China Party Congress To Highlight Trade-Offs As Growth Slows, Top Obama Asia Policy Advisor Says

China for years boasted one of the world’s fast-growing economies, helped in part on good relations with the West. The Chinese Communist Party Congress starting on Oct. 16 may provide hints at how the country will be handing economic policy trade-offs now that growth has slowed and relations between the two are strained, according to Evan Medeiros, the current Penner Family Chair in Asian Studies and Cling Family Senior Fellow in U.S.-China Relations at Georgetown University who was former President Barack Obama’s top national security advisor on the Asia-Pacific.

China is facing “decision points, tensions, or trade-offs,” said Medeiros, speaking at a forum organized by the newly launched Center for China Analysis at the New York-based Asia Society on Monday. (See related post here.)

One trade-off facing the country, Medeiros said, is “integration versus isolation.” China has benefitted from globalization, yet its latest five-year plan highlights a “dual circulation or rewiring (of) the Chinese economy to reduce China’s dependence on others but increase others’ dependence on China,” he said. “The fact that there was a national security chapter in the last five-year plan was striking.”

Medeiros, who earlier in his career was a senior advisor at the RAND Corp. and a China policy advisor to then Treasury Secretary Hank Paulson, also believes the country’s leadership is “beginning to see the world increasingly in terms of an ideologically-informed competition” and “that is now shaping economic policy.”

“And the question becomes,” he continued, “Is China going to be able to grow, given the multiple, cascading macroeconomic challenges they face? Will they be able to grow in an environment where Xi Jinping is trying to reengineer — or engineer — an economy that is more self-reliant?”

“China faces so many economic challenges at the same time, and yet, Xi Jinping wants them to become more self-reliant, wants to emphasize technology, innovation, et cetera. I just don’t know how they do it all at the same time. So I think there is a bit of a trade-off between integration and isolation.”

Another tradeoff is “leadership versus alienation,” Medeiros said.

“If the last 10 years of Chinese foreign policy has demonstrated anything, it’s that Xi Jinping is clearly comfortable using Chinese power. But the issue is the way Xi Jinping has sought to use Chinese power, economic power (and) military power.” That, he said, has “led to a fairly high degree of alienation.”

“And so the question is: Can China find a balance between leading without alienating? “What if,” Medeiros posited, “the only way for it to use its power results in blowback” that creates even more alienation by the rest of the world?

One area will China’s voice will be important in the coming years, he believes, will be global debt. Large debts to China held by some of the world’s top borrowers is “going to put China even more at the center of global economic discussions,” Medeiros said. How China sees its role and how that positions the country in the international community is going be “a real challenge.”

Medeiros is also looking to the party congress for hints it who will be leading China’s foreign policy in the future. “There will very likely be a substantial turnover in the top foreign policy leadership,” Medeiros said. The current leaders – Yang Jiechi and Wang Yi — have been at senior levels for at least 15 years and longer, he said, leading to a coming changeover “at a time of very substantial global crisis.”

“You could say similar things about changes in Chinese economic policy, which are directly linked to foreign policy, given the fact that China is the second largest economy in the world,” he said. What China does economically “directly affects global markets. So I think personnel is going to be a big piece to watch.”

Finally, Medeiros will be watching out for how China’s domestic slogans and tone affect its global relations. “What I worry about is Chinese foreign policy increasingly is affected by China’s own domestic politics,” he said. “The priorities that Xi articulates at home, in particular, (the) sort of national security outlook in which he has framed foreigners and foreign influences as an innate risk and seeks to reduce exposure to those, (relates) back to my earlier point about integration versus isolation,” he said.

“And then I worry about the U.S.-China relationship, a relationship where domestic politics in both countries seems to be having an outsized impact on how the relationship is managed. And if we enter into a world where domestic politics in both Beijing and Washington — more than national interest calculations or geopolitical calculations — are driving the U.S-China relationship, that’s a world in which governments have far less agency.”

Other speakers and panelists included former U.S. Secretary of State Henry Kissinger, as well as Wu Guoguang, senior research scholar at the Stanford Center on China’s Economy and Institutions; Chris Johnson, president of political risk consultancy China Strategies Group; Ma Guonan, a senior fellow on the Chinese economy at the Asia Society Policy Institute; Rorry Daniels, managing director of the Asia Society Policy Institute; Dr. Selwyn Vickers, CEO of Memorial Sloan Kettering Cancer Center (MSK); Dr. Bob Li, MSK Physician Ambassador to China and Asia-Pacific; and Kate Logan, associate director of climate the Asia Society Policy Institute. Guest attendees included business leaders Joe Tsai and Ray Dalio.

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