Dubious Prospects for Xi’s China

Embracing Karl Marx will hurt China’s economy

Chinese leader Xi Jinping addresses the audience at a luncheon at SkyCity Grand Hotel in Auckland, New Zealand, on Nov. 21, 2014. Greg Bowker-Pool/Getty Images

Commentary

Chinese Communist Party (CCP) members have completed their 20th National Congress. Now, all know for sure what was apparent even before the conference convened. Xi Jinping is firmly in control and has placed loyalists in every position of power.

From this easily anticipated outcome, it is possible to draw three conclusions about China’s future. First, the economy will become less market-oriented and operate increasingly according to centralized plans. Second, China will take an increasingly adversarial approach toward trade and economics (probably militarily and diplomatically as well, but these are separate matters). Third, as a consequence of these directions, China’s economy will grow at a much slower pace than previously and than it otherwise could.

Since becoming China’s leader almost 10 years ago, Xi has moved the country increasingly away from the flexible, market-oriented approach first adopted by Deng Xiaoping in the late 1970s, an approach that is widely credited with having fostered China’s stupendous growth in previous decades. Xi claims that Deng always meant for the market-oriented approach to last only so long—only as a way to develop economically. Now that the development has occurred, Xi wants to return China to its communist roots. It is noteworthy in this regard that Xi’s final speech to the Party Congress mentioned markets only three times but referenced Karl Marx 15 times.

China was well along in making this adjustment before Xi made his speech. Nothing is less market-oriented and more imposed from central authority than Beijing’s “zero-COVID” policies that have locked down whole cities and quashed economic activity for more than two years. Beijing has consistently emphasized state-owned enterprises over private businesses, going so far as to deny private enterprises access to financial capital from domestic and even foreign sources. Indeed, Xi has bluntly told private business owners and managers that they work primarily for the CCP.  

At the same time, Beijing has reneged on its promises when signing trade agreements with the United States in January 2020, while the CCP regularly threatened retaliation when other countries pursued mild versions of Beijing’s own economic policies. It is noteworthy in this regard that Xi’s speech mentioned “struggle” some 17 times, mostly in an international context.

If the new administration in Beijing does not mean to stymie Chinese economic progress, their program nonetheless will. To be sure, China’s growth was bound to fall short of its historic pace. Developed economies seldom grow as rapidly as newly developing economies, and China has reached such a point of development. That fact aside, replacing market dynamics with centralized planning will further restrain economic progress.

No one can argue with how the “zero-COVID” policy has stopped growth in its tracks. If that can be dismissed as a special case, most of China’s huge debt overhang can be traced to planning mistakes that would not have occurred in a more market-oriented environment, certainly not to the degree they have in China. The failures of Evergrande and other property developers could not have occurred, at least not on such a massive scale, had not China’s planners so emphasized residential real estate development that it grew to some 30 percent of the economy. And this is only one admittedly prominent example. Evidence abounds of how planners have wastefully overemphasized projects that cannot repay the debts incurred to pursue them.

Unfinished apartment buildings stand at a residential complex developed by Jiadengbao Real Estate in Guilin, Guangxi Zhuang region, China, on Sept. 17, 2022. Eduardo Baptista/Reuters

There is yet more evidence of the harm China’s policy directions have done and will do. The centralizing and belligerent attitudes in Beijing have raised doubts in the minds of foreign businesses. Foreign investment has long been a critical source of Chinese development and innovation. Now, these investors have begun to focus less and less on China for new ventures and more on other Asian economies, such as Vietnam, Thailand, and India. World Bank estimates capture the result. They expect China’s economy to grow at a paltry 2.8 percent this year compared to 5.3 percent for all of Asia.

With Xi loyalists in every position of power, there is little chance that any reform movement will redirect this unfortunate economic path. Xi actually seems like a true communist believer. Even if he is not, he seems determined to act like one, which is all that matters from a practical standpoint. As for his chief subordinates, they seem to have less than an adequate background to offer any check to the centralizing drive. The new premier, Li Qiang, was previously the Shanghai party boss, hardly a background that would question the dictates of Karl Marx. The economics portfolio has gone to Ding Xuexiang, who boasts little or no business experience. China’s economic direction is set. It is too bad for China.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.