by Bill O’Grady | PDF

President and General Secretary Xi Jingping has changed the course of Chinese governance.  Deng Xiaoping Peng created a collective leadership model to prevent the rise of another Mao.  Leaders were carefully selected and surrounded by leading figures of the various factions of the Communist Party of China (CPC).  Term limits were put in place to restrict a President/General Secretary to two five-year terms. Deng established a structure of government which was somewhat decentralized.  Cults of personality were discouraged.

Xi Jinping has reversed these measures.  He has ended the restrictions on term limits.  The Standing Committee of the Politburo is mostly composed of allies.  Instead of using the structure of government that diffused power, Xi has created a series of informal committees that actually execute policy; this gives him nearly complete control of the government.  “Xi Jinping thought” is now discussed in party and academic circles; although no one has bound them into a little red book, it would not be a surprise if that were to occur.

Xi is also changing China’s foreign policy.  Under Deng, foreign policy was all about “hide your ambitions and disguise your claws.”  Under Xi, foreign policy has been more assertive.  However, over the past 18 months, we have seen aggressive and, perhaps more importantly, widespread actions.  China seems to be willing to create tensions across a broad spectrum, which does appear to be a new development.

There are two broad themes to this report.  In Part I, we will frame China’s situation using Japan as an analog.  In Part II, we will continue the analog, discuss recent Chinese aggression and offer a detailed analysis of the potential motivations of Chinese and U.S. policymakers.  As always, we will conclude the discussion with potential market ramifications.

Read the full report