MAOIST METHODS ARE MAKING A COMEBACK IN XI´S CHINA / GEOPOLITICAL FUTURES

Maoist Methods Are Making a Comeback in Xi’s China

Beijing is tightening control over the housing market and rebuilding volunteer corporate armies.

By: Victoria Herczegh

Chinese leaders are reverting to Maoist-era socialist policies to support the country’s crumbling economy and strengthen social control. 

Specifically, the government is reassuming control of the housing market and directing major companies to form volunteer armies, which were common under Mao Zedong but faded in the late 1970s following his death. 

These actions, coupled with updates overhauling discipline inspection to prioritize President Xi Jinping's directives, highlight an urgent drive to consolidate control over China's economy and society.

China's real estate sector has captured global attention for several years. 

Despite several rounds of mortgage lending reforms, urban renovation projects and construction of cheap housing, Beijing has struggled to stabilize housing investment and prevent major real estate firms from defaulting. 

Frustrated with ineffective reforms, Xi plans to enhance state control over the sector. 

Last week, he announced a new strategy for the Communist Party of China to take over a larger share of the market. 

This strategy includes purchasing distressed properties to convert into government housing and constructing more subsidized housing for low- and middle-income families. 

The objective, according to policy advisers, is to raise the share of state-built affordable housing available for rent or purchase under certain conditions from about 5 percent to at least 30 percent of China's total housing stock.

A team of economists trusted by Xi is still developing the plan, but it represents a significant escalation compared to last year's initiatives, which included easing home-buying restrictions and removing price caps in certain cities. 

Those measures failed to improve the sentiment of wary investors and developers and so were not extended to other areas.

The Maoist idea of state dominance may seem extreme, but given the origins of the real estate crisis, it could be an effective solution. 

After moving from state to private ownership in the early 1990s, China's real estate sector flourished. 

In fact, it performed a little too well. 

Worried that soaring property prices and debt could destabilize the financial sector, the government moved to curb excessive borrowing for real estate. 

But the crackdown worsened a liquidity crisis for developers like Evergrande, culminating in its December 2021 default and sparking an industry-wide crisis.

The new approach is more comprehensive and supports Xi's "common prosperity" initiative by transforming private properties into state-subsidized housing, thus making affordable homes available to lower-income groups. 

Essentially, reasserting state power over the housing market reflects Xi's broader efforts to tighten economic control, rein in the private sector and channel more investment to state-owned enterprises in leading-edge industries like semiconductors and batteries.

However, even though implementation has not started, the constraints are evident. 

Early estimates suggest the program could cost up to $280 billion annually over the next five years. 

To fund this new program, the government would need to redirect funds from other sectors, possibly leading to new financial issues. 

Nonetheless, Xi appears committed to this shift toward socialist policies and prepared to do whatever it takes to maintain his power.

In another policy shift reminiscent of Mao, the Chinese government is pushing state-owned companies to establish their own volunteer armies, known as People’s Armed Forces Departments. 

Officially, these forces, made up of civilians with regular jobs, are intended to merge economic growth with national security. 

However, their true purpose mirrors that of 1970s corporate militias: to quickly and effectively suppress social unrest, including consumer protests and labor strikes.

Recent reports show these volunteer armies, already formed by at least 16 state-owned enterprises, will be busy. 

Data from the Hong Kong-based China Labour Bulletin indicates labor strikes and demonstrations in mainland China jumped to 1,794 in 2023, a significant increase from 830 in 2022. 

More than half of these protests involved migrant workers and minorities, the most vulnerable groups in Chinese society, and over 1,000 demonstrations occurred in the poorer western provinces, the most dissent-prone areas. 

The majority of last year's protests centered on wage disputes and occupational safety, but with local governments’ budgets already extremely tight – especially in less affluent provinces – protesters’ demands were largely unmet.

Like a true "troubled emperor," Xi is seemingly placing his trust solely in himself and the foundational principles of Chinese socialism as established by Mao Zedong. 

He hopes to integrate the successful aspects of 1970s socialism into his current policies. 

Recent legal revisions emphasizing Xi's authority and the implementation of his directives mark a shift toward greater centralization of power. 

Xi's tactics signal a return to Maoist-era socialist ideologies, encompassing total state control over the economy and society and building a cult of personality to affirm his position as China's paramount leader.

But today's China faces very different challenges from the Maoist era. 

And the persistence of China’s issues under Xi's leadership suggests that this return to strict socialism may reflect the government's vulnerability and even desperation rather than strength and authority. 

Furthermore, by the end of Mao’s reign, China’s economy needed reform and modernization. 

It took Deng Xiaoping’s “reform and opening” to kick-start China’s economic miracle. 

But Xi seems determined to go the other direction, resisting pressure to take tangible steps to attract foreign investment while tightening his grip on the country.