Aiming to boost sluggish post-COVID economy, Xi Jinping eyes consumers and investment

Analysts say the government will face challenge reviving investor confidence and get people spending again
By Hsia Hsiao-hwa for RFA Mandarin
2023.02.19
Aiming to boost sluggish post-COVID economy, Xi Jinping eyes consumers and investment A woman and a child walk past workers sorting toys at a shopping mall in Beijing, Jan. 11, 2023. Chinese President Xi Jinping has described consumption as "the fundamental force driving economic growth."
Credit: Reuters

Chinese leader Xi Jinping's top-down bid to kickstart the country's flagging economy hasn't reckoned with the devastation wreaked by his zero-COVID policy, analysts told Radio Free Asia in recent interviews.

Ruling Chinese Communist Party ideological journal Qiushi published an article penned by Xi in full on Thursday, in which the ruling Chinese Communist Party general secretary calls for measures to "expand domestic demand," in the wake of the rolling lockdowns, travel bans and mass testing and quarantining of his zero-COVID policy, which ended in December.

"Insufficient aggregate demand is a prominent contradiction currently facing the economy," Xi wrote, citing Beijing's successful responses to the Asian financial crisis of 1998 and the 2008 global financial crisis, after which the government funded massive infrastructure projects, including hydropower, expressways and high-speed rail links to boost domestic demand. 

Xi's focus appears to be more focused on consumer behavior, however, describing consumption as "the fundamental force driving economic growth."

"It is necessary to increase the income of urban and rural residents through multiple channels, especially the consumption capacity of low- and middle-income residents who have a high propensity to consume but who have been greatly affected by the pandemic," the article said, suggesting loosening consumer credit to drive consumer spending.

He said the government would still need to drive investment with its own programs to stimulate private investment, building "modern infrastructure" in urban areas as well as removing red tape preventing private investors from contributing to infrastructure developments.

But Xi also called for better supervision of local government debt, to "defuse risk" in that area through mergers and supervision of local government debt burdens.

"We must practice our domestic [economic] strength and stand firm," Xi said, in an article composed of extracts from his Dec. 15, 2022, speech to the Central Economic Work Conference.

‘Now all the trains are quiet’

Yeh Fei-cheng, who heads the Taiwanese Chamber of Commerce in the southern Chinese city of Zhuhai, said he has heard very little in the business community to suggest that there has been much economic activity at all in the wake of three years of the zero-COVID policy.

"When I would ride the high-speed rail in the past, all I could hear were loud conversations between entrepreneurs, customers, factories about orders ranging from hundreds of millions of yuan into the tens of trillions," Yeh said.

"Now the trains are all quiet, and nobody is talking about the economy."

Yeh said the moribund manufacturing sector needs more government support to prevent further factory closures.

"The most important thing is to fight for the economy," he said. "If the economy isn't working well, then per capita GDP will fall, which is very dangerous."

ENG_CHN_ANALYSIS XiJinpingEconomy_02162023.2.jpg
A health worker takes a swab sample from a man at the entrance of a residential area under COVID-19 lockdown in the Changning district of Shanghai on June 11, 2022. Credit: AFP

"This policy isn't just a slogan; it's actually correct,” he said. “They have to fight [for this]."

But he said the economy won't recover easily from the widespread shutdowns under zero-COVID, citing catering and hospitality as an example.

"The more high-end the restaurant, the greater the impact," Yeh said. "The number of people eating in restaurants has fallen, and agricultural products, fishing, food, transportation and hospitality are all affected."

A similar picture is emerging in manufacturing, he said.

"Overall shipments from manufacturing enterprises have dropped by one fourth to one-third," Yeh added.

Cheng Ping Cheng, finance professor at Taiwan's Yunlin University of Science and Technology, said zero-COVID had both scared off foreign investors and stopped people from going out and spending money.

Focus on domestic economy

Meanwhile, Xi's insistence on relying primarily on a domestic economy and abandoning the export-led structures of the past four decades, was compounding the problem, he said.

"They interfered with the shareholding structures of [private tech giants] Alibaba and Tencent, setting up Communist Party branches in those companies," Cheng said. 

"A while back they sent in a bunch of officials to take charge of private companies in [southwestern] Guizhou province while it was under lockdown, doing immense harm to those companies," he said.

"Private enterprises are the key to domestic demand, but the Chinese government still makes state-owned enterprises their priority," Cheng said.

ENG_CHN_ANALYSIS XiJinpingEconomy_02162023.3.JPG
An employee works on the production line of Nio electric vehicles at a JAC-NIO manufacturing plant in Hefei, Anhui province, China, in 2022. Credit: China Daily via Reuters

Cheng said the Shanghai lockdown of last spring had rattled foreign investors like nothing else since Deng Xiaoping's economic reforms opened China up in the 1980s.

"They found out that the Chinese government could act in this way for the sake of domestic stability," he said.

"The thing the Chinese Communist Party has been most criticized for is its emphasis on developing the state sector at the expense of the private sector," Cheng said. "There has been a massive shift to the left."

Military ambitions

He said it would be even harder to boost the economy if Xi continued with his current level of military ambition, in particular if he decides to carry out his threat to invade democratic Taiwan.

He said a higher likelihood of military conflict in the Taiwan Strait and South China Sea had prompted some foreign companies to relocate to Vietnam or India.

"If [Beijing's] military expansionist ambitions aren't reined in, then the overseas backlash will get stronger, and it will become even harder to implement economic reforms in China," Cheng said.

He said current economic policy appears to be entirely Xi's doing, with more economically moderate leaders like premier Li Keqiang and vice president Wang Qishan now marginalized in terms of policy-making.

Translated by Luisetta Mudie. Edited by Malcolm Foster.

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