Xi Jinping’s strategy to ensure China’s rise keeps the Communist Party firmly in control of the economy. steering From an old era dependent on real estate and the chimney industry to a new era driven by innovation and consumer spending.
But with that strategy under pressure, he may have to relinquish some of that control.
Consumers are pessimistic. Private investment is sluggish. A major real estate company is on the verge of bankruptcy. Local governments face crippling debt. Youth unemployment continues to rise. The economic setback has tarnished Mr. Xi’s image of coercive leadership and has emerged as perhaps the most persistent and vexing challenge to his agenda in more than a decade in power.
“This is a period of great uncertainty surrounding the Xi administration, and arguably the period of greatest lack of confidence.” neil thomassaid a fellow at the Asia Society China Analysis Center in an interview. “The worse the situation in China’s economy becomes, the more likely Xi Jinping will be forced to make course corrections.”
Earlier this year, Mr. Xi began his third term as president with an indomitable attitude. He was confident his business would bounce back after three years of disastrous pandemic lockdowns. He worked to tame the debt-ridden real estate sector even as home sales declined. And he had a new Communist Party leadership team of supporters poised to push his growth plans.
Mr. Xi’s government now faces complex and difficult choices. On the other hand, it may be necessary to give more freedom to private companies and provide financial support to indebted local governments. But he may have to use more power to push through painful measures, such as new taxes, that some experts say are necessary to rebuild the economy and public finances.
At the heart of the country’s economic problems is sluggish home sales, which is at least partly the result of Mr. Xi’s choices. The real estate sector has been a major driver of China’s growth for more than two decades, but developers have racked up mind-boggling levels of debt and Mr. Xi has cracked down on their excessive borrowing. Now, authorities are easing restrictions on home sales and could take even bigger measures as the real estate crisis spreads through the economy.
In recent years, Mr. Xi has sought to rein in private capital through regulatory crackdowns, attacks on big tech companies accused of consumer abuse, and warnings against “unregulated capital expansion.” Now, to foster growth, governments may need to open up new areas for private entrepreneurs and investors. They are often wary of Beijing’s promises of further support.
The downturn in the real estate sector is also straining the balance sheets of local governments, which have long relied on income from land sales. Some experts say the central government could be forced to either give local governments more resources or ease some of their spending burdens.
“Xi Jinping likes control, and many of these changes mean relinquishing some degree of control.” dave rank, former Deputy Minister at the U.S. Embassy in Beijing, is currently a senior advisor at the Cohen Group. He added that under Mr. Xi’s highly centralized leadership, “the circle of people making decisions about how to get out of this really, really difficult patch is very small.”
The party has argued that the country’s economic challenges are manageable and that new growth engines, such as electric vehicles and clean energy, are rushing in.Sure, it’s not All observers believe that the Chinese economy is It’s in a steep downward spiral.
But recent issues have brought long-term issues into focus and sparked an unusually frank domestic debate about the direction of economic policy under Mr. Xi, particularly the expansion of state control of the economy. Despite slowing economic growth, Mr. Xi is obsessed with strengthening national security against threats from the West.
Private sector advocates continue to argue with new urgency, argued that such nationalist policies are pushing China into an impasse.Chinese internet users circulated the essay Former Hong Kong businessman Lu Mong-hung implicitly laid the blame for China’s economic problems at the feet of Mr. Xi, declaring, “The problem is economic, and the root is political.”
“The old ways of achieving stable growth are not working,” said Liu Shijin, a former senior Chinese government economist. said in a speech Last month, this was also shared by many users on social media. “Entrepreneurs’ unstable expectations and lack of confidence constrain the growth of new activities and new cutting-edge industries.”
Hu Xingtang, an outspoken Beijing scholar, said: A bolder call Calling for change, he called on Mr. Xi to end China’s “wolf warrior” brand of belligerent diplomacy that has stoked tensions with many countries, and to reaffirm the importance of free markets.
At least for now, Mr. Xi appears unwilling to make any major changes to his broader strategy. The Chinese government has also avoided announcing large-scale rescue plans for distressed developers and local governments.
Alicia García Herrero, Natixis’ chief economist for Asia-Pacific, said Chinese leaders do not want to encourage the perception that the central government will be the savior.
“It’s like a pressure cooker, his way of showing us that he wants us to take responsibility for our problems,” she says.
However, a hands-off approach may not be sustainable. In China, the central government controls most taxes and transfers most of the funds to local governments. However, this falls far short of what many prefectures, cities and cities need to generate growth and meet the demand to implement the Chinese government’s policies, leaving local governments burdened with debt.
Local governments, particularly in many poor regions, need the central government to intervene by absorbing some of the debt, granting a larger share of tax revenue, or directly paying for the expansion of social services. Maybe.
“I want to prioritize rebuilding the fiscal system.” bert hoffmanDirector of the East Asia Institute at the National University of Singapore spoke about China’s economic policy priorities. “Much of the dysfunction in the system stems from fiscal systems that are no longer fit for purpose.”
But restoring the government’s finances while reassuring private investors is a difficult policy challenge for Mr. Xi as well.
Cuts in taxes paid by businesses have already weakened government finances in recent years, especially in smaller cities and towns where small businesses make up a large portion of the revenue base. Some experts say China may even need to restore these taxes to previous levels and eventually impose new taxes, such as the long-debated and long-delayed property tax. There is. Such changes could stir up much debate, especially in tough economic times, and test Mr. Xi’s claims to be willing to make changes that previous leaders have balked at.
“China’s fiscal reform will require him to be near omnipotent to accomplish what needs to be done,” he said. Garcia Herrero, The Economist. “It’s ironic that we criticize him for being too strong, but in some ways he needs to be stronger here to accomplish this.”
Many are watching Communist Party meetings in the coming months to see how Mr. Xi will try to restore confidence in his economic policies. In 2013, Mr. Xi used a meeting of the Central Committee (known as the “Third Plenum” because of its place in the five-year cycle of committee meetings) to announce ambitious policies. 60 point program It promised to expand the role of markets in the economy.Many of the goals It remains unfulfilled.
Some Chinese economists and former officials warn that time is running out for the country to embrace difficult changes.
“Housing has peaked, consumption has peaked,” former Finance Minister Lu Ziwei said in a recent paper. Video interview with Caixin, a Chinese business magazine, he advocated for the authorities to significantly reduce barriers to rural immigrants settling in cities. “We are at a systemic impasse, and if we don’t resolve this, we will reach a plateau.”