Xi Jinping

John Fei is a program officer for the Asia Security Initiative at the John D. and Catherine T. MacArthur Foundation. The views expressed here represent those of the author, and not those of the MacArthur Foundation or any other organization. The recent drama surrounding China’s economy reveals contradictions in the Chinese Communist Party’s (CCP) monetary and fiscal management policies. Witness the rare, and highly scripted, appearances of the People’s Bank of China (PBOC) governor Zhou Xiaochuan or the China Securities Regulatory Commission’s (CSRC) regulatory flip-flop on circuit-breaker mechanisms imposed on trading. While there has been a plethora of analyses regarding the need for improved communication and greater independence of organizations such as the PBOC, less has been said about how the recent spate of economic events relates to the CCP’s leadership doctrine. China’s schizophrenic economic signaling is not simply a reflection of poor communications or outmoded regulatory structures, but symptomatic of deeper contradictions within CCP doctrine. In a nation where doctrine serves as the ideological foundation for actionable policy, one can trace the current policy confusion in Beijing to Xi Jinping’s “Four Comprehensives” and other slogans. So just what are the Four Comprehensives? To casual Western observers, Xi Jinping’s Four Comprehensives may seem akin to what the late Justice Antonin Scalia would call the “mystical aphorisms of the fortune cookie.” In a series of workshops conducted in Chinese at the China Executive Leadership Academy in Pudong, a CCP Party school in Shanghai, I and other participants in the American Mandarin Society’s Fellows Program had the opportunity to delve into the meaning and policy implications of slogans such as the Four Comprehensives. The Four Comprehensives are part and parcel of Xi Jinping’s “Chinese Dream”—realizing the great rejuvenation of the Chinese nation—and capture China’s paramount objectives in four points: 1) comprehensively build a moderately prosperous society, 2) comprehensively deepen reform, 3) comprehensively implement the rule of law, and 4) comprehensively strengthen Party discipline. How does the Chinese leadership intend to implement each of the Four Comprehensives? What can our engagements with CCP officials tell us about China’s recent attempts to inject confidence and stability into its exchange rate and other economic practices? The first and second comprehensives embed doctrinal ammunition to liberalize China’s economy. To achieve a “moderately prosperous society,” the Chinese leadership announced during the Third Plenum of the 18th Party Congress that the market is to play a decisive role in the allocation of resources in an effort to comprehensively deepen reform. Taking this logic to include liberalization of capital markets, loosening controls over the renminbi’s exchange rate thus appears to be a step towards unleashing market forces. Given the central bank’s devaluation of the renminbi last August and the fact that China has yet to enact strict capital controls, the goal to comprehensively deepen reform seems to have won the day. In regards to the third comprehensive, CCP officials we encountered are also keenly aware that China’s legal system needs reforming so that the current, unsustainable model of economic development—one based on manufacturing and capital investment—can shift towards an “innovation economy.” Some of our interlocutors were even quite direct, noting that the Party should reduce its role in society so that non-profit and non-governmental organizations could play a valuable role by coming up with innovative ways to address China’s various societal and environmental challenges. Yet, the spirit of allowing market forces to play a decisive role in China’s economy and of comprehensively implementing the rule of law appears to be simultaneously countered by logic implied by the fourth comprehensive—that of strengthening Party discipline—and other canonical slogans. Invoked to address the very real problem of corruption within the CCP, implementation of the fourth comprehensive has had the effect of instilling restraint in the words and actions of many. Combined with the CCP’s goal of building a “harmonious society”—one that stresses social stability—the fourth comprehensive could be fueling voices that aim to control China’s economic narrative. For example, while one would easily assume that building the rule of law comes hand-in-hand with press freedoms, recent proclamations have required that media must be “socially responsible.” Spreading rumors would be considered verboten under these guidelines. Alarmingly, this raises the danger that certain reporting on China’s stock market gyrations or on the depletion of foreign currency reserves could be considered “socially irresponsible.” This might explain the fact that Zhou Xiaochuan has made few public appearances and that CCP leadership continues to censor economic information. The debate over the renminbi’s depreciation and China’s economic policies is likely to continue. Examining the doctrinal foundations of Beijing’s recent economic policies through engagements with Party officials reveals just how China’s leadership will have to struggle to navigate the contradictions embedded in slogans such as the Four Comprehensives or “harmonious society” in the months to come. If the Party is truly serious about improving the credibility of its signaling on international economic matters, it might want to begin by revisiting the Four Comprehensives and other slogans to ensure greater consistency.

Xi Jinping is the gift that keeps on giving. Scarcely a week goes by in which he does not announce a new policy initiative or adopt some measure that reverberates around the world. I often find myself skimming the news anxiously to see “What has Xi Jinping done today?” Yet, increasingly, I find myself asking, not “what” but rather “why” he is doing what he is doing. This past week, the government released two policies (or re-released depending on your perspective): first, no foreign entity can independently publish anything online in China, and second, all the work of the Party’s media must protect and act on behalf of the Party. These, of course, are only the latest in a series of moves by the Xi leadership to restrict the range of information the Chinese people (and the outside world) can access and the range of independent thinking they can voice. What is behind Xi’s moves? Some outside observers have argued that a degree of political repression is necessary to push forward on economic reform. If you don’t think too deeply about this argument, it almost makes sense: too many disparate voices can muddy the message and delay implementation.  However, the development of a market economy relies on transparency and access to information—not to mention the rule of law—in order to function efficiently and develop the necessary trust among economic actors. In addition, as my friend Minxin Pei has written, the current leadership is prosecuting the anti-corruption campaign without transparency and the rule of law, leaving a trail of paranoia and paralysis in its wake and inculcating a culture of fear. Business deals are hampered, and reform efforts stall. Xi’s political objectives also appear ill-served by the crackdown. Placing your best and brightest in ever smaller boxes and limiting the ease with which they engage with the outside world will do little to enhance their creativity and ability to innovate. Advancing China’s soft power—another Xi priority—is also at risk. Political repression makes living and working in (not to mention emulating) China less likely and has already alienated citizens of Hong Kong and Taiwan. As one Chinese scholar recently noted in discussing Taiwan at a conference, China dominates Taiwan militarily and economically, but it is not winning the hearts and minds of the Taiwanese people. In fact, he noted, it is not winning the hearts and minds of people anywhere. What, then, does Xi want? Xi wants to construct his own political reality. Perhaps it is as David Bandurski put it: Xi wants a mirror that only reflects back what he wants to see, not reality. Alternatively, perhaps Xi sees reality but he is worried that if others see it, there will be growing doubt about the leadership’s capabilities, even more capital flight, and greater social unrest. He might be right. But if this leadership has learned anything from its recent engagement with the Chinese people on air pollution, it should be that no matter the official claims, the Chinese people recognize when the sky is blue and when it isn’t.

Over the past several months, it has become more than a full-time job trying to figure out what is going on in the Chinese economy. There have been many good efforts to make sense of all the disparate numbers that are coming out of Beijing and to tell people what to look for moving forward (including from George Magnus, Gabriel Wildau, and Eswar Prasad), but it is challenging. One thing that should not be—but often is—forgotten in the sea of numbers is the politics of the reform process. The political dimension can provide some much-needed context as to the problems Beijing is facing. Let me suggest three political factors that may be contributing to Beijing’s disjointed and seemingly sub-optimal economic decision-making process.                   Economic Reform=Less Control=Risk to Legitimacy. No matter how talented the economists sitting around the perimeter of Zhongnanhai may be, decisions are made by the mostly non-economist leaders of the Communist Party, and economic reform puts their legitimacy at stake in a very fundamental way. It is easy to forget that all the proposed reforms—currency, stock market, state-owned enterprise, among them—require that the Chinese leaders loosen or lift their levers of control over the economy, something they are loath to do. Their legitimacy hinges largely on economic growth, and the market introduces a significant degree of uncertainty into the equation and their ability to deliver that economic growth. The leaders will constantly be experimenting with how much they can let go to achieve the change they want while still holding on to as much power as they can. We should expect economic reform to continue in fits and starts. Xi Jinping is the ultimate decider. The word on the hutong is that the buck stops with Xi Jinping. Some good may come from that, but here are a few of the reported challenges: First, the buck stops with Xi, but Xi does not necessarily understand the nuts and bolts of the economic issues he is trying to address; and when he does address them, it is not clear that he is entirely comfortable with the risk and volatility that transforming China into a market economy entails. Second, Xi is primarily concerned with how the economy can advance China’s position in the world, so appealing to Xi’s sense of China as a global power is the way to get an initiative approved: hence “One Belt, One Road” (which many Chinese economists are concerned will not actually provide any real benefits to the Chinese economy) and the aggressive push for the Chinese yuan to be added to the International Monetary Fund’s SDR basket (a move some Chinese analysts believe happened before the country’s financial institutions were ready). Third, there are multiple power centers in the economic decision-making process: Xi and his advisers, Wang Qishan and his economic kitchen cabinet, and Li Keqiang and his increasingly hapless team.  Enough said. And finally, when Xi travels, economic decision-making grinds to a halt, and Xi travels a lot. The burden of expectations. With Xi Jinping and his team now beginning their fourth year in power, the pressure is on to deliver some significant reform success. Most analysts and businesspeople outside China believed that the Chinese government would roll right through its massive economic reform agenda broadly laid out in the November 2013 third plenum of the 18th Party Congress. It wasn’t a question of “if” but “when.” That is not happening. In addition, the Chinese people want their assets to be secure, their children to be well-educated, and their air to be clean. All of these are actually monumental reform agenda items. (Note: surely it cannot be chance that in 2012, Chinese nationals made up 1,675 of the ten thousand EB-5 visas—visas granted to people who invest one million dollars in a U.S. company and provide jobs for ten people—offered by the U.S .government and in 2014, they accounted for 8,308.) At the same time, labor protests have just about doubled during 2014-2015 to 2,500. Social stability remains the leaders’ paramount concern, and could easily be a trigger for a round of poor economic choices.   None of this is to say that economic reform in China won’t happen. But it will reflect all the messy and painful politics that plague any country trying to overhaul its economy, and then some.