In mid-December, I recorded a podcast with Jude Blanchette of the Center for Strategic and International Studies, which has now been published, on their website and via the usual podcast channels. Jude’s one of the best informed and most insightful observers of Chinese politics that I know, and we covered a lot of interesting territory. With the kind permission of CSIS, I’ve produced the following transcript of our conversation, which has been lightly edited for clarity.

Jude: China has emerged as one of the 21st century’s most consequential nations, making it more important than ever to understand how the country is governed. Welcome to Pekingology, the podcast that unpacks China’s evolving political system. I’m Jude Blanchette, the Freeman Chair of China Studies at CSIS, and this week I’m joined by Andrew Batson, China Research Director at Gavekal Dragonomics. Today we’ll be discussing his blog post, Xi’s New Growth Synthesis. Andrew, thanks for joining us.

Andrew: Thanks for having me, Jude.

Jude: So I wanted to start by asking how you first became interested in China and as a related question, how did you find your way to this career of thinking and writing about China’s political economy?

Andrew: My career pathway is a bit weird. The way I got into being a China expert, I think, is different from a lot of other people that I know who do similar things. A lot of the people that I’ve met over the years who do the kind of thing that I do, they got into China-related careers because they had some kind of early life experience that pushed them in that direction. They studied Chinese in high school, maybe, or they have a family connection to China that made it natural to be curious about China.

Actually, I don’t have any of those things. I’m a white kid. I grew up in a small town in southeastern Louisiana. My exposure to China growing up was that my dad would take us out to a Chinese restaurant on Friday nights. That’s kind of it. I basically became interested in China because I lived in China, not the other way around.

And that happened through a pretty circuitous chain of events. But basically, when I was trying to break into journalism and get a job, I went around to meet people, and I was introduced to some people who were involved in journalism in Asia. They introduced me to some people, and they introduced me to some people, and I ended up getting connected with this consulting company in Beijing of all places. The consulting company was looking for educated young people that they could underpay and exploit. So, you know, naturally I was interested in that.

At the time I hadn’t really ever given much thought to China particularly, but here was someone who was willing to pay me to go live in a foreign country and that seemed like a pretty interesting chance that I shouldn’t say no to. So I said, sure, I’ll give it a shot. And then I showed up in Beijing and basically started from scratch. I didn’t have any knowledge of Chinese when I first moved here. I didn’t have that much background knowledge, didn’t have many preconceptions. And because of that, I was immediately confronted with this huge puzzle, right? I’d placed myself in this completely different physical, cultural, social environment. And I had to figure out how it worked. In a sense, that’s what I’ve been doing ever since.

I think the other piece of my biography that’s maybe relevant to this and has shaped my approach is that, although my job for a long time now has been to analyze the Chinese economy, I actually wasn’t trained as an economist. I was trained as an anthropologist: at school, my undergraduate degree was in anthropology. We had a very rigorous exposure, I would say, to a kind of more traditional mid-century style of social science, a little bit different than what people get taught today in most places. The organizing questions that we were asked to investigate were, how do human social systems function, and how do we understand the diversity of human social systems: what are the differences, what do those differences mean?

And I think if I look back at the stuff I’ve been doing over the years, basically the question I’ve been trying to answer, from different angles and in different ways, is what is the nature of China’s system? How is its system different from other systems? And I think the reason I asked the question in that way is because I was exposed to this particular school of social science at a formative age.

Jude: Andrew, one of the things I wanted to ask you, and actually I’m going to make this a new feature on the podcast. I always appreciate sections of podcasts where they ask for book recommendations, but I usually find that that entails me having to go spend $30 on a book. And then realistically, I’m probably not going to read the book. It’s going to end up in the pile here, as you can see my behind me.

But I’ve often found sometimes the most helpful tool for me is when someone says something, some sort of framework or heuristic or insight that actually is an “a ha” moment and is a tool that I can then use to bring to bear on thinking about China. So as I wrote to you in an email, I wanted to use you as a guinea pig for a new running feature of the podcast, which is, is there some, borrowing from Daniel Dennett, an intuition pump or a heuristic or some insight that you have heard or developed that helps you think through China?

And just for the audience, I’m not sure this is a heuristic as such, but just to give an example, you often hear some people say China’s not a monolith. Now that’s a really simple comment, but I think people who articulate that, what they’re trying to do is to get to a deeper insight where they want folks to embrace the complexity of the Chinese system, rather than thinking of it as Xi Jinping in the mothership, turning dials to get the system to operate as he wants.

You think a lot about thinking about China. So I wonder if I could put the question to you. Is there some sort of, again, a heuristic, an intuition pump, an insight, a framework that you find very useful and might be useful to others.

Andrew: Yeah, I thought quite a bit about this. It’s a tricky question. So I came up with something, I’m not sure it’s going to be an “a ha” moment for you, but maybe it’ll be helpful for other people. Because this is something that’s come up in a lot of conversations I’ve had about China. One basic, simple thing about China, that I keep coming back to, is that it’s really important to realize that Chinese people mostly believe that China is a great nation that should be at the forefront of the world.

So what I mean by this is not that the Chinese people are all these rabid, frothing-at-the-mouth nationalists. That’s not at all my point. What I mean is more that there’s a baseline assumption across all kinds of people that you meet, of different classes, of different political beliefs, that essentially there’s no particular reason why China should not be the best in the world, at any given thing, regardless of what that thing is. And if China isn’t the best in the world, then it can be, and they just have to work harder to get there.

When I was living in China, I encountered this attitude a lot, so it didn’t seem exceptional to me or that remarkable. It was just part of the background, it was there all the time. As I’ve spent more time in other developing countries, and more time in developed countries as well, I’ve really started to appreciate that this attitude is kind of unusual. There’s a lot of small countries or poor countries, where the people are in fact not really confident that they can be the best in the world at any particular thing. They’re very conscious that they lag behind other countries in the world, that their position is relatively poor and it doesn’t seem necessarily plausible to them that that’s going to fundamentally change.

And that belief might not be wrong. So, if we’re talking about Spain or Indonesia, just to pick some country names out of a hat, is it really realistic for those countries to have aspirations to be, for example, the global center for artificial intelligence research? Might not be. But it is kind of realistic for China to have those aspirations.

The other thing I would say about this is, again, it’s an attitude. It’s not a political belief or a political creed. So a lot of Chinese people have this attitude, but it’s compatible with a lot of different political beliefs. It doesn’t determine, necessarily, where China ends up.

I think if you talk to Chinese people who are more on the right of the political spectrum, in Chinese domestic terms, they may tend to think that the way that China becomes the best in the world, an even better place, is by converging with the global ideals, whether this be the rule of law, market economics, individual freedom, and so on. And for Chinese people who are more on the left of the political spectrum, again, in the domestic context, they may tend to think more it’s about China following its own path and using the power of the socialist state to shape outcomes. So how China gets to be the best in the world is something that Chinese people are debating amongst themselves.

But I think they all share the premise that China is going to keep becoming a better place, that it is a great nation, and is going to become an even greater nation in the future. So I think if you wanted to offend every Chinese person across the entire political spectrum, what you would do is to deny that premise or try to throw roadblocks in its way.

Jude: Before we get to your blog posts, let me ask you one additional high elevation question. I read your professional, day-job writing and I also read your blog posts and I like both, but what I especially like about the blog is I can see that you’re still puzzling through, trying to understand the Chinese political system. You draw on comparative writings, you sort of puzzle through government documents or party documents that come out, and we’re going to talk about one of these posts in a minute.

But I wanted to, before we get into that, ask you: We’re at a time where I think a lot of people see massive change occurring in China in its growth model and its political system. I’m curious, as you draw on your experience, in China and analyzing China, and as we record this, you’re in Beijing right now, when you think about China’s political system or political economy, are there beliefs you had, which you now just fundamentally question? Are there beliefs you’ve long held, which still hold constant when you think about the structure of China’s political system and its economy?

In other words, what do you think you know about China? In a deep, true sense. And what are the areas of your knowledge about China where the theses are tentative or shifting?

Andrew: Thank you for putting the question in that way, because it is true that I’m still a student of this stuff and will continue to be a student, you know, probably for the rest of my life. It’s a process to figure this stuff out. I think one thing that’s changed for me over the last 10 years is that I feel like I do have a better understanding of the Chinese political system than I did before. I’ve done a lot more reading about that, and also just had more time to observe how things work and talk to people.

So at the moment, I have reasonably high confidence that I understand the basic parameters of the Chinese system. The key concept for me is basically the idea that China is a Leninist system. And this is a technical term, not a term of abuse. I learned this from reading, in particular, Joseph Fewsmith, who’s a well-known scholar of Chinese politics, and also this guy Ken Jowitt, who’s an older scholar of the Soviet Union.

A Leninist system is fundamentally a hierarchical, top-down political system in which the cadres, the members of the Communist Party, are mobilized to pursue political goals. This mobilization is a key idea, and the political goals are a key idea. And the reason these are important is because China is not actually governed by a neutral civil service or a bureaucracy that’s based on following written rules of procedure and implementing regulations in a value-neutral way. If we look at China, we see something that appears on its surface to resemble such a bureaucracy, but actually that bureaucracy is subordinate to the Leninist political system, or to put it a different way, the Leninist political system interpenetrates the bureaucracy at every level. So that’s on the political side.

And then on the economic side, I’ve also spent a lot of time trying to figure out what exactly is the nature of China’s system. The term that I come back to, which is maybe not ideal, but seems to be the best that we have available, in English anyway, is state capitalism. And so this is what I use. This is just a shorthand term an economy in which there are high levels of government ownership, high levels of government intervention, but these coexist with market mechanisms, the decentralized setting of prices and so on.

I think in China’s case, this kind of political system and this kind of economic system reinforce each other. They’re highly compatible for obviously for historical reasons, but also in a logical way, right? The key dynamic of a Leninist system is that the leaders, they do not just feel that they are entitled to direct the development of their nation in a particular way, but they’re actually obligated to. That’s their job. This is the reason the government has power.

The government’s role is not to use its power to provide a neutral framework in which individual people and companies and different entities can all pursue their own goals and aspirations. This is what I take to be the defining conceit of Western liberalism: life, liberty, and the pursuit of happiness. The government’s job is just to enable all this.

In a Leninist system, that’s not the government’s job. The job is to push the whole society to go in a certain direction. And so if that’s the underlying political conception, it’s actually difficult to have a fully market-based economy because the government, the state, the party is not inclined to just accept the market outcomes. They’re inclined to mobilize the society to achieve certain goals and use the different tools they have available. And that’s part of what these state-owned enterprises and different regulatory interventions are for.

And in the other direction, right, the fact that you have this whole cavalcade of state owned enterprises and different government institutions to organize and direct different parts of society justifies or encourages a Leninist approach. Because otherwise, you know, what is this stuff for? Why do we have all this state ownership? Why do we have all this state intervention? It must be for some reason. If there’s no reason to use it, we could just get rid of it. And so since they don’t want to get rid of it, they find reasons to use it.

Basically, my intellectual process of the last 10 years has been specifically to try to figure out what’s the reason for all the weird things about China’s economy that people obsess about. Why do we have such high rates of investment? Why are there these boom and bust cycles? Why is China able to have high rates of economic growth, even though it doesn’t have very good legal institutions? All these kinds of puzzles. In my view, basically it all comes back to this basic political structure, this basic political economy of a Leninist system.

So that’s the thing I feel reasonably certain about. For now.

Jude: I don’t know if you’ve ever read Michael Oakeshott, the London School of Economics political philosopher whose heyday was in the fifties and sixties, but I’ve often thought about him because he talked about two different conceptions of statehood. One is what he called a democracy, which is, as you just described, a political system that is not ends oriented, but is an institutional set up with laws and apolitical bureaucrats.

And then he talks about, contrasts that, with this conception of teleocracy, obviously coming from the Greek word telios meaning, moving towards an end. And he’s writing this in a description of the Soviet union, but I’ve always liked his work on teleocracy because I think it jives with what you were just saying about China as a system oriented towards objectives or goals. To put it in a more crude way, I thought about the party as something like a shark: sharks die if they stop moving forward.

In a fundamental sense, the Chinese system isn’t structured absent some conception of a goal to be striving for. You couldn’t run it. Cadres wouldn’t know what to do. If. It didn’t have that sort of continual churn of plans and objectives and meta objectives, whether these are high level Marxist aspirations or just five-year plans. So it is a unique feature of these Leninist systems, which I appreciate you highlighting because I do think it’s important.

Let me grab the steering wheel and turn the direction suddenly, if I may, which is I wanted to now start getting into some of the substance of what you’ve been thinking and writing about both in your blog post on Xi’s new growth synthesis, but also some of the other thinking and writing you’ve been doing about the growth of securitization in the policy agenda in China.

And I thought I might start with something which I don’t have a clear answer to and think you might take a better stab at it. Which is, before we talk about securitization or the growth of securitization, I think there’s confusion that I hear about how external analysts and observers think about growth and political stability. I often hear people, indeed, just in the past few weeks, I’ve heard various people say, that on the one hand, Xi Jinping doesn’t care about growth. He’s willing to supplement growth for higher objectives, whether these be Taiwan, or to build a fortress economy that can withstand what he sees as a containment/suppression/encirclement strategy by the United States.

Then I’ll hear people say, well if growth falls below 3%, then the Communist Party is doomed. So they have to find ways to revive the economy. And you’re probably old enough to remember this too, I think this is back in the mid to late 2000s, I just remember there was always this thing in news articles where it would say if Chinese growth drops below 8%, I don’t know why 8% or how we got there, but if it drops below 8%, you’re going to see massive instability in the system.

So how do you, at a higher level, think about trade-offs, or the connection between economic activity and growth, and political stability in the Chinese context. Not in the context of Norway or the United States, where I think the relationship is different. Do you buy the logic that whatever the number is, whether it’s 8%, 3% or 1%, there is an absolute floor underneath which, if growth craters, it will have a demonstrative rippling effect of instability. Do you think this is not the right way we should think about how they think about the growth-stability relationship? Or is my question so inchoate that you have a better way that I could frame this?

Andrew: So the answer to most of your questions is no. I don’t think there’s a floor to growth where it triggers instability.

I remember very well this debate over 8% growth and social stability from back in the 2000s. This was one of my formative experiences as a China analyst, trying to understand and intervene in this debate, so actually, I have a pretty detailed memory of this. My recollection is when that came up back in the day, it was because somebody had done a calculation, I think it might have been the World Bank, and they basically said: If you look at the number of new jobs that are created every year, and then you divide that by the GDP growth rate, this shows that each point of GDP growth generates X number of jobs. Therefore, this implies that you need a certain amount of GDP growth to have enough jobs, because based on the population, or number of college graduates, you’re going to need this number of jobs. And therefore you have to have this number of GDP growth to deliver that.

So as economic analysis, obviously this is totally nonsense. Or maybe it wasn’t obvious, because a lot of people said it. But I mean, it’s total nonsense. There’s no such thing as a fixed relationship between GDP growth and job creation in any economy anywhere. And anyway, I think the calculations in the Chinese case didn’t make that much sense because government actually doesn’t have very good data on job creation. So the numbers that they were plugging into that equation were probably bogus in the first place. Still, I think this kind of argument got traction inside of China and outside of China, but I think for somewhat different reasons.

Inside China, the reason it got traction and the reason people found it attractive is because there’s a group of people in China who wanted the government to focus on employment rather than GDP growth, right? They saw the pursuit of GDP growth as creating all kinds of distortions and problems. And fundamentally what really matters for people’s lives, for prosperity, is job creation. So we should really think about GDP growth as a means of creating jobs rather than as this abstract target we’re trying to hit for no particular reason.

And that idea, I think, has been quite influential in China. When Li Keqiang, the late lamented, was premier, he often said that employment was the most important thing. So at the level of rhetoric, that seems to be influential. But I think, if you actually look at how he or how other administrations actually ran the economy, it was pretty obvious that the labor market was not what was driving how they managed the economy or what key decisions were being made. It was usually other kinds of cyclical indicators of the economy, the property market or industry or what have you. And I think to be honest, they probably don’t really have enough accurate information about the labor market to use it as a guide to short-term macro policy.

Outside of China, I think the reason people latched on to this idea was because it played to certain prejudices or preconceptions about the nature of China’s political system. I think there’s a tendency for people, in the U. S. particularly, to think that with the Chinese people living under an authoritarian regime, they must inherently always be dissatisfied with the regime, and they must always be looking for ways to overthrow it. If they’re not being constantly pacified with lots of money, they would just rise up the instant that happened.

As with many things, there is a grain of truth to this. So if we look comparatively across different countries, different forms of government, you can correct me on this, but I think the finding is that authoritarian regimes tend to be a little more fragile and have less popular legitimacy than other kinds of political systems. So there’s more of an issue for them. But I think we both know that it’s just not true that daily life in China is some kind of dystopian hellscape that is going to force people to rise up in a revolt if the economy is not so good.

I think the other idea about political system that’s been very influential outside China is this idea that there’s a social contract, right? That people in China traded, in a more or less explicit way, political freedom for economic growth. We’ll accept not having all of these political freedoms as long as enough prosperity is delivered to compensate us for this loss.

There is some truth to this. I think economic performance is one of the ways in which the government shows people that it’s doing a good job, that it deserves their support. But obviously, or again maybe not so obviously, it’s not true that people’s satisfaction with the government is mechanically related to the GDP numbers or mechanically related to economic performance in such a specific way.

So yeah, I don’t think that there is any particular fixed relationship between political stability, in the sense of at least of popular unrest, and economic growth, that there’s some kind of trigger that we can identify where economic problems become serious enough that that’s going to have an impact on the foundations of the political system.

Jude: Let me ask you another related question, and this is very much a live topic of discussion now, which is how economic growth is being rebalanced in relation to another goal, which is security or national security. You’ve written on this, there’s stuff on your blog on this, so I might ask you to regurgitate what you’ve already said on this.

This is a really interesting question for me. Part of it is a little bit of Freudian psychology, of people trying to get in Xi Jinping’s head. I will hear people say, Xi Jinping doesn’t care about growth. I don’t agree with that statement, but I understand, as you were just saying, there’s a kernel of truth there.

We’re seeing security rise to the fore of the active policy agenda in ways that are clearly at an elevated pitch from previous leadership groups. But I wanted to get your thoughts on this. If someone says to you, growth is out the window and it’s all about security, what’s your response? If someone says they’re trying to balance growth and security, what’s your response?

How do you think through what, on the surface, to some extent appear to be zero-sum trade offs. What’s your thesis for what the Chinese are trying to do and how these two objectives sit together or separate?

Andrew: So the way I think about this goes back to this concept of the Leninist system that’s organized around a mobilizational goal for the whole society.

For me, I think the fundamental way to understand what Xi Jinping is doing, particularly since his second term, is that he is changing the mobilizational goal. And that the mobilizational goal had been basically the same from 1978 until 2017, when Xi gave his speech at the Party Congress. In that speech, he basically said, in so many words, that there had been one goal in the reform era, which was the pursuit of economic growth, or development, or prosperity, there are different synonyms for this, and that that was over. And that now China is on a different trajectory.

I think where I would differ slightly from the way that you phrased the question is that I don’t think that he’s clearly articulated what the new trajectory is. So I think security is part of this new message, but it hasn’t been made that clear. What was very clear, and continues to be very clear, is that the pursuit of economic growth has been downgraded in importance relative to other goals. It’s not gone. It’s not that they don’t care about growth, but the system was previously organized around the pursuit of economic growth, and now it is not.

What is the system organized around now? Well, I would say it’s not that clear, to be perfectly honest, and this is why I think that, in a way, that there’s a lot of political instability in China. And this goes back to your previous question, where you’re asking about political stability in the Chinese context.

So I think if you think in terms of China having a Leninist political system, where what’s fundamentally important is having the mobilizational goal and then communicating that mobilizational goal, in that context, actually, China’s in a moment, I would say, of political instability, because the new mobilizational goal has not been clearly communicated. There’s some directional guidance, but the actual goal is not that clear.

When I say that there’s political instability, I don’t mean that there’s different factions within the Communist Party or that there’s going to be riots in the street or a coup or anything like that. Xi has very tight political control. He has left very little room for any competing power centers to emerge. But I think there’s instability in the system’s own terms. There’s just ambiguity about what the mobilizational goal is. There’s ambiguity about what people should be doing.

Xi has talked about different things. One of the organizing conceptions in his original speech in 2017 was this idea of a “better life.” That’s about as vague as you can possibly get, right? It has all kinds of different components. So, we shouldn’t pursue economic growth, we should pursue a better life instead. What does that mean in practice? I think nobody knows.

More recently, there’s been a lot of emphasis on national security, and technological self sufficiency. These are very specific goals, but are they enough to function as like the overall goal for the whole system?

I think the problem here is that this talk about national security and self-sufficiency, the only thing that really makes those make sense, and seem convincing to people, is the fact that there are worries about China getting into a conflict with the U.S. The U. S. has put tariffs and technological sanctions on China. And China clearly has to have a response to this. I think that’s why this talk about technological self sufficiency has gotten a lot of traction and is quite popular in China.

But I think it would be quite a difficult thing for Xi to come out and say explicitly that the goal for the nation is to prepare for a war with the U.S. Because that’s not a goal that people are really going to get behind. War is bad. People don’t like it. They’re not going to go to war if they don’t have to. So I think the problem with security as a mobilizational goal is that it’s not an attractive one, fundamentally.

You can frame the security, self-sufficiency issues more as, oh, we need to do things to protect ourselves and it’s all just in case. But I think that doesn’t really function as an organizing principle for the whole society. So I think what you’ve ended up with is this confusing signaling, where the government is saying, well, we shouldn’t pursue economic growth as aggressively as we did in the past. And we should pursue some of these other things, technological self sufficiency, food security, the preservation of traditional culture, there’s a long list, more aggressively than in the past.

But again, that’s not that satisfying. And it doesn’t, fundamentally, give the actors in the system very clear guidance about what their priorities should be, and how they should make particular decisions. Ultimately, this is my diagnosis about why everyone in China seems so unsettled and seems really uncertain right now. They literally don’t know where the country is going.

I don’t mean that in an abstract sense. It’s in the sense of, the country is organized around having a goal towards which it should be proceeding. And people aren’t really sure what that goal is. The Leninist system is unsettled and therefore the people who live in this system are also unsettled.

Jude: You had a really good blog post on what must be the level of relative confusion or uncertainty for cadres in the system who are clearly being transitioned to a new paradigm, but without, as you say laser-like clarity on on precisely what’s the relative weighting of the various objectives. This does exist at some level in terms of performance indicators that cadres are evaluated on, but it’s clear from just anecdotal evidence that those are not sufficient to give actors in the system certainty of action, knowing that here’s the green zone, here’s the yellow, here’s the red. And, of course, they still live in a world where there are growth targets and growth expectations. If you’re in Guizhou, you probably also have some expectations. You’re going to develop some sort of innovation cluster, but you’re also going to have some national security imperative. So it does seem like Xi Jinping is pushing the system into a new level of dysfunctionality.

Let me now ask you to pick up your rusty, dirty crystal ball, brush it off, and see if you can peer into it. I know no one likes to predict the future, especially on China, and I know you’re a careful, nuanced thinker, so the answer, I will say it for you, on the questions I’m about to ask you is probably, I don’t know.

But nonetheless, I wanted to get your sense of, you’ve laid out a picture just now of an inchoate, somewhat confused policy agenda that is sending multiple signals. You probably have actors in the system interpreting those signals differently. You have China dealing with a very different external environment. You know, it had a very benign external environment from the late 1990s through till fairly recently. You have a political system that is becoming more, in some sense, more capital-L Leninist, but also in some ways de-Leninized as Xi Jinping really personalizes the system.

So first question is, how strong, how robust and resilient do you think this political-economic system is to withstand internal challenges from Xi Jinping trying to move the system or shift gears, and externally, whether it’s Chinese corporates now facing a much harder regulatory environment, BRI facing pushback. You pick the policy initiative and there are challenges. I don’t think anyone anymore is in the China galactic ascendancy trajectory. Are you China muddles through? Are you China can get its mojo back? Or are you China not on the cliff, but heading in the direction of a more catastrophic hard landing that could be a political hard landing? Or option D, which is whatever you, whichever option I didn’t list that you think is better.

Andrew: I think there are a lot of issues in the Chinese economy and political system they’re trying to deal with. We outlined why it’s been pretty challenging to deal with them. I would say that in the medium term, my bias is to not be completely pessimistic, and this kind of goes back to what I was talking about at the opening of our conversation, where I feel like there’s this general sense among Chinese people that China’s going to get better, and if they work hard, they can achieve it.

Again, I would be frank that this is sort of more of an intuitive sense than something I can justify very rigorously with lots of evidence and statistics. But I do feel like there is a continued momentum in China for it to catch up with the technology and capabilities of other countries, and that catch up can continue to propel China’s incomes up over time.

But I feel that this is more of a bottom-up process, right? That it’s not something that’s necessarily driven by all of these government initiatives, in terms of industrial policy, R&D subsidies, what have you. And to some extent, this bottom-up dynamism in China exists despite these government policies or even in opposition to them. I think it’s still very much a real thing, so we should not assume that it has gone completely away.

And I guess the other thing I would say this just in terms of global perspective, of global impact is that it’s hard to imagine a future scenario in which China becomes internationally irrelevant. So maybe China becomes more relevant in a good way, maybe becomes more relevant in a bad way, but it’s very unlikely for it to be less relevant.

The shape of the world economy has changed very substantially and China has huge stocks of manufacturing capacity, of technological capability, that are not going to go away, even if the economic outcomes are poor. Economists like to talk about stocks and flow. So maybe the flow of new economic activity, i.e. growth, is weak over the next few years, but China’s already built up a lot. It’s 20 to 30% of world manufacturing output. That’s not going to go away.

So I think we should broadly anticipate that even if China faces a lot of challenges, it’s going to continue to be relevant in a macro sense, and also in several very specific senses. It seems pretty obvious that China is very far along the way to becoming the global center of production for clean energy technology that the rest of the world is going to use in the transition away from fossil fuels. So that’s almost a done deal.

To go back to your question of more generally, how does China deal with these problems? I think in my day job, the problem that we’ve been trying to figure out is basically what kind of economic policy decisions does China make given its set of priorities and the fact that the priorities now are clearly different than they were in the past? I think over the past 12 months in China, since basically the Covid restrictions were dropped, there’s been a lot of flux, a lot of change. And I think there’s this ongoing process of everyone within the system trying to get more clarity on what the overall goal is. Officials in the government, and also people in the population at large, they’re trying to decode the signals. And also the people at the top, Xi Jinping and his associates, are at the same time trying to fine tune the signals in order to get the results that they desire.

So you’ve seen Xi come up with various new formulations that try to synthesize what you talked about as the growth and security concerns, or new formulations that imply that growth and security are not opposed to one another. That it’s not a zero sum game: we can do both at the same time and everything will be great.

In fact, it’s a very interesting and uncertain moment for Chinese policymaking. I think there’s a general sense that all of the economic problems over the past year have pushed the government to make some tough choices to face up more explicitly to these trade-offs, and to try to come up with a more coherent policy agenda.

So where does this balance between growth and the rest of the agenda, like security concerns, where do they stand now? Obviously, economic growth is pretty poor right now, the property market is in real trouble. And you’re seeing, at the margin, a little bit more of a pivot back towards growth-supporting policies. That’s what a lot of the economic analysis and discussion domestically is about right now: oh, we’re getting these positive signals finally, so things are good.

But I think what the government is trying to do is to find a new synthesis, right? They want to find a way to have decent economic growth, a way to stabilize the current situation, that’s compatible with this new political agenda, that doesn’t involve just giving up and saying, oh, we were wrong to try to pursue this new set of goals. We can actually still pursue this new set of goals and also get these good things.

I think a lot of people domestically want to see the old system come back. They want to see the old growth goal come back. They want China to pivot away from the pursuit of security, a better life, this different political agenda that Xi has outlined, and back towards, let’s just do economic growth and not worry about the other stuff.

If you look back over this past year, you see every marginally positive development in the economy has been interpreted as showing that this has happened. So first: oh, they dropped Covid controls, that means they don’t care about this other stuff and it’s all out. And, no. So then at the beginning of this year, the new premier Li Qiang made all these nice comments about the private sector when he was appointed. People were like, ah, see with this new administration, we’re back to the good old days. Uh, no. Then we had the Politburo meeting saying, we need to do more to support growth. And people said, oh, look, finally, they’ve seen the light and it’s going to be off to the races again. It wasn’t. The most recent one, Xi Jinping went to Shanghai and people said, oh, look, this is a signal there’s now more focus on economic growth. I think basically all of these interpretations have been wrong and people will probably continue to make this kind of interpretation in the future. And it’s still going to be wrong in the future. That’s my prediction.

I think the old system where you had this decentralized pursuit of high growth, and you tolerate anything as long as it gets growth–this is gone. Xi has killed it. He’s not going to bring it back. But at the same time, I think it’s true that they haven’t figured out what is the exact balance they want between growth and these other concerns. Between growth and security is the way you put it. It’s being renegotiated. It’s in flux.

And so that’s why I think right now it’s a super interesting moment for Chinese economic policy. This is what I look at every day. There’s huge political pressure, and there’s huge economic pressure. The economic problems are very serious, and the political constraints are also very binding. So they need to come up with some new ideas. They need to find some ways to help the economy that are going to be consistent with these new political priorities. They have to get growth, but they have to get growth in a way that’s compatible with this objective of, we need to restructure the economy to help us prevail in the global competition with the U. S.

So I think it’s a very interesting moment. It’s a very uncertain moment. Almost certainly, China is going to come up with some new things to surprise us as a result of these intense pressures. It’s not guaranteed that the balance they find is going to be the perfect one, or that it’s going to generate the kind of growth outcomes that people want or expect. It is a moment of flux and change, I would say, in the Chinese system. Maybe that’s a cop out.

Jude: It’s the truth, so it may be a cop out, but I also don’t know a better answer.

And anyone selling certainty in this moment is going to have a bridge they’re going to sell you next as well. So find the folks more credible when they’re willing to frame it, just as you did. You’re in Beijing right now, so you’d have a better sense, but I do pick up from Chinese friends and interlocutors that same sense of unease. Where problems China had to be sure, but there was some certainty in the trajectory, namely, tomorrow is going to be better than today. Your kid’s life was going to be better than yours, but even with your own lifetime, you are going to have likely ample opportunities for improvement. And that window feels to be collapsing. And I can absolutely see the desire of many to get back to the old growth model. Again, with all the pathologies and problems it had, it also had a lot to offer.

We’re definitely in new territory. But again, I am just so glad Andrew, that you’re thinking and writing about this. I would like to say that all audience members should go shake their couch cushions and find some money to become clients of Gavekal Dragonomics, I realize that’s probably unrealistic for most. So luckily, Andrew, you are writing. frequently, and I think with great nuance about a lot of these challenges on your blog, The Tangled Woof. If people are thinking, what the hell does The Tangled Woof mean? You’ll have to go to andrewbatson.com, there is an explanation of what that means. But I can’t recommend your analysis enough, Andrew, and really look forward to reading what you write next.

So thank you for your insights. Thanks for your writing and thanks for your time today.

Andrew: Thanks so much, Jude. It was a really great conversation.

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