China's Xi Jinping set to steer economy down the path of state control: analysts

Xi's focus on state ownership and the 'real' economy is worrying for large private companies and the tech sector.
By Kai Di for RFA Mandarin
2022.10.26
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China's Xi Jinping set to steer economy down the path of state control: analysts A woman wears a virtual reality headset as she takes a simulated bobsleigh ride at a booth for Chinese telecom provider China Unicom at the PT Expo in Beijing, Sept. 28, 2021.
Credit: Associated Press

As Communist Party leader Xi Jinping begins a third term in office pledging "Chinese-style modernization," analysts said they expect further moves towards a state-dominated, planned economy, sounding an ominous note for the private sector, as well as for private individual wealth and influence.

Party newspaper the People's Daily ran a series of commentaries extolling Xi's economic policy on Monday and Tuesday, praising a shift away from a virtual economy and hinting at further regulatory crackdowns on the private sector.

"The real economy is the lifeblood of [the Chinese] economy," one article said. "General Secretary Xi Jinping has said that the real economy is the foundation of a great country, and the economy cannot be allowed to escape from the real to the virtual."

The article said the "real economy" includes fundamental goods and services like "food, clothing, housing, transportation, culture, education, health, leisure and entertainment."

"The real economy is also a reservoir to absorb labor, and it has the role of the magic staff of the Monkey King in improving employment levels," the paper said.

The paper also said controls over economic actors would be strengthened under the "Chinese-style modernization" policy.

"We need to ... regulate interactions between government and business, and accelerate the development of a new kind of government-to-business relationship that is both close and transparent," it said.

Onus on companies to work with government

A Baidupedia entry for the phrase "close and transparent" relationship said the onus will be on private companies to work transparently with party committees and government departments at all levels, and to "be disciplined and law-abiding."

Government will be required to take the needs of the private sector into account, and to help businesses "solve practical difficulties," the entry said.

According to the People's Daily, "Strengthening the party's overall leadership over economic work is an important part of Xi Jinping's economic thought ... and [an important contribution] to the development of a Marxist political economy."

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Barges move down the Grand Canal in Huaian, in China's eastern Jiangsu province, Aug. 14, 2022. Credit: AFP

U.S.-based current affairs commentator Qin Peng said that, in reality, ordinary people will be expected to toe the line, while the government helps itself to private assets.

"To the outside world, the policy doesn't appear to mean engaging in colonization, plunder and war, but under such a dictatorship, it will inevitably lead down this path," Qin told RFA.

The Communist Party's general office issued a directive in September 2020 calling on all private companies to accept its direction when doing business and hiring staff, citing significant "risks and challenges" in the private sector. 

The directive called on the party's United Front machinery -- which conducts outreach and influence operations outside party ranks both domestically and internationally -- to take on the private sector, and bring it more closely under party control and influence.

Guiding light

The political thought of general secretary Xi Jinping should be the guiding light for the private sector in the "new era of socialism with Chinese characteristics," the directive said.

The policy will also have implications for an economy that was once highly globalized.

Qin said far from entailing peaceful development, as claimed by the official rhetoric, China is actually engaged in the extraction of resources from countries in its Belt and Road plan, as well as other developing economies.

And, rather than supporting a bloated state sector at home, official redundancies could save the Chinese government trillions of yuan a year, he said.

"If they want to achieve common prosperity and improve people's welfare, one very good way of doing that would be huge staff redundancies, cutting the number of bureaucrats in government and party by half or even two thirds," Qin said.

"They could cut their annual expenditure of 20 trillion yuan by more than half, which would do a lot to improve the people's welfare," he said.

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Newly produced excavators and other machinery wait to be loaded onto ships for export at a port in Yantai in China's eastern Shandong province, Aug. 7, 2022. Credit: AFP

U.S.-based economist Zheng Xuguang said Chinese-style modernization also means the resurgence of the myth of self-reliance for the Chinese economy.

"Of course it's a myth, but unfortunately Xi Jinping may believe in it," Zheng said. "It will help him consolidate his power and achieve his goals."

Zheng said the insistence on party leadership is nothing new, but insistence on Xi's personal power as a "core" leader is.

'Common Prosperity'

Jiang Jinquan, director of the Policy Research Office of the Central Committee of the Communist Party of China, told a news conference on Monday that the idea of the Xi buzzword "common prosperity" was to make the economic cake bigger, then ensure it is more equally divided.

But Qin said an economy cut off from international cooperation will be hampered, and limited in its growth to 2-3 percent annually at best.

"Under these circumstances, it will be almost impossible to make a big cake," Qin said. "The only way they can achieve common prosperity is by plundering private enterprises and the middle class, which is a cruel and hypocritical form of 'common' prosperity."

The Communist Party amended its charter at the Oct. 16-22 party congress to enshrine public ownership and distribution of wealth as the mainstay of the economy, working alongside other forms of ownership and distribution, replacing the former reference to a "socialist market economy."

"This is the standard vocabulary of a planned economy, expressing a clear intention to return to the Mao era," Zheng said, in a reference to late supreme leader Mao Zedong.

Xie Tian, a professor at the Aiken School of Business at the University of South Carolina, said he still expects the Communist Party to allow smaller private companies to carry on as before, while increasing controls over major private enterprises.

"It'll be a mixed-economy model, which will continue to take advantage of the flexibility of private enterprises and capitalism for widespread job creation," Xie told RFA. "[But] they will strengthen controls over, or take over, important major companies."

"At the same time, they will start using unified purchasing and sales processes, as well as cooperative, under the old planned economy model," he said.

China's National Development and Reform Commission and other departments announced on Tuesday a slew of 15 policies and measures to promote foreign investment in manufacturing.

Analysts said this could be a response to a current lack of investor confidence in the wake of a Sino-U.S. trade war and the zero-COVID policy.

Qin said he doesn't expect the government under Xi to close off China's economy completely.

"It will find a way to decouple from the United States in some aspects, but in others, such as finance and technology, it is determined not to decouple," he said.” "Instead, it will find a way to hook up."    

Translated and edited by Luisetta Mudie.

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