Five Key Challenges For President Jinping In His Third Term

The quest to sustain President Xi Jinping’s tenure for another five years is underway.

The 20th National Congress of the Chinese Communist Party opened on Sunday (16 October) and is expected to continue until 22 October.

By the end of the summit, the CCP will have installed a new 200-member central committee, the members cherry-picked by Jinping and his loyalists.

All eyes would be on the top twenty-five officials elected to the politburo and the seven-member politburo standing committee headed by the President himself.

Speaking before over 2,300 party members on the opening day of the Congress, Jinping hailed the crackdown against pro-democracy protesters in Hong Kong between 2020 and 2021 while bringing back attention to the question of Taiwan.

Jinping vowed not to renounce the use of force when it came to Taiwan. A not-so-subtle message was also reserved for the United States when Jinping affirmed that China would combat protectionism and bullying by other nations, hinting at reunification, political or otherwise.

Jinping’s third term, to be formally announced in March 2023, will begin as the global economy enters uncharted waters. Inflation is at a record high in the United States and several European nations, driven by the Russia-Ukraine war.

The looming threat of a recession in 2023 could impact China as exports could take a hit. The recently announced OPEC+ cuts also add to the volatility in the world economy, though China, along with India, has been benefitting for two quarters from discounted Russian crude.

Going forward, Jinping’s third term, at least for the next two years, would be about navigating the following five challenges.

After Hong Kong, Will Taiwan Fall?

Since Jinping took over in 2012-13, the Taiwan question has gained traction in the mainland. However, it was the recent trip of Nancy Pelosi, Speaker of the US House of Representatives, that sent temperatures soaring in the Taiwan strait, and even Washington.

For China, Taiwan is the ultimate climax to the ‘biding your time’ strategy that Beijing adopted in the early 1990s after the fall of the Soviet Union, the Gulf War in the Middle East where the US emerged victorious, and the protests at Tiananmen square.

Now, with the West’s sole supremacy in the world order receding after the Great Recession of 2008, the pandemic of 2020, and the ongoing conflict in Ukraine, China would back itself to complete the reunification.

There is also the failure of Washington in the Middle East and Afghanistan, and a stunned silence during the political takeover of Hong Kong that would further strengthen Beijing’s resolve.

For Jinping, Taiwan reunification serves two purposes. One, civilisational, and two, a distraction from the slowing domestic economy.

There is also the military muscle that favours China. In 1994, Taiwan’s military budget was greater than that of China. Today, China outspends Taiwan by 20x.

Militarily, in the Indo-Pacific region, China has an advantage in six of the nine conventional warfare areas as per a 2015 RAND study against the United States.

However, China’s decision to launch a military strike against Taiwan will depend on being able to conduct a sustained campaign without isolation from the West.

For the United States, however, the Taiwan question is more economical than political, given the presence of TSMC and its significance in the global supply chain for chips.

Yet, even if President Biden was to order boots on the ground, the question will be around US’ exit strategy from the Taiwan strait, participation from Japan, South Korea, and even India, and finally, pushing for a conflict while going against Beijing’s biggest lobby in the White House; the Wall Street banks, aiming for an economic footprint in the Chinese market.

For China, going by the precedent set in Hong Kong, a political reunification would be the ideal way to go forward.

For the United States, however, it is all about buying sufficient time to create a supply chain ecosystem within the United States that rivals TSMC in Taiwan. Already, the Biden regime has launched an array of sanctions against the Chinese semiconductor ecosystem.

Thus, for the Chinese, it is a civilisational question to which they are seeking a political solution while for the US, it’s merely a time-bound tech conundrum.

The New Cold War: Semiconductors And Supply Chains

In 1965, Gordon Moore, in an article for Electronics magazine, wrote a short article on the future of integrated circuits.

In his article, Moore predicted that for the next 10 years, annually, his company would double the number of components on a silicon chip, thus accelerating the computing power of the device exponentially.

The prophecy was later celebrated, across the world, as Moore’s Law. For the semiconductor ecosystem, 1965 was the most important year, until of course 2020, when the pandemic hit.

Apple, the world’s biggest technology company, is the best example of the intricacies that govern the semiconductor industry worldwide.

Apple’s memory chips come from Japan. Its radio frequency chips and audio chips come from the United States, but for the most advanced semiconductors, it relies on TSMC in Taiwan.

The manufacturing of the devices then happens in China.

However, in 2020, when the demand for electronic devices spiked in the wake of the Covid outbreak, not all companies were prepared for the supply deficiency.

Given the shortage of chips, automakers in several parts of the US were forced to cut jobs and workers’ hours, further denting an economy battered by the pandemic.

Consequently, General Motors Co. was forced to halt production at its three North American plants, and Ford Motor Co. was staring at a 20 per cent drop in short-term output.

For the auto industry alone, the chip shortage resulted in a $210 billion loss in FY21 alone. And thus, the Biden government came up with the CHIPS and Science Act.

For Jinping, the next few years will all be about developing an indigenous semiconductor ecosystem, especially when the sanctions from Washington intensify. Already, Apple has halted its orders from Yangtze Memory Technologies Co (YMTC), one of China’s leading companies.

The Chinese companies took a hammering on their stock prices as the weight of the sanctions kicked in, losing as much as $8.6 billion over a single weekend.

Companies like YMTC have been put under an unverified trade list, thus requiring licenses from the US government to trade with.

For an export-driven economy like China, looking for the next economic revolution, the semiconductor industry is important for a number of reasons.

Unlike the 1960s, when their utility was mainly in the military or space programmes, semiconductors today are equivalent to steel and aluminium that helped the US win the Second World War.

Today, semiconductors might equal economic and geopolitical muscle, and therefore, it is no surprise that the US wants manufacturers to choose between Washington and Beijing.

Can Jinping win this battle?

The Future Of The Belt And Road Initiative

Often, in Chinese circles, a theory is put forward; to invade Taiwan for TSMC.

Outrageous though, the takeover of strategic assets has guided the thought process in Beijing for over a decade now. This has resulted in investments globally, from Africa to Latin America, undermining local governments in many places.

The debt-fuelled development has made borrowers in Kenya, Sri Lanka, Pakistan, and elsewhere sceptical. However, post-pandemic, the investments have again begun, though quite lower than the peak of 2014-2018.

According to the data accumulated by the American Enterprise Institute, between 2020 and 2022 (June), Beijing’s investment, globally, is touching $100 billion.

This includes investment in transport (June 2022) in the Philippines ($410 million), Jamaica ($200 million), Guyana ($260 million), and even Pakistan ($150 million).

Other sectors include real estate, agriculture, chemicals, entertainment, logistics, metals, and healthcare.

However, the majority of the investments post-pandemic have been in the energy sector. Energy alone constitutes one-fourth of the BRI investments starting January 2020.

In March 2021, China invested $900 million in a project in Russia through Sinopec. In September 2021, $910 million were invested in Iraq which was followed up by an investment of over $880 million.

Central Asian investments have also seen an uptick, with China now moving to secure its energy interests in the oil and gas sector.

However, going forward, would China be able to sustain the building spree or settle for strategic takeovers while debt payments are renegotiated?

More than 100 loans in Sub-Saharan Africa, 21 in East-Asia and Pacific region, 12 in Latin America and Caribbean region, nine in South Asia, five in Europe and Central Asia, and four in the Middle East and North Africa had already been renegotiated until early 2022.

The crisis will only worsen as the pandemic, coupled with a spike in commodity prices due to the war in Ukraine takes a toll on the smaller economies, as evident in Sri Lanka.

Also, slowing growth may make smaller economies averse to Chinese loans. The question thus remains; how will Jinping justify his exploits and economic spoils of the last few years going forward?

The Dragon Unleashes The Wolves 

The economic muscle coupled with lending through the Belt and Road Initiative has a bearing on how China’s diplomats pose before their global counterparts.

In 2018, for instance, four Chinese diplomats, uninvited, burst into the office of the foreign minister of Papua New Guinea, ordering a change in the official communique ahead of the Asia-Pacific Economic Summit.

Hosting the summit, Papua New Guinea wanted to include the issue of unfair trade practices in its remarks. However, Chinese officials, feeling attacked, bullied them into withdrawing it.

The aggression was visible during the pandemic as well when the Chinese diplomats pushed back against the countries blaming them for the Covid outbreak.

Even on the issue of medical supplies, the Chinese diplomats, often touted as wolf warriors, were dismissing the concerns of several European countries.

China’s consul-general in Kolkata, replying to an Indian user questioning Beijing’s handling of the outbreak, tweeted, "You speak in such a way that you look like part of the virus and you will be eradicated just like a virus. Shame on you.”

Going forward, the wolf warriors will have a critical role to play as several loans under the BRI are restructured and the debt is negotiated, especially against the weaker economies.

In the South China Sea, and on the issue of Taiwan, expect the wolves to bully corporates, as has been the norm under Jinping, to toe the Chinese line.

On the issue of semiconductors and electric vehicles as well, the role of the wolf warriors will be under scrutiny as China looks to secure the supply of rare earth minerals to expand its production.

Global Recession And A Domestic Slowdown

To put things into perspective, while central banks across the world are arresting inflation by increasing the interest rate, Beijing is grappling with slow growth and hence pumping more money into the system.

As the 2023 recession approaches, triggered by higher interest rates and supply-side-induced inflation, Chinese companies, relying on exports, will have to take a hit on their revenues.

There is also the looming threat of Covid-19, as Jinping affirmed in his address that the lockdowns shall continue.

The yearly forecasts for China’s growth have been revised from 5.5 per cent, at the beginning of the year, to less than 3 per cent. Some observers are putting the growth figure at 2.7 per cent, citing more lockdown measures.

The challenge for Jinping, however, is how does he navigate an already dented economy through a global slowdown next year, and how does he bail it out, given there is no longer the luxury of real estate, as elaborated here, here, here, and here.

The question thus remains; how will Jinping accelerate China’s economy this time?

In his book, China: The Bubble That Never Pops, author Thomas Orlik remarks that a lot of careers have been made in predicting the downfall of China. However, if one was to bet on Jinping’s downfall and China’s volatility in the next five years, the odds have never been more favourable.

This is the third article in a four-part series ahead of 20th National Congress of the Chinese Communist Party where President Xi Jinping will secure a third-term.

Also Read:

Part I-The Great Dictator: Xi Jinping’s Decade As China's President

Part II-Traitor And Dictator: How President Xi Jinping Is Losing China