Chinese President Xi Jinping (習近平) took a big gamble shaking up key industries ahead of a political gathering that could decide whether he rules the country indefinitely. Now he is starting to hit the brakes.
In the past few weeks Chinese authorities have moved to soften sweeping policies designed to make the economy less dependent on debt, monopolies and fossil fuels.
While Beijing’s edicts chastened China’s corporate elites, they also began showing signs of hitting ordinary citizens with higher power bills, lost savings and — if the economy continues to struggle — potentially fewer jobs.
Illustration: Tania Chou
Chinese Premier Li Keqiang (李克強) expressed caution a week ago, saying that China needed to rethink the pace of the country’s energy transition as a power crisis threatened to keep factories in the dark and homes without heat during the winter.
By Friday last week the People’s Bank of China finally spoke on the debt crisis at China Evergrande Group, saying that the risks were “controllable” and lenders should keep credit to the real-estate sector “stable and orderly.”
That came shortly after Bloomberg reported that financial regulators told some major banks to accelerate approval of mortgages in the last quarter.
“China is confronting now a confluence of rising structural economic headwinds,” said George Magnus, a research associate at Oxford University’s China Centre. “Stability and order will be craved above all things, but within the context of a very defined political agenda. The [Chinese Communist] Party [CCP] cannot afford to have anything like Evergrande or inflation go off the rails.”
The pullback shows the difficult balancing act Xi faces in overhauling the world’s second-biggest economy in a way that does not cause too much pain for the nation’s 1.4 billion people, about 40 percent of whom earn just 1,000 yuan (US$155) per month on average.
Xi’s push for “common prosperity” has underpinned a slew of policies aimed at tackling widening inequality, which poses a long-term threat to the legitimacy of the CPP — and ultimately his own political future.
While it is important for Xi to assert his authority ahead of next month’s plenum and next year’s CCP Congress — a twice-a-decade leadership reshuffle at which he is expected to secure a precedent-breaking third term — any economic downturn that leads to social unrest risks weakening his grip on power. Slowing the pace of change in key areas would allow Xi to ease immediate pressure without altering his broader plans to remake China’s economy.
“Xi has a low tolerance for outcomes that directly cause a lot of ordinary Chinese to suffer, because that would create serious risks to political stability and party legitimacy,” said Neil Thomas, Eurasia Group’s analyst for China and Northeast Asia. “The key stakeholder that Xi is determined to protect above all others is the Communist Party itself.”
The severity of China’s energy crisis and property slowdown has surprised economists, prompting many to downgrade their full-year economic growth forecasts.
Third-quarter figures released on Monday showed the challenge: GDP expanded 4.9 percent from a year earlier, down from a previously reported 7.9 percent in the preceding quarter. China’s stock benchmark CSI 300, one of Asia’s worst performers this year, fell about 1.2 percent.
While Chinese policymakers have expressed confidence they can hit modest growth targets and have not signaled plans for stimulus, authorities have recently struggled to calibrate their approach.
Last month Bank of America economists Miao Ouyang (歐陽淼) and Helen Qiao (喬虹) warned that the credit crunch was “unnecessarily aggressive” and would work against “the policy goal of a healthy and stable property market.”
At a virtual roundtable last week on the power crisis, representatives from European businesses in China said their factory managers received late-night text messages from government officials demanding they halt production the next day.
Local authorities, they said, could not differentiate between companies based on their energy use, instead taking a rigid one-size-fits-all approach largely out of fear of angering Beijing.
At the same time, top leaders did act quickly to ease price controls on the sector that had been in place for years in a bid to ease the crisis, which was stoked by a combination of rising global commodity prices and overzealous local officials seeking to hit emission-reduction targets.
The Chinese State Council this month announced that China would raise maximum electricity rates and gradually allow all coal-fired power to be traded on the open market.
In some ways, the start-stop nature of Xi’s reform push is a built-in feature. The CPP’s Qiushi Journal (求是) on Friday last week published a more complete version of one of Xi’s speeches in August, which emphasized the need for “gradual and orderly progress” in achieving “common prosperity.”
“It is impossible to achieve overnight,” Xi said.
The goal was ultimately to ensure social harmony through growing the middle class and reducing the proportion of rich and poor “to form an olive-shaped distribution structure,” he said.
He called for a stronger public sector and improved social-safety net while also emphasizing the need for upward mobility and mobilizing “the enthusiasm of entrepreneurs.”
At one point Xi acknowledged that China still has not figured out how exactly that will work.
“We have a complete solution to the problem of poverty, but we still have to explore and accumulate experience in the issue of how to get rich,” he said.
One key aspect to Xi’s plan involves strengthening patriotism, seen most clearly by China’s moves to press its claims on Taiwan. Chinese warplanes conducted a record number of sorties near Taiwan proper earlier this month, leading the US to denounce Beijing for “provocative military activity.”
At the same time, China is dialing down tensions with the US and its allies. Beijing had a relatively muted response to reports that a small number of US military advisers were deployed to Taiwan, and Xi agreed to a virtual summit later this year with US President Joe Biden. The Chinese leader last week also set up a summit with the EU later this year.
Goldman Sachs Group Inc recently won approval to take 100 percent ownership of its securities joint venture in China, and Chinese Minister of Commerce Wang Wentao (王文濤) on Monday told state broadcaster China Central Television that the government will keep expanding market access for foreign capital.
While China’s use of nationalism shows it needs a “non-economic means of trying to promote regime legitimacy,” right now Xi is focused on getting the economy stabilized, said Matthew Gertken, a geopolitical strategist at Montreal-based BCA Research, which provides global macro research.
“On the current trajectory there is a clear and present danger of widening illiquidity, collapsing property prices, credit crunch, financial and economic crisis, and sociopolitical problems,” Gertken said. “These outcomes may ultimately be unavoidable, but first the regime will moderate policy to try to avoid them.”
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
Since the Russian invasion of Ukraine in February 2022, people have been asking if Taiwan is the next Ukraine. At a G7 meeting of national leaders in January, Japanese Prime Minister Fumio Kishida warned that Taiwan “could be the next Ukraine” if Chinese aggression is not checked. NATO Secretary-General Jens Stoltenberg has said that if Russia is not defeated, then “today, it’s Ukraine, tomorrow it can be Taiwan.” China does not like this rhetoric. Its diplomats ask people to stop saying “Ukraine today, Taiwan tomorrow.” However, the rhetoric and stated ambition of Chinese President Xi Jinping (習近平) on Taiwan shows strong parallels with