China faces internal economic challenges ahead of the 20th Party Congress, which will be held on Oct. 16. The economy of China is dwindling, no matter how much the Chinese government denies it. It advanced by only 0.4 per cent in the second quarter, growth slowing down drastically from the 4.8 per cent the first quarter. The Zero-Covid policies have resulted in inflicting damage to the economy. The real estate sector has taken a sore hit as Chinese people are unwilling to buy houses due to inflation. Unemployment is at an all-time high, touching the mark of 19 per cent. The Henan banking crisis also brought out the worst of the economic condition, showcasing citizens’ frustration towards the government.
The heatwave and the drought have only worsened the conditions of the economy. Several rivers, including the enormous Yangtze River, have turned into streams due to the drought. Numerous rivers are now closed for shipping. Additionally, Shenzhen, one of the world’s leading technological hubs, has experienced floods and drought. Debt incurred by the State Sector is exponentially high, with more than 250 per cent of its GDP. The debt is predicted to increase this year. Moreover, a slowing population growth has resulted in a lower productivity rate. Externally, technological constraints and the trade war with the US are obstacles China faces.
A tussle between two leaders
Premier Li Keqiang held an executive meeting of the State Council on Aug. 24 to announce policies and measures that would stabilize the economy. It was decided that the growth of private companies would be encouraged to increase the presence of market players and jobs in the country. His primary emphasis was shifting towards a market-based economy that China recently abandoned.
There have been differences in ideology between Li Keqiang and Xi Jinping. The pro-market policies of Li and Xi’s tilt toward strengthening the state sector and the belief that party-state capitalism is superior are clashing with each other, with the two leaders undermining one another in various instances. However, there is not much clarity on how much power Li holds, especially since his Communist Youth League (CYL) has fallen out of favor. As Xi is the supreme leader in China right now, his policies will most likely undermine Li’s. However, the 20th party congress might be the redemption Xi needs. At the age of 67, Li has one year to go for retirement (in line with China’s informal age rule of “seven up, eight down”). Xi will need a right-hand man to implement fiscal policies. A person who will both be loyal and understand the economy. Possible contenders include He Lifeng, chairman of the National Development and Reform Commission (NDRC) and Guo Shuqing, party secretary of the People’s Bank of China. Another trusted ally of Xi who might be in the running is Liu He, one of the vice-premiers and director of the Office of Central Financial and Economic Affairs Commission. However, Liu has already crossed the age of 70. But Xi can accommodate him if he changes the age criteria or as a personal affliction towards Liu. Xi had previously done this for his favorite Wang Qishan.
A continuation or a switch in policies?
However, Xi also understands that the economy is in bad shape. His forceful reinforcement of the Zero-Covid policy has created a division between local and provincial governments. Endless vaccinations, harsh measures and increased government spending on conducting tests have created distrust in the public. Media reports showed ‘effectively managed cities’ in spite of complaints of food and medicine shortages being reported by citizens on social media. Local governments spend all their funds on ensuring lockdowns and regular testing, and some cities ask their residents to get tested every 72 hours.
Similarly, under Xi, China’s move toward liberal economic systems is completely disassembled, with increasing infiltrations of party members in private companies. Moreover, there is a relentless crackdown by the party on these companies. However, private businesses continue to be more profitable and more efficient than State Owned Enterprises (SOEs).
It is possible that Xi may try to choose someone who does the perfect job implementing the tenets of ‘Xiconomics’. Some principles of Xiconomics include the ‘Dual Circulation’ strategy, clampdown on tech giants and pursuing common prosperity. However, at the same time, the priority of the Party Congress should be to revamp the economic condition. The government strives for a 5.5 per cent growth. Xi might keep Li as there will be some sort of balance in the Standing Committee. Moreover, Xi being in this difficult situation might help to win greater support in the party by letting opposing leaders stay on the team.
[Photo by Dong Fang , Public domain, via Wikimedia Commons]
The views and opinions expressed in this article are those of the author.
Swayamsiddha Samal is a research assistant at the United Services Institution (USI), New Delhi. She has a B.A. from Jawaharlal Nehru University in Mandarin and an M.A. from Pondicherry University in Politics and International Relations. Her interests lie in Chinese politics and its foreign policy.