Plenty of media talk – much of it inaccurate – so what’s it really all about and why does it matter to China invested businesses?
Op/Ed by Chris Devonshire-Ellis
China is shortly to hold the ‘Sixth Plenary Session of the 19th Communist Party Central Committee‘ in November, a title that says little other than suggesting it is the latest in a long line of political conferences. Yet this event is garnering a lot of media attention. In this article I try and explain its significance and why this meeting is of interest to both political analysts and China investors.
According to the Chinese government, the event is being held in Beijing from November 8th to 11th. In fact, what for ease of reference I will now refer to as the ‘Sixth Plenum’ will contain a great deal that will be of interest to China political analysts and corporate investors alike.
In the past, these plenums have typically introduced significant changes in China. The first one is believed to have been held in 1945, appointed Mao Zedong as leader and prepared for the end of the Chinese civil war and the Communist Party (CPC) role of governing China. More recently, the 1978 plenum saw Deng Xiaoping and Chen Yun emerge as political leaders and change the CPC mandate to move from the cultural revolution to the opening up and reform of China’s economy. It is possible the Sixth Plenum will contain similar impacts as concerns China’s future direction.
The Sixth Plenum
This Sixth Plenum can be expected to provide a review of the history of the CPC with its current policies being traced back to its formation in 1921, and ahead to the policies of Common Prosperity and other significant policies such as Community of Shared Future into the second century of the CPC. It is likely that the longer-term position of Xi Jinping as general secretary will be defined.
As such, it will create a clearer concept of China’s direction. Most of this is already clear – the principle of Socialism with Chinese Characteristics, Dual Circulation, Community of Shared Future, and clear statements on the sovereignty of China, but will be further defined and refined.
In terms of Xi, one might ask why his position needs defining when he is already the leader and has indefinitely extended his term in power. That can be expected to be linked to a specific goal – possibly reunification with Taiwan and to expressly provide a mandate to do so. Xi may already be in charge but a review of his role is required for certain issues moving ahead. Taiwan can be expected to be one of them. Additional reforms – which will affect the future trade and investment policies of China will be another. I discuss these two points in further detail as follows:
This is the main point that most Western political analysts are focused on. To some extent, the key trigger over the recent rhetoric has been the stated position of the President of Taiwan, who rightly or wrongly made it clear that they viewed the Government of Taiwan as the legitimate ruler over the island and that Taiwan now fulfills all the criteria of being regarded as a sovereign state. Mainland China has always regarded Taiwan as a separatist Province of China, taken by the defeated Kuomintang as a final stand during the Civil War. While it appears clear that since 1683 the island has been part of China, it did have a period as Japanese territory between 1895 and 1945, when the then Republic of China (now the Taiwanese Government) took the island back after World War Two fighting and defeating the Japanese, events then superseded by the Chinese civil war that saw the Republic deposed by the Communist Chinese and retreat back to Taiwan in the form of the Kuomintang.
What hasn’t been historically addressed and is conveniently forgotten in the West is that the Kuomintang took over the running of the island themselves without any mandate from the original Taiwanese inhabitants to do so. The Republic of China’s possession of Taiwan was not democratically arranged – it was an invasion and one that marginalized the indigenous population, a situation that continues today.
The status quo has been maintained ever since – with the Chinese Communist Party stating that they won the civil war and insisting the Kuomintang or Republic of China are not representative of the Chinese people of Taiwan. The Republic of China (contemporary Taiwan) with assistance from the United States, follows a democratic process, while Mainland China has a socialist, one-party state model. The two sides have been able to exist in comparative harmony since, but Taiwan’s recent moves to essentially declare itself an independent nation have riled Beijing – and the historic claims, dating back to 1949 that the CPC are the legitimate rulers. The CPC constitution states Taiwan is a Province of China, and the Taiwanese President knows this. The direct insistence of Taiwan President Cai Yingwen that Taiwan is an independent state has forced the CPC – and to a large degree the West – to act accordingly, and to make decisions. It may well prove to be an unwise provocation. A decision likely to come out of the Sixth Plenum is to define a retaking of Taiwan as a mainland Chinese objective.
Curiosities and inconsistencies surround the subject. Taiwan is only recognized as a sovereign nation by 15 other nations: Belize, Guatemala, Haiti, The Vatican, Honduras, Marshall Islands, Nauru, Nicaragua, Palau, Paraguay, St Lucia, St Kitts and Nevis, St Vincent and the Grenadines, eSwatini, and Tuvalu. Most of these receive funding and other benefits in being so, and have often, along with other, similar nations, switched allegiance between Taipei and Beijing depending on whose offer was more attractive.
The US, a major critic of Beijing does not recognize Taiwan as a sovereign nation yet supports it with defensive arms sales against China – rendering Taiwan a client for military hardware against a country whose sovereignty it does recognize. It is the same story for the EU, the UK, and Australia, where arms sales are a major driver to supporting Taiwan. The US sold US$5 billion in arms to Taiwan in 2020, with US President Biden agreeing to a further US$750 million this August. Since 2010, the United States has sold US$24 billion of weapons to Taiwan, including fighter aircraft, tanks, and missiles. France sold US$27.8 million worth of frigate and missile updates to Taiwan last year. Australia doesn’t sell military equipment directly to Taiwan, but it does buy them from the US, and has boosted its expenditure in doing so, as it has become part of the ‘Quad’ grouping and has purchased nuclear submarines from the US and the UK to maintain a close overview of China – and Taiwan.
These countries, and especially the US, would lose a major client if Taiwan were returned to Beijing’s administration – which is why they are prepared to be so assertive over what essentially amounts to a rather small island with a population of 24 million and a GDP of US$668.5 billion in 2020. It should be noted that the nearby Chinese provinces of Guangdong and Jiangsu both have a higher GDP than Taiwan, while Fujian’s GDP, somewhat economically hampered by the military presence along its coastline directly opposite Taiwan, is about half that.
It should be noted that Hong Kong’s 2020 GDP was US$366.6 billion, 50% of that managed by Taiwan yet achieved by a population less than a third of the size. Hong Kong’s per capita GDP is currently US$46,324, against Taiwan’s US$33,402. Clearly, in Beijing’s eyes, Taiwan is underperforming and hampered by excessive military expenditure; and being encouraged to do so by the United States.
Removing Taiwan’s military expenditure would alleviate its expenditure drain to importing weapons while providing the region – Taiwan and southeast China – with an immediate trade and development infrastructure boost. In China’s eyes, Taiwan would be freed from Western militarization and the potential for conflict and would develop its economy as part of an integrated China.
These are issues the CPC will have considered in its assessment of the economic damage it sees as being created by continuing with the current Taiwanese President’s policies of creating an independent nation. The mainland Chinese reaction to that has been a military lockdown and to prepare for war. An armed conflict in my view is however unlikely to break out; the situation’s resolution will be more subtle than that, and it appears highly unlikely that the US, UK, Australia, and Japan – all of which have sent warships to the region – will truly want to engage in action so close to China.
But it is a game-changer with the US and the real reason no leader is currently travelling. However, the Western media will make a big play over the Taiwan issue, and there will be much criticism during and after the Sixth Plenum about the direction of China, of its One-Party approach, and about Xi Jinping.
The longer-term outcome is likely to be that China will get its way – although media will talk up hot words like ‘invasion’, ‘war’, and so on, over time some sort of deal will emerge to allow Taiwan a large degree of self-governance, after all that is what happened in Hong Kong and Macau. The Sixth Plenum though will make it quite clear that Taiwan is part of China. The West will call ‘foul’ and the Chinese will eventually resolve the issues between them – after all, the Taiwan question remains a fundamental hangover from a 72-year-old civil war, now being reignited over Western nations arms sales opportunities. The language will subside, and an agreement in time will be seen to have its genesis from this plenum. In the meantime, the rhetoric is hot, and filled with risk. The Sixth Plenum will outline just how far China is prepared to go, and the US and Taiwan will have to decide upon their response. It will be initial condemnation followed by the quietude of pragmatism, leading to, I suspect, a series of unofficial cross-Strait negotiations culminating to an agreed resolution by 2040 and reunification by 2060. The process will be laid out at this event.
Trade and Investment
Meanwhile, the rest of China needs to continue its progress, and arguably the more interesting elements of the Sixth Plenum will be ensuring the country continues to move ahead. In this context, the Taiwan issue is minimized. To some extent, China has already put forward its vision for the future and broken it down into three different components. I discuss these as follows:
Community of Shared Future
The Community of common destiny for mankind, sometimes translated as community with a shared future for mankind, is a phrase used by the CPC to describe a stated foreign-policy goal of China. It was first used by former General Secretary Hu Jintao and has been frequently cited by Xi Jinping. The phrase has subsequently been included in the Constitution of the PRC when it was amended in 2018. The CPC has used this term to express its aim of creating a “new framework” of international relations which would promote and improve global governance. Some Chinese analysts have viewed this as the first major amendment of China’s foreign policy in more than forty years, shifting from being nation-oriented to focusing on the entire world. Chinese government officials and diplomats have sought international recognition for the slogan and have argued that China will adhere to a peaceful development policy.
Western analysts have expressed concern that the CPC’s vision of a “community of common destiny” represents ‘an attack on the multilateral order of international organizations, alliances and shared sovereignty that has attempted to manage the world since 1945’. Some have argued that Xi’s community of common destiny for mankind would replace the established international order, grounded in free and sovereign nation-states that abide by commonly accepted international laws, with a unity of nations whose economic dependence on China leads them to defer to Chinese political demands.
China’s Belt and Road Initiative is the manifested infrastructure element to this vision, with the debate between China and the West over what such a common destiny looks like remaining intensely, if often crudely, debated and inaccurately reported. The Sixth Plenum can be expected to further define this concept and its intent.
Accordingly, it will stress common goals and the cooperation of nations, including the environment, climate change, and healthcare issues, Covid-19 and the future Health Silk Road. Numerous recent speeches by senior Chinese leaders have stressed this approach, and the Sixth Plenum can be expected to define it further.
However the concept is at odds with the Western view of China, which instead of ‘cooperation’ prefers to use ‘competition’ as the future global driver. That is driven by the West’s reluctance to oversee any change of the global order – mainly as it has benefitted the West since the end of WWII. This is why there has been such pushback over the BRI, China’s promotion of Covid vaccines, and talk of decoupling. At best this has led to credible alternative plans being made, at worst ‘competition’ is resulting in white elephants, ill-thought-out alternative global infrastructure projects (the much publicized ‘Build Back Better World’ and ‘Global Gateway’ projects introduced by the US and EU both admit a shake-up of global infrastructure and investment are required, yet are as yet unfunded, possess no real agenda and view the BRI as ‘a threat’). Some of the resulting rhetoric has also been decidedly undiplomatic and has damaged trade – the Australia-China trade spat, the EU and US both resorting to sanctions on China, including over its internal issues, meaning these differences carry real impact.
It is obvious when it comes to climate change that cooperation is required, as Patricia Espinosa, executive secretary of the UN Framework Convention on Climate Change stated in a sobering speech last week, the world could descend into conflict and chaos without it. The Sixth Plenum may well describe how China intends to deal with this in terms of allaying Western fears yet at the same time continue with its policy of ‘cooperation’. Either way, how the plenum defines the ‘community of shared future’ will dictate China’s international relationships, and impact upon global trade, investment, and supply chains.
Socialism with Chinese Characteristics
The theoretical system of socialism with Chinese characteristics is a set of political theories and policies of the CPC that are seen as representing Marxism-Leninism adapted to Chinese circumstances. It is an evolving concept and undergoes periodic revision; including Deng Xiaoping Theory, Jiang Zemin’s “Three Represents”, Hu Jintao’s “Scientific Outlook on Development”, and most recently Xi Jinping’s “Thoughts on Socialism with Chinese Characteristics for a New Era”.
From this perspective, Xi Jinping Thought is considered to represent Marxist–Leninist policies suited for China’s present condition while Deng Xiaoping Theory was considered relevant for the period when it was formulated.
The term was largely associated with Deng’s overall program of adopting elements of market economics as a means to foster growth using foreign investment and to increase productivity. This is especially true in the countryside where nearly 40% of China’s population still lives, compared to the US where the figure is about 17%.
Meanwhile, the CPC retained its formal position as the governing political power. In the party’s official narrative, socialism with Chinese characteristics is Marxism–Leninism adapted to Chinese conditions and a product of scientific socialism. The theory stipulates that China needs to engage in economic growth prior to pursuing a more egalitarian form of socialism.
The CPC for example still considers private ownership to be non-socialist. However, the theory also allows the existence and growth of private ownership and recognizes that it does not necessarily undermine socialism or promote capitalism in China. Neither Karl Marx nor Friedrich Engels proposed the abolishment of private ownership. According to Engels, the proletariat can only abolish private ownership when the necessary conditions have been met – which China has been introducing. Engels proposed progressive taxation, high inheritance taxes and compulsory bond purchases to restrict private property, while using the competitive powers of state-owned enterprises to expand the public sector.
Chinese CPC theorist Li Xuai has said that private ownership inevitably involves capitalist exploitation. However, Li regards private property and exploitation as necessary in this stage of socialism, claiming that capitalism in its primary stage uses remnants of the old society to build itself. Therefore, Individual ownership is considered consistent with socialism, since Marx wrote that a post-capitalist society would entail the rebuilding of “associated social individual ownership”.
These admittedly long-winded terms and theories are however a lode-stone in China’s development, and as can be seen are routinely studied as an academic manifesto that China has applied since 1949 and more objectively since 1978. In effect, the theory defines China’s planned economic development and how it intends to continue its growth and development in the coming years. This is also why China political analysts spend a great deal of time interpreting these. Once again, that interpretation can be viewed in several ways: Is it good for China (the period 1978 to date has undeniably been so, the theories have worked), and what does this mean for the West?
The unfortunate issue is that the US and much of the West deploys a different political system, based on Capitalism and Democracy, and have developed a competitive, more exploitative mindset as a result. This is now manifesting itself as two opposing opinions just as humanity faces serious global problems, and somehow these two great political manifesto’s needs to align. How China then sees that, and how it intends to develop its economy will be underlined within the parameters of ‘Socialism with Chinese characteristics’ at the Sixth Plenum and is crucial to understanding where Beijing intends to drive the nation and expand its international trade and development influence. Part of that is also the BRI supply chains leading into China. The country is hampered by varying demographics it cannot change: China is both energy poor and must secure imports and is agriculturally poor – it possesses 20% of the world’s population but just 5% of its arable land. Appreciating that the BRI feeds China is an important aspect when understanding how its development policies are influenced and how it reacts.
The Dual Circulation Strategy
This little appreciated plan contains the backbone concept of how China intends to move its economy from an export manufacturing base to a consumer economy. It was introduced in 2020 and seeks to spur China’s domestic demand on one hand, while simultaneously develop conditions to facilitate foreign investment and boost production for exports on the other.
The two-pronged strategy refers to the parallel emphasis on an ‘internal circulation’ and an ‘international circulation’ and a shift towards becoming a demand and innovation-driven economy.
While on its own merit, the DCS is not an inwards-looking strategy, the focus on tapping into China’s internal consumption patterns and domestic markets aims to buffer the impact of global economic headwinds and unpredictable external events on China’s economic and financial stability. The strategy is also, in more simple terms, a culmination of China’s intentions to become more self-reliant as well as increase its export market exposure.
That is to say that in order to achieve a more sustainable long-term economic growth of China and hedge against the impact of external shocks – the world’s second largest economy will focus on building an unblocked “internal circulation” of domestic production, distribution, and consumption instead of over dependence on the “external circulation” of the global market. The disclaimer, of course, being that China will not simply forsake the export goose that once laid it golden eggs.
Key projects in this regard include faster reform of China’s land and residency (hukou) system, part of the ongoing urbanization program, converting millions of migrant workers into city dwellers. As already mentioned, China’s rural population amounts to about 40% of its total, compared to the US at 17%. This means there are huge growth opportunities for China also making this transition, and it overcomes a key obstacle to building a highly consumer-driven economy. It also involves materially tackling a yawning inequality gap that has weighed on local spending capacity by deepening the social safety net and via poverty alleviation campaigns.
China is already a “hyper-sized” consumer market with 1.4 billion people. Despite COVID-19 disruptions, we expect opportunities in areas like health services and pension provision, as well as in the upgrading and digitalization of supply chain networks and the e-commerce industry.
An earlier summary of the Dual Circulation Plan can be read here.
I hope I’ve been able to make sense to readers and China analysts and investors why the Sixth Plenum of the 19th CPC committee will be important, despite the inevitably of it being a rather dry subject. Taiwan will dominate the media and while a very serious issue, will overshadow equally, if not more important policy directions. We will be discussing and analyzing these as they are announced. To make sure you receive these updates please subscribe (its free) to China Briefing here.
Chris Devonshire-Ellis has a thirty-year China career and founded the advisory practice Dezan Shira & Associates in 1992. Previously to this he worked for a Hong Kong law firm and China Law & Practice. He founded China Briefing in 1999.
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