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Since the 1950s and the days of Mao Zedong, Chinese Communist party leaders and their top advisers have headed to the beach resort of Beidaihe to escape the capital’s summertime heat and mull the country’s prospects.
As Chinese officials gathered in recent days for their summer retreat — the first since Xi Jinping secured an unprecedented third term as leader of the party and the military in October — their meeting threatens to be overshadowed by an economic downturn and increased hostilities with the west.
China’s economy this week fell into deflation after consumer prices declined for the first time since early 2020, a stark indicator of the challenges facing policymakers eager to reboot growth in the aftermath of the pandemic.
Western allies are now weighing whether to follow Joe Biden’s decision on Wednesday to ban Americans from investing in parts of China’s artificial intelligence, chips and quantum computing sectors. The US president’s move, framed as targeting national security, risks unravelling recent efforts to improve US-China relations from a historic low. Beijing immediately warned of possible countermeasures.
While Xi’s administration was “desperately trying to revive the economy”, the leaders gathered at Beidaihe were constrained by a status quo that prioritised national security and party control over economic growth, said Victor Shih, professor of Chinese political economy at the University of California, San Diego.
“No one can propose a policy to reduce spending on the military, on national defence, or on internal security, or on mass electronic surveillance of China’s population,” Shih said.
The commitment to security was evident this week in Beidaihe.
Many roads are closed. Checkpoints dot the city. At one security stop, drivers were ordered to roll down their windows so four large cameras could peer into the vehicle while police checked IDs. Tesla cars were banned from city streets — for fear cameras would transmit images to the US — and kites and drones were barred from the skies, while some stretches of ocean were cleared of all boats.
Charles Parton, a former British diplomat now at the Mercator Institute for China Studies, said CCP leaders generally travelled to Beidaihe during the first two weeks of August, joined by retired party leaders, but there were no official reports on attendance or official start and end dates.
State media reported on August 3 that Cai Qi, Xi’s chief of staff and a member of the party’s elite seven-member Politburo Standing Committee, had met 57 science and technology experts gathered at Beidaihe.
“Cai encouraged the experts to make new and more contributions to achieving greater self-reliance and strength in science and technology, building a modern socialist country in all respects, and advancing national rejuvenation on all fronts,” Xinhua, the official news agency, reported.
Parton noted that Beidaihe had been the site of important historical moments, including the start of Mao’s disastrous Great Leap Forward and the shelling of Taiwan’s Kinmen island in 1958. Xi’s longstanding ban on government extravagance meant the retreat was now more low-key, he added.
Xi’s centralisation of power had also made discussions of structural economic reforms “extremely hard”, because officials feared their advice would “elicit the wrath of the top leadership”, said Shih of UC San Diego.
Intrigue also hangs over this year’s retreat following the unexplained absence and removal of Xi favourite Qin Gang from the post of foreign minister last month, as well as corruption probes into China’s military and the party’s own internal discipline watchdog.
Some analysts expect that Xi’s number two, Premier Li Qiang, is preparing to unveil his first set of significant policy changes after spending the six months since his appointment gathering information on China’s property sector collapse, local government debt and weak consumer spending.
The Financial Times reported on Friday that Li had dispatched teams of officials to more than 10 of the country’s financially weakest provinces to scrutinise their books and find ways to cut their debts.
Beijing has stopped short of the kind of stimulus introduced in western economies to support households during the pandemic. But against a backdrop of weak domestic confidence and a prolonged property slowdown, markets are clamouring for stronger measures.
Country Garden, China’s biggest private property developer, missed payments on international bonds this week, deepening concerns over the health of a real estate sector that typically drives more than a quarter of economic activity.
Michael Pettis, a senior fellow with the Carnegie Endowment for International Peace think-tank, said there was increasing “recognition” among Chinese economists and government advisers that Beijing needed to boost domestic consumption via transferring cash and assets to households. But he added that he did not believe a plan for doing so had been drawn up.
“There’s been a discussion about the need to transfer resources to the household sector, but as of yet, no real discussion of the other side of that transfer: which sector of the economy pays for the transfer?”
As long as Beijing’s GDP growth target — which at 5 per cent for 2023 is already the lowest in decades — exceeded what the private sector could deliver, more public sector spending, and government borrowing, would be required to generate the desired levels of economic activity, said Pettis.
“Growth is slowing quickly enough [that] we’re likely to see a turning towards more infrastructure spending on the part of local governments,” he added.
With the Beidaihe retreat shrouded in secrecy, ordinary Chinese people, along with international investors and businesses dependent on China’s economy, will also have to wait to find out what has been decided.
“The masses don’t have any opinions on leaders visiting Beidaihe,” one official told the FT.
Additional reporting by Thomas Hale in Shanghai
