This post will look at some of the manifest priorities of the Chinese government and how it's pursuing them. It draws from earlier posts here, here, here, here, here, and here.
The list of apparent priorities of the Chinese authorities in recent times.
1. Structural transformation to increase the share of domestic consumption and realise "common prosperity" through, among other things, forced income redistributions from the rich.
2. Recalibrating away from debt-fulled economic growth towards more sustainable basis by, among other things, allowing over-leveraged firms to flounder and even fail. The most prominent example has been the efforts to deflate the bubble in the real estate market, a disproportionately important sector and the largest contributor to the country's economic growth. It has committed to introduce "traffic lights" to prevent "disorderly expansion of capital".
3. Asserting control over the private sector by actively pursuing the regulation of the platform companies and deepening institutional linkages between the Communist Party and private sector managements. The spectacular growth of platform companies like Alibaba and Didi have engendered several concerns which threaten economic and social stability and weaken the control of the Party over the economy. This necessitates regulation to rein them in. Similarly, while private business managements have always deferred to local Party officials, their influence has become more formalised and entrenched in recent years.
4. Crackdowns on the likes of real estate speculation, private tuitions, effeminate men, superfandom, online gaming for children on weekdays so as to limit the spread of practices which are perceived as socially undesirable. The activities of these sectors are thought to be inimical to "common prosperity" and therefore require to be curbed.
5. Maintaining the credibility of the government and internal discipline within the Communist Party through the anti-corruption drive. The provincial and lower government and party officials were important drivers and beneficiaries of the spectacular economic growth over the last three decades. This, as the likes of Yuen Yuen Ang have documented, invariably ushered in a Chinese Gilded Age, where transactional corruption flourished. Several party apparatchiks and leading government officials became immensely rich from rent-seeking. Xi identified this corruption as a corrosive factor and initiated a high-profile campaign to cleanse corruption in the Party and government.
6. Focusing inward by prioritising domestic economic growth drivers through the dual circulation economic growth strategy. Exports and foreign investments should be secondary to the primary drivers of economic growth which are located within China.
7. Doubling down on industrial policy with the objective of establishing Chinese dominance of the cutting-edge technologies. The Made in China 2025 program, launched in 2015, prioritises "indigenous innovation" to achieve "national rejuvenation" by transforming China into a "manufacturing superpower" in 10 priority high-tech sectors. It seeks to achieve global leadership in these advanced technology sectors.
8. Demonstrating a new and assertive China which has "arrived" and is therefore no longer willing to "hide its strength" through its "wolf warrior" diplomats. This has meant ratcheting up tensions with neighbours on both land and sea. It has also meant taking strong objection to perceived offending of China - suspension of rare earth exports to Japan after a maritime clash off Senkaku, curbs on Norwegian salmon imports and Nobel Peace Prize to a dissident, ban on Australian wine and barley imports in retaliation for its demand for inquiry into origins of Covid 19, and removal of Lithuania from Chinese Customs Administration's country list on December 1 in retaliation to the country allowing the opening of a Taiwanese representative office in Vilnius etc.
9. Renewing efforts to unify China with Taiwan, one of the highest long-term priorities of the Communist Party, so as to restore the full glory of the Middle Kingdom.
Barry Noughton and Rush Doshi have good books on the emerging China. I have not read Michael Pillsbury, whose works were an important influence in the Trump administration.
There are some observations from these priorities and the way in which they are being pursued.
1. All of these measures have a common theme. They assert the supremacy of the Communist Party and, in particular, the subsidiarity of even the richest Chinese and the biggest Chinese companies. The Communist Party has long been wary of political liberalisation, as exemplified by Mikhail Gorbachev's Glasnost and Perestroika reforms, as an existential threat. It has left no opportunity to highlight this risk and take measures to ensure China does not go the way of the Soviet Union.
2. The means being followed on some of the priorities, especially on letting the property, is extremely risky and can potentially threaten the system itself. For example, deflating an asset bubble through calibrated policy interventions is the stuff of policy dreams and rarely materialised. There are so many ways in which even the best calibrations can go wrong.
3. Given the risks associated, one cannot but not admire the conviction to go ahead with some of these measures. Rana Faroohar wrote about them in a recent oped,
The troubled property giant China Evergrande may yet melt down and take out the remainder of the sector with it, but I have to admire Beijing for doing exactly what the US did not do in the run-up to the subprime crisis, by identifying problematic companies in advance of a crash, and attempting to let the air out of a bubble before it brings down the rest of the economy... sending executives who have broken the law to jail after a fair trial, and checking corporate excesses in advance of crisis, is a good thing. China has recently made some improvements in investor protection schemes and securities law. In November, Kangmei Pharmaceutical, formerly one of China’s largest publicly traded drugmakers, was found guilty of fraud and had to pay out $387m to investors. Chair Ma Xingtian and his wife, along with four former executives, were held personally financially liable, and Ma himself was jailed. Would that any number of American executives had received the same treatment amid the countless financial crises and corporate scandals of recent years.
4. The implementation of these policies have required the centralisation of the policy making in the Presidency, which in turn has ended up marginalising the traditional institutional structures even including the separations between the government and the Party, and the Party and the leadership.
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