China's 20th Party Congress: Challenges ahead

The People’s Republic of China (PRC) will open the 20th Party Congress on Sunday 16 October. The next generation of leaders, their priorities and policy agendas will be announced at this week-long event, which occurs once every five years.

It is expected that Xi Jinping’s third term as President will be confirmed.

The 20th session will also reveal how the leadership of the Communist Party of China (CPC) will respond to changes in China’s international, economic and political environment since 2018. This includes growing competition and mistrust of US relations, regional miliary tensions, and resource insecurity.

This Insight looks at what these changes mean for the PRC, and what party leaders are likely to focus on during the 20th Party Congress.

China’s economic challenges

China’s economic success is central to the CPC’s legitimacy and authority at home. So far, its development policies have transformed the PRC into the world’s manufacturer, raised the living standard of its 1.4 billion citizens, and lifted 800 million Chinese citizens out of absolute poverty.

However, China’s leadership is facing domestic economic problems including debt, a slowing property sector, unemployment and an aging population.

There are also international challenges the PRC is facing for the first time since it launched economic reforms in 1978.

US-China trade tensions

With two-way US-China trade in 2017 worth $636 billion, former President Donald Trump’s July 2018 decision to impose 25% tariffs on Chinese imports was a dramatic shift in an otherwise stable economic partnership.

This was followed in 2019 with the US accusing China of currency manipulation. By 2020, stalled dialogue and policy responses between the world’s two largest economies resulted in tariffs on over $450 billion in Chinese goods.

The US also claimed that Chinese technology firms China’s ZTE, Huawei, and Tiktok are a national security risk. The Biden Administration has escalated this position, with further restrictions described as potentially amounting to “the biggest shift in U.S. policy toward shipping technology to China since the 1990s.”

‘De-coupling’ of the international economy

Today, the US and its allies consider close economic relations with the PRC a vulnerability or national security risk. As a result, there have been calls in these countries for the ‘decoupling’ of economies, firms and suppliers from Chinese trade and manufacturing networks, and supply chains.

The PRC’s 14th Five-Year Plan (2021-2025), sets out an innovation and technology driven strategy for China’s economic development. The US and EU’s moves to isolate China’s main technology players and sectors, both domestically and abroad, directly challenges this.

President Biden’s flagship industrial policy, the Creating Helpful Incentives to Produce Semiconductors for America Act of 2022 (the CHIPS for America Act), attempts to counter China’s rise. It aims to secure US supply chains and support semiconductor industry and manufacturing. The European Union is also establishing its own European CHIPS Act and semiconductor strategy.

The global semiconductor industry is estimated to be worth $1 trillion by 2030. China’s global market share reached 9% in 2020. This sector’s strategic importance has resulted in the Chip 4 alliance between major semiconductor powerhouses Taiwan, the US, Japan, and South Korea, which aims to move away from Chinese supply chains, and “frustrate the ability of Chinese producers to upgrade their capacity”.

‘Decoupling’ will likely take considerable time and effort. However, the effects of economic nationalism and protectionism already represent significant challenges for China’s leadership and development. Premier Li Keqiang said “Our economy right now is facing many challenges and difficulties. Time waits for no man. We must focus all efforts on implementing measures to stabilise the economy.” ?

Other regional challenges

Nationalism and protectionism have also occurred in the geopolitical and military spheres. In a move seen by the CPC leadership as the encircling, or containment of China, on 15 September 2021, the US, Australia and the UK established AUKUS, a trilateral security pact in response to China’s growing sphere of influence in the Indo-Pacific.

Furthermore, amid growing tensions between China and Taiwan, the US and its allies have voiced support for Taiwan and increased "freedom of navigation" crossings by naval vessels of both the Taiwan Strait and South China Sea. Under America’s Freedom of Navigation Program, these crossings aim to reinforce “internationally-recognized navigational rights and freedoms.”

Senior political figures have also visited Taiwan. US House Speaker Nancy Pelosi’s trip in August 2022 was strongly condemned by China.

For China’s leadership, this has highlighted its own need to ‘decouple’ and diversify its economic partnerships; to establish alternative relationships to counter make up for these challenges.

The next five years

Due to these international tensions, there are calls within China to go it alone. Even as relations with Western trading partners turn antagonistic, it is thought the CPC leadership is too pragmatic to settle for isolationism.?

Liang Guoyong, senior economist with the UN Conference on Trade and Development, has said that “in order to meet the challenges in the global economy, the cooperation of all countries in the world, especially major economies including China and the US, is indispensable.”

China’s commitment to multilateralism may result in it promoting organisations dominated by non-Western nations. For instance, it has focused on expanding institutions like the Shanghai Cooperation Organisation (SCO). Vice Foreign Minister, Ma Zhaoxu, said in September 2022,

Our efforts to push forward the reform of the global governance system are not to reinvent the wheel, rather, they are to make the system fairer and more reasonable.

Rather than a withdrawal from the international economic system, China’s leadership is likely to reaffirm its commitment to developing nations. As Wang Yi, China’s Foreign Minister, said at the United National General Assembly in September 2022:

As the world’s largest developing country, China will continue to stand with all developing States, who are no longer the silent majority in international and multilateral processes.

As President Biden predicts a “decisive decade” to come with China, President Xi Jinping expects “...great struggles under new historical characteristics.” He has said the CPC “must be united to lead the people to face major challenges effectively, defend against major risks, overcome major barriers and resolve major contradictions.”