China’s Politics and Economy: Where To from Here?
Photo Credit: South China Morning Post
By Tai Wei Lim

China’s Politics and Economy: Where To from Here?

Oct. 27, 2017  |     |  0 comments

The Chinese political economic system is a hybrid system with a market economy and strong political control. It evolved from a Stalinist central planning model with Chinese characteristics to a reform-era market economy with a socialist political system that is dependent on export-led growth, and then on to a mature economy with an economic reorientation towards domestic consumption.

Chinese President Xi Jinping reversed the era of decentralization of power in China by reducing the number of members in the Politburo Standing Committee from 9 to 7. This helped to centralize power at the apex of the political hierarchy into the hands of President Xi. He has emerged as the strongman leader of China who has accumulated power to the farthest extent, some argue, since the Mao Zedong era.

While he has amassed great powers into his portfolio, President Xi is also facing some of the most formidable challenges confronting China. For example, he is managing China’s maturing economy at slower and more sustainable growth rates, focusing on upgrading the quality of life for the growing and increasingly vocal middle class, and paying attention to sustainable growth with less detriments to the environment. The accent is on reducing the emphasis on quantitative growth in favor of qualitative growth.

Each of these transitions involve great efforts to effect changes. The maturing economy requires new ways of thinking in job creation, new ways of revving up the Chinese engine for growth, seeking of new markets overseas (e.g. Central Asia), etc. In this sense, the centralized powers of the President appear to facilitate quick decisions but they also meant that the challenging task of running such a large and complex economy have fallen upon the shoulders of a smaller group of leaders.

Politically, President Xi has carried out a wide-ranging crackdown on corruption, capturing “tigers” and “flies,” incarcerating people guilty of corruption from the highest echelons of the leadership — such as powerful “tigers” like Zhou Yongkang, Ling Jinghua, and Xu Caihou — to more minor officials (the “flies”).

This campaign to weed out corruption in the Chinese political and economic systems was popular with large sections of the Chinese public. At the same time, it was also opined by some, including external observers of the campaign, that the campaign was a movement to remove powerful political rivals of President Xi and his factions/supporters (such as the Zhejiang and Fujian party officials who had previously worked with Xi during his tenure as the party secretary in those provinces).

President Xi has also greatly disciplined and rationalized the Chinese Communist Party (CCP). He reinforced the regulations of party discipline and attempted to demand stricter standards of adherence to party rules. The strongman politics of President Xi’s administration has increased centralized control of the CCP over the economy, reduced the number of core decision-makers, and consolidated pro-Xi factions in the ruling elite stratum, particularly at the Politburo level.

Under President Xi’s watch, the CCP has become even stronger in its hold over the other political institutions, namely the state bureaucracy and the military. In the Chinese political system of the triumvirate of Party, bureaucracy and the military, the Party is the most important institution, and the other two have to take their political cues from the broad directions laid out in the Party Congress.

The Chinese government will need to manage local/provincial governmental debt and the local level housing bubble to ensure they do not affect the national economy.

Economically, China will continue its transformation from an export-led market system to an internal-consumption one. The intention is to focus on domestic consumption as the main engine of growth, but it will require massive efforts to make this happen. Chinese consumers may need more incentives to spend/consume and save less, and this may also entail increasing support for more social safety nets.

China’s transition from an export-led economy to one based on internal consumption is an ongoing process, likely to last beyond President Xi’s tenure. If this is successfully completed, China can depend less on external export markets for its future economic growth. In the much longer run, China will also have to grapple with the economic impact of an aging society which may affect consumption.

China has also launched its single most important economic foreign policy initiative, known officially as the Belt and Road Initiative (BRI). This ambitious plan involves building high speed railways and highways to promote connectivity along the overland trading route (corridors that run through Central Asia, Middle East, Europe and continental Southeast Asia) as well as the maritime trading route (sea lanes that run through Southeast Asia, the Indian Ocean, the Arabian Sea, and on to Europe). For example, China will work with Indonesia to build high speed railways and perhaps medium speed railways in an attempt to connect the far-flung territories of the Indonesian archipelago that is made up of 17,000 islands.

By tapping on Chinese multilateral and bilateral loans to build infrastructure, the BRI may have the potential to open up new markets for Chinese businesses if it is implemented successfully (a feat likely to take decades to accomplish). In the short run, the BRI is likely to consume excess Chinese steel, coal and other commodities that are found in surplus due to the slowdown in the Chinese economy.

China has overseen the implementation of the world’s most extensive e-pay systems such as Alipay that have made many parts of urban China largely cashless in economic transactions. This may mark the rise of China as a cashless society on an unprecedented scale. China will probably be using big data, e-payment systems, analytics, and A.I. (artificial intelligence) algorithms increasingly. The challenge will be to protect the integrity of these systems, craft Chinese ideas of the concept of privacy, and manage (over)reliance on such systems.

Chinese authorities will also monitor the debt situation carefully. In the coming years, the Chinese government will need to manage local/provincial governmental debt and the local level housing bubble to ensure they do not affect the national economy. The government has also consolidated its management of state-owned enterprises (SOEs). Some SOEs are known to be inefficient but have been supported by funds from the government. International observers sometimes associate this issue with the general health and economic viability of the Chinese economy.

As Chinese economic initiatives look outwards, the Chinese yuan will become increasingly internationalized. Beijing has designated Hong Kong to be China’s global offshore renminbi trading center. Needless to say, Beijing will be managing the yuan’s presence in the global economy very carefully.

Leave a Reply

Your email address will not be published. Required fields are marked *