Opinion
For both China and US, greatest threats lie within
Summary
- America needs to overcome a crisis of democracy while China shifts to overt one-man rule.
Like something out of a fortune cookie, “May you live in interesting times," widely attributed to be a Chinese curse, is not colloquially used in Mandarin. Even so, going by the past couple of weeks, it applies to the dysfunctional domestic politics and economies of both the world’s superpowers, the US and China. With US mid-term elections less than a fortnight away, the high inflation of the past many months has undermined support for the Democrats and the Joe Biden administration. One observer described inflation as the “acid" that had eaten away at positive news such as high job growth and a widening of the US safety net. Just a few months ago, the Democrats looked poised to retain control of the House of Representatives, where they have 220 seats to the Republicans’ 212. Now, most polls see the Republicans taking control, possibly with a margin of 20 to 30 seats and doing well even in hitherto strongly Democrat states such as New York and Oregon. More worryingly, most of the Republican candidates are paradoxically “election denialists". They continue to profess that Donald Trump was a victim of election fraud in 2020; their supporters are openly threatening violence against those whose job is to count and certify results.
Half the world away in Beijing, the 20th congress of the Chinese Communist Party ended this weekend with something rare for a communist state—a nail-bite-worthy public political drama. President Xi Jinping’s abolition of a two-term limit followed by his post-Deng predecessors made the consolidation of Xi’s power over the standing committee, China’s apex political body, a foregone conclusion. Even so, the packing of the standing committee with Xi loyalists while dropping well regarded Chinese leaders from the body such as Li Keqiang, premier since 2013 who will remain in his post till March 2023, and vice-premier Wang Yang was a reminder that Xi really is China’s “chairman of everything", as a China observer once quipped. But the most baffling sight of the congress was when Xi’s predecessor, Hu Jintao, was pulled out of his chair and escorted off the stage. Chinese official media said this was because he was unwell, but given the incident occurred just after the media was ushered into the hall and occurred before the clicking of hundreds of cameras, it seemed instead a very public—and disturbing—eclipse of the old guard.
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This montage of one-man rule unsettled stock markets. Xi’s assertion of power was also a reminder that his idiosyncratic policies, such as seeking to eliminate covid while the rest of the world lives with it, and the government’s cutting down to size of tech giants such as Alibaba are here to stay. On Monday, Hong Kong’s Hang Seng index dropped by close to 7% in response and American depositary receipts of Chinese shares listed in the US fell by twice that. Investors are losing faith in the China story. An index of Chinese companies on the Hong Kong market now trades at just 6.5 times earnings.
The pursuit of a ‘zero-covid’ policy through harsh lockdowns over the past couple of years shows no sign of abating. Indeed, the most prominent promotion on the standing committee was of a Xi loyalist who has headed the administration in the commercial capital of Shanghai, where the episodic lockdowns of entire housing communities and very tough quarantining have been widely criticized. Vaccination rates among the elderly, though above 80%, are nowhere near as high as they should be. In addition, the Chinese vaccines do not produce as strong an antibody response as those used elsewhere. Rolling lockdowns and the spectre of covid have depressed China’s economy. Its most recent retail sales data show they rose marginally and exports by single-digits; month-on-month retail sales and services actually declined. But it is the all-important property sector that remains in the doldrums; residential sales transactions dropped by a fifth in September and residential building starts by 12%. These steep drops have knock-on effects on local governments, which use land sales for funding.
The Chinese economy urgently needs reforms at many levels. Instead, the party congress’ selections and omissions put reforms (and reformers) on the back-burner. People’s Bank of China governor Yi Gang was among the reformist policymakers not named this weekend as a full or alternate member of the party’s new central committee. In addition to Premier Li’s impending retirement next year, Xi’s able economic lieutenants of the past few years—Liu He and Guo Shuqing—are also retiring. The language of Xi’s address to the congress downplayed peaceful economic development, a byword of previous leaders. Instead, it amplified the need for “an increased capacity for the army to win" and “actual combat training" for the military. This should worry India and China’s other neighbours as well as the US.
Indeed, a recent security document from the White House labels the threat from Beijing in unequivocal terms. But, as US mid-term election campaigns show, no developed world country is as bitterly divided as the US. The New York Times counts anything from 250 to more than 300 Republican candidates who deny the validity of the 2020 presidential election. More disturbing than anything I have seen on Netflix was a New York Times podcast of an hour-long interview this week with a county election official (a Republican) in Arizona who reported routine death threats ever since he attested that the 2020 election results were accurate. For all the headlines of superpower rivalry, the past few weeks show that for both China and the US, the greatest threats are within.
Rahul Jacob is a Mint columnist and a former Financial Times foreign correspondent.
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