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Tesla CEO Elon Musk and some colleagues pose for a commemorative photo in front of the Hall of Purple Light and two Teslas. (Photo from Musk’s Twitter account)
China up close

Teslas in the palace signal brewing battle in Beijing

Xi Jinping's handling of the US trade war sparks discontent within China

KATSUJI NAKAZAWA, Nikkei senior staff writer | China

TOKYO -- The compound that houses the headquarters of the Chinese Communist Party and the State Council -- a walled-off part of central Beijing -- looks to be on a war footing. The irregular signals that have come out of the former imperial garden, known as Zhongnanhai, over the past few weeks hint that tensions are mounting behind the bamboo curtain, likely over the trade war with the U.S. 

One sign of this is the higher profile that Chinese Premier Li Keqiang has been taking and the slightly lower profile that President Xi Jinping has assumed.

Xi on July 9 disappeared from the front page of the People's Daily, the mouthpiece of the Chinese Communist Party. The page was given over mostly to stories related to Li and the State Council, China's central government, led by Li.

For more than five years, articles related to Xi have been regularly splashed across the front page of the People's Daily. The nonstop coverage has symbolized Xi's rapid accumulation of power, the spoils of his anti-corruption crackdown on influential political foes.

On July 12, once again, there was no article directly featuring Xi on the paper's front page.

"Subtle changes are emerging now that the trade war has broken out," said one Chinese source familiar with party affairs. While talking tough and taking countermeasures against the U.S., China is uncomfortable with the escalation and unpredictable nature of the trade war, he said.

One tell is that the Communist Party has designated "Sino-U.S. trade war" as a "sensitive term." The phrase is now deleted from social media in an effort to prevent it from going viral. "Sino-U.S. trade friction," though, remains acceptable.

Chinese government-controlled media outlets, which until recently described U.S. President Donald Trump's actions as "a terror attack on the free trade system," now use much milder language and refrain from directly attacking or provoking Trump.

Meanwhile, Premier Li has taken on the role of promoting the opening of China's markets to the outside world. His mission is to prevent foreign companies from fleeing the country for fear of Trump's tariffs.

During his recent visit to Germany, Li held talks with Chancellor Angela Merkel and showcased good economic relations between the two countries. Chinese state media gave Li unusually extensive coverage during his trip.

The small but eye-catching signs coming out of the Zhongnanhai leadership compound hint that the wind has shifted. For the past six years, since Xi came to power, Zhongnanhai has been ruled from the southern side of the premises, the home to party headquarters, where Xi has his office. The north side, where Li's State Council is based, has been the weaker flank.

The southern edge's overwhelming advantage over the northern part was further cemented two years ago. Liu He, Xi's close aide and economic adviser, played a role.

An article by an anonymous "authoritative figure" was published on the front page of the People's Daily in May 2016. The author was Liu.

In his essay, Liu implicitly criticized "Likonomics," an economic-stimulus policy believed to have been led by Li, saying it had put China on the path to flat, "L shaped" economic growth.

The article not only made a splash, it diminished Li's and his State Council's power, which Xi absorbed.

Chinese Vice Premier Liu He, center, was the no-longer-anonymous critic who two years ago wrote a newspaper article that ended up diminishing the power of Premier Li Keqiang.   © Reuters

Liu's contribution was handsomely rewarded with a promotion to the powerful Politburo and an appointment to vice premier in charge of economic affairs.

But Liu is now being blamed for the trade war. "He is being sidelined, held accountable for the deadlock in trade negotiations with the U.S.," a Chinese economic source said.

Xi's nationalist foreign policy, a 180-degree turn from China's traditional lay-low stance, has also come under criticism from inside the party.

Tsinghua University scholar Yan Xuetong, a staunch supporter of Xi's "great nation" diplomacy, has recently started insisting that China further open its markets. His line of reasoning is thought to reflect changes within the party.

Another feature of Xi's rule, the Mao Zedong-style cult of personality being formed by his aides, has also come under scrutiny, in a uniquely Chinese way.

On July 12, state-run Xinhua News Agency's online edition reported on an incident that happened in 1980. Then-party chairman Hua Guofeng was placed under investigation by the party's Central Commission for Discipline Inspection for taking an attitude that reminded some of the personality cult that flourished during the era of Mao. 

The Xinhua report was a suggestion that even party chairmen commit mistakes. While faint and indirect, the political signal was easily picked up by party members.

Who was behind the story? The man who presides over party propaganda and keeps the media in check is Wang Huning, a Politburo Standing Committee member ranked fifth in the party hierarchy.

But it is unclear whether Wang was behind the report. If he was, there are two views to why he might have had the story posted. One theory says Wang is sensitive to party criticism that there is excessive praise for Xi and therefore tweaked propaganda policy himself in a bid to stem the devotion. Others say rival forces put pressure on Wang to push the story.

Tesla's Elon Musk this month was treated to a stay at the Diaoyutai State Guesthouse, usually reserved for visiting foreign dignitaries.   © Reuters

Eager to change the tide, Xi's longtime ally, Vice President Wang Qishan, has taken center stage to command China's trade negotiations with the U.S. as Liu He gets his wings clipped.

On July 12, two red Teslas drove into Zhongnanhai so their occupants could meet the vice president. The cars were carrying executives from Tesla, including CEO Elon Musk, fresh from a signing ceremony in Shanghai regarding construction of a factory there.

In a highly unusual move, the Teslas were allowed to park right in front of the Zi Guang Ge, or Hall of Purple Light.

Musk disclosed the meeting on Twitter, calling the encounter "a profoundly interesting discussion of history, philosophy and luck with Vice President Wang in the Zi Guang Ge."

The Shanghai Tesla plant is already a poster child for the Chinese government's recent decision to allow 100% foreign ownership of businesses in the auto industry.

The sight of flashy American cars in Zhongnanhai would normally draw criticism from the public as well as from within the party. Their presence would be seen as tantamount to selling out the country. But this kind of reaction is unlikely if the powerful Wang Qishan gave the go-ahead.

The meeting was also a strong message from Xi's side that the trade war is being correctly handled.

"The Tesla cars that entered Zhongnanhai were red. It looks like a famous American company has surrendered to socialist Red China and turned red," one overseas Chinese said after seeing Musk's tweet.

China rolled out the red carpet for Musk and his colleagues. They stayed at the Diaoyutai State Guesthouse in Beijing, an accommodation facility for foreign dignitaries. It is where North Korean leader Kim Jong Un stayed during his visit in March.

On July 11, a day before the Wang-Musk meeting, the vice president greeted Chicago Mayor Rahm Emanuel in Zhongnanhai.

Emanuel, who once served as chief of staff to former U.S. President Barack Obama, was in China mainly to discuss a railroad car manufacturing plant being constructed in his city by China's state-owned CRRC.

The Wang-Emanuel meeting illustrates how eager China is to build personal connections to the U.S. political world. According to the Chicagoans, it was set up suddenly and unexpectedly.

Although Xi is taking a less high-profile posture, his authority remains unshaken. At present, the players able to determine China's future are limited to Xi himself, Vice President Wang and Premier Li.

Although Li is ranked second in the party hierarchy, should Xi become unable to perform his duties as president, boyhood friend Wang would fill in.

Xi has made it clear that the State Council is secondary to the party. As premier, Li has an obligation to report to Xi, the party's general secretary. Furthermore, Li will certainly step down as premier in 2023, while Xi and Wang, under the recently revised constitution, can stay on indefinitely.

The U.S. and China will continue to struggle for supremacy for years to come. Anyone predicting an eventual victor will have to first do a deep analysis of the dynamics at play in China's domestic politics.

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