How Xi’s Unquestioned Grip on China Fuels Economic Unease


More than four decades ago, Deng Xiaoping opened China to trade and investment with Western capitalist countries after the death of Mao Zedong. The combination of state ownership and planning with private enterprise and markets has transformed the country into the world’s factory floor, raising the standard of living for hundreds of millions of Chinese – and making a lot of money for internationals. who is an investor. Under President Xi Jinping, the party is undergoing another shift, with pledges to curb “unhealthy capital expansion” and promote “common prosperity.” The result is confusion as investors try to figure out where Xi – who secured a groundbreaking third term as party leader – plans to take the country over the next five years.

1. How did Xi consolidate his control?

At the once-every-five-years party congress in October, Xi installed allies in the Politburo and the more elite Standing Committee, while party elders played a lesser role. Li Qiang, who served as Xi’s chief of staff in the eastern province of Zhejiang about 15 years ago, was moved to the No. 1 position. 2 in the party, putting him in line to become the premier despite lacking any experience in central government. The sight of Xi’s predecessor, Hu Jintao, being kicked out of the closing ceremony of the congress underscored how much Xi has put his stamp on Chinese politics. The official explanation – that Hu, at 79, has health problems – is plausible. But the official most clearly associated with Hu’s pragmatic, growth-oriented legacy, Hu Chunhua, not only did not enter the Standing Committee, but was also no longer a member of the Politburo.

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2. What are investors worried about?

One concern is that with greater centralization of decision-making, it may become more difficult to correct policy mistakes. At the congress, Xi dismantled a decades-old system for orderly succession intended to prevent a return to Mao’s tumultuous 27-year rule. He also surrounded himself exclusively with close allies and sidelined alternative voices. Congress has reinforced fears that Xi will continue his campaign to suppress the private sector.

3. How is Xi cracking down on the private sector?

At the end of 2020, he torpedoed a massive initial public offering planned by fintech giant Ant Group Co. Beijing has reduced the power of the country’s largest internet and video game company with new rules and tough fines and is moving to slow the growth of mountains of debt amassed by real estate developers, a large industry dominated by private sector companies. A large field of business that offers for profit the teaching of school children is completely prohibited. From the peak in February 2021, the total selloff of Chinese equities onshore and in Hong Kong grew to $6 trillion by the end of October. The party’s congress produced another defeat in the market led by international investors. But after securing his grip on power, Xi moved to shore up the world’s second-largest economy, which grew in 2022 at nearly its slowest pace in four decades. For a few days in November he delivered plans aimed at strengthening the damaged property sector and reducing the economic burden of the country’s strict policies to prevent Covid attacks.

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4. What is Xi’s philosophy?

At the congress, Xi repeated his mantra that China has entered a “new stage of development,” meaning that there is less emphasis on the pace of economic growth and more in its quality. That means growth that is more evenly distributed, less energy-intensive and more technology-based. Xi did not define the level in numerical terms, but economists see Beijing targeting growth rates below 5% for the next decade, slowing from pre-pandemic rates of more than 6% The congress came after the US unveiled unprecedented sanctions limiting China’s ability to access foreign-made microchips, citing national security. Xi made it clear that “winning the war” on “core technologies” such as advanced semiconductors will be a priority. Curbing inequality was also highlighted as a continuation of Xi’s “common prosperity”. In that vein, China may impose property and inheritance taxes on the wealthy, and financial firms are considering capping executive salaries and delaying bonuses to close the pay gap. junior staff.

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5. What role does Xi see for the private sector?

Xi pledged to support private enterprise and enhance the role of equity markets in China’s economy, and open up more sectors to foreign investment. Instead of designing policy around the whims of investors, however, Xi’s vision is to have markets serve the party’s goals.

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