On the final day of the 19th Party Congress, the Chinese leadership unveiled what was arguably the most dramatic outcome of its five-yearly political summit: the enshrinement of “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” in the Party Constitution. And while it may sound arcane and irrelevant to outside observers, particularly those in the international business community consumed with the hard practicalities of conducting business in China, the eponymous inclusion of President Xi’s ideological magnum opus in the Party charter indisputably testified to his ascendance as China’s most powerful leader in decades.

Most importantly for companies, executives should be cognizant that the inception of Xi Jinping Thought carries far-reaching implications for the future orientation of policy and overall governance in the world’s second-largest economy – not only for the next half-decade of Xi’s tenure from 2017 to 2022 but far beyond.

Xi elevated into the Chinese leadership’s highest pantheon
The incorporation of Xi Jinping Thought into the Party’s “guide to action” at this year’s congress is especially noteworthy in several respects. First, the inscription of his name alongside the compilation of his governing principles immediately catapulted Xi into the ranks of China’s foremost political luminaries together with Mao Zedong and Deng Xiaoping, respectively the patriarch of modern China and the architect of its reform and opening up period. Before the introduction of Xi’s new school of thought, Mao and Deng were the only other leaders to have had their names attached to their respective ideologies. Second, the description of Xi’s banner term as “thought” – virtually the most authoritative term in the Party’s hierarchy of official parlance – signaled a staggering elevation of his ideological stature. Xi has now become the first leader since Mao to have his inclusion to the Party’s overarching dogma labeled as “thought.” Finally, the entry of Xi Jinping Thought into the official tenets of the Party’s guiding doctrine after just his first term in office further underscored Xi’s exalted status in the Party, particularly against the backdrop of his anointment as the “core” of the leadership and “supreme commander” of the armed forces since last year.

China enters a new historical chapter for its development
Above all, Xi’s constitutional immortalization signifies his standing as a transformative leader who has already shepherded in China’s emergence as a true global power and is continuing to oversee a pivotal inflection point in the country’s development. In his lengthy opening address to the Party Congress, Xi proclaimed that China was at a “new historic juncture” and asserted that, “The Chinese nation now stands tall and firm in the east,” echoing Mao’s declaration in 1949 that, “The Chinese people, comprising one quarter of humanity, have now stood up.”[1] He outlined his administration’s “two-stage development plan” for continuing to pursue China’s odyssey of national rejuvenation, which aims to build on the foundations of its fast-approaching emergence as a “moderately prosperous society” between 2020 and 2035 and then see its establishment as a “great modern socialist country” by 2050.

In his speech, Xi described his thoughts on the “new era” as a “compass for the Party and the people,” and the president has clearly positioned himself as the founder of a watershed chapter in modern Chinese history that will carry the baton passed down by the Mao era from 1949 to 1976 and the reform era from 1979 onwards.[2] The latest rewriting of the Party Constitution marks the leadership’s intention to provide an official ideological framework underpinning its vision for this age of national renewal.

Throughout his first term, Xi underscored the Party’s role in governing all aspects of China – from the economy to the military to foreign affairs – and repeatedly referenced the Party as the “backbone of the nation.” Expectedly, the content of his new political ideology unequivocally reflects this strong emphasis on the Party’s primacy over everything, with its opening principle stated as “Ensuring Party leadership over all work.” In total, Xi Jinping Thought enumerates the following 14 main principles[3]:

  • Ensuring Party leadership over all work
  • Committing to a people-centered approach
  • Continuing to comprehensively deepen reform
  • Adopting a new vision for development
  • Seeing that the people run the country
  • Ensuring every dimension of governance is law-based
  • Upholding core socialist values
  • Ensuring and improving living standards through development
  • Ensuring harmony between human and nature
  • Pursuing a holistic approach to national security
  • Upholding absolute Party leadership over the people’s forces
  • Upholding the principle of “one country, two systems” and promoting national reunification
  • Promoting the building of a community with a shared future for mankind
  • Exercising full and rigorous governance over the Party

Xi’s second-term agenda endowed with near unprecedented authority
It would be difficult to understate the import of the integration of Xi Jinping Thought into the Party’s evolving ideology and what it means for China’s future. The president’s success in putting his imprimatur on the Party charter was a stark demonstration of his political strength within the Party-state system. It raises him above the previous model of collective leadership and unquestionably sits him at the head of the table on the Politburo Standing Committee, China’s highest governing council, instead of having him simply be the first among equals. In his second term, any opposition to his agenda will unambiguously mean opposition to the Party as a whole, significantly raising the stakes for any vested interests standing in his way.
In particular, the unveiling of Xi Jinping Thought represents a resounding endorsement for his administration’s policy platform in his first term, which was predominantly spelled out four years ago in the Third Plenum’s roadmap for reform for achieving the Chinese Dream.[4] Moreover, it endows the agenda for his second term with almost unprecedented authority, and Xi will likely have the freest hand of any leader in recent memory to pursue his preferred policies. The key question is how will this mandate be wielded?

Many have speculated that the president’s remarkable consolidation of power will see his administration break through the gridlock that has seemingly stalled long-promised reforms, such as greatly expanded market access for foreign firms, and introduce sweeping changes in the next few years. In reality, however, we are far likelier see steady continuity in Beijing’s manner of governance. The Xi administration can be expected to continue to very selectively push through market liberalization where it sees fit while simultaneously forging ahead with policies aimed at reasserting the Party’s centrality in all aspects of Chinese society by positioning it at the heart of major decision-making. Those anticipating a sudden pivot away from the governance template followed by Beijing for the past five years will probably be disappointed.

The Party’s expanding overtures into China Inc.
For businesses, these efforts to reaffirm the Party’s authority have been exemplified by tightening control over state-owned enterprises (SOEs) and expanding incursions into the private sector in the past several years. For instance, Beijing has intensified the restructuring of state industry by building ever larger SOEs through mergers in prominent sectors, such as the government’s recent approval of the merger between Shenhua Group, the world’s largest coal producer, and major power supplier Guodian Group in August. The Party’s mounting control over state industry was also made clear after a number of Chinese SOEs listed on the Hong Kong stock exchange altered their articles of association to provide the Party with a more explicit role in management decisions earlier this year.

Under the Xi administration, the Party has also sought to bolster its role in privately held businesses, particularly in the booming tech sector. For example, more than 35 Chinese tech companies have set up Party committees in recent years as they recognize the importance to their success of signaling close alignment with the Party’s strategic priorities.[5] It also recently emerged that Chinese regulators are now reportedly discussing with some of the largest Chinese tech companies, including Tencent, Sina Weibo, and Youku Tudou, the possibility of them offering the government a 1% ownership stake.[6]

And foreign companies have also felt the impact of the Party’s deepening overtures into China’s business environment, with some executives expressing concerns about rising pressure for Party personnel to become more involved in their corporate governance and the prospect of seeing an erosion of control over their local operations. However, others have tended to emphasize the benign nature of the Party committees within their organizations and highlighted how the presence of such groups can help to build bridges with the government and resolve issues. On the sidelines of the Party Congress, a deputy head of the Party’s Organization Department stressed that these units were welcomed by foreign firms as a channel for helping them to better understand Chinese policies and straighten out issues, noting that, “Senior executives at some foreign-invested companies say Party organizations can help them to understand in a timely manner Chinese policies, to resolve salary disputes, and provide positive energy for the company’s development.”[7]

Looking ahead, the coming years will see the governance principles outlined in Xi’s eponymous ideology, especially its drive to bolster the Party’s supervision over all elements of Chinese society, distilled down into Beijing’s policymaking shop and institutionalized across the country. Companies will need to be well-versed in the potential implications of Xi Jinping Thought for their China interests and dealings and prepare in particular for the near certainty that the Party’s involvement in China’s business environment will only widen further throughout Xi’s second term.

[1] Tom Mitchell and Charles Clover, “Xi Jinping’s ambitions on show during epic congress address,” The Financial Times, 18 October 2017.
[2] Tom Phillips, “‘A huge deal’ for China as the era of Xi Jinping Thought begins,” The Guardian, 19 October 2017.
[3] “CPC rolls out Thought on Socialism with Chinese Characteristics for a New Era as guideline,” Xinhua News Agency, 18 October 2017; “CPC creates Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era,” Xinhua News Agency, 19 October 2017.
[4] Alice Miller, “Xi Jinping and the Party’s ‘guiding ideology,’” The Hoover Institution, Fall 2017, Issue 54.
[5] Emily Feng, “Chinese tech giants like Baidu and Sina set up Communist Party committees,” The Australian Financial Review, 11 October 2017.
[6] Li Yuan, “Beijing pushes for a direct hand in China’s big tech firms,” The Wall Street Journal, 11 October 2017.
[7] “China says foreign firms welcome benefits from internal Communist Party cells,” Reuters, 19 October 2017.
The entrance hall of the recently opened “Five Years On” exhibition in Beijing – which celebrates China’s achievements over the past half-decade – calls for “Opening up a new phase for socialism with Chinese characteristics. Photo credit: Ben Cooper