China’s zero-Covid catastrophe threatens Xi’s dream of becoming a new emperor

 Xi Jingping - Li Xueren/ Xinhua
Xi Jingping - Li Xueren/ Xinhua

Even at the age of 91, George Soros has patience. At the World Economic Forum in Davos, Switzerland, the billionaire investor and philanthropist waited in the wings, in a dimly lit room normally used to store ski equipment, before delivering his grim message. Guests at Soros’s dinner last month were allowed to finish their elegant starters before he emerged to tell them we may be on the brink of a Third World War.

One crucial member of his intended audience was far away, however.

Xi Jinping, General Secretary of the Chinese Communist Party (CCP), Chairman of the Central Military Commission and President of the People's Republic of China, gave Davos a miss this year. The 68-year-old stayed at home - as he has since a state visit to Myanmar on January 17, 2020 - to oversee China’s battle to deliver “zero Covid”.

Soros, an avowed anti-communist since escaping Hungary in 1947, claimed to have seen through Xi’s dedication to his eradication of a disease that his country has been accused of creating - whether by negligence or design.

“He never told the Chinese people that they had been inoculated with a vaccine that was designed for the original Wuhan variant and offers very little protection against new variants,” said Soros.

“Xi can’t afford to come clean because he is at a very delicate moment in his career. His second term in office expires in the fall of 2022 and he wants to be appointed to an unprecedented third term, eventually making him ruler for life.

“Everything must be subordinated to this goal.”

Yet this very determination to cling on at all costs could be Xi’s undoing, he warned, as lockdowns devastate the economy and embarrass China on the world stage.

“Contrary to general expectations, Xi Jinping may not get his coveted third term because of the mistakes he has made,” he says.

“But even if he does, the Politburo may not give him a free hand to select the members of the next Politburo. That would greatly reduce his power and influence and make it less likely that he will become ruler for life.”

A shaky grip on power?

The next six months are crunch time. Xi is expected to be confirmed for a third five-year term at the 20th National Congress of the CCP in Beijing this November - the next step in his dream of becoming a new emperor.

He has already gone further than many of his predecessors to cement himself at the heart of Chinese politics. ‘Xi Jinping Thought’, derived from the leader’s writings and speeches, have been integrated into the CCP’s constitution for half a decade.

“This Party Congress gives Xi a chance to set himself a further stage up towards the Deng [Xiaoping, the Chinese revolutionary leader] and the Mao [Zedong] level,” says Rory Green, a China analyst at consultancy TS Lombard.

But he has not had the victory lap he might have hoped for. Since the 19th Congress in 2017 – an event which might have introduced Xi’s successor to the world, yet made clear no such person exists – he has had a dire run.

The horrors in Xinjiang and the fate of the Uyghur people came to the world’s full attention despite Beijing’s best efforts to hide and obfuscate its repression.

This undated handout image released by The Victims of Communism Memorial Foundation on May 24, 2022, shows detainees guarded by police as they stand in line apparently reciting or singing at the Tekes County Detention Centre in the Xinjiang Region of western China - AFP
This undated handout image released by The Victims of Communism Memorial Foundation on May 24, 2022, shows detainees guarded by police as they stand in line apparently reciting or singing at the Tekes County Detention Centre in the Xinjiang Region of western China - AFP

Separately, Covid ravaged first Wuhan and then the world. The fact Xi has not left China since the opening weeks of 2020 is a possible sign of how vulnerable he feels to domestic challenges.

Economically, he has hobbled China’s hitherto-unstoppable tech giants, which had seemed on their way to worldwide domination. Hong Kong’s position as a freewheeling financial centre has been trashed as the city is bent to the Communist Party’s will. And now the country is trapped in a nightmare cycle of lockdowns, undermining its industrial base, consumer economy and status as the starting point of the world’s supply chains.

So could Soros be right – might Xi’s grip on power be shakier than it looks, as the country’s vaunted stability comes under threat?

Much of the Communist party’s perceived legitimacy, at least in the eyes of international observers, comes from its multi-decade success in taking the ruined economy under Mao and turning into a global giant. Today, that record looks shaky.

It might have covered up Covid’s spread at first, but once it acted, Beijing was widely thought to have done an effective, if brutal, job in 2020.

Output plunged early in the year, but it was the fastest big economy to recover thanks to rapidly stamping on outbreaks and stimulating growth vigorously.

Now, however, low vaccination rates, particularly among the vulnerable elderly, and a relatively poorly performing jab have left the country exposed, while the political insistence on zero tolerance has translated into repeated savage crackdowns.

While ordinary people are most exposed to the crushing policies, they do not have a say in Xi’s future. Covid rules just so happen to make it easier than ever to control citizens’ movements and prevent protests.

“This is not an electoral process in any way, shape or form, in the sense that a Western liberal democracy would understand it,” says Michael Every, global strategist at Rabobank.

“It’s an internecine conflict between different factions and ideologies, and different power bases attempting to try and emerge with a winner.”

Many of those in the upper echelons of the Party owe their positions to Xi, and those who want to climb higher must follow his wishes.

Steve Tsang, professor at SOAS, says Xi’s almost 10 years at the top have given him time to control the system.

“He is in control of the military, the secret police, the regular police, the supplementary police, the Communist Party apparatus and the government,” he says. That includes replacing all of the generals whose loyalty may have been the least bit suspect.

“He is not a sloucher - he is a hands-on micromanager. The idea of someone within that being able to organise a plot against him without a real cataclysmic catastrophe in China is very unlikely.”

At the same time, Beijing’s zero Covid policy - successful or not - gives Xi more power over his underlings: “The dynamic zero Covid policy as conceived by Xi Jinping is by definition the most amazing, fantastic, correct policy ever, and problems only happened because of people who were implementing them not doing it right,” says Prof Tsang, explaining the Party mindset and the intensity of the leader’s hold over the country’s state-controlled media.

'A street fighter within the party'

With a highly political background himself, Xi has suffered at the hands of the Communist Party, much as his own opponents have in turn.

His father was considered a revolutionary hero before he was purged, like many others under Mao - exiled to work in a tractor factory and then languishing in jail in the bloody Cultural Revolution.

Xi Zhongxun - Pictures from History/Universal Images Group Editorial
Xi Zhongxun - Pictures from History/Universal Images Group Editorial

As a teenager, Xi was sent to work in the fields and, when he fled, suffered six months of re-education. But, eventually overcoming the stain of his father’s name, he was allowed to join the party and begin his rise.

Now, in his tenth year at the helm of the world’s second biggest economy, he is more than just a leader: he is the driving force within China’s politics.

“He's a genuine, genuine believer in the ideology,” says Rabobank’s Every. “The West have such difficulty getting their head around that.”

Kerry Brown, associate fellow of Chatham House’s Asia-Pacific Programme and author of ‘Xi: A Study In Power’, says: “he is the son of an elite, and almost all the elite went through problems under Mao Zedong, so that part of his biography is not so striking.”

“He is an effective politician - people like to rail and say what a dictator and an autocrat he is, but clearly this is an incredibly competitive system with a lot of people going for these positions and very, very few coming through,” he says, adding that Xi’s core motivation is the restoration of China’s status on the world stage.

“He is someone who has a sense of destiny, entitlement, because of his elite background.”

An irresistible rise through the CCP shows Xi’s political nous.

“He's definitely a street fighter within the party,” says TS Lombard’s Green. “He is a battler and a very, very good one.”

Becoming a scapegoat for economic struggles threatens to puncture that reputation, however.

“If you don't have a stable social environment, there will definitely be some political implications,” says Raymond Yeung, Greater China chief economist at Australian bank ANZ.

Those economic struggles are significant, and mark a sudden change to the country’s progress. For decades an engine of the global economy, China now poses a drag on the rest of the world because of his policies.

Shanghai is only just beginning to reopen from a particularly severe two-month lockdown which was imposed so swiftly that residents feared starvation from lack of supplies.

In this file photo taken on March 28, 2022, a transit officer wearing protective gear controls access to a tunnel in the direction of the Pudong district in Shanghai under lockdown as a measure against the Covid-19 coronavirus. - Protests bubbling in big cities, dismal economic indicators and rampant discontent online -- China's zero-Covid policy is morphing from a propaganda victory to a political liability for President Xi Jinping - HECTOR RETAMAL/ AFP
In this file photo taken on March 28, 2022, a transit officer wearing protective gear controls access to a tunnel in the direction of the Pudong district in Shanghai under lockdown as a measure against the Covid-19 coronavirus. - Protests bubbling in big cities, dismal economic indicators and rampant discontent online -- China's zero-Covid policy is morphing from a propaganda victory to a political liability for President Xi Jinping - HECTOR RETAMAL/ AFP

Economic activity was flattened. Businesses deemed essential could set up a “closed loop” under which workers could not meet anyone from outside their office or factory, sleeping on the premises to commit themselves wholly to an uninfected life of productivity.

Even they struggled to obtain supplies or ship products and risked infection when they did.

Goldman Sachs called China’s economy in April “exceedingly weak” with plunging housing construction and sales, stumbling lending and an almost 50pc drop in car production all indicating that GDP was flung into reverse in the second quarter by the latest lockdowns.

The investment bank expects that, even if Covid is now under control and Government stimulus plans work well, the economy will only grow by 4pc this year - well below Beijing’s 5.5pc target. After 2020, that would be the worst performance since 1990.

Analysts at Pantheon Macroeconomics expect the true rate of growth, as opposed to that reported via the opaque statistics of China’s state, to be in the region of 1.6pc this year.

The one-party state’s efforts to clamber out of this economic hole tend to rely on more spending, ordering banks to lend more and directing regional governments to spend heavily on infrastructure.

Economist Iris Pang at ING is sceptical this will work, leaving the economy struggling to get back to its pre-omicron size.

“The central government targets a positive GDP growth in the second quarter, which should rely heavily on infrastructure investments,” she says. “Can local government achieve this? I doubt it.”

The challenge of Common Prosperity

The labour market is another potential source of pain. Unemployment across the country’s 31 largest cities rose to 6.7pc in April, up from 6pc in March, as lockdowns rippled through the economy and slowed activity – taking joblessness to the highest level since early 2020.

Joblessness among those aged 16 to 24 rose to 18.2pc, the highest figure ever recorded according to official figures. Xi’s recent crackdowns on tech and real estate – two key engines of growth for the Chinese economy – have led to sharp decreases in job openings across both sectors. Many young Chinese people work in e-commerce, which is booming globally but has drawn recent disapproval from Beijing.

In the West, such an economic backdrop could prompt unrest. In China, that appears functionally impossible because of the tight control the CCP has over the population. Yet the economic damage being dealt could have long-lasting consequences for Beijing.

“This is the group of people that should be supportive to mortgage or housing demand [in the future],” says ANZ’s Yeung. “If they don't get enough for the downpayment on a future mortgage, there will be macro implications for the economy.”

With nearly 11m graduates poised to enter the jobs market this year, the pressure could soon grow more intense, tipping youth unemployment to 20pc or higher. There is a danger of further waves down the line: as the pandemic raged, the government pushed students to continue their studies rather than enter the world of work.

Upon graduation they are sure to meet tough competition for roles, while many of the openings emerging are in blue-collar factory and retail jobs that hold little appeal for younger people.

“People feel employment, people do not feel GDP,” adds Yeung. “The People's Republic of China needs to think about what people are feeling.”

It’s a challenge for Xi, who has placed a push towards ‘Common Prosperity’ - policies that seek to narrow the country’s wealth gap - at the heart of his political programme.

Common Prosperity underpins recent Chinese moves against tech businesses and the Shanghai elites, for instance, which can be framed as part of an effort to direct the country’s staggering wealth creation towards the middle and lower classes.

Xi appears convinced that the short term pain of such shifts is worth the longer term gains even as it causes whiplash for Western businesses and investors struggling to keep up with China’s blend of economics and politics.

Turning economic tide

After the first lockdowns, China and Xi benefitted, if anything, from the carnage engulfing the globe.

The Asian superpower seemed a leader in the recovery and offered apparently vital supplies to other nations, not least the personal protective equipment such as facemasks which were in short supply elsewhere.

Families across the rich world spent long months locked at home but were flush with cash from furlough schemes or government handouts, leaving them keen to buy toys for the kids, kit for home improvements or laptops to work from home. Much of that spare cash would have gone straight to China in its role as the ‘workshop of the world’.

Now, however, China’s own lockdowns serve to undermine that position in a threat not only to the country’s short-term recovery but its entire economic model.

China’s economic rise, and the financial and political clout it brought, was based on being both cheap and reliable.

Anyone who wanted anything manufactured could go to China and find what they needed, the source of any supply chain.

Now it is neither. Costs were already rising in the years before Covid as the country ran short on the ultra-cheap labour which fuelled its boom, and the government sought to move away from a reliance solely on low-cost production.

And reliability has gone out of the window with the Middle Kingdom now more likely to be associated with chaotic and disrupted supply chains than the hyper-efficient deliveries required for modern “just in time” manufacturing.

Customers live with the threat of an instant and insurmountable lockdown being imposed on the factories making goods for them, and risk months of expensive delays as container ships are stuck outside ports or lorries sent on lengthy alternative routes to avoid Covid hotspots.

Apple was perhaps the greatest advertisement for China’s model of globalisation, earning its place as the world’s most valuable company on the back of Chinese manufacture of its California-designed gadgets.

Yet even the iPhone giant is reported to be looking at moving parts of its operation out of the country. In April, Apple said Covid disruptions and supply chain problems will cost it as much as $8bn of revenues this quarter.

Asked about supply chains at the time, Tim Cook, the company’s chief executive, stressed its suppliers are “truly global… the products are made everywhere, and we do a lot in the US. We'll probably be doing even more here as more chips are produced here.”

When President, Donald Trump sought to pull more manufacturing back to the US - a vision now getting an unexpected boost as Xi makes America’s trans-Pacific rival both an unpalatable and inconvenient place to do business.

A hollow opposition

It’s still not clear what shape China will be in by the time of its National Congress. Behind the lockdowns and crackdowns is a furious game of political musical chairs, as officials manoeuvre for a favourable position in the next government reshuffle.

Analysts see little chance Xi will fail to secure a further half-decade at the helm, though there could be indications that he has lost ground behind the scenes.

It is not that he is without rivals. There are other power bases built around processes of allegiance and patronage, particularly the ‘Shanghai clique’ of Jiang Zemin, a former general secretary of the Communist Party. Some pundits have suggested Xi may face a challenge from premier Li Keqiang, who has been outspoken on China’s economic challenges.

But Xi’s powerbase is immense: he has the loyalty of the military and controls the media and state security apparatus. Li has no such muscle behind him, and 95-year-old Jiang’s empire has eroded under Xi’s leadership.

This file photo taken on July 22, 2019 Chinese President Xi Jinping (C) walking past a military honour guard during a diplomatic visit by Saudi Arabia outside the Great Hall of the People in Beijing. - Xi warned on November 11, 2021 - GREG BAKER/ AFP
This file photo taken on July 22, 2019 Chinese President Xi Jinping (C) walking past a military honour guard during a diplomatic visit by Saudi Arabia outside the Great Hall of the People in Beijing. - Xi warned on November 11, 2021 - GREG BAKER/ AFP

“There’s no important force or individual leader at the top level of Chinese politics that is powerful enough to challenge Xi Jinping,” says Cheng Li, director of the John L. Thornton China Center at Brookings, the Washington, DC-based think tank.

“Now of course the dynamic may change… but not now. Maybe five or 10 years down the road.”

Prof Tsang judges it unlikely enough rivals can unite to stand in Xi’s way, given his willingness to use repression as a tool of his personal politics at times when he cannot get what he wants through popularity.

“People misunderstand the Communist Party in thinking it will do it [repression] to its opponents - actually, the Party historically has always been harsher to people within the Communist Party who disagree with the leadership. Those are called 'traitors',” he says.

It means the other 24 members of the Politburo beyond Xi, and the six fellow members of its standing committee, are unlikely to put their heads above the parapet.

“Unless they could actually almost unite, it would be very very difficult to take Xi Jinping down. If you do not have a clear, absolute majority and you try to do something and you fail, imagine what may happen to you and your family?” says Tsang.

CCP watchers will be looking for small signals that Xi’s faction has compromised.

Green says there may be “signs of a relative weakening of power” in the composition of the Politburo Standing Committee, and in the Party Congress Political Report, a five-yearly document that “sets the tone” for the party.

“If this crisis was happening in 2012, Xi would be under a great deal more pressure,” says Green. “But at the moment, because he has decimated a lot of these factions and existing patronage networks… it's going to be difficult for them to really ramp up pressure.”

Meanwhile, Every argues that this hollow opposition offers Xi a path to continued leadership despite the country’s economic issues.

“It doesn't mean in any way that he's now lost his opportunity to take up that effective position for life.”