What’s important to Chinese President Xi Jinping?
Judging by the outcomes of his helmsmanship, it sure isn’t his nation’s economic performance.
A decade under Xi has resulted in a dangerously out-of-balance Chinese economy – in asset bubbles, and in unsustainable debt.
State-led growth works for a while, but its costs eventually make themselves clear. So clear, in fact, that rating agency Moody’s Investors Service cut its outlook on China’s sovereign credit rating from stable to negative last week. China has capped out its growth model — and is beginning to pay the price for it.
In recent years, Xi has become more assertive in economic affairs.
As a result, said Zongyuan Zoe Liu recently in Foreign Affairs, Xi has damaged China’s prospects.
He prioritized state-led investment, expanded the role of centralized industrial policies, emphasized the party’s dominance over capital management, and discouraged much-needed entrepreneurship.
One almost starts to wonder if Xi is a communist.
Miles Yu certainly thinks so.
Yu — director of the China program at the Hudson Institute, professor at the U.S. Naval Academy, and confidant to former Secretary of State Mike Pompeo — has for years argued that we need to take Chinese officials seriously when they tell us who they are.
And they tell us, very explicitly, that they are Marxist-Leninists intent upon dominating their society.
What’s most important to Xi is control.
At least that was the message delivered to the financial sector on December 1 in Qiushi Journal, an official party ideology organ.
The document instructs banks, pension funds, insurance companies, and other Chinese financial institutions — both domestic and foreign — to adhere to communist principles, particularly as interpreted by Xi himself.
Three decades ago, Deng Xiaoping convinced China’s body politic to accept the maxim that to get rich is glorious — and that some will get richer faster.
But party tolerance for wealth-generation has reached its limit, likely because of the recognition that independent wealth creates independent power.
Xi’s tightening of control over China’s economy — and its interactions with society — has occurred incrementally and across countless fronts.
But one watershed moment deftly illustrates its effect.
In the autumn of 2020, the party turned on Jack Ma, the founder of e-commerce giant Alibaba.
That year, Ma was set to take public the Alibaba fin-tech spinoff, Ant Group.
Before doing so, however, Ma let loose what Bloomberg called “a 20-minute roasting of anachronistic government regulation that would suffocate innovation in China.”
The IPO was then torpedoed by those very regulators and Ma mysteriously disappeared for a while.
Ant Group, meanwhile, entered into a two-and-a-half year cycle of restructuring and “rectification.”
In July 2023, Ant Group bought back shares at nearly 70-percent below its proposed 2020 IPO price.
The latest Chinese darling moving towards an IPO is Shein, the direct-to-consumer fashion company.
Shein, which generated revenue of just $1.3 billion in 2018, saw those numbers balloon to $22.7 billion in 2022 and is said to be worth upwards of $100 billion.
Given the Ma story, it’s no surprise that Shein’s enigmatic founder, Sky Xu, lives in Singapore.
So, what lies ahead for China’s economy?
The news—and certainly the mood—are mostly negative.
Dan Wang, a geoeconomic analyst and visiting scholar at Yale, says that China’s entrepreneurs and talented young people are beyond pessimistic and are falling into despair.
He reports that Chinese students pursuing degrees in the U.S. say their parents don’t think they should return home.
Meanwhile, said The New York Times late last month, deep-pocketed Chinese have “moved hundreds of billions of dollars out of the country this year.”
According to the paper, Chinese are now the top buyers of Tokyo apartments priced $3 million and higher.
And yet, not all has been lost.
Despite the avalanche of bad news, China continues to make economic advances, particularly around hard tech.
One stunning example is China’s emergence in 2023 as the world’s top automobile exporter; it has also built 37 nuclear reactors in the past decade and it recently licensed the world’s first electric-vertical-takeoff-and-landing passenger drone in the city of Guangdong.
Despite its demographic challenges, China’s working-age population dwarfs those of the U.S and European Union combined.
It is a workforce that is increasingly skilled and educated.
And it operates in flexible, frenetic industrial and manufacturing ecosystems that have proven impossible to sustain in America.
These advantages are so pronounced that only severe mismanagement could lead to their crumbling.
Alas, the clenching fist of Xi Jinping might do just that.
Jordan McGillis is economics editor of City Journal and a fellow at the Global Taiwan Institute.