BEIJING — President Xi Jinping has set out a beguiling vision for what he calls the “great rejuvenation” of the Chinese nation, one where his country strides confidently on the world stage while, at home, a reinvigorated Communist Party curbs corruption and crushes dissent.
It is a vision all about power and control, with Xi calling the shots. Yet, as China’s stock market plunge has shown, it has a crucial weakness.
Xi, experts say, has failed to set out a coherent plan to rescue China’s slowing economy, caught between an old model of state intervention and a new commitment to market forces. Indeed, the reforms that China’s economy desperately needs involve measures that its leader instinctively cannot stomach: relinquishing control and surrendering power.
“The only important thing to Xi is power,” said Liu Junning, an independent scholar and former researcher for the Chinese Academy of Social Sciences, a prestigious official think tank, who was fired in 2000 for criticizing the Communist Party. “There is no room for further reform without surrendering power.”
The confusion at the heart of the government was exposed with its handling of the stock market — as authorities first pumped up the bubble and then intervened heavily in an attempt to prop shares up after the bubble burst.
Earlier in the month, it paired its surprise devaluation of the currency with a statement that it was allowing the exchange rate to be set mainly by market forces. Since then, it has intervened heavily to prevent a further slide, noted Arthur Kroeber, managing director of Gavekal Dragonomics in Beijing. (China’s market recovered some ground Thursday after the government bought shares and in reaction to a rally Wednesday in the United States.)
Recognizing concerns both inside and outside China, the Communist Party mouthpiece the People’s Daily carried a front-page commentary last week insisting that the pace and depth of reforms was unprecedented but warning in unusually stark terms of the resistance they faced.
“The enormity of the difficulties, the scale of the resistance — and the uncanny, complex, ferocious and stubborn ways of the forces that have not adapted to reforms — go beyond what people could imagine,” the piece argued.
But Willy Wo-lap Lam, an expert on Chinese politics at Hong Kong University, says this article was a smoke screen — propaganda meant to distract attention from the fact that Xi was not really ready to embrace reform himself.
“Stability is still the overriding consideration, and the huge state-owned enterprises are seen as an anchor of the economy,” Lam said. “State-owned enterprises are a manifestation of political control of the economy.”
Kroeber is also skeptical. While Xi has talked of markets playing a “decisive role” in resource allocation, he has also reaffirmed the “dominant role” of the state sector. His government has reined in excessive credit growth and excessive investment, but it has failed to make good on promises of deregulation and curbing the power of state-owned enterprises, Kroeber wrote in a note to clients.
“We are increasingly of the view that this mediocre result arises not because a bold and visionary reform program has broken up on the reefs of political opposition, but because the main aims of China’s leader Xi Jinping are political and geo-strategic, while his economic goals are contradictory,” he wrote.
In preparation for Xi’s high-profile state visit to the United States next month, President Obama’s national security adviser, Susan E. Rice, is due in Beijing on Friday and is scheduled to meet with the Chinese leader.
China hopes to use the visit to project Xi as the leader of a global power in the same league as Obama. But the stock market’s woes have dented his image and provoked mocking comments from some Republican presidential hopefuls.
When Xi took power two years ago, China seemed to be drifting after a decade of ineffectual collective leadership by a cabal of uncharismatic men in dark suits. Reforms had slowed, government spending was out of control, and corruption was rampant.
Xi has tried to change that by focusing on governance, fighting graft and centralizing power. He has established a series of high-level committees to run foreign, security and economic policy, each with him at the helm.
Collective leadership has been replaced by more than a hint of a personality cult around China’s supposedly strong and decisive leader — a man whom Australian Sinologist Geremie Barmé has nicknamed the “Chairman of Everything.”
When a stock market rally began to gather pace this year, sucking in tens of millions of retail investors, state news media soon joined the party, loudly announcing that the bull market was only just beginning. The rally, experts say, seemed to serve two purposes: Politically, it was easy to see it as an endorsement of Xi and his “China dream,” while economically, it seemed like an easy way out of China’s problems.
Andy Xie, an independent economist in Shanghai, said the authorities were “juicing up” the market as a substitute for real structural reform, hoping that an asset bubble would stimulate consumer demand, help inject fresh capital into businesses and cover up for increasingly unproductive state-led investment.
“Structural reform had somehow not been considered. They thought the stock market would somehow make everything rosy and solve all the problems,” he said. “But when the market started collapsing, there was no Plan B. That’s why we are seeing such a haphazard reaction.”
Victor Shih, an associate professor at the University of California at San Diego’s School of Global Policy and Strategy, agreed. “The entire policy establishment was thinking they had found the magic bullet for corporate finance in China and not really thinking about where the money comes from,” he said.
For Shih, the sorry episode also reflected a more fundamental flaw in China’s system, especially with power so centered in one man.
“In dictatorships, when things are going well, nobody wants to end the party,” he said. “When anything goes well in China, people can attribute that to the top leader. But it would be very difficult for anyone to come and say, ‘Things are not going well; it’s a bubble, and it’s about to crash.’ ”
“Had power been a bit more decentralized, people would have come to say, ‘Let’s end the party.’ There would be less fear of offending any particular leader.”
Xi’s centralization of power, some experts and foreign business leaders say, has also undercut a strength of the Chinese system — decision making by consensus, in which policy was implemented only after careful consultation and cautious experimentation. Today, they say, policy seems less considered, more haphazard.
The stock market’s crash has badly dented the notion that China’s leaders were almost infallible guides for the nation’s economy. Concerns are mounting globally about China’s economic slowdown and its ability to rebalance away from state-led investment and heavy industry toward services and consumer demand.
Independent economist Xie believes that his country still has enormous economic potential if it can manage that transition. But that, he says, requires a different approach from China’s top leaders.
“There is a tendency to think power is everything, to think that political stability is based on raw power — that everything is okay if you can lock people up and no one can challenge you,” said Xie.
“But that’s very wrong thinking. Political stability is based on economic prosperity. China’s rise in the past three decades is based on economic prosperity, and prosperity can only come from sensible economic management.”
Xu Jing and Gu Jinglu contributed to this report.