Jude Blanchette on the CCP's 2021

This is a transcript of a conversation between Jude Blanchette and Tom Tugendhat, Chair of the China Research Group.

Tom Tugendhat: Welcome to the China Research Group. We’re very lucky to have with us, Jude Blanchette. And Jude, you've written and watched China for more years than I care to mention. And this has been a hell of an interesting year, I'd be very interested in your take, perhaps we can start off with what I think must rank as the most historic moment, which was, of course, the Sixth Plenum and the decision to extend Chairman Xi, how do you read that?

Jude Blanchette: I thought, first of all, thank you, Tom, it's real pleasure to be here. I appreciate the very nice pronunciation of my last name, which I don't get that much on the American side. Agree - extraordinary meeting. And for a number of reasons, just the quick highlights were, of course, first and foremost is we saw a history resolution, which - let's put aside the substance of the history resolution - the fact that Xi Jinping has the bureaucratic and political power to be able to summon that document is in and of itself extraordinary, and tells us about the degree of control he has within the political system.

Second, the substance of the history resolution. It was not in fact, much of a history resolution. It was a campaign brochure for the agenda that Xi Jinping has, starting with the 20th Party Congress and for the next decade or so through the 2035 goal of Chinese socialist modernisation.

And finally, the document indicates, while Mao was uncomfortable calling it a cult of personality, because there are as far as I can tell, no actual cult members. It does, again, show that within the propaganda system, Xi Jinping has been elevated to an extraordinary level, which will fundamentally affect the degree of personalisation of the political system in profound ways.

Tom Tugendhat: So look, I mean, all of these are, could be seen as inside baseball, if you like they could be seen as as the Machiavellian moves within a party apparatus. But they do affect us much more immediately, even here in the United Kingdom, perhaps you could set out how you think this matters, home in China, of course, but also in the wider world.

Jude Blanchette: Xi Jinping has shown himself to be quite an ambitious, bold leader who now can act with relatively few constraints, especially and - this is the same in the United States with the President - foreign policy is often where you have the freest hand. We're already feeling the effects of Xi's fingerprints on Chinese foreign policy. It's much more aggressive. It's much more ambitious. It clearly brooks no dissent from anyone, Lithuania, Australia feeling the brunt of this right now.

We used we used to have a more collective decision making process within the senior party leadership on foreign policy. That didn't ameliorate all signs of aggressive overt behaviour, but it did sort of damp down on those. We're in a new period now, where increasingly, the Chinese state will reflect the priorities and behaviour of Xi Jinping's demands.

Tom Tugendhat: Well you say that, and we've seen various elements where the challenge has come out, and you touched on it just now, so I was wondering if you'd talk a little bit more about it. Foreign Minister Landsbergis in Lithuania has been extremely courageous, I'd say in standing up for doing his rights to associate with countries around the world and different jurisdictions, and the relationship that they have with Taiwan. They've come under enormous amounts of pressure by the Chinese state, and many other countries in Europe and around the world have experienced, so-called wolf warrior diplomacy. How do you see that going forward? And how much of that is Xi's influence? And how much is of that is what the Russians would call 'presumed intent': the interpretation of the leaders wishes.

Jude Blanchette: It's hard for me to see the wolf warrior, which I is, sometimes we need to define what we mean on that. But if basically, if what we mean is a much more acerbic style of foreign policy behaviour with incentives for diplomats within the system to adopt a much more aggressive posture towards countries - and I think implement the line that Yang Jiechi said in 2011 - there are big countries and small countries, and you need to know the difference. I can't see that trend diminishing over time.

What I will say though, it's leading to some very Pyrrhic victories for Beijing. And I think there's a mathematical equation that is emerging. There's an inverse relationship with the amount of power Xi Jinping has over foreign policy and the amount of strategic winds that Beijing is having. I don't see that mathematical formula eroding anytime soon, you know, Deng Xiaoping said in the early 1990s that China needs to observe the situation calmly.

I don't see Xi Jinping doing this. So much like one should not expect a third term Trump presidency to be much different from a second term Trump presidency, a third and fourth administration of Xi Jinping, I think, will behave much like it does now. But - and I'll end on this - very critically, what we're seeing is, although Xi Jinping is in power, he's not necessarily in control of everything. And I think the wider community has a strategic vote here to shape China's choices on the international stage. And the more China behaves as it has in Hong Kong and against Lithuania, against Canada against Australia, the more options it takes off the table for itself.

Tom Tugendhat: So that's an interesting perspective that while he's in control, he doesn't have the total control of the entire party, let alone less than the whole people. I mean, you'll have seen the publication of Desmond Shum's book this year, Red Roulette. And you'll have read his own tale of inside the party system, the challenges that it brings the corruption and indeed the divergence of views. How do you see that in Xi's China? Because he's cracked down on quite a lot of this. Are there still separate factions, are there still divisions within the administration or within the party?

Jude Blanchette: This is a really hard question to suss accurately, because this is one of those, you know, lots of known unknowns and unknown unknowns that we just don't have glimpses into. I think, you know, axiomatically, it's true that there is a lot of diversity of opinion within the party. And I think what we know, and Tom, you'll know this as well, from conversations, there's a lot of frustration with the hardness of the direction that Xi Jinping is pushing. But, and I think this is where increasingly I come down on it, like Stalin after the purges, there's a lot of frustration with the degree the country's going, but there ain't much you can do about it.

And I should say, after the 20th Party Congress, we're going to see one of the most extraordinary turnovers in personnel in 50, or 60 years, which will redound to the power and control Xi Jinping has over the personnel system, of all the critical positions. So I would say, my heuristic for this is, there's a huge degree of daylight between grumbling and the ability to actively organise opposition to Xi Jinping, I think this is not, this isn't a droid we should be looking for any longer. He's large and in charge and our great intellectual challenges starting at the end of next year, and through the entire five year period of the 20th Party Congress. What does the Xi Jinping foreign policy look like? What are going to be his risk tolerances? You know, what shifts are we going to see in his behaviour after he gets that third term?

Tom Tugendhat: Look, I think these are all these are all questions on foreign policy that also build on domestic policy. I mean, you have written widely in CSIS, and, and elsewhere, actually, about the change inside China, not just the tech crackdown, which I'd like to come to in a moment, but also the change in the way education has been pursued and the banning of private education, which for many people means the banning on the learning of English actually, and the opportunity to rise in a different way. Could you perhaps talk about how this is seen within China, because I've heard quietly and from not public sources, that this is not playing at all well amongst the red princes in the new aristocracy.

Jude Blanchette: And more importantly, I'd say, Tom, you know, we've had an entire generation of Chinese who have grown up being able to consume the fruits of globalised modernity. And that includes, by the way, consuming cultural fruits that are complex, heterodox and have international components to them. I don't think they want to eat the dry sawdust of socialist education. But unfortunately, that's what we're seeing in terms of a curriculum. That's what we're seeing in terms of some of these cultural crackdowns on content in video games. We're seeing more and more movies, of course, that are taking on 'patriotic themes'.

I understand the playbook from Xi Jinping. But from from, I think what we, you know, conversations we're having, we know that this is deeply unpopular, in terms of just the lived experience of many and most Chinese. So it's clear now that she has decided that the cultural space is not outside the domain of state oversight. And indeed, may and may be a critical input to national power. But that is going to rub up against the expectations of a large number of Chinese who don't want to go back to patriotic education movements of the early 90s or the 60s.

Tom Tugendhat: Well, it's certainly true that the patriotic movement of the 1960s and the movies that came out of the Mao household in its various different guises, shaped a hell of a lot of the generations that followed. What's interesting now, of course, is that the generation that is currently growing up, and that it's really coming into coming into its own, was shaped by the opportunities that you spoke about - including the influence of people like Jack Ma.

Now quite extraordinarily, we've just seen one of the richest people in the world, possibly the richest person in China, possibly one of the most powerful people in China, at the very least under house arrest - and possibly more - for a number of days before he came out into the public and effectively apologised for his heterodox thinking. How do you see China's tech centre and tech expertise and the various different elements within it playing in the international environment as the countdown continues?

“Privately, many Chinese companies are extraordinarily frustrated with the degree of political control because for the good Chinese companies out there - of which there are many - life in the international environment is much harder for them. ”

Jude Blanchette: I mean, this is a remarkable set of developments that I think like, you know, Zhou Enlai comments that it's too early to evaluate the success of the French Revolution. I don't think we're going to know what the full implications of this are. But just a few preliminary thoughts.

Number one, domestically, the big question is, Xi Jinping wants to steer capital resources and talent towards his own preferred definition of technology. And he's using political interventions, regulatory campaigns, the propaganda apparatus to do so. Two years ago, we would have held up Jack Ma as actually one of China's biggest soft power exports, and for a whole generation of would-be tech entrepreneurs within China, one of the great reasons that they want to get into this space is to emulate the Pony Mas, the Jack Mas. There clearly is going to be some collateral damage for now politicising the role of these figures and and saying that you don't want to rise too high. But you know, like a nail, you know, in the party being the hammer. So I think there's clearly damage. The deep question, which I'm not sure we will know for some time is, what is the functional impact on China's innovative capacity with this degree of political intervention?

It's clearly non-zero. There is clearly an impact. Xi's gamble is though, he doesn't consider consumer facing technology platforms to be technology. He has a definition that includes the hard tech that is baked into plans like Made in China 2025.

In the international space, and you have all been doing fantastic work on this, we always knew that there was a the idea of a private Chinese company was difficult to prove, given the number of interventions soft and hard that the party has. We now have yet another reason to suspect the ability of Chinese companies to act autonomously, when we see that because of a speech that a chairman of a company gives, which is completely legal, as far as I can tell, that an IPO will be withdrawn from them.

But you're now seeing that Didi is going to delist from the New York Stock Exchange clearly under political pressure, and at a time where the Ministry of State Security is actively in its offices undergoing an investigation run by SAMR. Privately, many Chinese companies are extraordinarily frustrated with the degree of political control because for the good Chinese companies out there - of which there are many - life in the international environment is much harder for them. It's harder for them to raise capital, it's harder for them to gain, you know, access technology through legal means overseas. But I see this as a one way ratchet. Xi Jinping wants more control over these companies so that they're they're hewing closer to the national strategy, but that's going to come with a great cost.

Tom Tugendhat: So can I push you on this, because what you're talking about effectively is a real change to the Chairman Xi maxim of 'common prosperity'. It seems to be undermining the foundations of the prosperity, of the of the growth that we've seen over certainly over the last five, and in different ways looking at, over the last 10 or 15 years. How do you see this inability to or rather increased difficulty to raise money abroad to get foreign investment, feeding into the incidence, like, for example, the Evergrande crisis and the and the property issues and the demographic challenges that really do set an agenda for 2022. They're going to make it very, very difficult for many Chinese businesses and individuals.

Jude Blanchette: I think it's going to be very hard for individual, individual Chinese companies, but from our perspective, and looking at the aggregate, China is awash with domestic capital. It is not lacking for money. And by the way, if we want to tell the full story, it's harder, harder for Chinese companies overseas, much better for foreign financial service companies who want to be going into China.

So I think if we're looking at the balance sheet here, yes, the Alibabas of the world are going to find it harder internationally. But I think from Xi Jinping perspective, you know, the net, the net flows of capital are positive to China. And if you look at one of the reasons they're pushing, opening a financial services so aggressively is they want to build out big, deep liquid domestic capital markets. And there's a long line of companies that are willing to to line up.

So that's why I think we're saying the same thing as some of the tensions emerging. I think it's really difficult for me to assess the severity of these, because many of the downsides of Xi's actions are actually offset by some of the upsides, and I think from their perspective, domestically, China is not lacking for money, they have a massive market of 1.4 billion people, which is a continent to many of us. So I think their perspective is, and this is what underlies strategies like dual circulation, we've got enough here domestically to work with, we just need to restructure it such that we're making better allocation of resources along strategic lines. And we're going to have selective opening to the world. A very good leader in The Economist in the most recent edition on selective decoupling, saying, it's not that China's decoupling from the world, they're just trying to shift the balance where the outside world is more reliant on China and China is less reliant on the outside world.

Tom Tugendhat: Well, this is one of those areas where there's a potential challenge for the UK and indeed, for the US, in what we've seen over the last 20 years is very often China importing businesses who come and invest, set up, before they are then imitated by Chinese rivals. Is the same gonna happen to Goldman and JP Morgan and various other finance houses? Are they are we going to see the growth of professional services in China? And what does that mean, for service-based economies like the UK or indeed, the Wall Street banks who are currently stepping so deeply into the Chinese waters?

Jude Blanchette: I think the answer is quite unequivocally, yes, this is the this is what will happen. But I think most smart financial services firms know that. What they understand though, is, you know, for example, you know, if China wants to restructure its real estate sector, it's going to need other investment mechanisms and vehicles for Chinese people to save and invest and China doesn't have a mature mutual fund industry. So there's five, six, seven years of really probably gangbusters growth.

So I think financial services firms should know that, yes, China wants to build up its own national champions in the domestic space. But this is a liminal, you know, transitory period, you've probably got five or six years of great growth, and, and then you might want to start, you know, looking for the exits. But as you know, companies aren't designed to look much longer than a few quarters. So, you know, frankly, I think we would have a hard time convincing them just on sound business reasons that this isn't the right strategy, basically flooding into the Chinese domestic market. It may have strategic implications that are worrying, but that's not what most companies are thinking about.

Tom Tugendhat: Well, it's certainly true that some companies have found it very difficult not to exit the Chinese market, but certainly to exit with any capital has been very difficult. And so whereas a manufacturer may find that that lowers the cost of manufacturing, for their global output for a finance firm, where, frankly, you know, the cost of manufacturing your financial products is not high. The challenge is how do you repatriate any of that income? That may be something that the the finance houses find hardest to achieve?

Jude Blanchette: Yeah, what I what I would say though, I think that, although that kind of the market space looks quite positive for financial services firms, in a pure sense, obviously, this is going to be a really rocky road ahead, because they're going to be navigating tensions. As we see the bilateral relationship between China and the United States deteriorate. And indeed, you know, separate from US-China relations, financial services firms, just navigating things like the National Security Law in Hong Kong, you know, you may want to avoid political risks, but political risk ain't gonna avoid you, you know, in Xi Jinping is regulatory environment.

Tom Tugendhat: Well, it's certainly in the pressures on many of these outfits today is not just of course, on regulation, or people like me, but actually their own staff, their own employees who read ESG and feel that the social and governance elements of the of the deal are often not addressed quite as fully as the environmental. How do you see those challenges coming to a China which doesn't seem to be responding on the societal and governance questions?

Jude Blanchette: The strategy now is you you fully implement ESG strategies outside of China, and you try to ignore them domestically in China, because on many of the big issues, it's just impossible to say you have a global ESG strategy that incorporates China. And so I think many prefer to avoid these and punt on this because it raises some extraordinarily difficult questions around how robust your ESG practices are.

Tom Tugendhat: So let's have a quick look ahead, as we as we round this off, at the 20th Party Congress that is coming up next year. How much does Xi actually control and how much doesn't he control. Where as his gaps, as it were? And secondly, if I may, where are the black boxes for you if you see what I mean? This is a very different China today to the one which allowed free travel for academics and researchers 10-15 years ago. How are you finding dealing with it?

“I think we’re in a moment of acute epistemological crisis, in terms of how we understand China.”

Jude Blanchette: I'll answer the second one first because it may give people a better sense of how much they should disregard my answer to your question about about Xi Jinping's level of power. I mean, it's extraordinary, very basic questions about the functioning and operations of China's policy process, in a real meaningful sense, are hard to suss out.

To go back to Desmond Shum's book, what that reminded me so well is that we can understand the the formal mechanisms of power from afar, but as you know, I'm sure Tom, you know, being an MP. I couldn't understand UK politics just by reading minutes coming out of a Prime Minister's Questions. It's the sidebar conversations, it's the relations between members. You know, it's all the political manoeuvring around the scenes. It's, it's how you set and define agendas for meetings. That's where power is really struggled over and exercised. And Desmond's book reminds us of that in China, you know, I can read the People's Daily, I can read a speech by Xi Jinping. But that's not going to tell me much about about really how power is being wielded and where challenges to power are. So I think we're in a moment of acute epistemological crisis, in terms of how we understand China.

And for all of our listeners in the Communist Party, you know, today, I would say to them, I understand why opacity is necessary for levels of political correctness. But it is going to lead to situations of dangerous miscalculations about China. Taiwan is a great example of this. I don't think China's planning on invading Taiwan tomorrow, but I can sure understand why some people do, because we don't know what Xi Jinping thinks about timelines and, and risks. And so we're in this position of having to guess on these really critical issues.

Very quickly on your your good first question, I can see two really big tensions here, that to me, we should be looking at, as we see Xi Jinping gain more control. Number one is, he has extraordinary control over senior leadership. But China is a vast, vast bureaucracy, encompassing a vast, vast territory, the old Chinese saying of 'the sky is high, the emperor is far away', it's still true. And there's going to be a big struggle between the level of ambition that Xi Jinping has for his domestic agenda, and the frustration he's going to feel and indeed, lower level officials will only become more important to Xi Jinping as he tries to push this agenda.

And then the second tension, I would say or gap is, I think there's going to be a division between what's good for Xi Jinping and what's good for the party. Succession is a great example of this. For decades, the party has been moving for its own self preservation to normalise the transition of power because it understood how destabilising it could be for an authoritarian political system. To deinstitutionalise and denormalise this, Xi Jinping is saying, I don't care about any of that I want to stay in power. We can think of other areas where the personalisation of the dictatorship is good for Xi Jinping. But it potentially comes at the expense of the resiliency of the Communist Party. That sort of tension between Xi and the Party, I think will become more pronounced. And indeed, remember on the apogee of Mao Zedong's power in the 1960s, he went after the party. I mean, the party was really gutted as a functional institution. That's extreme. But I think at least that gives an example of how personalisation of power can come at the expense of Leninist discipline and organization, which has been the secret sauce of the party.

Tom Tugendhat: Well, look, I have to say that has been the most fantastic insight into the year we've just seen and the year ahead, and I think we can all see why Jude does so well as the Freeman Chair of China Studies at CSIS, and as a friend of the China Research Group. Jude, thank you very much. Happy Christmas.

Jude Blanchette: Thank you, Tom. It's an honour. Merry Christmas as well.