Xi-conomics at a Spotlight Before the Party Congress
With the 20th Party Congress of the Chinese Communist Party just around the corner, Xi Jinping is poised to lock in a norm-breaking third term as the party’s General Secretary, marking the culmination of a decade-long quest for personal power. But with great power comes great responsibility, and one of those responsibilities is continuing to deliver on the social and economic progress that is the base of party legitimacy.
By abandoning collective leadership and taking personal control of the economy, “the chairman of everything” has staked his political credibility on successfully managing a host of daunting challenges. An aging population, soaring debt levels, an outdated growth model, and rising youth unemployment combine to put “Xi-conomics” to the test. While Xi entering a third term may be a foregone conclusion, the success of his signature economic policies will be crucial in seeing him through it. Some of the policies that will affect Xi’s political fortunes into his third term are discussed here.
Although slow to respond when the Corona pandemic first struck in the dawn of 2020, a combination of recurring lockdowns, mass-testing and strict border controls earned China relative success in containing the mass spread of the virus while other countries struggled. But the Zero-COVID strategy, one of Xi’s flagship policies, has since turned into an endless and costly game of whack-a-mole that is taking a major toll on the Chinese economy and society, drawing criticism from all corners. Major disruptions to commercial activity led the World Bank to revise its forecast for China’s GDP growth to 2.8 percent, a distinctly unimpressive number by Chinese standards and a far cry from the annual growth target of 5.5 percent. Zero-COVID is also breeding discontent among Chinese citizens, threatening social stability. An outpouring of discontent was expressed online when a two-month long lockdown of Shanghai in late spring subjected 25 million people to food and medical shortages. A more recent lockdown of the megacity of Chongqing saw residents respond with protests.
Despite such blowback, there are so far no signs of Xi having second thoughts about his COVID-combatting strategy. Perhaps unwilling to make a U-turn on a policy with his name stamped upon it, he instead doubled down at a Politburo meeting in May, calling the measures “scientific and effective”. Such boasting complicates any future decision to back down from a policy that is likely unsustainable in the long term, and is clearly testing people’s patience with “Xi Jinping Thought on Covid-19”.
Red Lines for Real Estate Developers
Another big test is real estate. Since privatizing the property market in the 1990s, China has experienced a remarkable housing boom that has become an ever more important driver of China’s rapid economic growth. But with anxiety growing in Beijing about a real estate bubble, Xi declared at the Party Congress in 2017 that houses are “for living in, not for speculation” and launched a policy of “three red lines” that set stricter limits on borrowing for property developers. The high-profile meltdown of the property giant Evergrande has since brought home the magnitude and complexity of the problem. Highly leveraged developers like Evergrande have found themselves unable to pay back debts and follow through with projects under the strictures of the three red lines. Slowing sales have sent housing prices spiraling for 12 consecutive months, spelling trouble for urban households, who keep an average of 70 percent of their assets in real estate.
And property developers are just the tip of the iceberg. Local governments also depend heavily on the property sector through land sales to developers. A sharp decrease in housing construction risks forcing local governments to tighten their budgets and cut back on public services. Many experts still remain confident that China can “deleverage without self-detonating” (Orlik 2020). But if not, the property market which has been likened to a Ponzi scheme may carry the seeds of a potential disaster – one that Xi will not want to be a part of his legacy.
Another feature of Xiconomics with dubious economic benefits is the “blizzard” of regulatory crackdowns unleashed on a variety of sectors, like technology, education and entertainment. After-school tutoring is one of the industries caught in the line of fire. Calling it a “stubborn malady”, Xi set out to curb its “disorderly development” by banning for-profit tutoring in subjects on the school curriculum. While the stated aim is to ease the burden for students in China’s hypercompetitive education system, the initiative is also likely one of many blunt attempts at increasing one of the world’s lowest birth rates.
While the measures appear to have achieved little in driving up fertility rates, with demographers projecting a further drop in birth rates for 2022, they are more than likely to drive up unemployment. Before the double reduction policy was introduced, after-school tutoring had grown into a thriving industry and major job creator for college graduates. Youth unemployment shot up to record rates this year with one in five under the age of 25 unemployed. The millions of jobs affected by the education crackdown surely contributed to this socially destabilizing trend.
The challenges are many for Xi as he ventures into the unknown of a third term. He clearly holds ambitious visions for how to overcome them, and pursues them with equally ambitious means. Whether or which of these ambitions will pay off in the long-run is hard to tell, but so far several of Xi’s policies seem to produce little economic benefit while also risking social instability. Unless they are reversed or reap some tangible rewards, tension and discontent are likely to mount within and outside the party, and Xi may find disgruntled former peers in the party elite waiting in the wings to capitalize on his mistakes. Confident in reaching a third term at the Party Congress, Xi should not be complacent about remaining “party core for life”.
Arthur Kroeber, China’s Economy: What Everyone Needs To Know (New York: Oxford University Press, 2020)
Tom Orlik, China: The Bubble That Never Pops (New York: Oxford University Press, 2020)