Xi Jinping Revives Pro-market Policies to Bolster Economy Ahead of 20th Party Congress

People test a virtual reality simulation at the China Hi-Tech Fair in Shenzhen, Guangdong province last December (source: CAS)

Are President Xi Jinping’s recent turn to liberalized measures on technology firms and his commitment to using infrastructure projects to boost the economy an indication that the supreme leader has adopted a relatively pro-market approach to policymaking? At a late April Politburo meeting, Xi, who is also General Secretary of the Chinese Communist Party (CCP), said that Beijing would promote the “healthy development” of the internet platform economy through “normalizing control over the tech sector,” and that specific measures would be taken to boost high technology industries, especially information technology (IT) conglomerates. Xi has also stopped mentioning the goal of “common prosperity,” which has been used as a pretext to squeeze tycoons running multi-billion-dollar technology giants (CCTV.com, May 2; SCMP, April 29). At the same time, Xi is pulling out all the stops to ensure that this year’s GDP growth target of 5.5 percent is reached. The “core of the CCP leadership” has emphasized that the Chinese economy must expand at a higher rate than that of the United States in order to demonstrate “the superiority of the Chinese system” (Deutsche Welle Chinese, April 27; Radio French International, April 27).

Apart from factors such as the massive COVID-19 outbreak in major cities including Shanghai and Beijing, the Chinese economy has suffered from snarled logistics, faltering manufacturing output and lagging consumer spending. Also significant are “self-inflicted wounds” such as President Xi’s decision to suppress the ambitious expansion of IT giants such as the Alibaba’s Ant Group and Didi Chuxing; private education companies; and video game producers. Alibaba and Tencent, China’s two biggest e-commerce firms, were hit with billions of yuan worth of fines late last year for allegedly failing to observe market regulations. Several IT tycoons including Ma Yun and Ma Huateng were obliged to donate billions of yuan to state coffers (SCMP, November 21, 2021; VOA Chinese, October 1, 2021). A number of Chinese companies listed on the New York Stock Exchange and Nasdaq were told to quit the U.S. market to avoid possible “leakage of state secrets.” Children have been forbidden from playing video games for over three hours a week (Xinhuanet, September 2). These strictures have wiped out more than $2 trillion from the valuations of technology conglomerates. Xi has also adopted a tit for tat approach toward Washington’s decision to bar American businesses from investing in Chinese companies with links to the military and intelligence (Businesstimes.com.sg, March 19; Global Times, March 8).

A Policy U-Turn

Last month, Xi protégé and economic advisor Liu He first announced the government’s policy shift concerning technology firms. Politburo member and Vice Premier Liu said at a high-level financial conference on March 16 that the regulatory storm over technology firms would soon subside. Liu also urged transparency for new regulations, including anti-trust measures. He added that “policymakers must be cautious when implementing rules that might hurt the market” Liu’s statement spurred a temporary rally in the Shanghai and Hong Kong stock markets (Xinhua, March 16; News.china.com, March 16). In early May, the People’s Bank of China also indicated it would introduce “normalized supervision [over platform IT firms] and bolster the sector’s healthy development” (Caixinglobal.com, May 5).

President Xi has also devised multi-pronged tactics to boost the economy. These include lowering interest and mortgage rates as well as the reserve requirements for banks. Spending coupons worth 500 million yuan were recently made available to Shenzhen residents (Nanfang Daily, April 24). Above all, Xi has indicated an ambitious program to boost infrastructure development with priority allocated to the telecommunications, electricity, waterworks, transport and energy sectors. Given the possibility of economic decoupling between China and the U.S.-led Western alliance – particularly in the IT sector – a multi-billion yuan budget is being earmarked for cutting-edge technologies such as artificial intelligence, quantum computing, microchips and logistics (Caixinglobal.com, April 30). An official media statement averred that the government would prioritize “speeding up infrastructure building in the information and internet areas” (Enorth.com.cn, April 29; Xinhua, April 26). However, as Beijing has for the past decade relied on government capital injections in infrastructure projects to maintain high growth rates, the administration has to alleviate both Chinese and foreign stakeholders’ concerns that investment in public works and advanced technology will not spurn wastefulness of resources, or further overload a national debt load that is equivalent to at least three times China’s GDP (M.jiamin.com, April 14).

Conflicting Signals

In his speech at the annual Boao Forum last month, Xi noted that China would continue its open-door policy and boost economic links with different countries in order to “build a community of common destiny” (China.gov.cn, April 21). Yet, given the heated strategic competition between China on the one hand, and the U.S. and its European and Asian allies on the other, it is difficult to envision breakthroughs in areas such as foreign trade and investment. However, relatively reform-minded financial officials recently hinted that progress was expected to be made in negotiations with U.S. regulators regarding boosting the transparency of the accounts and financial statements of Chinese companies listed in the U.S. This could help limit the number of Chinese firms barred from entering U.S. markets (VOA Chinese, May 3, BBC Chinese, April 7). Equally significant is that in a late April press briefing, the usually hawkish Foreign Ministry spokesperson Zhao Lijian emphasized the long-standing goodwill between Chinese and Americans. “The friendship between the peoples of both countries is the fountainhead and important basis for the development of bilateral relations,” he said (MFA, April 29). This is an apparent indication that given Washington’s disapproval of Beijing’s support for the Russian invasion of Ukraine, the Xi leadership is anxious to prevent anti-Chinese feelings in America from harming economic relations with the U.S. and its allies.

There are, however, conflicting signals that suggest that Xi is making these concessions mainly to jack up a flagging economy in the run-up to the pivotal 20th Party Congress this autumn. The supreme leader is expected to seek the approval of the 2,000-odd congress delegates to approve his bid to become “leader for life” (Radio Free Asia, April 27; Central News Agency, April 27). For example, Xi stated at a Politburo study session in late April that due to the deepening of reform, different types of capital are allowed to co-exist in socialist China. These include state capital, the capital of collectives, private capital, foreign capital and firms with mixed capital components. However, he doubled down on strict jianguan (supervision and management) of capital as essential to ensure fair competition, forestall bubbles, and prevent unfair “distribution of the interests of capital.” Xi advocated a system of “red and green lights” to ensure that only capital that is amenable to party-state control is allowed into the socialist economy (Gov.cn, April 30; Finance.sina.com, April 30). This insistence on stiff ideological standards seems to signal that high-tech multinationals like Alibaba and Tencent, which are deemed China’s most successful enterprises, will continue to be controlled by party cells that Xi has installed in their upper echelons.

Toward Self-Reliance?

Even more significant than Xi’s emphasis on tight capital management is his concept of building a “united national market” (全国统一大市场, quanguo tongyi dashichang) in the name of eliminating bureaucratic red tape and clamping down on provincial protectionism. Last month, a statement by the CCP Central Committee and the State Council declared that a united national market should be forged to curb artificially demarcated regional markets and to “open up key blockades which limit [national] economic circulation.” The document added that Beijing “must speed up the construction of a fully open and nationally united market [in the interest of] fair competition and full transparency” (CCTV.com, April 12; Gov.cn, April 10). While the Xi leadership has claimed that this new idea advances reform, it stresses the need for “highly efficient regulation.” Moreover, the national market concept dovetails with Beijing’s earlier theory of “internal circulation” (国内大循环, guonei daxuanhuan). Internal circulation is seen as laying the groundwork for self-reliance should further decoupling between the Chinese and U.S. markets occur (Radio French International, January 6; HK.finance.yahoo, January 4). It is understood that in accordance with Xi’s oft-repeated dictum of dingceng shezhi (“top-level design”), the concepts of internal circulation and a united national market could provide further opportunities for party leadership to enforce state plans and curtail decentralized decision-making. By contrast, centrifugalism was tolerated by the great architect of reform, Deng Xiaoping, in order to boost market forces in the economy.

Critics of Xi have also zeroed in on the supreme leader’s insistence on adhering to the zero-tolerance COVID policy in Shanghai and many other cities as indications of his administration’s propensity to exert control over the daily lives of citizens. Tighter party control has also extended to the villages in an apparent attempt to fulfill Xi’s orders to lessen the country’s dependence on wheat and grain imports. In a late March article, Xi noted that “the party’s topmost priority is to ensure [the success of] work regarding agriculture, farmers and rural areas” and that the “entire effort of the whole party and society should be pushing forward the revitalization of villages” (Gov.cn, March 31). A recent Ministry of Agriculture edict on rural work development stipulated that annual grain production must not fall below 650 billion kg. The document underscored the need to “strengthen the quality and safety (levels) of the country’s agricultural produce.” It introduced the concept of so-called “grid control” (网格管理, wangge guanli) of villages. Under this arrangement rural districts, like urban areas, would be divided into “grids” where state-security and police personnel are assigned to ensure that the activities of farmers accord with party-state requirements (MOA.Gov.cn, March 1; Xinhua, February 22).

Conclusion

A Xinhua readout of a late April Politburo meeting underscored the imperative of “the prevention of the pandemic, the stabilization of the economy and the safety of development.” It noted that due to a number of factors including the spread of COVID-19 and the Ukraine crisis, “the complexity, severity and uncertainly [of the economy] has risen… [and all parties] should stabilize growth, employment and price levels.” Echoing statements made earlier by Xi, the Politburo warned that cadres of all levels must beware of “black swan and grey rhino events” – a reference to unanticipated calamities as well as crises that are obvious but overlooked (Xinhua, April 30; People’s Daily, April 30). The relatively open-minded policies tolerated by Xi particularly toward technology firms provide an indication of the extent to which the supreme leader is willing to acquiesce to more market-oriented measures. However, Xi’s deep-seated preference for party-state control of both economic and political activities, could mean that rigid supervision of the polity is revived after he attains a third term in office at the 20th Party Congress later this year.

Dr. Willy Wo-Lap Lam is a Senior Fellow at The Jamestown Foundation and a regular contributor to China Brief. He is an Adjunct Professor in the History Department and Master’s Program in Global Political Economy at the Chinese University of Hong Kong. He is the author of six books on China, including Chinese Politics in the Era of Xi Jinping (2015). His latest book, The Fight for China’s Future, was released by Routledge Publishing in 2020.