi is a requirement for promotion, and many members of the State Council have longstanding ties to him. The next premier, Li Qiang, has worked with Xi for decades. During Xi’s tenure as party secretary of Zhejiang, Li, a native of Zhejiang, was Xi’s aide in the provincial party committee and chief of staff. Similarly, when Xi was party secretary for Shanghai, Ding Xuxiang was his chief of staff. Ding moved to Beijing with Shi and continued to serve as Shi’s top aide. Wang Xiaohong, the current minister of public security, was a high-ranking member of the police bureau in Fuzhou when Xi was its top leader. Vice Premier He Lifeng’s relationship with Xi dates back four decades when they worked together in Xiamen. His political rise in the past decade can be largely attributed to his patron-client relationship.

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However, other members of the State Council have less direct ties to Xi – some of them are “protégés of Xi’s proteges”. State Councilor Chen Yiqin spent his previous career entirely in Guizhou and worked directly under Li Zhanshu, a former Politburo Standing Committee member and Xi’s staunch ally. State Councilor and General Secretary Wu Zhenglong is particularly associated with Li Qiang, who was the party secretary of Jiangsu while Wu was governor. Every member of the State Council would be under Xi’s trust, but the degree of loyalty of each member varies. New factions and new divisions would arise among loyalists as they would compete to serve Xi’s priorities.

Additionally, since Xi has surrounded himself with people he considers very trustworthy, it is likely that he will give him room to maneuver, implement experimental policies, and make his own governance decisions. Furthermore, one could argue that elite recruitment in China, while not primarily driven by merit, rarely allows unqualified officers to reach its highest ranks. Ding Juxiang, Liu Guozhong, Zhang Guoqing, Wu Zhenglong, and Li Shangfu are all highly capable technocrats who attended China’s most prestigious universities. It is too early to assume that these new leaders will not effect major changes in the years to come; After all, Xi himself was once considered a “yes man” before becoming top leader in 2012.

Assumption #2: The new leadership is preoccupied with the security and social stability of the state over economic issues.

In his October report to China’s leadership, Xi mentioned “security” 91 times and “economy” only 60 times. In an increasingly volatile international environment, or in Xi’s words, a time of “dangerous storms”, intelligence and national security have grown in importance given Beijing’s perception that the West is attempting to coerce China.

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The formation of the State Council brings a renewed focus on the security and socio-political stability of the state. Half of its members have security or military backgrounds, including Wang Xiaohong, who spent his entire career in the public security apparatus. The portfolio of Executive Vice Premier has previously been mostly economic, but Ding does not have extensive experience in economic matters; Rather, he is a member of the National Security Commission.

However, most members of the incoming Council of State have extensive provincial-level economic leadership experience. In China, social stability and economic issues are tightly intertwined, and an economic issue can quickly undermine national security. Most of the protests in China are related to economic conditions. For example, there are about 117,000 protests against land confiscation every year. China’s economic growth rate for 2022 was 3%, a far cry from the 8% to 10% growth to which the Chinese middle class has become accustomed.

Xi recognizes the interconnectedness of these issues – in the past few months, China’s economic policies have undergone significant changes and adjustments. In his December speech at the Central Economic Work Conference, Xi called for “stronger support from financial institutions for micro and small businesses”. The government has taken several steps to support the flailing real estate sector, including encouraging local governments to invest in property development in most areas. Additionally, a softening of regulatory oversight of the technology and private education sectors has also reflected these policy adjustments and a greater need to stimulate the economy.

Assumption #3: Xi’s third term focuses on SOE growth at the expense of the private sector.

Compared to previous state councils, this slate of leaders has a stronger background in the defense industry. The four members of the State Council can be classified as “defense industry technocrats” who have substantial leadership experience in China’s military-industrial complex or military-civilian fusion. Zhang Guoqing spent most of his career working as a corporate executive at the military SOE Norinco Group. Liu Guozhong and Wu Zhenglong have academic backgrounds in military engineering, and Wu was later the head of the General Office of the industrial SOE Sinomac. Moreover, these expected appointments are not only technocrats but technocrats with management experience who have excelled in SOEs.

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However, in addition to defense industry technocrats, the Council of State is filled with appointees both high-level and with substantial experience with the economy, including private sector development. Li, Ding, He, Zhang, and Wu were all provincial leaders in Zhejiang, Jiangsu, Fujian, Tianjin, or Shanghai, coastal economic powerhouses and some of the country’s most private-sector-dominated provinces. Local and provincial leaders in these areas typically make many economic decisions and are well versed in policy, especially when they are deputy national officials.

Li and Ding, the “top two” in the State Council, rose to power through the Shanghai party apparatus. Shanghai is known as one of China’s most cosmopolitan and foreign-trade-heavy regions, and Shanghai’s leaders typically maintain close ties to the private sector and foreign firms. While party secretary for Shanghai, Li struck a deal with Tesla to open the first overseas car factory in China, which did not require partnering with a Chinese company, and has been a vocal advocate for additional foreign investment. The State Council’s balance of leadership experience in both industrial policy and market reform ensures that SOE development, as a priority, cannot necessarily come at the expense of the private sector.

Yet Xi’s assumption of absolute control of the party-state has created a vulnerability: He and his elected leaders must deliver on their promises. Xi will be praised for his achievements and blamed for his failures. To avoid the middle-income trap, China’s leaders will strive toward the goal of “general prosperity” – primarily to increase the Chinese middle class. The campaign could potentially stimulate China’s “three engines of growth”, investment, consumption and foreign trade, each of which has recently faced challenges.

The new leadership of the State Council will be rigorously tested in the coming months and years to see whether it can successfully craft “common prosperity” in a way that is neither anti-market nor anti-development. Rather, China’s emphasis on domestic economic development and support of the middle class necessitates market dynamism and openness. There is more going on with China’s leadership than traditional media caricatures; The contours of the new State Council are visible, but the picture is not yet painted.

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