Xi needs to talk modestly and carry a bigger (reform) stick

Author: Sourabh Gupta, ICAS

Almost five years to the day that he inaugurated a ‘new era of socialism with Chinese characteristics’, General Secretary Xi Jinping returned to the Great Hall of the People to renew his ‘common prosperity’-based agenda of modernisation and national rejuvenation.

In his Report to the 20th National Party Congress, Xi acknowledged the darkening geopolitical clouds on the horizon — the ‘black swans’, unpredictable dangerous events and ‘grey rhinos’, foreseeable but unaddressed dangers. There was no reference this time to global ‘peace and development [being] irreversible trends’ or to ‘countries … becoming increasingly interconnected and interdependent’, as was the case during his 19th Party Congress address.

China would stay vigilant in the face of ‘external attempts to blackmail, contain, blockade and exert maximum pressure’, he observed. But it would not be deflected from the path of development and from realising its second Centenary Goal of socialist modernisation, which includes modernising the national defence forces by 2035 and becoming a great modern socialist country by mid-century.

The conceptual elegance of Xi’s policy design, the judiciousness of the planning horizons and the timeliness of the transition from high-speed growth to higher-quality growth cannot be faulted. China stands at the trough of its U-shaped ‘Kuznets curve’ from an income inequality standpoint.

But it bears remembering that no East Asian state has worked its way up the ‘Kuznets curve’ — which models the relationship between economic development and inequality — without becoming a multi-party democracy of some sort.

If Xi’s ‘common prosperity’ philosophy of economic expansion-based opportunity, inclusion and rebalancing is successful in delivering an olive-shaped income distribution structure over the next two decades, it could leave a mark on China’s social market economy that is as influential as Deng’s ‘four modernizations’ of the late-1970s.

Where Xi has fallen woefully short is in policy implementation. Risk-averse stability preservation — masked by triumphal nationalist posturing — that has stymied the country’s progress and provoked the West, has been prioritised over concerted follow-through.

In his Report at the 19th Party Congress in 2017, Xi vowed to pivot from the fixed asset, overinvestment-based growth model and ‘leverage the fundamental role of consumption in promoting economic growth’. Three years on, even before the pandemic set in, the household share of consumption had barely eked its way to 40 per cent of GDP, a full 20 points below the global average.

Fifteen years after former premier Wen Jiabao labelled China’s economic problems as ‘unstable, unbalanced, uncoordinated and unsustainable’, the economy remains almost as unbalanced despite the halving of credit growth since 2017 by shrinking the shadow banking sector.

At the 19th Party Congress, Xi intoned that ‘housing is for living in, not for speculation’. In the three years thereafter, China’s housing market ran up one of its largest increases in residential floor space construction starts. Today, economic slowdown, excessive leverage and the US dollar-heavy borrowing structure of property developers have left them unable to refinance their debt and additionally vulnerable to the dollar’s appreciation.

More pointedly, the sedate pace of financial services sector policy liberalisation has meant that property, rather than equities or mutual funds, continues to disproportionately remain the primary store of value for Chinese households. Private retirement savings plans are a mere blip on China’s pension assets.

At the 19th Party Congress, Xi pledged to ‘forge friendship and partnership with its neighbours’ and ‘hold high the banner of peace [and] development’. In his ten years in office, President Xi has failed to stitch up even a mere fisheries agreement with a neighbouring country — let alone resolve a land or maritime boundary dispute.

Every Chinese leader since the founding of the People’s Republic has, in his first decade in office, crafted either the principles of settlement or settled outright a sovereignty-linked dispute — that is, until Xi. In far more trying domestic and geopolitical circumstances, former chairman Mao Zedong authored some of China’s more creative land boundary settlements, including the transfer of undisputed sovereign territory as part of a larger package deal with Myanmar.

At the same time, many of President Xi’s aggressively pursued first-term policies have come back to haunt him. These range from the ill-advised collective punishment of Uyghur Muslims to the ‘influence operations’ and talent recruitment programs overseas. His dash to telescope his middle-income nation’s rise to techno-nationalist superpowerdom during his time in office, by means fair or foul, has invoked retaliation in the form of heavy-handed export controls and acquisition denials.

But there have been important accomplishments over the past decade too. The military’s organisation and services have been radically restructured, the vestiges of abject poverty eradicated, high-level corruption rooted out, a new foreign investment law and deeper intellectual property protections instituted and ecological consciousness placed at the forefront of national development.

No Chinese leader since Mao has amassed as much power as Xi. At the 20th Party Congress, after amending the constitution in 2018, he was confirmed to a norm-bending third term in office and proceeded to run the Politburo Standing Committee table with his loyalists. Earlier, at the 19th Congress, he was declared the ‘core’ of the Party’s all-important Central Committee, his ‘thought’ enshrined in the Constitution and the four leading small groups chaired by him were elevated to the level of party commissions.

For this relentless centralisation of power to have real meaning, then, it must manifest in the bold transformations that President Xi has pledged to his party and people. As his 20th Party Congress resolution notes, ‘empty talk will do nothing for [the] country and only solid work will make it flourish’.

Sourabh Gupta is senior fellow at the Institute for China-America Studies in Washington, DC.

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