Taipei, Taiwan — When Xi Jinping took the helm of the Chinese Communist Party (CCP) 10 years ago, he pledged to work hard to meet the people’s expectations for a better standard of life.
“Our people love life and expect better education, more stable jobs, better income, more reliable social security, medical care of a higher standard, more comfortable living conditions, and a more beautiful environment,” Xi said in a speech at the 18th National Party Congress in November 2012.
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“The people’s yearning for a good and beautiful life is the goal we must strive for.”
Now, Xi, who looks set to secure an unprecedented third term at the 20th CPP Congress that begins on Sunday, faces the task of delivering rising living standards for 1.4 billion Chinese people as the economy confronts its stiffest challenges in decades.
Xi’s mandate, which effectively sets him up as leader for life, solidifies a new era for China, the world’s second-largest economy, in which pragmatic policy-making focused on economic development increasingly takes a backseat to nationalism and political control. As the most powerful Chinese leader since Mao Zedong, Xi has revived personalistic rule and departed from the pro-market policies that had prevailed since key economic reforms of the 1980s.
While the CCP’s legitimacy has for decades been strongly linked to economic performance, including huge gains in living standards and reductions in poverty, Xi has reasserted state control over the economy, initiating heavy-handed and widespread crackdowns on the private industry that have hampered growth and sapped investor confidence.
After growing by nearly three-quarters during Xi’s first nine years in power, China’s $18 trillion economy is slowing sharply as a deflating house bubble, COVID-19 lockdowns, economic decoupling from the West and a looming demographic crisis threaten to hobble growth in the decades ahead.
“The challenge for Xi over the longer term is how does China’s economy now maintain a sustainable growth rate?” Andy Mok, a senior research fellow at the state-backed Center for China and Globalization, told Al Jazeera.
“China’s days of remarkable eight percent plus GDP growth are over, but is it still possible to sustain four or five percent?”
China’s Ministry of Foreign Affairs did not respond to a request for comment.
For most of Xi’s rule, China’s economy grew strongly, albeit at a slower pace than the double-digit expansions of the early 1990s and mid-2000s. Annual growth ranged between six and eight percent from 2012 to 2019, according to World Bank data, while the gross domestic product (GDP) per capita roughly doubled between 2012 and 2021, from $6,300 to $12,500.
Since the arrival of COVID-19, growth has been volatile, crashing to 2.2 percent in 2020 before rebounding to 8.1 percent last year. China’s ongoing use of lockdowns and border restrictions as part of its ultra-strict “zero COVID policy has all but ensured this year’s economic performance will be lacklustre at best. The World Bank has projected 2.8 percent growth for this year, which would be the worst result in a non-pandemic year since 1990.
Inequality, which Xi has promised to tackle under his drive for “common prosperity,” has remained high and roughly constant throughout the decade, with the Gini coefficient hovering between 0.46 and 0.47 – where 0 represents prefect equality and 1 represents perfect inequality – significantly above the OECD average.
Other key economic indicators have stayed relatively consistent, with inflation staying under three percent from 2012 through to 2021, and unemployment remaining under five percent, according to World Bank data.
Meanwhile, Chinese corporations have risen to become some of the world’s biggest firms, with tech giants such as Alibaba, Xiaomi and Tencent becoming globally recognised names. This year’s Fortune 500’s list of the world’s biggest companies includes 136 Chinese firms, compared with 73 in 2012.
“In Xi’s first five-year term, the Chinese economy reached its growth targets and remained resilient. The second term was more of a mixed picture, China’s economy hit some very strong headwinds, and some setbacks were self-inflicted,” Wang Xiangwei, a columnist and former editor-in-chief for the Hong Kong-based South China Morning Post newspaper, told Al Jazeera.
“Unfortunately, right now Beijing is sending a message that politics is above all else,” Wang said.
For many China watchers, the 19th CCP Congress in 2017 marked a watershed for the country’s political and economic trajectory. At the Congress, Xi heralded a “New Era” for Chinese socialism and enshrined his personal ideology, Xi Jinping Thought, in the constitution. Several months later, Xi secured the party’s blessing to abolish term limits.
Xi then introduced the “common prosperity” policy at a CCP central committee meeting in October 2020, directing party officials to address gaps in regional development, the urban-rural divide and income inequality.
The following year saw a sweeping crackdown on private industries, from property and education to computer gaming. The tech sector was hit particularly hard, with China’s 10 biggest tech firms losing $2 trillion in market capitalisation over a twelve-month period.
Dramatic events like ride-hailing app Didi’s botched IPO and the disappearance of Alibaba’s founder Jack Ma were received as a clear message to China’s entrepreneurs — the heady days of exponential profits are no more. By the end of 2021, 49 of China’s 100 biggest listed companies were private firms, down from 53 in 2020. The dip marked the first decline in the private sector’s share of the corporate space since 2014.
“Xi Jinping has changed China’s economic course dramatically from ‘growth at all cost’ to ‘common prosperity,’ focusing on redistributing income and wealth more equally,” Diana Choyleva, chief economist at Enodo Economics, told Al Jazeera.
China’s overleveraged property market has felt the effect of a resulting crackdown on speculation and reckless lending. New home prices in 70 cities across China have fallen more than two percent in the past year. For the Chinese economy, the bursting bubble poses enormous risks. Partly due to restrictions on other asset classes, real estate has become the preferred investment vehicle for China’s aspiring middle class — as much as 70 percent of China’s household wealth is tied up in housing.
Choyleva said Xi views the current real estate market as exacerbating inequality in the country.
“For over three years he has been intoning the mantra that homes are for living in, not for betting on. The Chinese people are finally getting the message that Xi means business halting house price inflation,” she said.
“While fighting income and wealth inequality is a noble task, the way Xi has gone about it undermines two of the most important dynamos of China’s development model over the past 40 years: private enterprise and the authorities’ trial and error approach to policy change.”
Mok, the research fellow at the officially-backed Center for China and Globalization, said he believed Beijing wished for the private sector to have a “delineated space given the changing needs of the population.”
“The reason the CCP staked its legitimacy on economic growth during the reform era was that the country really needed economic growth at the time,” he said. “(Then) China was characterised by economic deprivation, but in this century, Chinese have mostly what they want materially, in terms of amenities, infrastructure, etc. That means people don’t care about economic growth to the same degree as they did before.”
Mok said Chinese people must also realise their “higher intangible aspirations,” which are more collectivist than individualistic. He described Xi Jinping Thought as China’s “new religion” that aims to fulfil the “psychological and spiritual needs of the people.”
Regardless of the views of the masses, Xi’s new paradigm does not augur well for the needs of private businesses.
“Xi’s common prosperity policy and the resulting regulatory crackdown had good intentions,” said Wang. “Unfortunately, the consequences have proven to have stunted growth and seriously dented confidence and growth of the private sector.”
“The confidence of the private sector cannot be lower right now, and that’s really bad for the economy,” he added.
That shaky sentiment extends to investors outside China, too. The value of yuan-denominated foreign-held assets in China saw its biggest decline in the first quarter of 2022, plunging more than $150bn. Capital has continued to flow out since, with China’s debt markets losing $7.7bn in August for a seventh consecutive month.
The Institute of International Finance (IIF) has predicted the total outflow for 2022 to reach $300bn.
Both the European and American Chambers of Commerce in China have reported dwindling business confidence among their members this year, with many pointing to lockdowns as exacerbating a broader economic slowdown. About half of the American members surveyed in April and May had delayed or decreased investments, while more than three-quarters of European members said China had become less attractive to invest in.
Isaac Stone Fish, head of China-focused consultancy Strategy Risks, said the outflow involved a diverse group of investors.
“Partly it’s the many Chinese investors based in other countries who are looking to move their money out of China amid concern about the direction the country is going,” he said.
“While certain pools of money that are more politically influenced are reducing exposure to China-related risks in order to maintain smooth relations with their home governments.”
Stone Fish said the preeminence of politics above all else had become the hallmark of the Chinese economy under Xi.
“The CCP always saw themselves as legitimate simply because they were the rulers of China and because they believed only communism could save China. In the West, the communist ideology of the CCP is often downplayed and the party explained in economic terms… the reason China has claimed success is less about economic growth and more about fulfilling its vision of socialism,” Stone Fish said.
“In the West, the markets are in charge”, said Mok, “but that is not so in China”.
“As for which economic system delivers the best results in a political sense, well, we’ll have to wait and see.”