Mixed messages from top China leaders feed speculation of Xi-Li split

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BEIJING (BLOOMBERG) - Premier Li Keqiang's warning of China's "complicated and grave" employment situation on Saturday (May 7) was particularly dire, even for someone who has sounded the alarm for months. But it was also notable for another reason: It did not mention President Xi Jinping's zero-Covid-19 strategy.

Just days earlier, the Politburo Standing Committee - on which both Mr Xi and Mr Li sit - warned China's citizens not to question Covid-19 control policies that have locked down cities across the country, including Shanghai. That statement, by contrast, contained no mention of the economy.

Besides confusing local officials who must find a way to eliminate Covid-19 and grow the economy, the mixed messages from China's most powerful leaders raise questions about whether there is a split at the top over the best way out of the pandemic.

Any space between Mr Xi and Mr Li is closely scrutinised for signs of a power struggle unfolding in China's opaque government. Once considered rivals for the top job, the pair continue to be seen as standard-bearers for separate strains in policymaking, with Mr Xi representing the more ideological wing and Mr Li associated with more technocratic tradition.

"It is probably a stretch to say that Xi and Li are personally at loggerheads, but their statements do represent divergent views within the system on Covid-19 and its impact," said Mr Richard McGregor, author of the The Party: The Secret World Of China's Communist Rulers. "China is reaching a point where the need for a genuine debate about whether the price being paid for further lockdowns is worth the economic damage."

With much of the world seeking to return to normal as vaccines proliferate and virus deaths recede, China is pressing ahead with zero Covid-19, increasingly equating dissent against the policy with subverting Mr Xi. Beijing has trumpeted the government's success in stopping outbreaks before they get out of hand as evidence of how China's model of governance is superior to US- or European-style democracy.

Still, the lockdown-dependent strategy has resulted in sustained social tensions in the country's largest city, Shanghai, where many of its 25 million people have been under restrictions for more than a month. Curbs in the capital Beijing have become progressively tighter in recent days.

While the Standing Committee last week made no mention of balancing Covid-19 controls with economic growth, Mr Li's statement emphasised unemployment, which climbed to 5.8 per cent in March, the highest since May 2020.

"Stabilising employment matters to people's livelihoods," Mr Li said, adding that doing so was also "a key support for the economy to operate within a reasonable range".

Joblessness is a topic Mr Li raises regularly, including in remarks at the National People's Congress in March when he announced he would not return as premier next year after a party reshuffle that will likely extend Mr Xi's rule. China's economy will see 16 million new urban jobseekers in 2022, and ensuring their employment will require greater policy support, Mr Li said.

Mr Andy Chen, a senior analyst with Beijing-based consultancy Trivium China, said the country's leaders do not see the policy priorities to be at odds. Mr Li, as premier and head of the government, is supposed to focus on the economy, as opposed to Mr Xi, who runs the party and therefore serves as its political leader.

"They see getting the Covid-19 outbreaks under control as the precondition and basis for maintaining a strong economic momentum," Mr Chen said. "So emphasising ensuring employment doesn't mean pandemic control is less of a priority. It is still the No. 1 priority."

Whether China's top leaders see their instructions as contradictory, they are creating dilemmas for local officials, who might find Covid-19 controls as literal barriers to keeping supply chains running smoothly.

After the Standing Committee's latest decree, "local governments lack a real incentive to dismantle roadblocks" installed on highways to prevent Covid-19 from spreading, Trivium said in its newsletter.

Besides holding different portfolios, Mr Xi and Mr Li hail from separate corners of the party elite. The President is the "princeling" son of a revolutionary while the Premier is a trained economist and seen as a protege of former president Hu Jintao. Mr Xi was chosen over Mr Li in 2007 as Mr Hu's successor. Potential successors for Mr Li's job include Mr Li Qiang, a former Xi secretary who is now in charge of the Shanghai lockdown effort.

Mr Li Keqiang "has always represented a strain of more technocratic policymaking in the system that today is very frustrated with how the commitment to zero Covid-19 has played out," said Mr Jordan Schneider, a senior analyst at Rhodium Group. "Li in his statement was trying to make room for cadres to take into consideration economic, as well as public health, considerations."

Mr Schneider said there has been a pattern of reactive messaging in recent months in which technocratic officials have been called on to give statements that reassure markets only for policies to fall short of expectations. "What may be going on is less a disagreement between the two and more that dovish policy messaging isn't followed up with dovish policy," he said.

A similar split emerged last year after efforts by local officials to meet Mr Xi's ambitious carbon goals were blamed for power shortages. Mr Li Keqiang later indicated the government would rethink the pace of China's energy transition, slamming a "one-size-fits-all" approach in shutting down energy-intensive projects or "campaign-style" carbon reduction.

Mr McGregor, the author of The Party, who is also a senior fellow for East Asia at the Lowy Institute in Sydney, said Mr Xi was trying to dictate the outcome of the debate over Covid-19 policy by suppressing one side of the argument.

He suggested watching to see if Mr Li becomes more vocal on policy issues as he prepares to leave the premier's job. "The key question is whether Li persists in speaking up in public about the economy," Mr McGregor said. "Then, we might have the real makings of a split."

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