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Xi Jinping is trying to remake the Chinese economy
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Xi Jinping is trying to remake the Chinese economy
Last year Zotye, a carmaker, used it to tackle weak sales, and Wuliangye, a distiller, to improve the quality of its baijiu; it helped Zheshang Bank to digitise its operations and catalysed the development of energy-saving technologies at China National Nuclear Power. “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” is, on the basis of these companies’ annual reports, quite the business-practice panacea.To get more China economy news, you can visit shine news official website.
The time when private Chinese companies downplayed their links to the Communist Party is gone. By The Economist’s count, nearly 400 of the 3,900 companies listed on stock exchanges in mainland China paid homage to the Communist Party and its leader in their annual reports this year. References by both state-owned firms and their private-sector peers to Mr Xi’s guidance have increased more than 20-fold since 2017 (see chart 1).
The trend reflects China’s new reality. The Communist Party has greater control over all aspects of life, and Mr Xi has greater control over the party. This does not just mean it is a good idea for companies to butter him up. It means that he is in a position to reshape the economy within which they prosper or fail. What is he doing with it?
Nothing good, say critics at home and abroad. He has brought reforms that liberalised the economy to a halt and has smothered market forces, returning to a top-heavy state-dominated growth model which looks distinctly creaky. Private companies have rushed to set up party committees with an increasing say over strategy. Their once-swashbuckling bosses have adopted lower profiles. The title of a recent book by Nicholas Lardy of the Peterson Institute, an American think-tank, sums up the worries: “The State Strikes Back”.
Those observations are right. The conclusion is misleadingly wrong, encouraging a complacent and dangerous underestimate of China’s potential trajectory. Mr Xi is not simply inflating the state at the expense of the private sector. Rather, he is presiding over what he hopes will be the creation of a more muscular form of state capitalism. The idea is for state-owned companies to get more market discipline and private enterprises to get more party discipline, the better to achieve China’s great collective mission. It is a project full of internal contradictions. But progress is already evident in some areas.
Mr Xi announced his agenda in 2013, vowing that China would “let the market play the decisive role in allocating resources”, while reinforcing “the leading role of the state-owned sector”. When domestic stocks crashed in 2015 the government’s focus shifted to recapitalising its banks, tightening controls on cross-border cash transfers and taming the wildest corners of its financial system. But the party now thinks it has won this “battle against financial risks” and is getting Mr Xi’s agenda back on track in a new, bolder form.
Ever more tense relations with America have persuaded the party that China must be able to get ahead on its own. At the same time, China’s success in stalling its coronavirus epidemic and restarting its economy has reinforced its belief in what Mr Xi calls China’s “institutional advantages”—the idea that, as a strong one-party state, China can pool its economic and social resources to meet critical objectives.
Mr Xi’s push can be broken down into two big segments. The first is to establish clearer boundaries for the fizz and ferment of the Chinese marketplace: a stronger legal system for businesses; simplified rules for day-to-day activities; a financial system better at allocating funds. The second is to make more adroit use of the government’s grip on the economy’s main levers: to make state firms more efficient; and to team them up with private firms in new industrial-policy initiatives.
Entrepreneurs still have considerable latitude, so long as they stay in their lane and move in government-endorsed directions. And they still have powerful incentives. “To get rich is glorious”, a quip attributed to Deng Xiaoping that became a mantra for China in its go-go years, still applies. But only so long as your pursuit of riches also benefits the state.