Xi Plays the Reformist Role: Will the EU Buy It?

The Third Plenary meeting of the 20^th CCP Central Committee has been held on the 15-18 of July in Beijing. The keywords that have shaped the debates are “reform” and “modernization.” The third plenum is traditionally the constitutive moment of the five-year political cycle. According to the conventional agenda, it was supposed to be held last autumn, one year after the CCP Congress. However, it has been delayed without further explanation. A decision which has further strengthened speculations about the opaque political decision-making process of the world’s second-largest economy. The outcome of this meeting will shape China’s political economy over the coming years, also affecting the country’s relations with the rest of the world. The Italian Prime Minister Giorgia Meloni will soon test those outcomes in her visit to Beijing at the end July.

Why it matters

1. A long-awaited meeting. The last time the Third Plenum was held, a constitutional change to abolish the term limit was underway, elevating Xi’s political status[PM1] . Following that event, the West’s stance on Xi changed, and China was labeled as a systemic rival. In the opaqueness of China’s politics, the Third Plenum was seen as a way to get a hint of Xi’s strategy after obtaining a third mandate as the CCP’s General Secretary in 2022, and as the PRC’s President in 2023. However, the delay cast doubts on the unity of China’s elite politics. 
2. Economics or Politics? Does the Third Plenum matter for economic or political reasons? Probably both. Politically speaking, the signals hint at a stronger-than-ever Xi Jinping. The communique has set a new target year (2029, the 80^th anniversary of the PRC) that he himself might celebrate while still in power. The other targets, however, seem too distant from now, in 2035 and 2049. On the economic side, the course appears set: a strategic focus on reducing tech dependency to grow economically while sharing wealth among the population to reduce inequalities and boost consumption.
3. What about overcapacity? At this stage, the major concern for the West on China’s economy is the industrial “overcapacity” as long as there is a fear of a second China Shock[SR2] . In this regard, there are no significant clues from the Third Plenum, however there is a sentence in the communique which mentions a reform of the current trade system. It is probably intended as an acknowledgment of the derisking process which is occurring in full steam and of the great reshuffle of   global value chains which will happen in the coming years.
4. 18th of July: The International Day of Political Planning. By chance, the 18th of July 2024, might be remembered as the founding date of the next five years. While Xi was busy presenting the Third Plenum’s outcome to his fellow comrades, Ursula von der Leyen was making an opening statement to seek reelection as President of the EU Commission, and Donald Trump was accepting his republican candidature with a long speech. The three leaders’ speeches hint at the endurance of economic security as the founding principle of international relations. Barriers will be built for the sake of protecting domestic manufacturing and jobs.
5. Meloni is going to be in town soon.  A scenario of increased protectionism and economic security complicates EU relations with China. Xi Jinping offers the stick of overcapacity – increasingly bigger – and the carrot of access to the Chinese market – in a deflationary economy. After withdrawing from the BRI earlier this year, Meloni is finally going to Beijing. Italy-China relations have been in the spotlight, and Meloni’s first visit to China will allow observers to assess the tone of EU-China relations: can Xi convince a suspicious country that China has a lot to offer even at a time of economic security?

OUR TAKE

The third plenum will give China Watchers a lot of work in the coming months. Amidst the opaqueness surrounding the Third Plenum, the fact that Xi is in control still stands clear, as his keywords are all present, and the fundamentals of his political views are confirmed: a Chinese original political path and the need for technology to create wealth and, therefore, promote a flourishing economy. Similarly, the fundamentals of the current international distrust seem confirmed, with economic security gaining prominence

SPOTLIGHT: NATO is looking for a place in Asia  

At the 75th NATO summit held in Washington last week the Indo-Pacific was reaffirmed as front and center of the new impetus that the Western military alliance has enjoyed since the outbreak of the war in Eastern Europe. For the second year in a row the final communiqué recognized that developments in the region “directly affect Euro-Atlantic security”, however the most significant novelty of this year communiqué was the singling out of China as a “decisive enabler of Russia’s war against Ukraine” for its “material and political support”. The Chinese Foreign Minister rejected the accusations while the Ministry of Foreign Affairs counter-accused NATO of “blame-shifting” and instead suggested the alliance’s responsibility in the escalation of the conflict. Meanwhile, NATO has also sought to deepen its ties with well-established Indo-Pacific democracies like Japan, South Korea, Australia, and New Zealand, expanding cooperation in key domains like artificial intelligence, disinformation, cybersecurity, and medical assistance to Ukraine. Yet, security networks among these actors will be built at different speeds, as each Indo-Pacific country has to balance different priorities: on one hand, South Korea needs to carefully assess the security implications in the Korean Peninsula of its involvement in NATO and Australia just recently eased the strained trade relations with China, while on the other hand Japan has already been considered as a possible partner for joint military exercises. As boundaries are being tentatively drawn, tested, and settled, NATO is determined to explore its Indo-Pacific dimension. 

EXPERT’S VIEW

How can we read the outcomes of the third plenum? 

In starting to assess the Third Plenum outcomes, energy turns once again to interpreting word choice rather than assessing concrete policy decisions. This is no surprise; decoding political phrasing is part of the course. But initial communication smacks of “steady as she goes” policy continuity rather than fresh, decisive action. The vocabulary is well-worn; the message signaling clear. But the practical significance is not – or at least, not yet. Familiar terms are restated: Reform, opening-up, Chinese-style modernization, security and the Party’s guiding role. Even the central role of technology and innovation – Xi’s new-quality productive forces – is well-known. Yet the economy is in bad shape, with deep-seated challenges and a wide range of policy options under discussion. A third plenum, a once-every-five-years event, by nature concentrates on the mid- and long-term. But many have projected their hopes and fears for the Chinese economy onto definitive policy change emerging now. “More of the same” does little to boost confidence. The full, still-unpublished, resolution contains over 300 reform measures. What impact will they have how quickly? Right now, there seems little urgency to act or even to communicate the specifics, at least outside the Party hierarchy.  We will – as before – need to wait and see.  

Andrew Cainey, Royal United Services Institute

WHAT AND WHERE

SCO’s second youth 

Since the Russian invasion of Ukraine, there has been much talk about the resurgence of NATO as a crucial military alliance. However, the transatlantic alliance is not the only organization enjoying renewed prominence. China- and Russia-led organizations like BRICS and the Shanghai Cooperation Organization (SCO) are also capturing the interest of many countries dissatisfied with the West. The SCO – whose member include China, Russia, India, Central Asia countries and newly joined, Iran and Belarus – was initially established to address security and economic issues in Central Asia, but, under the will of Russia and China, it is morphing into a platform to promote an alternative to the Western led international order. The SCO summit was convened in Astana on the 3-4 of July, just a week before the NATO summit in Washington. In attendance was also Turkish President Erdogan, whose country is an active NATO member, sparking discussions about Turkey joining the SCO. On the contrary, Indian Prime Minister Modi chose not to attend, a decision that reflects the ongoing tensions with Beijing. While in NATO’s internal divisions stem mainly from political positions of the member states and from discussions concerning the resources allocated to the alliance; within the SCO, Central Asian countries are expressing concerns over the organization’s expansion, fearing it could lose its regional focus. There is a risk that the SCO might become a bloc more defined by its size than by its substantive cohesion. Nonetheless, it’s difficult to envision a halt to this enlargement trend, as groups like the SCO serve as valuable tools for China to promote its vision of an international order guided by Chinese principles and opposed to that sponsored by Washington. 

India is not giving up on Russia 

On the 8 of July, Indian Prime Minister Narendra Modi visited Moscow for the first time since being re-elected in June to lead the country for a third term. During his visit, Modi met with President Vladimir Putin, showcasing the strong friendship between India and Russia. This meeting raised concerns among India’s Western partners, particularly the United States and Ukraine. The timing of Modi’s visit was especially contentious, as it coincided with the NATO Summit in Washington and occurred just hours after Russian bombings killed at least 41 people in Ukraine, including a strike on a children’s hospital in Kiev. Despite efforts in recent years to strengthen ties with Washington and European powers, India and Russia maintain robust relations, particularly in regard to military and energy trade. This meeting reaffirms India’s foreign policy stance of balancing its increasing integration into US and European trade and diplomacy with its longstanding entente with Russia. While Modi’s recent election victory in India was more challenging than anticipated, and it remains to be seen how he will implement his policies in a parliament lacking an absolute majority, significant shifts in India’s foreign policy are unlikely. 

With China on their minds, Tokyo and Manila get closer 

On the 8 of July, the Philippines and Japan signed the Reciprocal Access Agreement (RAA), marking a historic upgrade in military cooperation. This agreement allows for the deployment of military forces on each other’s territory, and it is the second of its kind that Japan has established with an Indo-Pacific partner. The RAA is designed to facilitate the entry of equipment and troops for combat training and disaster response between the Armed Forces of the Philippines and the Japan Self-Defense Forces. This agreement was finalized after a period of strengthened ties between Tokyo and Manila, strongly encouraged by Washington, in response to China’s increasingly assertive actions near Taiwan and in the South China Sea—regions with contested territories involving both Japan and the Philippines. In recent months, maritime clashes between Manila and Beijing around the Second Thomas Shoal have intensified, resulting in injuries to Filipino sailors. Despite the recent establishment of a hotline between China and the Philippines to manage potential conflicts, the RAA with Japan underscores the growing tension in the region. The agreement also reflects Japan’s ambition to assert itself as a significant player in regional security, willing to remain engaged with its Asian neighbours. This effort began with the Japanese government’s unprecedented increase in the defence budget, signalling a commitment to enhancing its military capabilities and regional influence. 

Taiwan revisits its historical memory of KMT authoritarianism 

Since the 15 of July, the military forces of Taiwan are not standing guard anymore inside the Chiang Kai-shek Memorial Hall. The decision was announced a couple of days prior by the Minister of Culture of the DPP government formed under new President Lai Ching-te: according to its statement, the removal of the honorary guard from the famous tourist attraction in Taipei (relocated outside the Hall in Democracy Blvd) was meant to end the “cult of personality” and the “authoritarian worship” associated with the KMT leader. The historical memory of Chiang, whose Memorial Hall was opened in 1980 during the authoritarian era, has been deeply controversial within Taiwanese society, which under his dictatorship suffered 38 years of political repression and restrictions on civil liberties. Previously revered as the father of the Republic of China, the official name of Taiwan, after the democratic transition his legacy has been re-evaluated. Achieving transitional justice for the victims of his regime has been a key objective of the DPP, which rejects Chiang both for his authoritarian rule and for his identification of Taiwan with China. Since 2018 the DPP has sought to erase the presence of Chiang from public spaces in Taiwan, for instance by removing his commemorative statues once omnipresent in the country. However, political partisanship is always behind the corner in Taiwan, and the government may not be fully determined to engage in symbolic politics at this stage. 

TREND: Chinese inventions are taking over AI 

According to data released by the World Intellectual Property Organization, China has a decisive invention lead over any other countries when it comes to generative artificial intelligence (GenAI). Looking at the 54,000 patents filed in the last decade, one can see that China surpasses the 38,000 mark and positions itself far ahead of the US, in second position with over 6,000 patents filed. On average, Chinese GenAI-related patents grew annually by 50%. South Korea and Japan follow closely the US, and India is rapidly surging as well recording the only annual average growth rate higher than China (56%). Much of Chinese patent applications are filed by digital companies such as Tencent or Baidu, but public universities and research institutions figure also among top patent-owners. However, patents do not necessarily translate directly into innovation: US companies and universities may not be able to match China with numbers, but in terms of the quality of their research they have an undisputed edge.

By: Filippo Fasulo, Paola Morselli and Guido Alberto Casanova