The Necessary War

President Trump’s Trade War Is Rattling Chinese Dictators

By Keith Bradsher and Steven Lee Myers

Xi Jinping in Hong Kong last year. China’s leaders have argued that they can outlast President Trump in a trade standoff.

BEIJING — China’s leaders have sought to project confidence in the face of President Trump’s tariffs and trade threats. 

But as it becomes clear that a protracted trade war with the United States may be unavoidable, there are growing signs of unease inside the Communist political establishment.
In recent days, officials from the Commerce Ministry, the police and other agencies have summoned exporters to ask about plans to lay off workers or shift supply chains to other countries.
With stocks slumping into bear territory and the currency dropping 9 percent against the dollar since mid-April, censors have been deleting a torrent of criticism online, some of it directed at Xi Jinping’s leadership.
State news outlets, by contrast, have sought to promote the official line, with the authorities restricting the use of the phrase “trade war.”

A Chinese investor at a brokerage house in Beijing on Thursday. Worry over the economy has led to a torrent of criticism online, some of it directed at Xi’s leadership.

Still, policy disputes over how to bolster the economy have at times spilled into the open, with the state media sometimes coming under attack for boasting about China’s economic strengths.
If the trade war escalates — and President Trump has shown no sign of backing down — some worry that the public’s faith in the economy could be shaken, exposing the nation to much more serious problems than a drop in exports. 

New economic data on Tuesday showed slower growth in investment and consumer spending, and there are fears that the financial crisis in Turkey could spread.
China’s leaders have argued that they can outlast President Trump in a trade standoff. 

Their authoritarian system can stifle dissent and quickly redirect resources, and they expect Washington to be gridlocked and come under pressure from voters feeling the pain of trade disruptions.
But the Communist Party is vulnerable in its own way. 

It needs growth to justify its monopoly on power and is obsessed with preventing social instability. 

Xi’s strongman grip may be hindering effective policymaking, as officials fail to pass on bad news, defer decisions to him and rigidly carry out his orders, for better or worse.

A woman packaging bicycle rims for export in Hangzhou in June. Even if the United States imposes tariffs on all Chinese goods, Chinese believe the country might suffer only a 1 percent drop of output from lost exports.

Beijing has already had to shift course once, edging away from threats to match American tariffs dollar for dollar. 

Confronting the possibility that the tariffs may remain for months or years and that Chinese access to the American market could tighten further, Xi does not appear to have settled on a strategy for limiting the damage or for persuading President Trump to negotiate a deal.
Some inside the government have argued China should be more aggressive and put President Trump on the defensive, while others have proposed concessions to address American complaints, said Chen Dingding, a professor of international relations at Jinan University in the southern city of Guangzhou.
He said the debate was “a healthy development” because it would “inform the public and make policymakers better.”
Others said it reflects indecision or political weakness on the part of Xi, who seemed unassailable in March when the Communist leadership abolished the presidential term limit.
Containers at the Yangshan Deep Water Port in Shanghai in April. The worst case for China is that the trade war undermines economic confidence.

“All of this coming together suggests Xi’s grip on authority has been loosened,” said Willy Wo-lap Lam, a longtime observer of Chinese politics at the Chinese University of Hong Kong. 

“He’s unable to fill his function as the final arbiter who settles differences among his closest advisers.”
It is unlikely Xi’s position is in any jeopardy. 

But the trade dispute, along with a scandal over tainted vaccines and protests over failed investments, have already emboldened some critics of his sweeping centralization of power.
“The recent Sino-American trade war has, in particular, revealed underlying weaknesses and the soft underbelly of the system,” wrote Xu Zhangrun, a law professor at Tsinghua University in Beijing, in a denunciation of Xi’s hard-line policies that was shared widely despite censorship. 

“All of this has only served to exacerbate a widespread sense of insecurity in society at large.”
In public, the leadership has argued that China can weather the trade war with ease. 

A widely circulated study by economists at Tsinghua University estimated that the tariffs imposed so far and those threatened would trim only 0.3 percentage points from China’s growth rate, which has been running at a robust 6.7 percent.

Visitors at an exhibition in Beijing last year highlighting China’s achievements under five years of Xi’s leadership.

Even so, the government last month requested that dozens of research institutes and universities each submit analyses on how different regions and industrial sectors would be affected if the trade war worsened and what the impact would be on unemployment and the financial markets.
China sold roughly $500 billion worth of goods to the United States last year, accounting for nearly a quarter of its total exports and about 4 percent of national economic production.
If the United States imposes tariffs on all Chinese goods, even pessimistic Chinese economists contend the country might suffer only a 1 percent drop of output from lost exports. 

China so dominates some industries, such as smartphone manufacturing, that tariffs may not do much damage. 

In other industries, China might lose business to rivals like South Korea but find opportunities to export its goods to other markets.
While factories that make price-sensitive electronics and other electrical products are already beginning to lose orders, China is so competitive across so many sectors that exports to the United States are actually still rising despite the relatively limited tariffs that have taken effect.

Men working near residential apartment blocks under construction on the outskirts of Beijing last year. China’s housing market teeters on a mountain of debt, and low-interest loans from state banks have built overcapacity in many industries.

The worst case for China, however, is that the trade war undermines economic confidence. 

The nation’s housing market teeters on a mountain of debt, and low-interest loans from state banks have built overcapacity in many industries. 

The worry is that prolonged trade tensions could cause money to rush out of China despite currency controls and prompt much bigger financial and economic troubles.
Censors have quashed discussion of such scenarios. 

There also has been almost no news coverage of the substance of American complaints about China’s trade practices. 

Instead, the state news media have been ordered to stop mentioning Made in China 2025, the industrial plan to transform the country into a high-tech superpower that Washington has criticized as unfair and predatory.
To the extent there has been finger-pointing in the establishment, the focus appears to be less on China’s trade practices than on its propaganda message. 

Some analysts have argued that the trade war could have been avoided if Beijing had refrained from triumphalist rhetoric about China’s rise as a global power. 

That rhetoric is closely associated with Xi himself.
“There’s a lot of second-guessing about whether the great leader played his cards right,” said Jerome Cohen, faculty director of the United States-Asia Law Institute at New York University.

Two Chinese paramilitary police officers walking past the headquarters of the People’s Bank of China in Beijing in 2017. The central bank has pumped tens of billions of dollars into the economy recently and driven short-term interest rates down sharply.

A group of alumni from Tsinghua, one of China’s most prestigious universities, recently circulated a petition calling for the dismissal of a well-known economist on the faculty who is an ardent defender of Xi’s policies. 

They accused the scholar, Hu Angang, of misleading the leadership by arguing last year that China had already surpassed the United States as an economic and technological power.
The petition appeared weeks after a series of articles in the official People’s Daily newspaper mocked scholars and pundits making similar boasts about China’s strength.
“A slowing economy and friction with the United States provides an opportunity for people to push back,” said Trey McArver, a partner with Trivium China, a research consultancy in Beijing and London.
As the trade dispute festers, Chinese business leaders have been circumspect, saying almost nothing about it publicly for fear of angering Beijing. 

It is clear, though, that they and government officials were caught off guard.

A propaganda poster showing Xi in Beijing in March.

“Outside of government negotiators, few people took this possibility very seriously until July 6,” said Yu Yongding, a prominent economist at the Chinese Academy of Social Sciences, referring to the date when tariffs on $34 billion of Chinese goods took effect.
Scott Kennedy, a scholar at the Center for Strategic and International Studies in Washington, said the assumption that Beijing could avoid a trade war “suffused every conversation” he had with officials earlier this year.
“They were wrong, and they are smarting over that, trying to find north and recalibrate,” he said.
Tensions inside the government flared into the open last month when Xu Zhong, the research director of China’s central bank, published an essay rebuffing calls to bolster the economy by issuing more money. 

He castigated the Finance Ministry instead for a “dearth of effective fiscal policies,” referring to extra government spending and tax cuts.
Soon afterward, the cabinet ordered more infrastructure spending to shore up growth. 

In the past week, the central bank has also pumped tens of billions of dollars into the economy and driven short-term interest rates down sharply.
Presented with a choice of fiscal or monetary stimulus, the leadership in effect avoided making a decision by choosing both, despite the risk of exacerbating the nation’s budget deficit and chronic debt problems.
Xi is presumably at the center of such decision-making. 

He has surrounded himself with officials who built their careers in part on their ability to deal with the United States and who might be damaged politically if the trade war goes badly for China.
They include Wang Huning, the party’s chief ideologue, who helped craft the propaganda message trumpeting China’s rise that is now being criticized in China for alarming the West; Vice President Wang Qishan, Xi’s most powerful lieutenant, who appears to have distanced himself from trade policy in recent months; and Liu He, the Harvard-trained vice premier handling the stalled negotiations with the United States.
The leadership can still divert criticism by blaming the United States. 

So far, it has not ratcheted up anti-American propaganda beyond the usual volume nor encouraged protests or boycotts of the sort directed at Japan in the past.

Sina Delenda Est

Handling of U.S. trade war causes rift in Chinese leadership

By Ben Blanchard and Kevin Yao

BEIJING -- A growing trade war with the United States is causing rifts within China’s Communist Party, with some critics saying that an overly nationalistic Chinese stance may have hardened the U.S. position, according to four sources close to the government.
Xi Jinping still has a firm grip on power, but an unusual surge of criticism about economic policy and how the government has handled the trade war has revealed rare cracks in the ruling Communist Party.
A backlash is being felt at the highest levels of the government, possibly hitting a close aide to Xi, his ideology chief and strategist Wang Huning, according to two sources familiar with discussions in leadership circles.
A prominent and influential academic whose views have found favor in some party quarters has also come under attack for his strident views on Chinese power.
Wang, who was the architect of the “China Dream”, Xi’s vision for China to become a strong and prosperous nation, has been taken to task by the Chinese leader for crafting an excessively nationalistic image for the country, which has only provoked the United States, the sources said.
“He’s in trouble for mishandling the propaganda and hyping up China too much,” said one of the sources, who has ties to China’s leadership and propaganda system.
The office of the party’s spokesman did not respond to a request for comment on Wang and his relationship with Xi, or on whether China had erred in its messaging in the trade war.
There is a growing feeling within the Chinese government that the outlook for China has “become grim”, according to a government policy advisor, following the deterioration in relations between China and the United States over trade. 

The advisor requested anonymity.
Those feelings are also shared by other influential voices.
“Many economists and intellectuals are upset about China’s trade war policies,” an academic at a Chinese policy think tank told Reuters, speaking on condition of anonymity due to the sensitivity of the issue. 

“The overarching view is that China’s current stance has been too hard-line and the leadership has clearly misjudged the situation.”
That view contrasts with the thinking at the beginning of the year of many Chinese academics who had touted China’s ability to withstand the trade row in the face of Trump’s perceived political weakness at home.
China thought it had reached a deal with Washington in May to avoid a trade war, but was shocked when the Trump administration, in Beijing’s eyes, went back on that agreement.
“The evolution from a trade conflict to trade war has made people rethink things,” the policy advisor said. 

“This is seen as being related to the exaggeration of China’s strength by some Chinese institutions and scholars that have influenced the U.S. perceptions and even domestic views.”
One official who is familiar with China’s propaganda efforts said the messaging had gone astray.
“In the trade war, the line of thinking in the propaganda has been that Trump is crazy,” said the official. 

“In fact, what he is scared of is us getting strong.”

Under Xi, officials have become increasingly confident in proclaiming what they see as China’s rightful place as a world leader, casting off a long-held maxim of Deng Xiaoping, the former paramount leader who said the country needed to “bide its time and hide its strength”.
That confidence has been apparent as the government pushes its Belt and Road initiative to develop trade routes between East and West and takes a hard line on territorial issues such as the South China Sea and Taiwan.
Hu Angang, an economics professor at Tsinghua University and an expert in the field of “Chinese exceptionalism”, is one prominent advocate for the view that China has achieved “comprehensive national power”.
In recent weeks, Hu has faced a public backlash, with critics blaming him for making the United States wary of China by trumpeting and exaggerating its relative economic, technical and military might.
That view of Hu is also shared by some people in official circles, according to the policy advisor.
Hu declined to comment when contacted by Reuters.
The cracks within the party come as China’s stock markets and currency have slumped, and the government has struggled to shore up the economy to cushion the impact of the trade war.
China in recent weeks has encouraged more lending and pledged to use fiscal policy -- including tax cuts and more funding for local governments -- to combat slowing economic growth and rising uncertainty driven in part by the escalating trade war.
Xi has had other fires to hose too, including public anger over a vaccine fraud case and protests in Beijing this week by investors in failed online lending platforms.
Meanwhile, top leaders are believed to be meeting for secretive annual talks, most likely at the seaside resort of Beidaihe, leaving a policy vacuum as Xi and other officials all but vanish from state media. 

Based on what has happened in previous years, that could be for up to two weeks.
It is unclear if Wang, the propaganda boss, will face any consequences, and there may be other reasons for the tensions within the party related to him.
A third source with ties to the leadership told Reuters the tension had to do with Wang opposing a cult of personality that has been forming around Xi.
Wang still features in state media and diplomats and leadership sources say he is unlikely to be removed from the Standing Committee, the party body that runs China, in what would be an unprecedented move.
Though official media has in recent days been filled with defiant commentary regarding the United States and the trade war, there have been signs of a shift in China’s messaging.
Beijing has begun downplaying Made in China 2025, the state-backed industrial policy that is core to Washington’s complaints about the country’s technological ambitions.
State television’s English-language news channel CGTN, which is aimed at foreigners, has also been focusing on how ordinary Americans will be affected by more expensive prices for cheap made-in-China consumer goods and the damage tariffs will do to the U.S. economy.
But the thinking in Chinese government circles is that the damage has already been done -- and that China has learned the hard way that its domestic propaganda is now being scrutinized abroad in a way it never was before.
“It’s impossible for China to ‘bide its time and hide its strength’, but at least we can control the volume of our own propaganda and tell China’s story the proper way,” the policy insider said.
“When the size of China’s economy was small, it got little outside attention but China is now closely watched.”

Charting China's great purge under Xi

BBC News

Not since the days of Mao Zedong (right) has a campaign on the scale of Xi's been seen

Since becoming China's leader in 2012, Xi Jinping has overseen a vast and ruthless anti-corruption drive in which more than a million officials have been disciplined.
A BBC study has found that more than 170 ministers and deputy minister-level officials have been sacked and many jailed under Xi, accused of charges such as corruption, misconduct and violation of party discipline.
It has been described by some as a massive internal purge of opponents, on a scale not seen since the days of Mao Zedong, in whose Cultural Revolution many top officials were purged.

How extensive is the campaign?
The most noticeable departure from tradition has been the breaking with many unwritten party conventions since Mao's time. 

The prosecution of so many national-level officials has been notable -- in recent decades prominent figures would usually have been quietly retired.
But in the last five years, 35 members (full and alternate) of the Chinese Communist Party's powerful Central Committee have been disciplined. 

That is as many as in all the years between 1949 and 2012.

Who has been targeted?
Based on official data, a staggering 1.34 million officials at high and low levels -- the so-called "tigers and flies" -- have been brought down by corruption and disciplinary charges during Xi's first five years in office.
No walk of life has been spared -- those felled range from village chiefs and factory managers to government ministers and generals.
The great purge goes right to the very top of government -- the biggest scalp so far was once the third most senior leader in China, Zhou Yongkang. 

He had been in charge of the vast internal security apparatus until he retired.
Sun Zhengcai, who was sacked as Chongqing party secretary, was only the fourth sitting politburo member ever to be expelled from the Communist Party. 

Promoted before Xi Jinping took office, Sun, 54, was the politburo's youngest member and had been tipped for the very top.

Zhou Yongkang is the most senior official felled so far. 

Until he retired in 2012 he was the third most powerful politician in China. 

In 2015 he was jailed for life for bribery, abuse of power and disclosing state secrets.
Abruptly removed from his post in July, Sun Zhengcai is the most senior serving official to be caught by Xi's purge. 

Only the fourth sitting politburo member to ever be expelled from the Party.
Xu Caihou was among highest-ranking military until he retired in 2013. 

He was investigated as part of a "cash for ranks" probe and ultimately expelled from the party and prosecuted. 

He died of cancer in 2015.
Guo Boxiong served alongside Xu. 

In July 2016 he became the highest-ranking military official prosecuted since the end of the revolution in 1949. 

He was sentenced to life in prison for bribery.
Ling Jihua was a trusted adviser of Hu Jintao but was swiftly demoted under Xi. 

After a scandal that began when his son died "in a state of undress" in a Ferrari crash, he was jailed for life for bribery in 2016.
Nearly 70% of the party's ruling Central Committee members will be replaced with new faces at the current congress although in the majority of cases alleged corruption or other transgressions will not be the reason -- age will be.
An unwritten party rule currently sets the retirement age at 65 for Central Committee members.

Has the army been spared?
No area has been more radically restructured under Xi than the military, which he swiftly set about comprehensively reorganising and modernising.
More than 60 generals have been investigated and sacked in the drive to introduce a Western-style joint command and promote young officers to top positions.
Even as the delegates started to gather in Beijing for the current party congress, the pace of the campaign showed no signs of slowing down. 

Two top generals, Fang Fenghui and Zhang Yang, disappeared from public view as recently as last month, and a series of new high-level investigations have been announced.

What is Xi's goal?
The five-yearly congress in Beijing is expected to see Xi remain as party chief and bring in a new leadership team, helping to entrench his already considerable power.
If things go to plan for Xi, he should be able to get many of his loyalists into key positions. 

Since he took office a number of his allies have been promoted. 

Here are some of the biggest gainers.
Li Zhanshu was party chief in a county neighbouring Xi's early in their careers. 

In 2015 he visited Moscow as Xi's "special representative". 

Has played a leading role in maintaining strong relations with Russia.
Chen Min'er is one of the "New Zhijiang Army", the group of now senior CPC figures who worked under Xi when he was party secretary in Zhejiang. 

Chen replaced the disgraced Sun Zhengcai in Chongqing.
Another of the so-called "New Zhijiang Army" is Cai Qi. 

Before being summoned to the capital his popular blog had more than 10m social media followers.
Said to be Xi's top foreign policy aide, Wang Huning has been labelled "China's Kissinger" by a leading South Korean newspaper. 

He also advised former presidents Hu and Jiang.
Xi described his key economic adviser Liu He as "very important to me" when introducing him to President Obama's National Security Adviser in 2013. 

Liu has an MA in public administration from Harvard.
Who ends up in the party's Politburo Standing Committee, China's top decision-making body which currently has seven seats, will show exactly how powerful he has become. 

Its members -- and those of the 25-seat Politburo -- will be revealed on 25 October once the congress ends.
But analysts say Xi, along with anti-corruption chief Wang Qishan, a key ally, has used the clean-up campaign to help shape who China's new leaders will be.
The country's Communist Party has for decades ruled by consensus, but analysts say Xi is rewriting party rules and concentrating power in his own hands.
Critics accuse him of encouraging a cult of personality. 

They point to the fact that most of the top officials who have been disciplined have been supporters of his opponents, or former presidents Jiang Zemin or Hu Jintao.
Xi's supporters say the anti-corruption drive is needed to restore the ruling party's credibility as the president pursues his dream of a more prosperous and powerful China which will soon overtake the US as the world's largest economy.