Chinese President Xi Jinping's vision for China's economic ascent has been characterized by a steadfast commitment to maintaining strict control over the nation's economy. This vision sought to transition from a reliance on traditional industries to a dynamic economy driven by innovation and increased consumer spending. However, mounting economic challenges are now testing the viability of this strategy and challenging Xi's authoritative leadership. In this article, we will explore the intricate economic landscape that is confronting Xi Jinping, and the choices he faces in steering China's economic future.
Economic Downturn and Eroding Confidence
Recent developments have cast a shadow of uncertainty over China's economic trajectory. The once-confident Xi Jinping, beginning his third term as China's president, now faces a series of daunting economic hurdles. Consumer sentiment is in decline, private investments are sluggish, a major property firm teeters on the brink of collapse, and local governments grapple with crippling debt burdens. Meanwhile, youth unemployment continues to rise, posing an enduring challenge to Xi's leadership.
Neil Thomas, a fellow at the Asia Society's Center for China Analysis, aptly summarizes the situation, stating, "It's a moment of great uncertainty, and arguably the moment of least confidence, surrounding the Xi administration." As China's economic woes persist, the pressure mounts on Xi Jinping to consider course corrections.
Dilemmas and Tough Choices
Xi's government finds itself at a crossroads, necessitating difficult decisions. On one hand, there is a growing need to grant more autonomy to private enterprises and provide financial support to debt-laden local governments. On the other hand, it may require Xi's assertive leadership to implement painful but necessary economic reforms, potentially including new taxation measures.
A central factor contributing to China's economic woes is the housing market's sharp decline, partially attributed to Xi's stringent measures against excessive borrowing by developers. As the real estate crisis reverberates throughout the broader economy, officials may be compelled to loosen restrictions on home sales and consider more comprehensive interventions.
Moreover, Xi's previous efforts to rein in private capital through regulatory crackdowns and actions against major technology firms may need to be reevaluated. To stimulate growth, the government may need to open up new sectors to private entrepreneurs and investors, instilling confidence in Beijing's support.
Challenges to Centralized Control
Xi Jinping's affinity for control poses a unique challenge in navigating these troubled waters. Dave Rank, a former deputy chief of mission at the American Embassy in Beijing, notes, "Xi Jinping likes control, but a lot of those changes mean giving up some control." Under Xi's highly centralized leadership, the decision-making circle is limited, hindering swift and effective responses to the economic crisis.
Party Rhetoric and Real Concerns
The Communist Party has maintained that China's economic challenges are manageable, emphasizing the growth potential of emerging sectors like electric vehicles and clean energy. However, public discourse within China has become unusually candid, sparking debates on the direction of economic policy under Xi, particularly the expansion of state control.
Proponents of the private sector argue that statist policies risk leading China into a dead end. Critics have even placed blame for the economic issues squarely at Xi's feet. Liu Shijin, a retired senior Chinese government economist, contends that "unstable expectations of entrepreneurs and their lack of confidence" are hindering new economic activity and the growth of innovative industries.
Calls for Change
Some voices within China advocate for a shift in approach. Hu Xingdou, an outspoken academic in Beijing, urges Xi to reconsider China's confrontational diplomacy and reaffirm the importance of a free market.
However, Xi Jinping appears reluctant to make substantial changes to his overarching strategy, and Beijing has not unveiled a major rescue plan for distressed developers and local governments. This hands-off approach may not be sustainable in the long run, as it forces local governments, especially in less prosperous areas, to accumulate debt and shoulder the burden of generating growth.
The Way Forward
Restoring government finances while appeasing private investors presents a formidable policy challenge. Potential solutions include revisiting tax cuts for businesses and potentially imposing new taxes, including the long-discussed property tax. These changes could provoke contention, testing Xi's commitment to making the necessary adjustments.
As observers await Communist Party meetings in the coming months, they hope to gain insight into Xi Jinping's strategy for revitalizing confidence in his economic agenda. The challenge lies in addressing deep-seated issues, such as the housing market's limitations and consumption stagnation, while reinvigorating economic growth.
China's current economic challenges pose a substantial test for Xi Jinping's leadership and his vision of a tightly controlled, innovation-driven economy. The choices he makes in the face of these challenges will have far-reaching implications, not only for China's economic future but also for his legacy as a leader. As the pressure mounts, the world watches closely to see how Xi navigates this critical juncture in China's economic trajectory.
