Xi, Kim seek upper hand before G-20 summit

REFORM: Chinese President Xi Jinping addresses troops at the People's Liberation Army Hong Kong Garrison on June 30, 2017.

For most of the last six years, Xi Jinping has been largely free to define the terms of his rule. But with challenges piling up from the U.S. trade war to mass protests in Hong Kong, his presidency is increasingly being dictated by events.

This week alone, President Donald Trump threatened to hike tariffs if China's leader fails to meet with him at the Group of 20 meeting in Japan; hundreds of thousands of protesters rallied against an extradition law in Hong Kong; and signs emerged that China's economy is struggling, with manufacturing slipping and an 8.5% decline in imports indicating slowing domestic demand.

Assailed on all sides, Xi's travails amount to one of the most difficult periods to date of his six-year presidency. How he responds is a matter for business, finance and economies globally, since whichever course Xi takes could have far-reaching consequences for his legitimacy at home and his ability to assert China's interests abroad.

"This is all on Xi's shoulders," said Trey McArver, co-founder of Beijing-based research firm Trivium China. "Xi has personally said that he would handle relations with the United States and at this point he has failed. Those relations are spiraling out of control."

Xi's current challenges are particularly acute as they strike at the heart of the Communist Party's legitimacy. In Hong Kong, the protests met with tear gas and rubber bullets highlight the limits of the party's ability to assert control over the formally autonomous island which became a Chinese special administrative region in 1997.

The situation in Hong Kong looked calmer on Thursday, with police removing roadblocks and the Legislative Council scrapping debate for a second straight day of the extradition bill at the heart of the uproar. Congress fired a warning at Beijing, but Trump showed no inclination to weigh in, telling reporters at the White House that "I hope it all works out for China and Hong Kong." Yet tensions remain high with organizers calling a demonstration for Sunday.

While there is no indication that China intends to send in mainland troops, there is still a risk that Beijing over-reaches, said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. Any escalation of violence could lead to a spiral of radicalization in Hong Kong and counter-pressure on Xi to crack down more comprehensively on political dissent, forcing a U.S. reaction.

In that worst-case scenario, "it would make it more difficult for President Xi to back down," Kirkegaard told Bloomberg Television. "He would be seen as bowing to political pressure from President Trump, from the administration, which is very difficult for him given the standoff they're already embroiled in over the trade relationship."

The dust-up in Hong Kong is just one of China's peripheral headaches where the U.S. can play an aggravating role. Secretary of State Michael Pompeo has accused the Communist Party of "methodically attempting to strangle Uighur culture and stamp out the Islamic faith" in its far western region of Xinjiang.

The U.S. has meanwhile ratcheted up support for Taiwan's China-skeptic president, sailing warships through the Taiwan Strait while entertaining the island's request for advanced F-16V fighter jets. Taiwanese President Tsai Ing-wen has decided to run against China as she seeks a second term, announcing Thursday that should won't cooperate with Hong Kong's extradition law.

The Trump administration is also provoking China in sensitive areas. After officially defining China as a "strategic competitor" last year, Trump has hiked tariffs multiple times and is demanding that the country unilaterally alter domestic laws as a part of any potential deal. On top of this, the U.S. has stepped up efforts to kneecap flagship Chinese companies from Huawei to ZTE.

Chinese officials have been frank about the seriousness of Trump's attacks. One senior Chinese diplomat recently told a foreign counterpart that Beijing sees the U.S. actions as a challenge to the Communist Party's right to govern China, according to a person familiar with the exchange.

The strength of these headwinds are intensified by the relative weakness of the Chinese economy. Imports tumbled in May, while Bloomberg Economics estimates that if the current 25% tariffs remain in place, they could result in a drag of nearly 1% on growth by 2021.

What's more, these are not the kinds of challenges that Chinese leaders are used to dealing with. In Hong Kong, Xi must deal with the unpredictability of a polity where relative freedom of assembly and expression are the norm. In Trump, Xi faces a U.S. president who announces major policy shifts on Twitter -- a platform blocked in China -- and courts an image of unpredictability to gain leverage in talks.

In addition, Xi's decision to remove presidential term limits last year means he has nowhere to pass the buck. If he backs down in the face of these pressures, he risks looking weak in front of the domestic audiences which handed him this authority.

With such a delicate balance of considerations, some analysts believe that something has to give. The G-20 summit later this month may be a significant moment for Xi.

"Xi has grown overconfident in himself on dealing with domestic and international issues," said Suisheng Zhao, director of the Center for China-U.S. Cooperation at the University of Denver's Josef Korbel School of International Studies. While displaying great ambition, he's neglected some issues which could come back to haunt him, said Zhao. "If he sticks to his current path, it will only become more challenging for him at home and abroad."

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