Xi's grip slips

However, something unexpected happened at the end of July. A new narrative was emerging from academics based outside the country who follow China closely. After trumpeting Xi's tight grip on every aspect of Chinese society, suddenly rumours swirled about unrest within the party about China's aggressive international policies and its handling of the trade war with US president Donald Trump.

The absence of Xi's image from the front page of state-run newspapers for several days was enough to trigger speculation the leader was out of favour. There were unconfirmed reports of authorities taking down posters of the president in parts of Beijing and that elder Communist Party members had asked Xi to reconsider some economic policies.

This week Xi re-emerged after a month-long absence over the Chinese summer to address the military, meet the Malaysian Prime Minister and tackle the biggest threat to China's stability – Trump's trade war. US tariffs on an additional US$16 billion of Chinese goods came into effect on Thursday and Beijing responded with a retaliatory duty on American goods.

On the surface at least, Xi's power appears undiminished after the summer break but it's far from clear how the escalation of the trade war between the world's two largest economies will play out.

Many ordinary Chinese citizens, in public as well as privately, look up to President Xi Jinping. AP

"Xi can scarcely be blamed for Trump. His rivals, nonetheless, have latched onto deteriorating relations as a stick to beat Xi over the head with. Trump often talks about his "good friend" Xi. But the US president is in fact behaving anything like a friend to his peer in Beijing," Lowy Institute fellow Richard McGregor wrote in AFR Weekend earlier this month.

"Xi may regret, in retrospect, pursuing such a forceful foreign policy, as it has allowed the China hawks to gain ascendancy in Washington."


Publicly at least there is no sign of any regret about how China handles its publicity via a central propaganda department. The president told a meeting of senior officials on Wednesday that there was nothing wrong with the government's messaging to the rest of the world or domestically.

"Practice has proved that the decisions and deployment of propaganda and ideological work by the Party Central Committee are completely correct," state-run media quoted the president as saying. He also reinforced Beijing's tight control over the country's media and the internet during the two-day meeting with senior propaganda officials. The president's comments were seen as a response to grumblings about Beijing's nationalistic rhetoric on the international stage.

Chinese journalists have been instructed not to report on any businesses which are experiencing a negative impact from the US trade tariffs.

Unlike Australia, leadership challenges in one-party China are highly unusual. Xi's presidency is not under threat and China's censors continue ensure any criticism does not last long on social media But concern about the country's debt, investor protests over losses from peer-to-peer lending schemes and a vaccination scandal have created a series of headaches for China's leaders over the past month.

Trade war blackout

How Beijing handles the trade battle with Trump will be incredibly important in coming weeks and months. The country's propaganda department will play a major role with Beijing working overtime to make sure the dominant image is one of a resilient economy that can ride out anything Trump throws at it.

AFR Weekend understands that local journalists have been instructed not to report on any businesses which are experiencing a negative impact from the US trade tariffs. The Chinese government's biggest fear is businesses affected by Trump's trade tariffs will be forced to lay off staff, hitting employment.

When AFR Weekend contacted the owner of a Chinese auto parts manufacturer for an interview this week, he said: "You better be careful if you come and visit me as you will be followed. The government is very sensitive about this topic."


Dozens of other businesses, including toy makers and textile producers, also refused to talk about the issue.

Du Wei, the president of Wanshida Coffee Machines which sells coffee machines to the United States, said he was not worried about the impact of a trade war.

"We can't see the impact of the tariff yet because it is still at a very early stage. But I believe Chinses products are still quite competitive [even with high tariffs]. The US only takes a quarter of my sales so it is not hugely important," Du said from his factory in Huangzhou, a city near Shanghai.

"Mr Trump is a businessman and he plays hard to get what he wants."

Du went a step further and criticised Australia, which he said contributed less to the Chinese economy than the United States.

"Australia is worse. America gave Chinese companies a good platform to make profits so we are thankful to the US government for helping so many exporters in China. Compared to the US, Australia reaped a huge profit by selling iron ore to china but then they lecture China."

There was no breakthrough in talks between China's Vice-Commerce Minister Wang Shouwen and US Treasury Undersecretary David Malpass in Washington this week. China's Commerce Ministry said on Friday both countries had a "frank" discussion but did not outline any resolution. Despite this, some economists and academics remain hopeful the world's two biggest economies will resolve their differences.

"Both governments should take care of the people's concerns by wrapping up a mutually beneficial agreement as soon as possible," Shen Dingli, a professor of international relations at Fudan University, told AFR Weekend.


"The fourth round [of trade talks] may not be completely successful. There is a saying in Chinese that success has many mothers. After failing many times you can succeed. It is still possible they can defuse the tension in coming weeks.

"President Xi wants to be co-operative but in a mutually beneficial way and not the US dictating to China."

Willy Lam, adjunct professor at the Chinese University of Hong Kong's Centre for China Studies, says the trade tensions will ensure pressure remains on Xi from rival factions within the Communist Party. But the inner workings of the party are opaque and any unrest is unlikely to play out in public.

Lam believes one sign of the internal power struggle playing out in Beijing is the absence of some of Xi's top allies from the public limelight in recent months. He says premier Li Keqiang, who was believed to be out of favour earlier, in the year, has clawed back some power. Meanwhile Xi's top economics advisor Liu He appeared to be focused on new portfolios including a new technology role rather than spearheading trade talks although others see this as an additional responsibility which bolsters his influence.

Bo Xilai, the former mayor of the Chinese coastal city of Dalian who was jailed in 2013, was one Xi's greatest political opponents. Officials from a number of local governments in China were urged by the party this month to "eliminate the bad influence" of the former politician. Just as The Story of Yanxi Palace has reminded China about what happened in the past, this warning was a not so subtle demonstration of what what can happen to Xi's enemies today.