Beijing halts nuclear negotiations
...and Third Plenum updates, Modi’s Chinese dilemma, von der Leyen vows Taiwan protection
Hello everyone and welcome back. First things first, let’s catch up with some Third Plenum news. The Third Plenum of the 20th Party Congress, a crucial meeting of the People’s Republic of China’s (PRC) top leadership, concluded on 18th July with the release of a communique outlining broad targets for the PRC’s 80th anniversary in 2029. A more detailed Decisions document (Decision of the CCP Central Committee on Further Comprehensively Deepening Reform to Advance Chinese Modernisation [中共中央关于进一步全面深化改革、推进中国式现代化的决定] followed on 21st July, providing deeper insights into the Chinese Communist Party (CCP)’s plans for political, economic, and social reform. Spoiler: those somehow still hoping for market liberalisation will be disappointed.
The 60 pledges within the Decisions document reaffirm Xi Jinping’s commitment to a Leninist form of party-centric economic governance, with the state maintaining significant control over the Chinese economy. A heavy focus on national security (read: CCP regime security) is envisioned as a ‘pivotal foundation’ of Chinese style modernisation, and will be a key driver in foreign policy within what the CCP perceives as ‘a grave and complex international environment’. ‘High quality development’ will be achieved through state-backed industrial policy and innovation, with a heavy focus on expanding advanced technologies. In Marxist parlance, these are described as ‘new productive forces’ (新质生产力).
While the plenum also mentioned reducing inequality, promoting environmental sustainability, and strengthening supply chain resilience, these goals are framed within the context of state-led development and party control. Now for some news:
1.1 China abandons nuclear arms control talks, blames US arms sales to Taiwan
The PRC has halted nuclear arms-control talks with the United States (US) in response to American arms sales to Taiwan. Beijing’s decision follows similar actions by Moscow, with both nations now refusing to engage with Washington on nuclear arms reduction. The US State Department has criticised this move as heightening the risk of an arms race.
1.2 Broad outline of the Third Plenum decisions in Communique
The Communique of the Third Plenum sketched out a blueprint for the next stage in the PRC’s goal of transition into a ‘high level socialist market economic system’, which it plans to achieve by 2035 with innovation, green development and consumption as the primary drivers of economic growth.
1.3 US planning sanctions over Chinese 'decisive enabling' of Russia's war
On 19th July, Jake Sullivan, US National Security Advisor, announced that the US is preparing new sanctions on Chinese entities supporting Russia’s invasion of Ukraine, hinting that banks may be targeted.
1.4 Von der Leyen calls for allied deterrence of PRC invasion of Taiwan
On 18th July, Ursula von der Leyen, prior to her re-election as President of the European Commission, vowed to ‘deter China’ from invading Taiwan. She has called for collective action with Indo-Pacific partners Japan, South Korea, New Zealand and Australia to prevent unilateral changes to the status quo in the Taiwan Strait. While von der Leyen’s language has become more direct, it represents an evolution rather than a dramatic shift in her position.
1.5 Hanoi files UN claim over disputed regions in South China Sea
On July 18th, Vietnam filed a United Nations claim for an extended continental shelf in the South China Sea, a month following a similar submission from the Philippines. This submission reinforces Vietnam’s claims over the Paracel and Spratly archipelagos, which are also claimed by Beijing.
1.6 China and Philippines negotiate deal over South China Sea territory dispute
The Philippines and China have agreed on a temporary arrangement for resupplying the Filipino naval outpost Sierra Madre in the South China Sea, in efforts to de-escalate recent tensions. The PRC continues to demand the removal of the beached ship.
1.7 Modi struggles to navigate tricky India-China relationship
Narendra Modi, India’s Prime Minister, is caught in a bind between maintaining a hardline approach against Beijing to please his political supporters, and managing the country’s growing economic dependence on the PRC – which is already its biggest trading partner. This tension is resulting in erratic bilateral relations. Indian corporates urging Modi to make economic concessions to Beijing further complicate his third-term agenda.
1.8 Brazil planning to join the BRI
On 19th July, Luiz Inacio Lula da Silva, President of Brazil, announced that his administration is preparing a proposal to join the PRC’s Belt and Road Initiative (BRI). Despite being a significant recipient of Chinese investment, Brazil has historically hesitated to join the BRI due to concerns about alienating Western partners. Now, ‘Lula’ has expressed desire for Brazil’s deeper integration into the Indo-Pacific: ‘Brazil wants to enter this ‘China world.’
2.1 The Centre for Strategic and International Studies (CSIS) has published a piece on the Third Plenum Decisions document, where several analysts break down the pledges and what this means for the PRC going forward.
2.2 According to analysis by the Observer Research Foundation, Xi Jinping’s dismissal of former defence ministers for corruption indicates strained party-People’s Liberation Army (PLA) relations. These expulsions are part of broader efforts to improve military efficiency and loyalty and occur amid rising regional tensions and Xi’s push to strengthen the PLA by 2027.
2.3 In ‘The Year of the (Digital) Dragon’, Jennifer Ewbank, former CIA deputy director, outlines the PRC’s digital strategy to achieve global dominance through advancements in AI, cyber capabilities, and quantum computing. This strategy is part of the CCP’s broader goal to promote authoritarian governance over democratic ideals.
3.1 British Chancellor of the Exchequer signals an independent course for UK-China policy
On July 18th, Bloomberg interviewed Rachel Reeves, Chancellor of the Exchequer. Reeves warned of the ‘difficult decisions ahead’ required to fix a British economy encumbered with elevated government debt, dysfunctional public services and tax burdens at a postwar high. It seems the new Labour government’s mission of transforming the United Kingdom (UK) into the G7’s fastest-growing economy will leverage a relationship with the PRC which prioritises economic engagement.
Reeves mirrored recent statements by Jonathan Reynolds, Secretary of State for Business and Trade, that the UK will not impose tough tariffs on Chinese electric vehicle (EV) imports. This marks a divergence from close allies US and European Union (EU), where concerns about Beijing’s market-distorting practices; damage to domestic industry, covert surveillance and broader concerns about strategic competition have led to protectionist measures and increasingly cautious stances to the PRC.
Damning allegations plague Chinese fast-fashion juggernaut SHEIN – relating to its draconian labour practices, intellectual property theft, disastrous carbon emissions and wholly unsustainable business model, to name a few. When asked whether she would welcome SHEIN for an IPO listing on the London Stock Exchange (LSE), Reeves tactfully expressed support for the recent changes in the British stock exchange listing rules, which aim to attract international companies such as SHEIN to go public in the UK. SHEIN would bring an estimated value of £50bn, after all. A London listing would be a major boost for a flagging LSE, which has recently lost high-profile companies to other larger and more liquid exchanges such as NYSE and Nasdaq. Incidentally, these aren’t options for SHEIN – Americans have raised too many pesky questions about ‘slave labour’ and ‘child labour.’
Reeves’ interview indicates part of Labour’s broader economic strategy to make Britain a prime destination for global investment and business growth. Some of the ‘difficult decisions ahead’ regarding the PRC lie in making trade-offs between ethical business, national security concerns, relationships with trusted allies, and economic pragmatism. These tradeoffs should be articulated clearly to the British public, however – with an explanation of the long-term rationale behind them.
Otherwise, we might just assume that His Majesty’s (HM) Government is telling us: Britain is too poor to be principled.
4.1 On 21st July, Xi Jinping’s explainer of the Third Plenum resolution was published. Here’s an excerpt of interest about how Xi perceives the international environment:
... we need to deal with major risks and challenges and secure steady and sustained progress in the cause of the Party and the country.
Advancing Chinese modernisation is a whole new endeavour. On the journey ahead, we will inevitably be confronted with problems, risks, and challenges. In particular, momentous changes of a magnitude not seen in a century are accelerating across the world, regional conflicts and disturbances keep cropping up, global issues are becoming more acute, and external attempts to suppress and contain China are escalating. China has entered a period in which strategic opportunities, risks, and challenges coexist and uncertainties and unpredictability are rising. Various ‘black swan’ and ‘gray rhino’ events have the potential to occur at any time. To effectively deal with these risks and challenges and seize the strategic initiative amid intensifying international competition, we need to further deepen reform comprehensively, so that we can create sound institutions to prevent and defuse risks and respond to challenges, strive to foster new opportunities amid crises, and break new ground amid the changing landscape…
We will push forward the development of a homegrown, controllable cross-border payment system and strengthen financial security mechanisms as we open our doors wider to the outside world…
4.2 On 18th July, the Ministry of Foreign Affairs of the PRC reported on the Third Plenum Communique:
At the session, the Central Committee gave a highly positive assessment of the success and achievements we have made in comprehensively deepening reform since the beginning of the new era and studied the issue of further deepening reform comprehensively to advance Chinese modernisation. It was stated that the present and the near future constitute a critical period for our endeavour to build a great country and move toward national rejuvenation on all fronts through Chinese modernisation. Chinese modernisation has been advanced continuously through reform and opening up, and it will surely embrace broader horizons through further reform and opening up. We must purposefully give more prominence to reform and further deepen reform comprehensively with a view to advancing Chinese modernisation in order to better deal with the complex developments both at home and abroad, adapt to the new round of scientific and technological revolution and industrial transformation, and live up to the new expectations of our people.
It was stressed that, to further deepen reform comprehensively, we must stay committed to Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the Theory of Three Represents, and the Scientific Outlook on Development and fully implement Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. We must thoroughly study and implement General Secretary Xi Jinping's new ideas, viewpoints, and conclusions on comprehensively deepening reform and fully and faithfully apply the new development philosophy on all fronts.
Gray Sergeant, Research Fellow on the Indo-Pacific at the Council on Geostrategy, writes:
Let the war games begin. Taiwan’s military has kicked off its annual Han Kaung exercises. Yesterday morning reservists reported to Taoyuan to defend the nearby international airport. In the afternoon, army engineers littered the Tamsui River with obstacles designed to slow down an incoming enemy. Meanwhile, other drills took place around the island, fighter jets were redeployed, and naval vessels dispatched.
The five-day around-the-clock drills have also coincided with the annual Wanan civil defence drills, during which the streets of major cities are evacuated as if they were being attacked by missiles.
More so than in previous years, this week’s exercises will test military-civilian cooperation in the event of conflict, including a blockade. Several other important changes have been noted including the introduction of unscripted enemy attacks and nighttime training. Additionally, military units are now operating under a decentralised command, where they will be forced to make decisions as if they had been cut off from central command – a change seen as a sign that Taiwan’s military is embracing asymmetric warfare.
If preventing troops landing on your shores wasn’t hard enough, Taiwanese troops are having to contend with Typhoon Gaemi. The tropical storm, which is due to hit the country in the coming days, has already led to some drills being curtailed.
That’s all for today - please check back in on Thursday to learn how the UK is managing its most complex bilateral…..
- Liddy
If you would like to explore any of the Council on Geostrategy’s PRC-focused research papers, click here to visit the China Observatory.