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The Chinese power structure lined up behind Xi Jinping but financial markets did not

STEVE INSKEEP, HOST:

Stock prices for Chinese companies lost some value this week. Chinese stocks plummeted in Hong Kong and in New York after Xi Jinping cemented a third five-year term as China's leader. The Chinese power structure lined up behind Xi but the markets did not. So we've called Stephen Roach, a senior fellow at the Paul Tsai China Center of Yale Law School. He's also a former chairman of Morgan Stanley Asia. Good morning.

STEPHEN ROACH: Good morning, Steve.

INSKEEP: What do investors see that the Chinese government, I guess, would find inconvenient?

ROACH: They see a China that is in the process of really closing itself down from the rest of the world, and one that is aimed at conflict as it seeks to achieve Xi Jinping's aspirational goal of being a great power by the year 2049 and the 100th anniversary of the founding of the People's Republic of China.

INSKEEP: Are you saying that Xi, as president, has priorities that are not - that do not put China's economic growth first, the way that you might say that some past Chinese leaders have done?

ROACH: From the days of Deng Xiaoping, growth was always No. 1. And in Xi's China, national security, broadly defined, is now No. 1 even though he said in this communique of the party congress that maintaining growth remains our first priority. That was a very hollow statement in light of everything else he said.

INSKEEP: You know, Chinese authorities in the past have made it pretty clear that they felt they needed constant growth to keep their people happy, to avoid any risk of a revolution or unrest. Is Xi no longer worried about that?

ROACH: Well, I think, you know, in his darkest moments, he must worry about it. But what he's done over the past 10 years, Steve, is tighten up in the way of domestic security, surveillance. And now in this party congress, he's eliminated any opposition from senior leaders and, in fact, has instilled greater power in one of his partners on the so-called standing committee, a gentleman by the name of Wang Huning, who is responsible for China's deepening ideology, as well as written the book on conflict between America and China. So he's going further down the road of conflict. And I think that's very worrisome for the U.S. and for the rest of the world.

INSKEEP: Well, I'm glad you bring up the United States. What role, if anything, has the United States played in its conflict with China that might have raised doubts about China's economy?

ROACH: Well, we've played a big role. This is a relationship problem. I've written a new book that's coming out shortly about this very issue. But, you know, in the last five years, we have launched a trade war with tariffs. We've launched a tech war. And we just upped the ante on that big time about two weeks ago with sweeping sanctions on any technology products going to China. And we're now embroiled in the early skirmishes of a new Cold War. So we've done our fair share. And China has responded in kind. And I think we'll see more of that response in the weeks ahead.

INSKEEP: Do you think that the U.S. move against semiconductors particularly is a grave wound to China or something they'll just deal with and overcome gradually over time?

ROACH: I think it's a grave wound, I really do. One of the things that China aspires to the most is to be a world leader in artificial intelligence, advanced technologies. And they need U.S. chips to do that. They have tried for years to build their own chip-producing capacity, and they have failed. And there is no quick fix to that. So this goes right at the heart of what Xi Jinping is trying to do with modernizing China to hit his aspirational goals.

INSKEEP: Can you help me out with one other thing here, Mr. Roach? It's been clear for years the U.S. and China are facing greater and greater conflict. It's been clear for years that Xi Jinping was going to grab a third term for himself. And yet, something happened this week that must have been unexpected since stocks sank. What was the surprise in all of this, really?

ROACH: Yeah. That's a great question, Steve. I think the surprise was just staring these seven members of the standing committee in the face when they marched out on the stage of the National People's - the end of the National People's Congress and recognizing that there is not one person on there who is willing to serve the function of being an honest broker, giving - speaking truth to power and giving Xi Jinping a different perspective on many of the issues that he has fixated on. So this is a strongman perception that the markets wanted to admit wasn't happening but was unfolding before our very eyes.

INSKEEP: Stephen Roach is at Yale. And while you've been talking, I've been looking up your book here, "Accidental Conflict: America, China, And The Clash Of False Narratives." Thanks for taking the time.

ROACH: Thank you very much. Transcript provided by NPR, Copyright NPR.