Xi Jinping’s Big Bet

Christopher Mittelstaedt, China is currently facing a number of challenges: an aging populace, a real estate crisis, weak economic growth, international uncertainty and a mounting rivalry with the United States. Which of these is most concerning to the Chinese Communist Party (CCP)? 

Christopher Mittelstaedt: The demographic situation is a major challenge. On the one hand, China has very high youth unemployment. In 2023, up to 20 percent of young people were out of work. On the other hand, the country faces a shortfall of 30 million skilled workers. The CCP wants to close that gap through technological progress, replacing missing factory workers with more robots. The goal is to keep productivity from declining. 

Doesn’t that eliminate job opportunities for young people, making youth unemployment even worse? 

Mittelstaedt: China’s working-age population has been shrinking since 2015. But there’s a mismatch between the people who are unemployed and the workers China actually needs for its future. 

Does that mean that the labor shortage is mainly highly qualified workers versed in new technologies? 

Mittelstaedt: Exactly. China doesn’t need people sewing clothes in factories for much longer. What it needs are highly trained specialists in advanced technology, renewable energy, semiconductors and basic research. From the party leadership’s perspective, the population must be retrained in these areas, which is why they’re reorienting the education system toward subjects like AI and robotics. 

The rest of the world also has to manage this transformation. Where does China stand compared with the West?

Mittelstaedt: In China, education and talent development are part of industrial policy as defined by the party and the state. Western countries don’t have the same leverage to pursue comprehensive industrial policy to the same degree. China’s new Five-Year Plan is betting that the country will achieve global leadership in emerging fields like AI, nuclear fusion, 6G and quantum technology. We won’t know for another 10 to 15 years whether that bet will pay off. 

What does it mean if China wins that bet? 

Mittelstaedt: If the bet pays off, China will genuinely achieve dominance in the technologies of the future. That means the productivity of the Chinese economy will continue to grow, and domestic consumption will increase. China will be able to exploit the full potential of new technologies – for example, using AI to bring new drugs to market faster or to drive down production costs further. This development also has a military dimension. The Chinese military will be able to produce new military hardware as well. 

And what happens if China loses the bet? 

Mittelstaedt: Then they won’t get any payoff for the hundreds of billions of yuan they’ve poured into this gamble. The result will be higher debt. China would no longer be able to afford its social safety net and would have to make cuts. Wages and companies could no longer be paid, which could in turn trigger social unrest and a sharp downturn in economic growth. 

You mentioned the Five-Year Plan. Its most important principle is maintaining the dominance of the party. What role does the Communist Party play in these developments? 

Mittelstaedt: None of this works without the CCP. Any company with more than three CCP members on staff can establish a party cell, and most companies have one, whether they’re state-owned, private or foreign. In theory, cell members are loyal to the party, meaning they’re supposed to implement its directives within their companies. In practice, though, the directives tend to be quite abstract and leave room for interpretation, so companies end up cherry-picking whatever serves their own business objectives. Beyond that, the party controls a lot of factors critical to business. It oversees the banks and can direct capital flows, it decides who gets access to resources like water, land and electricity, and it can distribute subsidies. Much of this happens at the local level, not the national level, which is an important distinction. 

Why is this distinction important? 

Mittelstaedt: When you look at individual regions, you see that the CCP is actually quite heterogeneous. Different provinces have their own interests and interpret party directives accordingly. 

From the outside, the impression is that Xi Jinping has a firm grip on the party and doesn’t tolerate any heterogeneity. Is that wrong? 

Mittelstaedt: When I speak of heterogeneity, I mean regional variations in how party policy is implemented. The provinces position themselves differently and pursue different approaches to economic and technology policy. But that doesn’t mean there is dissent or that there’s any pushback against Xi Jinping and the CCP leadership. When Xi came to power in 2012, the party was in a very different place than it is today. By their own account, they had largely lost control over the economy, society and their own apparatus under Xi’s predecessor Hu Jintao. Xi had a mandate to reverse that loss of control. 

What did he do differently from Hu Jintao? 

Mittelstaedt: Hu Jintao had a collective leadership approach, which meant the general secretary was merely first among equals. Authority was divided among individual members and factions of the politburo, each responsible for their own field of policy, with decisions made by consensus. Xi Jinping, by contrast, has created a lot of different commissions on economic policy, foreign policy, technology policy, internet regulation, security and so on, all of which he personally chairs. He has enshrined his ideology in the party constitution and abolished term limits. He has managed to center everything around himself, and now there’s only one faction in the CCP: the Xi Jinping faction. Open factional struggles have largely disappeared. 

How has Xi Jinping managed to restore the CCP’s authority? 

Mittelstaedt: One aspect was that Xi already started building up his ideological system back in 2012, which gave cadres and party members a clear sense of direction. Who are we as a party, where do we come from, and where are we headed? Another point was that he launched an anti-corruption campaign that has ensnared more than one million cadres and party members so far. This crackdown is being enforced with increasing rigor, which has earned Xi enormous popular support. Working in parallel, he also formalized a set of rules that party members and cadres are required to follow. In the 2000s, CCP cells basically did as they pleased. Now they are once again run as political organizations, studying Xi Jinping’s thought and training cadres along those lines. 

What drives Xi? What’s his ultimate goal? Is it about keeping the party in power or staying in power himself? 

Mittelstaedt: China has set several goals. Some of them originate with Xi Jinping personally, but not all. They can be summed up by the motto: “the great rebirth of the Chinese nation.” By the centennial of the People’s Republic in 2049, China aims to be independent – not just economically and socially, but politically as well. 

What does that mean in practice? 

Mittelstaedt: China wants to claim the top spot when it comes to the most critical technologies. It wants to have a strong military so that it cannot fall under the control of other powers. And it wants to be politically independent from the West, in the sense that it doesn’t want to give the West the authority to define concepts like democracy, human rights or freedom. The aim is to show the West that the Chinese system works better and that the West cannot monopolize discussions about democracy. 

So how should the West handle this version of China? 

Mittelstaedt: Trying to persuade Xi Jinping through discussion and dialogue to adopt our worldview is unlikely to get very far. The pressures he faces at home are far greater than anything the West could realistically apply.  

So dialogue is pointless? 

Mittelstaedt: We still have to continue having a dialogue with China, of course. Switzerland can play an important role as a neutral facilitator, for example, in the conflict between China and the United States. Beyond that, Switzerland and Europe need to work a strategy for developing real counterpressure of their own. That should be a toolkit of different measures that includes not only tariffs, but also subsidies and support for businesses to make them more resilient. These tools can then be deployed in a targeted, strategic way.