The Politburo held a “democratic life meeting (民主生活会)” on December 21–22, 2023, in which President Xi Jinping gave an internal, unpublished speech. According to accounts provided to the author by three officials at the rank of department head or above, Xi admitted that he had repeatedly postponed the Third Plenum of the 20th Central Committee (which according to Party norms should have taken place in October) because he “could not offer any viable solution for the nation’s problems.” Xi, who is general secretary of the Chinese Communist Party (CCP) and commander-in-chief, went on to blame the other 23 Politburo members and other senior cadres, not only for failing to give him good advice but also for demonstrating signs of disobedience. Reports of Xi’s frank admission of the dire straits of the Party’s leadership were widely circulated on social media.
The official Xinhua read-out of the Politburo meeting also cited Xi as demanding “unison of thought” among top-tier officials. This entails adhering closely to the instructions of the “core leadership”—in other words, to Xi himself (Xinhua, December 25, 2023). The supreme leader raised the “two safeguards (两个维护),” a slogan that refers to “safeguarding the authority of comrade Xi Jinping as core of the party” and “safeguarding Xi Jinping Thought on socialism with Chinese characteristics for a new era.” President Xi also admonished his close advisors to “take a firm grip on the internal laws of developments [of issues]; accurately distinguish between events and trends, crises and opportunities, and benefits and harms … and effectively combat risks and take action on the basis of stability” (People’s Daily, December 23, 2023). This instruction tallies with caveats given by Xi throughout the past year, in which he has warned that China faces unprecedented challenges and that the party-state apparatus must ready itself to tackle “black swans and gray rhinos.”
The PRC is currently facing an ongoing financial and banking crisis. This has manifested in runs on banks, initially involving county-level branches, and later municipal- and even provincial-level branches of giant state-owned financial institutions including the so-called Big Four (Industrial and Commercial Bank of China, Bank of China, China Construction Bank, and Agriculture Bank of China) (Bloomberg, November 9, 2023; Asia Times, October 14, 2023). These government-owned banks could come under more pressure in the wake of an executive order issued in late December by US President Joe Biden that threatens to penalize any financial institutions that “facilitate significant transactions relating to Russia’s military industrial base” (White House, December 22, 2023). Chinese banks have boosted their investment in Russia since its invasion of Ukraine in February 2022, and helped the Kremlin to shore up the value of the fast-devaluating ruble (Radio Free Europe, December 22, 2023; The Moscow Times, December 22, 2023). Washington, which has already forbidden US funds and other firms from investing in some sectors in the People’s Republic of China (PRC), could freeze Chinese banks’ access to US financial institutions as well as global mechanisms such as the SWIFT network that powers most international monetary transactions (White House, August 9, 2023).
Chinese social media is rife with speculation that at least one of the Big Four banks cannot honor its promissory notes. In the past few months, branches of the four banks have already placed caps on how much cash people can withdraw, transfer, or exchange for US dollars. A major cause of the liquidity issues at these banks could be their excessive lending to the country’s defaulting real-estate giants. Evergrande, for instance, is burdened with debts totalling 2.4 trillion Renminbi (RMB) ($335 billion). In October, Central Huijin Investment, an arm of China’s sovereign wealth fund, bought tens of millions of shares in the Big Four banks in an apparent move to buttress their solvency (Finance.sina.com, October 12, 2023; Security Times, October 12, 2023). According to the Shanghai Promissory Note Registrar (which tracks such financial instruments), there were more than 200 cases of the banks being unable to honor their notes in the months of July, August, and September (Zhuanlan.Zhihu.com, November 13, 2023).
The Xi leadership has apparently come up with no effective measures to handle beyond printing money—in quantities never revealed to the public—and there is no clear policy solution. The Central Financial Work Conference at the end of October and the Central Economic Work Conference (CEWC) in December gave no new insight into what the party-state apparatus would do to help insolvent banks and overleveraged local-level finance vehicles (CGTN.com, October 31, 2023). Instead, the CEWC saw the Party issue a warning for businesspeople and business journalists not to spread “negative news” about the development of various key sectors of the economy. The Ministry of State Security also issued repeated instructions urging domestic and foreign writers and Internet Key Opinion Leaders (KOLs) to promote a buoyant and optimistic gloss on the economy’s prospects for the coming year (People’s Daily, December 18, 2023; Voice of America, December 14, 2023). In fact, one of the only solid indications from the government that acknowledges the banking crisis is that China’s central bank, the People’s Bank of China, gave instructions last month that restrictions be observed regarding the amount of government loans that could be funnelled to small- and medium-sized banks (Reuters, January 3; BBC Chinese, December 26, 2023).
The government has also been unable to provide details on what it is doing for those millions of citizens who have bought unfinished apartments and homes. Rumors indicate that Xi is making a big push for subsidized housing, which would fit his conviction that the state, rather than the market, should be the final arbiter of the provision of essential socio-economic services for the public (China News Service, December 19, 2023; Xinhua, September 15, 2023). Any details are yet to be released about this ambitious plan, which takes as its inspiration the experience of government-supported housing schemes prevalent before the start of the reform era. For example, there was no indication as to whether citizens who had bought unfinished apartments would be compensated, or how such compensation might occur (Sohu.com, November 8, 2023; 130.com, September 4, 2023).
Xi’s policy preferences continue to tilt away from Deng’s strategy of reform and opening up, and closer to Mao’s penchant for a dirigiste model. His words have sought to reassure the Western world that China is open for business on numerous occasions—including through meeting with leading CEOs of US companies in San Francisco on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in November. However, the actions of this quasi-Maoist supreme leader indicate that he is equally keen on total Party control of the economy and the imperative of preventing the West from “infiltrating” the country. His eulogy of Mao Zedong at the late Chairman’s 130th birthday on December 26, 2023, put it beyond doubt that he wants to reinstitute his predecessor’s anti-market values in order to “attain the unfinished goal” of ushering in “socialism with Chinese characteristics for a new era.” In his long keynote speech on the occasion, Xi clearly put Mao’s policies—which were responsible for the death of up to 40 million Chinese by some estimates—above those of Deng’s strategy of reform and opening (China.news.cn, December 26, 2023). This was reinforced several days later, when a Caixin editorial commemorating the 45th anniversary of the Third Plenum of the 11th Party Congress (widely seen as elevating Deng to the position of paramount leader of the CCP) was censored (China Digital Times, December 25, 2023). These preferences have led to a disastrous outflow of capital from multinationals and wealthy members of China’s middle class, which is likely continue this year. Despite the restrictions imposed on banks, wealthy individuals and families were still able to move an average of $50 billion per month out of the country in 2023 (New York Times Chinese Edition, November 28, 2023).
In his speech at the democratic life meeting, Xi accused former foreign minister Qin Gang and former defense minister General Li Shangfu of “betraying” him. As of now, at least a few dozen senior officers in the Rocket Force and its equipment procurement units have been removed. Unlike in previous purges, however, the wrongdoings of Qin, Li, and the others have not been disclosed. The supreme leader spent his first decade in power getting rid of cadres from rival factions such as the Shanghai Gang and the Communist Youth League Clique. It now seems apparent that he is committed to purging officials formerly deemed as members of his own inchoate Xi Jinping Faction (Voice of America, January 4). If this is the case, a thorough shakeup will be administered within the party, government, and the military in the near future. This will severely hamper the ability of top-echelon government and PLA officials to function effectively, which will negatively impact the country’s direction. While it is unlikely that Xi’s position as “ruler for life” will be threatened by disgruntled fellow princelings such as General Liu Yuan (刘源), son of former state president Liu Shaoqi (Botanwang.com, November 8, 2023), the “unison of thought” among the top leadership and the unquestioned fealty that Xi prizes might be jeopardized. As such, it is difficult to see significant improvements in the coming year for either the PRC’s economy or its relations with key adversaries such as the United States and its allies in Europe and Asia.