Eye On: Xi Jinping – What’s next for China?

After assuming power, Xi Jinping has successfully established himself as a politician, both domestically and globally. From the anti-corruption campaign, the ever-increasing foreign policies regarding trade agreements, Xi showed the world that he is much more tough and ambitious than his predecessor, and will continue to be. The recent abandonment of presidential terms reaffirmed this. At the same time, the fear that China is going back towards a more closed country both economically and politically is spreading, but what is Xi’s goal?

Going backwards?

Xi’s power is growing, and so is China’s connections with the World

Xi’s era is controversial. The beginning of his presidency in 2012 is marked with the anti-corruption campaign. It was remarkable and unexpected both in terms of scale and scope. According to an estimation by the Economist, during the first three years of the crackdown movement, more than 100,000 people had been indicted for corruption, ranging from former to incumbent national-level leaders.

Another big change has been the tightened regulations on media and internet censorship, which also began in early 2012 when Xi took power. The censorship is wide-ranging, covering areas from critical or opposing opinion towards the party or the government to pornographic content. Internet giants such as Google, Facebook, and YouTube that refused to play by the government censorship rules were blocked with no exception (See table of high-ranking websites blocked in mainland China).

Top Websites Blocked in China. Source: Wikipedia.

Xi also proposed the Belt and Road Initiative, which then became China’s core framework for foreign policy. The ambition was much larger than it seemed at the time. Back in 2014 when the initiative was just launched, the foreign minister Wang Yi stated that the goal of the Belt and  that the aim is to make Eurasia an economic and trading network to rival the Transatlantic one that’s led by the US. (May 15th 2017, the Economist, What is China’s belt and road initiative?) A closer scrutiny at the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road, which was drafted and published by the Chinese government, would reveal several key points:

  1. The goal, as stated by Mr. Wang, is to build a new set of main trading partners. And this is expected to lead to a new global order.
  2. There is no sign of any intention of tightening control on the border. Instead, words such as “opening-up” and “cooperation” appear repeatedly.
  3. Until recently the key measure is the large spending on infrastructure in Central Asian countries with an aim to facilitate trade and economic integration.

Source: The Economist

Experimental pragmatism, but ideology still matters

Nevertheless, the recent policy changes by no means broke up with China’s principle of “experimental pragmatism”, even with the deviations characterised by the increasing emphasis on ideology.

The book How China Became Capitalist wrote by the Nobel Laureate Ronald Coase and Dr. Ning Wang described China’s key to success as marginal, gradual, experimental and pragmatic, as opposed to the previously ideological and wishful-thinking way. Many important changes, were led by local enterprises and supported by local governments, and what the central governments did was loosen their control and see how the results turned out. This could then be rolled out nationally if the thinking worked, but if not, the core functions and workings of the economy would go unharmed.

Since Xi’s leadership, the ideology that started to fade away returned. On September 18th, 2017, the state media announced that Xi’s political philosophies (often quoted as “Xi Jinping Thought”) would become part of the Party Constitution. Government officials and workers at SOEs were required to learn the Party Constitution through formal lessons and training, and this was also seen in Universities as well.

The policies now adopted in China and the decisions made are based on knowledge of economics and the global environment, it is just that such knowledge of how and why those decisions are made is not available to the public. For example, the founders of China Center for Economic Research at Peking University all hold PhD degrees from world-renowned Universities such as Uchiage and Oxford, and such research centres or think tanks contributed large efforts into the country’s policy-making and are respected by the government and the public.

Therefore, the pragmatism that led millions of Chinese out of poverty is not and will never be discarded. Economic prosperity is still the primary concern in the short term, but Xi is also worried about the long-term. Most of his policy plans (such as the Belt and Road Initiative in terms of foreign policies, and the plan for Xiong (an economic area in regarding domestic developments) involve long-term commitments. Before settling down on a reliable successor to continue his ambition, what Xi did was to abandon the term limit, tightening the control, creating stability on the surface at the expense of personal freedom, and take the lead himself. Following countries like Russia and Egypt, China joined the authoritarian trend. However, the authority is less for its privilege but more for its ambition.

The re-positioning of China in the global order

The former senior vice president of World Bank and Nobel laureate Joseph Stiglitz said, in a speech delivered at the State’s 2017 China Development Forum in Beijing, that “The US has always put ‘America first’, but previously, it was an enlightened self-interest, that saw peace, stability, and cooperation in countries around the world in America’s interest. Trump has taken out the word enlightened from enlightened self-interests.” He concluded that Trump’s protectionist policy will open up new avenues of cooperation, and at the same time he hoped that China’s view will not be such short-sighted and will pursue self-interest in a broader perspective.

Indeed, when Trump is nagging on China’s bilateral surplus with the US, China has started on exploring new trade partners and global connections. The majority of Chinese people may not feel so as the information they received is still relatively isolated from the world, but the changes are happening, and the Belt and Road Initiative is a proof.

Capital flight, which mainly caused by the instability of investment environment that led to increasing investments abroad by Chinese investors, is one of the government’s biggest concerns and it was also part of the reason of currency devaluation and trade surplus in China. Therefore, foreign investment, which is usually associated with a reduction in capital flights (see a study by Princeton University, FDI and Capital Flight) , is always welcomed, as long as they play by the government’s rules they can reap huge rewards from the fast-growing economy. In addition, the economy is gradually moving from export -led and investment-led growth to consumption ones, as real income increases for the bottom part of the economy more and more, which implies a huge potential for investment.

Whether the tightening control by China’s government is desired for China is questionable, and it is important for Xi to find a balance between the seemingly stable economy partly accrued to the control (which is important for expectations) and the underlying dynamics of the economy (which determines where the economy is going). However, what cannot be questioned is that China has learned the painful lessons of the results of isolation from the world, and as Xi’s power is growing, so is his emphasis on the economy’s connections with the world.