Xi Jinping consolidates his power in China
As the Chinese leader tightens his grip, serious economic questions remain
by George Magnus.
President Xi Jinping has the opportunity at the 19th party congress to stamp his authority on government © AFP
Five years ago, Xi Jinping’s path to the Chinese presidency at the 18th Communist party congress was shrouded in political intrigue. With days to go, he disappeared for two weeks. To this day, no one knows why.
Yet, as president, Mr Xi has succeeded in a Leninist crusade to reshape and gain control of the party, military and internal security apparatus. With more personal authority than anyone since Mao Zedong, and having transferred power from ministries and technocrats to party officials and committees, he has the opportunity at the 19th party congress, which starts on Wednesday, to consolidate his position and stamp his authority on the government.
Normally, the “odd number” congress, marking the first half of a 10-year leadership term, has been of limited interest outside China, except for examining those seen to be in line for succession in five years. This time, though, is different.
The congress will be scrutinised for several reasons. With many officials reaching the age of 68 when they step down and several under arrest or investigation for corruption, speculation is rife about the identity of about 200 nominees to the Central Committee that in turn chooses additions to the politburo as well as about the nominees to the Politburo Standing Committee, which may be reduced from seven to five members.
The next top leaders may be named, or not, leaving open the possibility that Mr Xi will not step down in 2022. Interest centres on the fate of Premier Li Keqiang, whose economic functions have been mostly usurped, and of Wang Qishan, the 69-year-old, powerful anti-corruption boss and close associate of Mr Xi, who recently met Donald Trump’s former chief strategist Steve Bannon.
After the congress, China watchers will try to discern how Mr Xi intends to govern. The concentration of power around the president has undoubtedly increased his authority but it has also reversed much of the institutionalisation of rules and procedures generally regarded as essential to administrative and economic efficiency. Political suppression and censorship, an emphasis on ideology in academia and in companies, and a stalled or diluted reform programme do not inspire confidence that he will suddenly change tack to implement an agenda of liberalisation and openness.
The campaign against financial malpractice and excessive risk-taking is likely to continue unless the economy slows abruptly. Excess capacity in old industries such as coal, steel and shipbuilding will probably be closed slowly. Amid tension on the Korean peninsula, China will pursue its path of international engagement via the Belt and Road Initiative, regional trade agreements, the Asian Infrastructure Investment Bank, issues such as climate change, and global health.
Decisive issues for China domestically, though, are reforms designed to strengthen productivity growth and avert the feared “middle-income trap”, and real deleveraging that could weaken China’s growth and its currency for some time.
Some things, important to economic development, seem very unlikely to change. These include the conflicted role of the party-state as owner, participant and regulator, the absence of the rule of law, and a comprehensive system of land and intellectual property rights and registration. The prominent political role of state enterprises is being strengthened, and the concentration of wealth and assets in the public sector is rising.
Other matters seem difficult to embrace. Reform of local government is long overdue and a problem over the next years will be the widening urban-rural divide on income inequality, adequacy of the social safety net, poor paediatric care and high secondary school dropout rates.
More immediately, though, the crucial issue is financial policy. The government should shut down the proliferation of local government, public-private, infrastructure and other borrowing vehicles, and allow the bankruptcy of many smaller banks and non-financial banking intermediaries, which have accounted for most of the increase in banking system assets and liabilities since 2008.
The main vulnerability is not so much assets or loans but the financial system’s liabilities. Over a third now comprise instruments of very short maturities in the interbank and other wholesale markets, and so-called wealth management products, many of which carry high risks. Before Mr Xi’s second term is up, this funding structure could become as critical for China as it was for the west in 2007.
No one knows how China’s deleveraging will proceed. In the next five years Mr Xi could preside over greater financial market and credit discipline, lower economic growth, restructured balance sheets, and eventually more sustainable growth.
Or the second term could be much like the first, with alternating struggles focused on growth and debt, but at the risk of a more dramatic financial denouement, while important reform initiatives are left to fester.
The writer is an economist, and associate at the China Centre, Oxford university
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