As China’s Leaders Gather in Beijing, Here’s What to Watch

This year’s National People’s Congress (NPC) marks the official start of a new leadership group that emerged from the 20th Party Congress. The five-year cycle that is about to conclude witnessed an international environment increasingly hostile to China’s tech ambitions. In reaction, China has looked inward, doubling down on self-sufficiency and tilting towards national security at the expense of economic development. The 20th Party Congress set the overarching policy direction, but the NPC provides an opportunity to gain clarity on the specifics on where China is headed on the technology front. Some of the new policy signals will have immediate impact, while others will play out over the years through actions pursued by the ministries and local governments.

The NPC functions as China’s legislature. While its Standing Committee enacts the vast majority of laws throughout the year, the NPC’s annual meeting provides a venue to suggest and discuss future legislation. The legislation plan for 2023 is expected to be published shortly after the NPC, and a five-year legislation plan to be finalized later in the year. It has been announced that the five-year legislation plan will emphasize areas that are key, emerging, or involving foreign affairs. For instance, scholars have weighed the merit of a Digital Economy Law that would define innovation concepts such as data ownership and also develop an overarching regulatory framework that is more predictable than “campaign-style” enforcement. An overarching law would fill in the regulatory vacuum and develop a regulatory framework that is more predictable than campaign-style enforcement. It should also not be a surprise if NPC delegates also consider legislation on artificial intelligence, given that China has taken a step toward regulating deep synthesis and algorithmic fairness. When it comes to legislation in foreign affairs, so far, much-hyped legal developments—such as the Anti-Foreign Sanctions Law and the Unreliable Entity List—have largely been drawn from a defensive legal toolbox and therefore can’t be used proactively. China has only invoked them on a few symbolic occasions and has avoided deploying them in ways that might harm the country’s economic interests.

On the policy front, I would pay close attention to any institutional reform involving stakeholders in tech policy making and implementation: most importantly, the Cyberspace Administration of China (CAC), the Ministry of Industry and Information Technology (MIIT), and the Ministry of Public Security (MPS). Despite differences in priorities, capabilities, and degrees of Party control, the responsibilities of these different bodies have overlapped, at times giving rise to bureaucratic turf battles. A sweeping institutional reform would signal changes to priorities, authority, and working relations with arms of government. The State Council reform in 2018 elevated the status of the CAC. Since then, the CAC has gained influence by taking the helm at a wider range of tech policymaking. But questions remain as to how to coordinate enforcement resources that remain dispersed across bureaucracies to implement the regulatory regime ushered in by the 2017 Cybersecurity Law.

We will likely see a more entrenched role for the Party in state functions, resulting in less transparency of budgets, personnel, organizational goals, and due process, at a time when China could benefit from more transparency to enhance the ease of doing business in China and restore trust with the rest of the world.

At the NPC, the new government will unveil the annual National Economic and Social Development Plan. The Plan will convey policy changes through newly coined conceptual terminology and subtle changes in tone. When it comes to technology innovation, the Plan will likely emphasize high-quality growth, indigenous innovation, and expanding domestic demand. What is less certain is how far China will further distort capital allocation to fund innovation in strategic industries. The funding push may enhance long-term productivity, but if executed inefficiently or excessively, risks running into conflict with other financial goals such as controlling local government debt. Plunging revenue from land sales and mounting debt levels have handicapped local governments; overzealously pursuing investments in strategically important industries diverts government expenditure from activities that would yield more long-term economic growth. An equally important message to parse out from the Plan is its attitude towards foreign companies with supply chain exposure in China. If they want to bring back foreign investment, Beijing, and ultimately local governments, have to restore confidence and counteract the rising tide of on-shoring and friend-shoring.

In the economic sphere, here are the areas where we are likely to see concrete policy proposals. In the attempt to prioritize domestic consumption as the key engine for economic growth this year, we will likely see the central government encouraging more local-level initiative and autonomy. This is curiously reminiscent of the early years of Reform and Opening, when the lack of a clear policy roadmap under an urgent objective necessitated decentralized experimentation.

At the December Politburo meeting following the annual Central Economic Work Conference, Xi Jinping introduced the idea of the Four “Dares”, which encourage cadres, local governments, enterprises, and individuals to take bolder steps to stimulate economic growth. Since then, a flurry of stories highlighting local efforts in this spirit have appeared in China’s press.

Officially, China has been playing up its continued “Opening” and signaling friendliness towards FDI and foreign enterprises. The government currently cites local government-business delegations’ overseas travel and the revival of international forums and trade fairs as evidence that China’s economic openness has not diminished and is set to expand going forward. But the cumulative effect of these activities so far pales in comparison to the fallout from China-U.S. decoupling and the exodus of foreign enterprises from China.

The government’s proclaimed “unwavering” support of private enterprise engenders similar skepticism in the absence, again, thus far, of concrete policies to back it up. Never since the start of Reform and Opening have we seen such a low level of faith in state support from both the foreign business community and domestic private enterprise. Whether greater confidence returns will depend heavily on the introduction of actionable policies and legal guarantee that can demonstrate long-term commitments to economic reform and open trade.

On the personnel level, it is worth noting that although Li Qiang, China’s next Premier, has had little central-governmental experience, he was well-regarded as pro-business and popular among the foreign executive community during his tenure as Party Chief of Shanghai. If he can carry that orientation into his new role, and with his closeness to Xi, his reputation can add a layer of reassurance if and when the government rolls out concretely pro-business policies.

With looming concerns posed by China’s shrinking population, we will likely see further initiatives to encourage childbirth. (Interestingly, debates about lowering the legal age for marriage have been revived recently, though there is no clear policy tilt on that just yet.) A shrinking and aging population is also not an isolated problem, and we may see demographic concerns addressed as part of a much larger shift in the policy agenda. China’s current real estate crisis has laid bare the unsustainability of its decades-long investment-driven growth model, at the same time calling into question how local governments—fiscally devastated after three years of “zero-COVID”—will be financed if they can no longer rely on speculative land sales. The government could use these concurrent crises as opportunities for structural reform: both to transform its growth model and to redirect resources toward encouraging childbirth, reforming the welfare system, and reducing inequality. In light of recent debates over China’s official retirement age, welfare adjustments, and the recent pensioners’ protests, we can expect the Two Sessions to advance a pro-natalist agenda in conversation with a broader nexus of questions vis-à-vis public welfare, government resource allocation, and China’s long-term growth model.

Amid geopolitical instability and the end of zero-COVID, China is in a precarious position: the country needs to accelerate economic growth while continuing to meet its climate targets. China’s GDP grew by 3 percent in 2022, falling well short of the 5.5 percent growth target set by the government in March 2022, which will likely engender an urgency to pivot the Chinese economy towards greater growth in 2023. Accelerated economic growth and development often comes at the expense of environmental protection. China’s achievement of its ambitious 2030 and 2060 climate targets hinges on its continued progress towards carbon emissions reduction, elimination of coal-fired plants, and adoption of cleaner energy. Economic growth and development may involve the redirection of funds originally set aside for environmental progress.

One way to gauge China’s continued commitment to climate policy, even in the face of economic challenges, will be the more active participation of its officials in international fora for environmental law. Specifically, we will see if China changes or reaffirms its position on loss and damage financing, which was one of the major outcomes of COP27. If China decides to contribute to a loss and damage fund, it would be a pioneer of climate finance leadership; failure to contribute could signal disregard for the devastating impacts of climate change, caused in large part by China’s own emissions.

China has steadily expanded its work on biodiversity conservation. In 2021, at the 15th meeting of the Conference of the Parties (COP15) to the Convention on Biological Diversity, Xi Jinping struck a collaborative note in his remarks, calling for the need to “join hands and start a new journey of high-quality development for humanity.” Since then, China has continued to strengthen its commitments to ecological protection. China has increased its protection of national parks and other green spaces, and as a result flora and fauna that were diminishing have begun to rebound. Green spaces like national parks and forests also act as carbon sinks, and so a prioritization of investment into these areas would be beneficial for China’s overall commitments to carbon reduction.

Since Russia’s invasion of Ukraine, China’s coal usage has appeared to increase. China is purchasing heavily discounted Russian coal to stockpile and is increasing growth in domestic coal mining amidst strains on global supply chains. The result is that China has shifted away from its cleaner energy focus to prioritize the domestic security of its own energy resources. Geopolitical instability significantly affects China’s ability to meet its climate goals. If China doesn’t increase domestic reliance on renewables, its climate targets may prove unreachable. For China to realize its climate commitments, domestic climate policies must take center stage at the Two Sessions. There must be an emphasis on establishing domestic resilience and reducing dependence on foreign energy sources. This could be achieved by increasing funding for renewable energy, decreasing coal consumption and coal plant creation, investing in infrastructure for electricity generation, and committing to restoring biodiversity through increased greenspaces. A combination of these policies would put China in a stronger position to realize its climate targets.

Given the recent statements by U.S. officials about China’s potentially providing military support for Russia in its war in Ukraine, I will be very interested in what officials will say about Russia and Ukraine during the NPC. Affirmations that Beijing has no such intentions would be a signal of recognition that such a move would be disastrous for U.S.-China relations, which can still get a lot worse than they are now. Military support from China to Russia would be a big step towards a Cold War. Unfortunately, the signs aren’t good. In recent days, China’s Foreign Ministry has promoted a limp “peace initiative” which basically repeats the People’s Republic of China’s (PRC’s) existing position expressing commitment to sovereignty and territorial integrity while refusing to criticize Russia’s brazen violation of that norm, and echoing its blaming of NATO for Putin’s aggression.

It is also possible the Two Sessions will yield signals about the prospect of Xi Jinping’s visiting Russia soon. The optics of a Xi state visit to Russia—accompanied by the usual pomp, ceremony, photo-ops with Putin, economic deal-making, and America-bashing diplomatic rhetoric—would be seriously harmful to China’s image in Europe. Unless Xi intends to pressure Vladimir Putin into withdrawing his troops, Europeans will view such a visit as unnecessary, and China’s professions of neutrality as disingenuous. Whether the PRC understands this is a different question. Given Putin’s, Zelensky’s, and Biden’s recent speeches, there’s little realistic prospect that the war would not still be raging on when Xi visits. Under these circumstances, a visit by Xi could be the nail in the coffin of any prospect for the PRC to peel Europe away from the U.S. on investment, or the provision of high-tech semiconductor manufacturing equipment.

That raises the interesting question of why the PRC would be willing to make a state visit. Russia is China’s key strategic partner in the competition against the U.S., but a further question is whether Xi and other top officials view themselves as conducting a strategic competition against the “collective West” to which Russian officials have recently referred. Beijing has made efforts to divide Europe from the U.S. on at least some economic and technological issues. So a Xi visit to Moscow, totally undermining that work, seems to me to imply three general possibilities:

1. Xi believes the economic pain that Europe has been suffering this winter is sufficient to “determine” (in the Marxist sense) the inevitable softening of EU positions on key trade and tech issues;
2. Xi believes the EU is already all in with a monolithic “collective West” and thus his visit will make no difference to EU policy towards China;
3. Xi is receiving poor information on what the Ukraine conflict means to EU members, and thus does not appreciate the long-term strategic significance of visiting Moscow while war rages in Europe.

The Two Sessions presents an opportunity for Xi Jinping to initiate enhanced Party control over Hong Kong policy. He laid out his position on the future direction of the city in the 20th Party Congress work report, in which he promised to “uphold and improve the systems for implementing the One Country, Two systems policy and ensure that the central government exercises overall jurisdiction the two regions [Hong Kong and Macau].” He added, “We will inspire more people in Hong Kong and Macau to love both the country and their own regions, be more patriotic, and forge a broader united front at home and abroad in support of the One Country, Two systems policy.”

Recent shifts suggest Xi may be inclined to grant the Party still more authority over the former British colony. According to the South China Morning Post, a proposal was introduced during the Chinese Communist Party (CCP) Central Committee’s second plenary session held earlier this week that would transfer authority over the Hong Kong and Macau Affairs Office (HKMAO) from the State Council to the Party’s Central Committee. The move would simultaneously elevate the status of the office and, presumably, put it under tighter Party control.

Several of the top officials currently in charge of Hong Kong’s affairs have strong connections to Xi and therefore likely have little incentive to resist expanded Party control over the territory. The HKMAO is led by Xia Baolong, who replaced Zhang Xiaoming in 2020 and worked with Xi for four years during Xi’s time in Zhejiang. Meanwhile, the Central Leading Group on Hong Kong and Macau Affairs will be appointed a new leader at the Two Sessions: in the running are Wang Huning, likely new Chair of the CPPCC, and Ding Xuexiang, likely the new Executive Vice Premier.

Any further changes to policy on Hong Kong coming out of the Two Sessions are likely to continue the broader trend of tightening the CCP’s grip on Hong Kong policy. The Central Leading Group on Hong Kong and Macau, which oversees Beijing’s strategy for the territories and reports to the CCP Politburo, was elevated during the Two Sessions in 2020—the same year the Standing Committee of the NPC passed the Hong Kong National Security Law (NSL). This upgrade, which came in the aftermath of months of large-scale protests in Hong Kong, conferred decision-making power on what had previously been an information-gathering body. Tam Yiu-chung, a Hong Kong representative to the NPC Standing Committee, said at the time that the intra-Party change from the Central Coordination Group on Hong Kong and Macau Affairs to the Central Leading Group on Hong Kong and Macau was indicative of the Party body’s leadership role within the central government.

After the passage of the NSL—and Hong Kong’s 2021 electoral restrictions—the protests eventually ended. But Xi now faces an increasingly tense geopolitical arena, with Russia’s invasion of Ukraine drawing global attention to Taiwan and, as a result, to the “one country, two systems” framework. External events, over which Xi has no control, could impel him to further embed Hong Kong within the Party he leads.

China is embarking on a new round of institutional reforms to “promote the Party’s leadership over socialist modernization,” according to the communique of the second plenary session released by the Central Committee. This will be the ninth round of changes since the country’s reform and opening-up in 1978, and the Politburo meeting emphasized that the reforms will prioritize “problem-solving.”

The direction of institutional reform is a topic of great interest and speculation among China watchers. China’s Ministry of Public Security and Ministry of State Security will likely be separated from the State Council and come directly under the Party’s newly established Internal Affairs Committee, which could integrate various security entities and likely be chaired by the current Minister of Public Security, Wang Xiaohong. Meanwhile, as the vice premier overseeing economic, financial, and industrial affairs, He Lifeng is also widely expected to become the People’s Bank of China’s (PBOC’s) Party chief. If he is confirmed in this capacity, the PBOC’s monetary authority will be severely weakened.

The security apparatus is expected to undergo a significant structural overhaul, but the specific changes are still unclear. Among the possibilities are consolidating national security and public security entities or absorbing local security functionalities. Certain departmental functions may be actively reassessed to align with the evolving policies on “high-quality development,” such as rural revitalization and social security reform. Maintaining a clear demarcation between the roles of the Party and the government is crucial, with the former taking precedence in terms of leadership. However, ensuring that the government does not become an encumbrance of the Party is equally important.

In order to advance its domestic innovation, China must address the political and institutional woes that have hindered its high-stakes bid to advance this sector. For example, some experts have compared China’s efforts to boost its semiconductor industry to the Great Leap Forward of 1957: despite nationalistic rhetoric, political and institutional issues have plagued progress and threaten to derail the initiative.

The government's investment strategy is driven more by political priorities than scientific reality, directing funding towards short-term goals and performance metrics rather than the basic science essential for technological advancement. Additionally, a lack of oversight and accountability in fund allocation has resulted in rampant corruption and questionable investment decisions, with many companies jumping on the bandwagon to cash in on the government’s largesse.

To address these issues, China's institutional reforms will likely attempt to streamline institutions, transform their functions, and improve their efficiency. One possible solution is establishing an independent oversight mechanism that ensures funding is directed toward basic science and innovation while promoting transparency and accountability in allocating funds.

The ultimate goal of this round of institutional reforms is to upgrade China’s governance system and capabilities so they are in line with Xi Jinping’s vision of “Chinese-style modernization,” regardless of the specific mechanisms used to achieve it.