News Analysis
Chinese leader Xi Jinping is cracking down on the financial sector, restricting foreign trade, and generally moving the Chinese economy away from market influence toward one of social and central planning.
To commemorate the 72nd anniversary of the founding of communist China, the Ministry of Foreign Affairs issued a letter, extolling “the six fronts (employment, finance, foreign trade, foreign investment, domestic investment and market expectations) and guaranteeing the six priorities (jobs, livelihoods, development of market entities, food and energy security, stable operation of industrial supply chains, and smooth functioning at the community level).”
In spite of the statement’s guarantees, China is facing supply chain interruptions, as well as food and energy shortages, largely because of policy decisions made by the Chinese Communist Party (CCP) under Xi’s leadership.
Some of Xi’s slogans are not particularly unusual, such as “cross-cyclical adjustment,” which simply means policy actions taken across business cycles. Others, such as “The Chinese Dream,” are stolen from the West, but transformed into a communist version.
“The Chinese Dream” is often compared to the American dream, although the two are quite distinct. The American dream is an individual dream of pulling oneself up by one’s bootstraps, in the context of having the freedom to make one’s own destiny.
The Chinese dream, by contrast, is a collectivist dream of “rejuvenating” and strengthening the country—Xi’s goal is to transform China into a world leader.
“Common prosperity” is a slogan, defined with another slogan, “successfully building a comprehensive well-off society.”
One would imagine that education would be a significant part of “common prosperity,” but this is one of the areas that Xi is cutting. China’s private tutoring sector was valued at $120 billion, but upon the announcement of Xi’s crackdown on the industry, $67 billion of stock value was erased within 48 hours.
College students and graduates sit by a sidewalk offering their tutoring services, in Xi'an, central China's Shaanxi Province, in this undated photo. Millions of college graduates in China are finding themselves with no jobs waiting, or end up performing work for which they are overqualified. STR/AFP/Getty Images
Additionally, the market for English classes, once the largest component of private tuition, has been decimated. Without these supplemental English classes, the Chinese will be even less equipped to engage with the world—one more sign of China turning inward.
Xi’s new policy, of restricting civil and economic life, has mockingly been called the “Red New Deal.” Aspects of personal freedoms and private enterprises that Xi is limiting include the following: social media, celebrities and fan clubs, people with “excessively high incomes,” fintech companies, gaming companies, ride-hailing, bike-sharing, Bitcoin mining, most aspects of the real-estate sector, virtual reality, and high frequency stock trading. The abolition of these, and other activities which Xi dislikes, are meant to help build a “harmonious society.”
During Mao Zedong’s time, there was a slogan: “Attack local tyrants, divide up the farmland.” Today, Xi calls it “wealth redistribution”—a component of “common prosperity” that is meant to make people more equal in one of the most unequal, large economies of the world. Wealth distribution, in practice, suppresses billionaires and celebrities, who represent “incorrect political positions.”
Xi said that “people with high incomes should give back more to society,” through charitable giving and higher taxes. To this end, Xi has curbed wealthy and high-profile individuals who have, what he considers, “excessively high incomes.” It remains unclear, however, why arresting, fining, or otherwise punishing the wealthy would make the poor richer.
“Dual circulation” is another socialist slogan, which, on the surface, seems balanced. In the strictest terms, it just means focusing on both the internal economy and the external economies. In practice, however, it means focusing less on exports and more on domestic consumption. It is one more euphemism for China turning inward. One reason for this policy may have been because of the U.S. tariffs and a general trend of foreign manufacturing firms leaving China.
Whatever the reason for dual circulation, it is ironic that Xi was telling people to focus on the internal economy during the COVID-19 lockdowns, a time when he was restricting all sorts of domestic, non-exporting businesses and services, including restaurants, tourism, retailers, haircutters, gyms, night clubs, bars, and cinemas. He was espousing the benefits of an economy driven by domestic consumption in the service sector, while the sector worst hit by Xi’s zero-covid policies was the service sector.
“Chief of industrial chains” is a Xi-ism, which means that local and provincial governments are responsible for “streamlining industrial supply chains,” particularly those affected by the U.S.-China trade war. In practice, chief of industrial chains resulted in quotas being thrust upon local governments. And in order to meet those quotas, local governments took any number of short-sighted decisions, many of which drove up their debt to untenable levels. China’s local government debt—including bonds and so-called “hidden debt,“ shadowy, opaque, loans taken through shell companies—is estimated to be $47 trillion.
Another Xi-ism, “Houses are for living in, not speculation,” was meant to discourage people from investing in property. The policy was introduced in 2017 and yet, in 2021, families have 70 percent of their multi-generational wealth tied up in real estate. Furthermore, the entire Chinese economy is threatened by a $5 trillion real-estate debt bubble that is plagued by defaults.
A man walks in front of unfinished residential buildings at the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China, on Sept. 15, 2021. Carlos Garcia Rawlins/Reuters
“One bank, one policy” could be interpreted as a standardization of policies across banks. In practice, however, it seems to mean that as local banks falter under a mountain of bad debt and murky, off-balance sheet transactions, Beijing is picking and choosing which banks it will bail out and which it will allow to fail. With bailouts, there is always the risk of moral hazard. Basically, by bailing out a financial institution, the government is rewarding it for bad or risky behavior. Bailouts send a signal to other banks that they, too, should not fear taking imprudent risks, because the central authorities will bail them out.
In addition to bailouts, Beijing has taken other steps, such as mergers and acquisitions, as well as allowing banks to restructure and reorganize, even permitting unlisted, small lenders, regardless of being in financial distress, to raise capital through private placements of equity.
The overarching economic slogan that steers the new Chinese economy is that the CCP wishes to “guide” private companies to explore “a modern enterprise system with Chinese characteristics.” This means that the Party wants to have more control over decisions taken by companies to ensure that they follow a correct, state-determined line.
As a result, state-owned enterprises are expanding, consuming a greater proportion of resources, including bank loans, while gobbling up private companies, and decreasing the private sector’s percentage of economic output.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
