HOW XI JINPING IS TRANSFORMING CHINA

Wapack Labs IR How Xi Jinping Is Transforming China 180801.pdf

CYBER INTELLIGENCE REPORT

Serial: IR-18-222-001
Country: CN
Report Date: 20180801

Figure 1. Chinese President Xi Jinping

SUMMARY

In just five years, Xi Jinping has surprised everyone by altering the vector of China’s development to match his vision for a China that stands as a peer to the United States. He has done this by methodically concentrating political, economic, and military power into his own hands so that he now stands alone as the supreme leader of China.

Xi Jinping has proved different from his predecessors in many ways. He has gained control over the Communist Party through a deep and wide-ranging anti-corruption campaign that has investigated millions. He has revived an ideology-driven Party and had his own concepts of socialism entered into the Chinese Constitution. He has tightened control of the media and jailed dissidents and activist lawyers. He has also canceled term limits on the presidency, allowing him to stay in power as long as he likes.

Xi gained full control over China’s still-growing economy by taking the position of Chairman of the Central Economic Commission. He has fostered the “China Inc.” business model through subsidies of Chinese corporations and forced technology transfer from foreign partners. He created the Belt and Road Initiative, a set of infrastructure construction projects in other countries that may exceed investment of one trillion dollars. He has made it harder for foreign firms to operate in China through new cybersecurity laws and the introduction of Communist Party cells into joint ventures. Xi has also transformed the Chinese armed forces by purging its leadership, reorganizing its components, and assuming the title of Commander-in-Chief of the Joint Operations Command Center. He has increased military spending and refocused it on high-technology systems and forces that will extend China’s geographic reach. He has also presided over a return to cyber operations against foreign technology and intellectual property.

In short, Xi Jinping has concentrated power into his own hands, suppressed all opposition, and planned out an aggressive course of economic and military development to make China a peer to the U.S. within a few decades.

BACKGROUND: CHINA’S VECTOR BEFORE XI JINPING

The ideology-based, autocratic China of Mao Zedong was dramatically altered by his successor, Deng Xiaoping starting in 1979. Deng introduced market reforms and abandoned state planning for most of the economy. This started China on the road to the prosperous nation it is today.

Perhaps the most dramatic change under Deng was the transition from the Chairman-as-god autocracy of Mao to a collective leadership by Party seniors. This became institutionalized as a practice wherein top leaders conferred with one another on policy decisions including whose turn it was to be Chairman next. The new leadership set a pattern of peaceful, regular succession at the top, settling eventually into a limit of two five-year terms for national leaders. Deng Xiaoping ran the country from 1978 to 1989. Jiang Zemin was Party Chairman from 1989 to 2002 (and President from 1993 to 2003). Hu Jintao was President from 2003 to 2012.

Under these leaders, China grew into a manufacturing giant famous for its run of 8-10 percent annual economic growth that lasted for two decades. A seemingly endless supply of low-wage workers meant China could produce almost any goods for less than any competing country in the world. By the early 2000’s, this led to the growth of a new middle class with the resources to be consumers and not just producers. By the end of Hu Jintao’s administration, China was the number-two economy in the world with a middle class perhaps larger than the entire U.S. population.

Strangely, during its development as a capitalist powerhouse, China remained under the rule of the Communist Party. Party leadership policies, however, seemed to be driven not by Communist ideology but by the pragmatism of the market. Deng Xiaoping had said, “It is glorious to get rich,” and China’s leaders recognized that China could become great by being prosperous. Ideology was still part of the Party but it seemed to have little impact on the daily lives of the Chinese during this period. The paradox of a market-driven economy managed loosely by a Communist Party was never resolved; it just worked well for the benefit of China and its people.

China was still no liberal democracy. There were restrictions on free speech and a strict prohibition against challenging the Party and its leaders. Alternative parties were not permitted. Control of the Internet and other media was imposed but not as stringently as it could have been. Citizens were still able to check their Facebook and Twitter accounts even though they had officially been blocked. Religion was circumscribed, but with nothing like the force imposed during the Mao years. There were perhaps 100 million practicing Christians in China by 2012, many practicing openly. While less free than citizens of typical Western democracies, the Chinese were enjoying more individual freedom than at any time in their long history.

This period of relative freedom ended under the leadership of the new President and Party Chairman, Xi Jinping. In a myriad of ways, Xi has worked to gain greater control over China, its political structure, and its people. After five years in office, he is now a supreme leader, one man on the top rather than one of many in the leadership. He is driving a resurgence in ideology as the basis for Party policies, and his own ideology has been formally accepted as the Party’s. He is now exercising more control not only over the Party and government but over public expression and the media than any leader since Mao Zedong.

CHANGES AFFECTING CHINA INTERNALLY

Figure 2. Xi Jinping souvenir plate among those of the leaders back to Mao Zedong

The ways that Xi is different from his predecessors mainly affect Party members and Chinese citizens. The ways that Xi is driving economic policies and military development, however, have potential impact on the rest of the world as well. This report will look first at the changes affecting China internally before providing details on policies that could affect the outside world.

Who is Xi Jinping?

When Xi Jinping took over as Party Secretary in 2012, he was a relatively anonymous Party bureaucrat who seemed to be much like those who had risen to power ahead of him. He was the son of a Party veteran who was a contemporary of Mao, Xi Zhongxun. Xi Jinping joined the Party in 1974, graduated from the prestigious Tsinghua University in 1979, worked in local Party roles in several provinces, and rose to serve as Shanghai Party Secretary in 2007. He became China’s Vice President, often the stepping stone to the presidency, in 2008. That stepping stone worked, and he was selected as Party Secretary in November 2012 and as President in March 2013. One irony of this rise is that at the moment he assumed the top positions, his wife was actually much more famous than he was. Peng Liyuan is a very popular singer and TV personality in China, as well as a general officer.

Anti-Corruption Campaign

Xi Jinping turned out to be much more than the next faceless bureaucrat in line. On taking charge in 2012, Xi spoke, as many of his predecessors had, of the need to clean up the Party structure and eliminate graft and corruption. Unlike his predecessors, Xi actually set out to conduct a tough and wide-ranging anti-corruption campaign against the Party itself. This campaign was conducted through the Party’s Central Commission for Discipline Inspection under the guidance of Wang Qishan, a close friend of Xi.

Figure 3. Former China Security Chief Zhou Yongkang

Even in its early days, the anti-corruption campaign brought down major figures. These included Zhou Yongkang, former Chief of Chinese security and law enforcement; four-star generals Guo Boxiong and Xu Caihou; Ling Jihua, the chief of the Party’s United Front Work Department; and Su Rong, Vice Chairman of the Chinese People's Political Consultative Conference.

This campaign has caught huge numbers of bureaucrats and Party figures in its net. Reliable figures on the number ensnared vary widely, but it is believed that some 2.7 million officials have been investigated for corruption with 1.5 million of those disciplined. More than 200,000 officials have been prosecuted in court. Some senior cadres have received life terms in prison.[1] [2]

What have been Xi’s real goals for this campaign? Western analysis of this question has had varied results. Some argue, as the Brookings Institute has concluded, that “Xi's campaign has truly curbed corrupt practices at all levels of government [and] restored public confidence in the Communist Party's mandate to rule.”[3] Others see his vision as seeking a legacy, wanting to create a system that will survive him.[4] These analysts generally see Xi as sincerely wanting to combat corruption in the Party.

Others see Xi’s efforts as more venal, such as commentary on Xi by The Economist that wrote, “Corruption allegations are the latter-day weapon of choice in winner-takes-all power struggles.”[5] Others in Hong Kong described the campaign as eliminating enemies and building up the “Xi Jinping faction” in China’s leadership.[6] One Chinese activist said Xi's anti-corruption campaign “looks more like a Stalinist political purge” and that the people carrying it out “operate like the KGB.”[7]

Regardless of whether Xi sees power consolidation or Party purity as the real goal of the anti-corruption campaign, the scope of the campaign has given notice to all Party members that no one is immune from prosecution. As of 2018, in fact, the crackdown appeared to be getting even tougher, as his campaign is now moving up a gear with the establishment of a new anti-corruption agency overseeing millions more people.

Xi’s Vision for China

In a March 2013 speech, Xi said he would fight for "the great renaissance of the Chinese nation,” and introduced a new term: the "Chinese Dream.” In Xi’s vision for China, the Chinese Dream is about Chinese prosperity, national glory, collective effort, and socialism.

At the 2018 Party Congress, Xi presented his version of the major stages in China’s modern development. These were:

Standing Up: the period under Mao Zedong (1949-1976) during which China developed into a socialist country with a state-controlled economy,
Growing Rich: the period from Deng Xiaoping to Hu Jintao (1978-2012) when abandonment of a socialist economy led to the tremendous growth of China as an economic producer, and
Getting Strong: the current era since Xi took power in 2012, during which China is becoming a great-power peer of the United States.[8]

Figure 4. Xi Jinping (center) at the 2018 Party Congress

The vision Xi has of China present and future is that of a country nearing the United States in strength and influence in the world. Even beyond this, Xi has increasingly been promoting China and its system as a functional alternative to Western democracy. He has been offering “China wisdom” as a resource for the rest the world as it faces its political and financial problems.

At the 2018 Party Congress, Xi laid out his timetable for the development of China and its place in the world. His goal was to secure “a decisive victory in building a moderately prosperous society” by 2020, and then to develop China into a “great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious, and beautiful” by 2050. His ambition for influence in the world was expressed as: “China will continue to play its part as a major and responsible country, and take an active part in reforming and developing the global governance system.”[9]

The resurgence of Party and Ideology

In sharp contrast to his predecessors who had de-emphasized ideology and Party dogma, Xi has actively promoted the primacy of the Party over the government. The line he espouses is that “the government, the military, society, and schools, north, south, east and west—the Party leads them all.” He argues that the goal of a powerful China can only be achieved if the Communist Party has firm control over China. Despite the need for the anti-corruption crackdown, the Party is not seen as the source of China’s problems but its solution.

Part of the mechanism to strengthen Party control has been the return of communist ideology to a position of importance in society. In 2013, Xi started by requiring officials to study one of Mao’s essays, “Working Methods of Party Committees.” He issued guidance to universities in 2014 that stated students needed greater “ideological guidance,” and in 2015 told universities to make the teaching of Marxism a higher priority. Xi also set up a National Ideology Center to push his own interpretation of Marxism-Leninism.

In May 2018, the new level of ideological importance was signified by a huge official celebration of Karl Marx’s 200th birthday. At this event, Marx was called “the greatest thinker in the history of mankind,” and it was declared that “writing Marxism onto the flag of the Chinese Communist Party was totally correct. Unceasingly promoting the Sinification and modernization of Marxism is totally correct.”[10]

Xi has recently gone two steps farther in cementing his own personal leadership position. At the 2018 Party Congress, he officially established himself as the central interpreter of socialist thought for China by having his own writings on socialism, a document entitled “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era,” officially incorporated into the Chinese Constitution. At the same time, the traditional limit of two five-year terms for General Secretary was eliminated, meaning Xi Jinping is permitted to stay as the supreme leader of China for an indeterminate length of time, presumably until he either decides on his own to retire or he dies.

Control of Dissent

As part of the effort to consolidate central control, Xi has tightened control over any dissent. In the Hu Jintao period, there were growing movements to strengthen civil rights in China, with activist lawyers taking cases for dissidents and labor organizations against the government. This was seen as part of the development of civil society in China.

That trend has been reversed in the Xi Jinping era. The government was no contending with these activist cases; they stopped them by arresting the lawyers. As of 2016, at least 38 lawyers were being held under arrest in China, some receiving prison terms for “inciting subversion against the state.”[11] Dissidents themselves were now being rounded up and imprisoned in greater numbers. Even world-famous dissidents were being crushed. Liu Xiaobo was already in custody when Xi came into power, but in 2017 he became the first Nobel Peace Prize laureate since the Nazi era to die while incarcerated.

Some of the new controls were directed against universities. For example, Sun Yat-Sen University in Guangzhou issued a directive that banned staff from criticizing the Communist Party. A Beijing Normal University professor was fired for “improper comments” when he criticized Mao. Several other professors have been fired for speaking critically of the Chinese government on social media. Xi’s anti-corruption arm, the Central Commission for Discipline Inspection, has cited 14 top universities for ideological infractions.

Hong Kong, designated a Special Administrative Region with theoretical political independence from Beijing, has also felt increasing pressure. Pro-democracy advocates have been charged with “unlawful assembly” and “obstructing police” over protests against Mainland China interference. China has declared that Hong Kong residents are not exempt from the new law that makes disrespect for the Chinese national anthem punishable by three years in jail. The China Liaison Office in Hong Kong has even said the “one country, two systems” principle could be abolished altogether if Hong Kong “fails to actively defend the sovereignty” of China.[12]

Hong Kong’s ostensible independence also received a blow in 2016 in the case of the missing booksellers. A Hong Kong publishing house that has frequently printed books critical of Beijing leadership had five of its staff go missing starting in October 2016. Two vanished while visiting Mainland China, two disappeared from Hong Kong itself, and one, publisher Gui Minhai, was abducted while on vacation in Thailand. Gui turned up months later on Chinese television, tearfully confessing in a show trial to other crimes. The case sent a chill through Hong Kong, sending the message that criticism of Beijing may no longer be tolerated.

Figure 5. Gui Minhai on Chinese televised show trial

Control of Media

China has never enjoyed a truly independent media. Still, during much of the last 15 years, the extent of Party control over content has varied greatly. Expressions of popular discontent with the government at some levels have been permitted. Many cases of real investigative journalism that brought government shortcomings to light have been allowed. A proliferation of news media sources, especially online, had taken place.

Xi is actively reversing these trends. In February 2016, Xi made well-publicized visits to major papers and TV stations, emphasizing their need to subordinate themselves to Party authority. These outlets were told that news media “must love the Party, protect the Party, and closely align themselves with the Party leadership in thought, politics and action.” The crackdown on the press resulted in Reporters Without Borders ranking China 176 out of 180 countries in its 2016 worldwide index of press freedom.[13] In 2018 Xi re-emphasized that “We must unwaveringly persist in the principle that the Party manages the media, persist in politicians running newspapers, periodicals, TV stations, and news websites.“[14]

There have also been attempts by China to extend the reach of its censorship beyond its borders. In 2016, after warnings by the Chinese government, the U.S. firm LinkedIn censored critical posts about China from its worldwide network. This action was a condition of LinkedIn’s continued operations in China.[15] In 2017, Cambridge University Press in the UK admitted that it had blocked access from China to more than 300 articles published in its journal China Quarterly, following orders from the Chinese government.[16]

Control of the Internet

Since the Internet became a prominent part of Chinese media in about 2000, control of content has been a continual game of cat-and-mouse between the government and the growing population of Chinese “netizens.” The government seeks to gain greater control over content, and the netizens (who were usually technically smarter) looks for ways to get around control and censorship. Control has generally been tightening up since 2010 when greater restrictions on the anonymous use of social media were starting, but many netizens still enjoyed some freedom of expression.

Xi Jinping, however, has been taking this control to new heights. He has in recent years made Internet control a national security issue, declaring that “Without cybersecurity, there is no national security.” He began applying resources to Internet content control as never before, both controlling content and injecting government versions of content into online media. Even as early as 2013, the number of people employed as “internet public opinion analysts” (censors) was estimated at 2 million. A 2016 Harvard study estimated that the Chinese government was fabricating and posting more than 400 million comments on social media annually.

Despite the tighter control, Chinese netizens were still circumventing the system and visiting foreign websites that were supposed to be blocked. Virtual Private Network (VPN) applications had become the tools of choice for getting to the outside world. However, in 2017 the Ministry of Industry and Information Technology issued regulations banning the use of circumvention tools, including VPNs. That same year, Apple was forced to remove dozens of VPNs from its App Store in China, citing compliance with government regulations.[17]

The suppression of online dissent has been directed particularly against social media outlets. The government has now required that major social media entities such as Weibo bar users who have not registered with their real names, thus eliminating anonymous dissent. Beijing police arrested the creator of a WeChat social media group that discussed political and social issues. Even entertainment news and celebrity gossip accounts have been shut down to stop the spread of “vulgar sentiments.”[18]

Access to social media based outside China has been increasingly restricted. As of May 2018, popular foreign social media sites Facebook, Twitter, Instagram, Pinterest, WhatsApp, and Blogspot were all blocked from China. So were such sites as Netflix, YouTube, Wikipedia, and GitHub. Access to Western news outlets as New York Times and BBC remained blocked. Even the Google search engine and the use of Gmail have been banned.[19]

China has in some cases extended its censorship regime out into the outside world through offensive methods. In 2015 the Chinese government conducted a distributed denial of service attack against GitHub, a popular U.S.-based software archive site. The details of the attack indicated that it was an attempt to force GitHub to remove pages linked to the Chinese-language edition of the New York Times and to GreatFire.org, a popular VPN service.[20]

CHANGES AFFECTING CHINA’S PLACE IN THE WORLD

This tightening of the controls over Party and society impact Chinese citizens but do not directly affect many others in the world. Two aspects of Chinese policy under Xi Jinping do have broad implications for the rest of the world: economic policy and military development. Under Xi, radical changes are under way in these areas as well.

China as Economic Superpower

As with other sectors of China, Xi Jinping has moved to gain personal control over the Chinese economy and to employ China’s economic power to advance toward great-power status. In addition to his other roles as President and General Secretary of the Party, Xi has assumed the position of Chairman of China’s Central Economic and Financial Affairs Commission. Leadership of the Commission now provides Xi with a platform to drive through his economic policies. The stance he has taken on the economy is not only that the economy is key to China’s status but that financial risk management is itself a matter of national security.

There is no ignoring the fact that the Chinese economy is a major force in the world today. On top of stunning gains in the 1990’s, China’s economy quadrupled in size between 2001 and 2012. China's economy produced $23.12 trillion in 2017 based on purchasing power parity, with both the European Union and the United States following in its wake.[21] China’s GDP per capita is still only $16,600 as compared to $59,500 in the U.S.,[22] but that situation could change rapidly. The Chinese middle class is expected to increase from 430 million today to 780 million by about 2025.[23]

This kind of economic power does not necessarily pose a direct threat to the U.S. It is true that China is the largest foreign holder of U.S. Treasuries, now totaling $1.19 trillion, about 19 percent of the public debt held by foreign countries.[24] China does threaten to sell part of its holdings whenever the U.S. pressures it to adjust the yuan's value. However, China purchases of U.S. debt support the value of the dollar, and it has devalued the yuan when needed to keep its export prices competitive. This has helped the dollar increase in strength by 25 percent from 2014 to 2016 and remains high.

Beijing is driving globalization on its own terms. In what has been called the “China Inc.” business model, China applies government management to every facet of commercial operations, carries out government economic policies through state-owned enterprises across all key sectors, subsidizes Chinese companies, and coerces technology transfer from foreign partners. It is working to enforce information control through requirements for data localization and government control of telecommunications technologies.

Figure 6. Xi Jinping speaking at 2017 Davos Forum

As an example of the “China Inc.” approach, a major economic initiative started in 2015 known as “Made in China 2025” aims to make China competitive in ten key industries including aircraft, new energy vehicles, and biotechnology. Some of its specific goals include a plan to boost China’s share of domestically made robots to more than 50 percent of worldwide sales by 2020. It is also investing major efforts into building up its own semiconductor industry by earmarking $150 billion on spending in this field over 10 years.[25]

Xi Jinping even acted as a key spokesman for globalization (and against protectionism) as the Davos economic forum in 2017, saying without a hint of irony that “the problems troubling the world are not caused by globalization. Countries should view their own interest in the broader context and refrain from pursuing their own interests at the expense of others.”

Belt and Road Initiative

One of China’s most obvious attempts to extend its economic reach has been its massive infrastructure project known as the Belt and Road Initiative. Xi Jinping launched this effort soon after coming to power in 2013, and it has evolved into perhaps the largest global infrastructure project in history. China has been spending $150 billion a year to link 68 countries along the old Silk Road with Europe and is also building ports, railways, and pipelines in several countries.[26] The aim seems to be the creation of a China-dominated Eurasia that will stand as an economic rival to the U.S.-EU bloc.

The Belt and Road Initiative, particularly the “Maritime Silk Road” components—those ports built and operated by China across the Indian Ocean, in Africa, and in Western Europe—have raised concerns about their economic and military potential. As economic instruments, ports under Chinese control could theoretically be closed or restricted in times of disagreement with Western policies. Many are at choke points along key maritime routes.

Figure 7. New York Times’ identification of Chinese port construction along the Indian Ocean “Maritime Silk Road”

In addition, there have been concerns that Chinese commercial ports could eventually be converted into military bases. China has built new port facilities in Djibouti on a choke point for the Indian Ocean-to-Europe route. As part of the deal, China was given permission to construct a military logistics base nearby, and this base was opened in August 2017. The fear is that Djibouti would serve as a template for an expanding Chinese military presence in other countries.[27]

Changes Affecting Foreign Businesses

Changes under Xi Jinping are already affecting foreign businesses that operate inside China. On 1 June 2017, the Chinese government put an extensive new Cybersecurity Law into effect that applies to all network operations in China by Chinese citizens and foreign businesses alike. Many U.S. corporations operating in China have expressed concerns about how this Law will impact their ability to operate under more intrusive Chinese government control.

The Cybersecurity Law states that operators who collect or process personal data of Chinese citizens are supposed to keep that data within China. To transfer the data outside the country, they will need to undergo a security assessment and get approval from the Chinese government. Cybersecurity-related products and services have to be certified in advance by the Chinese government and meet safety inspection requirements before they can be marketed in China. Businesses are also obliged to assist Chinese authorities in investigating cyber crimes.[28] Given the requirement for security investigations, there is fear that intellectual property could be compromised by a security review if companies are compelled to hand over source codes, encryption data, or other sensitive information to Chinese officials.[29] [30]

In the last few years, China has also been extending control into foreign firms through the presence of Communist Party cells in the companies themselves. About 70 percent of joint-venture firms in China have set up Communist Party branches in their offices.[31] In such joint ventures with state-owned Chinese firms, companies have even been asked to give internal Communist Party cells an explicit role in corporate decision-making.[32]

Control of the Military

One of the greatest surprises about Xi Jinping has been his ability to reshape the Chinese military establishment and bring it under his personal control. His anti-corruption campaign was targeted on the People’s Liberation Army (PLA) from the start, and 12 serving or retired generals were brought down. Xi appeared to be not only attacking generals who were actually corrupt but also replacing military leaders with those who were loyal to him personally. His intent to strengthen Party control of the PLA was suggested by an admission in the PLA Daily in 2016 that, “the key point in the downfall of [four-star generals] Guo Boxiong and Xu Caihou was their violation of the bottom line of the Party’s political discipline, rather than the corruption they committed.”

Xi then proceeded to gain further control of the PLA by instituting the most extensive reorganization of the military in decades. The upper levels of PLA organization were restructured entirely, with the major departments resubordinated under the Central Military Commission, the Regional Commands reduced from seven to five, and a new Army General Command formed. This last move actually downgraded the importance of the PLA to be the ground forces, since the PLA no longer had the Air Forces and Navy subordinated to it. Xi’s Army restructures included a 300,000-man reduction of Army troops which is still being implemented. In addition, Western observers have stated that commanders trusted by Xi were being promoted as others were pushed aside.

Figure 8. Xi Jinping in Army uniform reviewing troops

Xi Jinping’s position as leader of the military comes in his role as Chairman of the Central Military Commission (CMC). This is a traditional third title for China’s leader in addition to President and General Secretary of the Communist Party. In Xi’s case, however, efforts have been made to give more power to this position. This was reflected in statements published through the PLA Daily in 2015, including “The armed forces of China shall be under the unified leadership and command of the CMC Chairman. The overall work of the CMC shall be presided over by the CMC Chairman. All significant issues regarding national defense and military development shall be decided and finalized by the CMC Chairman.”[33] In addition, Xi has assumed the title of “Commander-in-Chief of the Joint Operations Command Center,” a position that did not exist before his rise to power.

Beyond this, Xi has successfully worked to orient military loyalty not only to the Party but to himself personally. By late 2017, new guidelines were issued that “the Army should follow Xi's command, answer to his order, and never worry him.” In addition, a fresh demand was made that the armed forces make a pledge of loyalty, promising to be “absolutely loyal, honest and reliable to Xi.” In January 2018, control of the People’s Armed Police (a million-strong police auxiliary to the armed forces) was also transferred to the Communist Party. A highlight of the official transfer ceremony was praise for Xi with the song “Be a good soldier for Chairman Xi.”[34]

Military Modernization

As Commander-in-Chief, Xi Jinping has continued and expanded the modernization of the Chinese armed forces started by others. Military spending increases that had started several years before Xi’s rise to power have continued, so that the military budget had grown to $175 billion by 2018, making it second in the world after the United States.[35] The continued growth in spending is now transforming the Chinese military into a more modern power. This transformation can be seen in an array of new weapons systems now being fielded.

Figure 9. First Chinese-designed aircraft carrier Type 001A after launch

Having tested carrier-borne aircraft operations with their Liaoning aircraft carrier, a conversion of a Russian-built carrier, China launched its first home-built aircraft carrier in 2017. Now just called the Type 001A, this ship has a length of 1,030 feet and a displacement of 70,000 tons. If they push forward with this development, China will eventually become the world’s number-two aircraft carrier power.

In June 2017, China launched what has been billed as the “most advanced and largest warship in Asia,” the new Type 055 guided-missile destroyer. Western analysts have stated that this class, displacing 12,000 tons and designed to serve in China’s future aircraft carrier battle groups, will be the world’s second most powerful destroyer after the U.S. Navy’s Zumwalt-class destroyer.

Figure 10. Prototype of China’s FC-31 stealth aircraft in 2016

China has claimed that its J-20 stealth fighter joined the PLA Air Forces in March 2017. This aircraft may be designed to balance the potential addition of U.S.-made F-35’s in the air forces of Japan and South Korea. China also reported that it had tested its next-generation stealth fighter, the FC-31 Gyrfalcon, in December 2016. This again appears to be part of China’s answer to the U.S. Air Force F-35.

In conventional missile force developments, the medium-range DF-16 ballistic missile, a highly accurate Chinese missile capable of striking U.S. and Japanese bases, has joined operational forces. A DF-16 mobile launcher and missile appeared in a Rocket Force drills in February 2017.[36]

The ways in which the military budget is being spent indicate a significant shift in defense priorities. Spending is flowing less to ground forces and more to naval, air force, and conventional missile forces. Spending on capital is driving advances in stealth fighters, submarines, and counter-space systems, with less spending on personnel. In fact, the military is in the process of reducing personnel strength from 2.3 million to 2 million.

At the same time, there is a shift in emphasis to capabilities for the projection of power, a shift from regional to global capabilities. Some analysts believe that China perceives the need to operate globally in defense of its expanding economic interconnectedness. Military forces will be charged with protection of maritime transportation lanes and protection of Chinese personnel and assets abroad. With increased reach, China would seek to influence the international security environment.[37]

Figure 11. Major Sun Kailiang of PLA 61398 Unit in Shanghai

Cyber Operations

The other component of the Chinese military that is of everyday interest to the U.S. has been their cyber forces and their operations. The PLA (and other Chinese government elements) have been stealing intellectual property and business-sensitive information from U.S. companies since at least the mid-2000’s. The tempo of such operations has risen and fallen, but this work has continued unabated under Xi Jinping.

In 2014, the U.S. Department of Justice issued charges against five Chinese hackers for carrying out cyber espionage against U.S. companies; all were Chinese military personnel in the PLA “61398” cyber unit in Shanghai.[38] In 2015, a breach of 22 million records from the Office of Personnel Management (OPM) was reported, and U.S. government officials again said this was a Chinese operation.[39]

The extent of the OPM breach raised the profile of Chinese operations against the U.S. to the point that cybersecurity was a key topic of a September 2015 meeting between President Obama and Xi Jinping. The result of the meeting was the U.S./China Cyber Agreement, which included language pledging that neither side would “knowingly conduct or support cyber-enabled theft of intellectual property.”[40]

Although there appeared to be a lull in Chinese cyber operations following this agreement, by 2017 reporting indicated that that lull had been temporary. Several major recent cases—Boyusec, CCleaner, DDE Exploit, and PZChao—that Wapack Labs reviewed showed that Chinese government cyber operations against U.S. corporate targets were again underway.[41] In early 2018, the U.S. Department of the Treasury also summarized its investigation of recent Chinese operations with this statement: “The United States has been closely monitoring China’s cyber activities and the evidence indicates that China continues its policy and practice of using cyber intrusions to target U.S. firms to access their sensitive commercial information and trade secrets.”[42]

CONCLUSIONS: THE MEANING OF XI JINPING

In 2012, before Xi Jinping assumed his post as Party Secretary, China appeared to be on a vector towards a prosperity that gave it great-power status without threatening the rest of the world. It was perhaps seen as a difficult business partner but one conforming largely to global business standards as specified by the World Trade Organization. A more robust civil society seemed to be developing. Use of the Internet was controlled to some extent but Chinese netizens circumvented those controls when they needed to. Military spending was on the rise, but this was viewed as commensurate with China’s new status as a near-great power.

Xi Jinping, to everyone’s surprise, has successfully altered that vector so that it points in the direction of his personal vision for a Strong China. He has done this by consolidating control over the Party and making it the instrument of his personal power. He has stifled any dissent by competing Party leaders against these moves, and he has prohibited any popular expression of dissent. He has taken control of the economy and initiated plans to make it even more powerful and influential across the planet. He has moved to greatly expand the presence of Chinese in commercial enterprises around the world. He has planned and is executing military spending focused on the development of key military technologies, and he appears to be reshaping Chinese military forces to be capable of operating globally. He has also reshaped the Party structure so that he can stay in power as long as he wants.

What does that mean for us? For Western businesses, it likely means that working in China will be increasingly problematic. Increased regulation of foreign operations coupled with the potential for in-office Party cells asking for a vote on corporate decisions could complicate day-to-day operations. The continued apparent willingness of the Chinese to expropriate intellectual property, either through demands placed on in-country operations or continued cyber operations, could also make the decision to operate in China a harder call.

For Western businesses competing with China, the “China Inc.” business model with its state-owned enterprises, government subsidies, and government investment plan for key technologies will likely make competition harder. The expansion of Chinese transportation infrastructure around the planet should facilitate the movement of Chinese products and potentially threaten access for China’s competitors.

For the international security environment, Xi’s development of a more robust and more modern armed forces could presage a shift in the global balance of power. It signals a Chinese interest in military capabilities that extend their reach farther from China, for defensive purposes but also potentially for operations in support of their increasingly global economic presence.

All of these potential changes seem to be components of Xi’s vision for a Strong China, a peer with others; a superpower. It signals that, at least in Xi’s vision, China is no longer an “emerging” power. China stands squarely on its own feet on the world stage.

Contact the Wapack Labs for more information: 603-606-1246, or feedback@wapacklabs.com.