



China seems to have a Janus like quality about its domestic and international affairs over the last few years, promising an open China which is willing to trade whilst reinforcing the role of the state in the economy and narrowing the acceptable range of criticism and divergence from government objectives at home. An inflection point is approaching or has indeed passed, concerning China’s economic development and geopolitical role in the world. Questions over the future direction that the CCP has for the country and its policies are pivotal in how this inflection will pass for China and the International Community.





Forecasting the murky world of policy formation and implementation is a tricky business in a country that isn’t exactly inviting interested parties to discuss impacts in an open manner (that’s not to say expert contributors don’t make the trip up to Zhongnanhai to offer input). Even if the exact policies may be hidden from us until announcement, what can we determine to be the generally acceptable policy space which produces these outcomes? If these guide rails of policy can be determined, appropriate expectations can be set on what we think China will do and how it will respond to external actions.





The incorporation of Xi Jinping Thought into the Party’s constitution alongside that of Mao Zedong in the hierarchy of political ideas within the Communist ideological framework can provide some clues to where we might find the boundaries. Apart from the standard proclamations of maintaining the leadership of the Communist Party within China and/or completing and maintaining national unity, we see a commitment which goes beyond that of predecessors to complete a “comprehensive series of reforms” as well as “practice core socialist values” and “promote a peaceful international environment”. The comprehensive series of reforms is headed by the Central Comprehensively Deeping Reforms Commission, staffed by individuals handpicked by President Xi. Initial hopes where that the focus on economic reform suggested by this prominent group would further liberalize the economy. This turned out to not be the case but the composition of the group and announcements of the government ministry of National Development and Reform Commission, which the group has a large amount of influence over, give an indication of leadership concerns regarding reform.





The further additions to the Party’s constitution made by Xi Jinping Thought can be seen in practicality by the promotion and use of the idea of the Chinese Dream and reintroduction of Marxist ideology as a functioning guiding principle in the education and evaluation of Cadres. The Chinese Dream, in essence, is the fulfillment of the goal stated in 1949 of the reinvigoration of the Chinese nation, in the more board historical context the advancement of China to a position of influence that it enjoyed as the previous regional hegemon and the development of the economy to that of a high income country. The more immediate consequences of this result in an abandonment of the low profile foreign policy stance by the PRC. Most visibly manifested in the buildup of a blue water navy with global reach and the ”Fortress Fleet” concept aiming to cover the South and East China Seas combined with increased trade gravity being buffed by the Belt and Road Initiative.





Domestically, the Ideological foundations of the members have been amplified. Cadres are required to show knowledge of Xi Jinping Thought, the Party has closed down independent think tanks which could generate policy ideas, internal discussion over policy has been stymied apart from in the highest positions of the central government. Censorship and the range of acceptable discussion have been narrowed, with previously more independent media being brought into line. The consequences of this are that previous ideas of understanding governance in China as a form of fractured authoritarianism, where ideas and implementation could compete with each other in the party-government structure, have been replaced with a greater degree of central control and limited acceptable range of action by local cadres. This can be seen as our first guiding rail. The greater imposition of central control over local government.





The partner to greater ideological reinforcement in the party of XI Jinping thought, which the thought is meant to supplement as a basis of legitimacy, is the continuation of economic development through the transition to a high-tech high-income economy. Economic performance is the geopolitical foundation of China's shift to a more assertive posture, as well as its domestic support. The economic model is now in transition to driving growth through innovation and Chinese developed products. The economic model of 1992 to 2012 increased the role of the market and shifted factors of production to the private sector even if the state did not give up important service components and resource producers. Starting in earnest in 2012, the state has now reemphasized the role the SOEs and government direction is to have in the economy. Directions on R&D, investment priorities and sectors/technology to be pursued have put the State and its SOEs at the core of the innovation process where previously they had been more central to resource allocation rather than innovation. The SOEs and state funding is now the core of the innovation cluster in any particular industry. SOEs are positioned as core to the functioning of the economy. SOE such as COMAC, the Chinese aviation company pushing the development of an indigenous passenger airliner or China Energy Investment the largest power company in the world by capacity whose subsidiaries are some of the largest wind turbine producers. The state interaction with innovation is further complicated through hybrid companies such as Huawei developing next-gen telecommunications. Huawei is ostensibly a private company but its role within China comprises both elements of a private company and that of a state company. Ownership is not clear, but more importantly, Huawei has access to financial resources directed through the state banks as well as government backing. SOEs acting as the central node, with hybrid firms around the SOE and smaller private companies around them is the method in which the state sets its second guide rail of policy. The CCP sees state directed investment in certain sectors as a priority, but it also wants to maintain the benefits of the private companies’ customer facing innovation. Policy will not quash private innovation but nor will it escape state directed allocation.





The internal structure of the economy may not be meeting external expectations regarding the roll back of the state, yet China is positioning its self as the champion of the current global economic order in face of Trump’s rejection of the trade structure of the last 50 years. On the international stage, President Xi has pointed to the “rising tide lifting all boats” mutual benefit of economic openness. China will not promote policies that restrict the amount of trade between nations. It changing rules regarding foreign direct investment into the country with foreign firms now able to own 100% of their subsidiary in certain sectors, the planned increasing financial openness. The Belt and Road initiative, the AIIB, BRICS Bank not to mention a large amount of lending by China Investment Corporation, the policy banks of China Development Bank and Export-Import Bank building up capital and infrastructure in areas which have severe underinvestment in the necessary facilities to encourage economic development.





China is the practitioner par excellence at the moment of using geo-economic tools to achieve its geopolitical aims. Standing broadly behind the idea of openness to trade, for the time being, is part of its geo-economic aims as is its use of controlling investment within certain countries along the BRI. China seeks to forestall an attempt at containment in the geopolitical sense by entwining and offering the rewards of economic engagement to countries along its periphery to raise the cost of ill-discipline and the rewards of acquiescence. Both seemingly contradictory economic goals, thus the Janus predicate, contribute to the underlying geopolitical goal. There is no contradiction in reality in projecting an aura of openness in the global trading environment and desirable investment into China with the state directed supply chain concentrating BRI and technology policies closer to the strategic center. China aims to solidify its indispensable position in the economic order as well as achieve geopolitical supremacy in East and South East Asia. The third guide rail is thus the most important and has the biggest danger for recalcitrant partners or strategic competitors as it the closest aligned with the core geopolitical goals. China wants an open order centered on its self.'





The three guide rails help us to understand the policy space in the broadest sense in Beijing. The greater centralization of power in Beijing over policy and enforcement; the central role of the state in innovation supporting private enterprise in its development; and the creation of a Chinese centered open economic order. China appears to outsiders as an ambiguous power when these guide rails are only looked at in isolation. The idea of economic openness alongside the BRI supply chain concentration looks like it involves two different concepts competing. When the second guide rail of state centered innovation is analyzed as well, the openness/BRI dichotomy resolves into an issue of using external policy to drive the adoption of Chinese technology and give market room for the innovation to take place. Greater centralization and the ideological retrenchment alongside the pursuit of economic reform makes more sense when the China centered order and need for technological upscaling are brought alongside. Central and western provinces need further economic reform and development which can be done through the BRI but only if the competitiveness of these regions increases with the sophistication of firms there, which will require the central government to breakdown local fiefdoms.

The policy space is outlined, but it does not mean that the correct policies will be chosen to meet the above guidelines. Competency, political skill and capital as well the reflexive international environment towards increasingly important Chinese government policy with the rest of the world; combined these will determine the outcomes of the policy space effect on China’s economy, domestic policy and international environment.