China under Xi Jinping is a nation of change. Establishing itself as a global power, China finds itself undergoing economic, political and cultural transformations at a rapid rate. At the heart of these changes is Xi’s vision for China’s new place in the world, confident in pursuing its goals on the international stage, guided by a sound and strong communist party at its core.
However, while Xi has been resolute in driving China towards this goal, it marks an apparent reversal of much of the liberalisation China achieved in the post-Mao era. Despite once looking to Xi as a potential herald of significant reform, the Western world, as well as China’s regional neighbours, are spotting signs that Xi has other plans.
Dr. Elizabeth Economy believes Xi’s policies mark a turning point in Chinese history. In her latest book The Third Revolution: Xi Jinping and the Chinese State, Economy argues that Xi’s formidable rule is reshaping nearly every aspect of modern China, from the political landscape to technological innovation and censorship. China Economic Review spoke with her to find out the relationship between Xi’s politics and the country’s economy.
CER: What do you think were the economic and political conditions that led to Xi’s change of policy direction?
EE: There was a combination of factors. Firstly, there was the perception that the Hu Jintao/Wen Jiabao leadership had not lived up to its promise – hence the term the ‘lost decade’. Many issues had accumulated, partly as a result of 30 years of go-go economic growth with a somewhat hands-off approach. There were a number of challenges: reform had slowed down, there was an increasing gap between the rich and poor, and the environmental situation was worsening, among others. And despite China’s success on the international stage there was still a feeling that leaders had not managed to capitalise on it. Perhaps most importantly there was a relative lack of a central core ideology around which party officials could cohere or rally, so the party came to be viewed as primarily a mechanism for personal, political and economic advancement.
Xi has also strongly suggested that he wants to deliver on the promise of the great rejuvenation of the Chinese nation. He is by no means the first leader to speak about this but he is the first to really make progress in its realisation. This means strengthening the Party, the military, and advancing a more assertive foreign policy.
CER: How has Xi’s return of ideology to the foreground of the party manifested in economic policy?
EE: At the time of the third plenum of the 18th Party Congress in 2013, there was a lot of enthusiasm both within China and the rest of the world for the idea that China was finally going to push forward in a much more significant way towards market reform. However, since then Xi has revealed quite clearly that he sees the state as necessary in guiding the economy in ways that are far more intrusive than we’ve seen in the past 30 years or so. The party is now playing a more integral role in state-owned enterprises (SOEs), whilst also trying to take stakes in private enterprises and joint ventures. If you talk to multinationals here in the U.S., you will hear many of them complain that they are being coerced into increasing the role of the party in decision-making in their joint ventures. In large measure, there is a feeling that Xi wants to control things that previously were market driven. The ability for CEOs and board members to make decisions based on market forces is now coming under threat.
Xi is also continuing to elevate the importance of SOEs as part of a broader international economic and security strategy . Prior to his assumption of office, SOEs were expected to be heavily reformed, and yet Xi uses them as agents of Chinese mercantilism through, for example, his Belt and Road Initiative. SOEs are essential to his broader strategic and political plans for China, so it is very unlikely that he will reduce their role in the economy.
CER: Xi has certainly made reform central to his rhetoric, but how much of this do you think is just lip service, particularly with respect to the financial sector and SOEs?
EE: There are differences in opinion amongst Chinese elite about how far and how fast to go with reforms to the financial system. Everybody will point to the fact that we have a set of leaders such as Yi Gang and Liu He, well-known for having a clear view of the necessity of reform. But yet, when push comes to shove, we often see that reforms can be slowed down and backtracked when other concerns emerge. Whenever the Chinese economy threatens to slow down significantly, the Chinese leadership encourages credit to flow, thereby contributing to rising debt. Then, when there was the threat of a tariff war, there were hints that government efforts to deleverage would slow down. These reforms tend to be very fluid, sometimes taking one step forward but two steps back.
A second point is that, with Xi, ‘reform’ carries a very different meaning from that under Deng Xiaoping. It can mean change, without necessarily opening up. Xi may be a significant reformer, but given the choice he tends not to opt for the ‘opening up’ part of the equation.
CER: The title of the book is the ‘Third Revolution” – are the impacts of Xi’s policies really comparable to those of Deng Xiaoping during China’s “Second Revolution”?
EE: Xi has only been in power for five years, yet he has already been transformative: consolidating power in his own hands, deepening the penetration of the Communist Party into Chinese society and the economy, creating a virtual wall of regulation to constrain information, ideas, and capital flowing from the outside into China, and asserting a more ambitious and expansive foreign policy. If things continue in this direction, I think he will certainly have as great an impact on China as Deng—particularly in foreign policy. China is shifting from an emerging or regional power to a major power, or even a superpower. He is attempting to realize sovereignty claims in the South China Sea, Hong Kong, and Taiwan; expand China’s economic, political, and security presence globally through the Belt and Road Initiative; and reform international institutions and norms to reflect China’s values and priorities more directly. As I see it, this is very much a reflection of how Xi sees the world, with China’s centrality in the global system. In this respect most of all, Xi is a revolutionary leader of China.