Why The Naivete In Misreading Xi’s Furtherance of One-Man Rule and State-Domination Of The Economy? – Forbes

It is hard to find a Western observer surprised by Xi Jinping’s “election” to an unprecedented third term at October’s twice-a-decade session of China’s Communist Party’s National Congress. Outcomes of the Party’s important meetings are always highly choreographed.

But Xi’s elevation of his closest—and relatively unknown—cronies into the Party’s inner-most circle of power, the Standing Committee, by replacing four widely familiar veterans of the Committee’s seven members was seen as a shocker to most outsiders. It shouldn’t have been. Xi was formalizing his already entrenched one-man rule.

At the same time, his pronouncements before the Congress about the urgency to redouble reforms to reinforce the state’s role as the primary engine to spur China’s economic growth—which Party members wholeheartedly endorsed—also seemed like news, especially those who for years, if not decades, have been hoping against hope that market forces in Communist China were on the ascendency.

Xi’s Consolidation of One-Man Rule Is Not Surprising, But Entails Significant Risks

The perception that the most important policy decisions Xi took over his previous two terms were the product of collective decision-making was naïve. Now to mitigate any risk of the emergence of such a dynamic going forward, especially as he ages, Xi has moved decisively to surrounded himself by a group of his own “yes-men.” Literally. In contrast to the past twenty-five years, not a single woman is now a member of the Standing Committee. So much for today’s brand of Chinese Communism having any semblance of gender equality.

In contrast to the outside world, few of these changes have gone unnoticed by an increasing swath of Chinese society—although it is highly rare, if not dangerous, for discussion of such matters to take place publicly. Why? Because China’s populace is well aware of Xi’s unabashed drive—and ability—to transform China into a totalitarian state, a metamorphosis that has intensified unchecked throughout his tenure.

The ubiquitous presence of multiple government surveillance cameras at every street corner, building entrance or transport hub throughout China’s urban and rural areas equipped with sophisticated facial recognition technologies has hardly been lost on the citizenry. While still exceedingly rare, that eruptions of public discontent have begun to emerge, such as protest banners draped from a bridge as well as loudspeaker chants blasting Xi at a major thoroughfare in Beijing at the onset of the Party Congress, were very limited in scale, they do reflect increased brashness by a part of the domestic population.

While the rest of the world may not yet have fully caught on—or refuses to believe the era of a façade plurilateral government in China is over—for many Chinese, collective rule was largely a mirage for years under Xi. I say this based on many years working on the ground across China—visiting large and small cities, in the North, the East, the South, the West and in the Center; being inside numerous Chinese state-owned enterprises, banks and investment funds, as well as in Sino-foreign joint ventures; and in many meetings with government officials, at the Central, Provincial, and City and town levels.

While most Chinese publicly expressed the perspective that the country was collectively governed (and still do so), in private—at least among friends they trust—there is an acknowledgement that one-man rule was—and remains—the reality. In my last visit to China, just prior to the onset of the Covid pandemic, one of my Chinese friends in Beijing referred to Xi as a “thug.”

Like some of his smarter predecessors, Xi is no dummy. He made (and makes) his colleagues feel as if important policy decisions were (are being) collectively decided. While the execution of policies was (and still is), carried out by officials at different levels subordinate to Xi, underlings rarely had (have) the autonomy to wholly call the shots themselves.

Here’s the rub—or more accurately the rubs—for Xi:

First, he needs to walk a fine line creating incentives for subordinates to discharge their duties in a manner consistent with the dictates coming from above. In part, those incentives stem from fear of retribution if policy implementation does not go as planned. Colleagues are not immune from telling superiors when they witness decisions/conduct that are inconsistent with orders from above. It is not difficult to believe that in such an environment, payments can be made to quash informants. As in other countries, China is not immune to the practice of corruption.

Second, it goes without saying that the scale of China is huge—both spatially and in terms of size of population. Unless the strong man at the top is able to institute credible mechanisms of sufficient depth and breadth nationwide to ensure there is effective centralized discipline, with rigorous checks and balances, errant conduct will undoubtedly take place. The real question then becomes one of: how much of such conduct occurs, especially conduct that is ultimately central to the success or failure of the set of decisions at hand.

Finally, increasing numbers of Chinese—especially those that are the most educated—travel widely around the world, including performing research in advanced foreign laboratories, attending Western universities, working in some of the largest Western multinational companies, and travelling as tourists.

The result? They experience firsthand cultures where there is decentralized decision-making; where procedures are questioned and, indeed, can well change; and where heterogeneity of thought and self-empowerment are often the order of the day. Upon their return to China, such experiences invariably color these persons’ thought processes and influence their expectations. To be sure, some of fully reassimilate; but for others, their expectations may well have permanently changed.

These pose fundamental dilemmas for Xi’s rule: How will he address, if not contain, the inevitable challenges engendered by this process? History teaches countries’ leaders that trying to put that genie back in the bottle is fraught with significant risks to their tenure.

Did Markets in Modern China Ever Triumph Over the State?

In the 1980s and 1990s, in the aftermath of the economic havoc wrought by Mao Zedong’s sweeping command and control regime, Deng Xiaoping initiated market-oriented reforms of China’s lumbering state-owned-enterprises (SOEs).

Some of these initiatives were truly creative, for example allowing SOE managers to enter into contracts permitting them to exercise some discretion in setting prices; choosing certain cities as testbeds to experiment in other forms of liberalization, which, depending on their outcomes would be replicated (or modified) and deployed elsewhere in the country; opening up certain portions of the country (and sectors) to foreign investment; and allowing for the creation of “non-state” enterprises, especially in townships and villages.

Couched as “experiments” by Deng’s economic tsar, Zhu Rongji, the enthusiasm generated by these reforms was palpable. But they also engendered rivalry. In time, tensions arose within the Party between the politically powerful bureaucrats overseeing the moribund SOEs obligated to carry on their payrolls underemployed (or unemployed) workers “from cradle to grave,” and the officials in charge of enterprises engaging in the profitable entrepreneurial activities engendered by these reforms, especially regarding the allocation of investment capital by the state.

Not surprisingly, the interests of the SOEs claimed the upper hand of the Party, by then firmly under the control of Xi Jinping during his first term. While Xi mouthed the words of reform, his actions have been a far cry from those of Deng; and the actions of Xi’s lieutenants bear little resemblance to those of Zhu.

Observers of the outcomes from the Party Congress who expressed surprise over Xi’s continued embrace of a state-dominated “socialist market economy” where the private sector plays a minority role clearly have not been paying attention to the circuitous, if not contradictory, actions taken by Xi in the two years running up to the Congress. In particular, in September 2020 under Xi’s direction, the Party issued in the Peoples’ Daily a formal “Opinion,” followed by a set of “Instructions,” that declared the “non-public sector is a critical part of the Socialist Market Economy”. Indeed, the Party placed emphasis on a dictum that the private sector will be crucial for building a “modern socialist power.” In a word, the Party has embellished Xi’s economic philosophy that China can have its cake and eat it too.

With the decisions taken by the Congress, Xi has surely succeeded in further consolidating his political authority in China so that he is second to none. He believes he has ushered in an era that for the foreseeable future he will be both insulated from any political intrusions at home and can operate on the world stage, especially in the business and economic arena, with a long leash.

While Xi proclaimed at the recent Party Congress that China’s economy is “resilient,” the fact is there are very high economic stakes associated with Xi’s exaltation. He faces the challenge of now bearing sole responsibility for making a multitude of leadership decisions in the most complex political economy environment modern China has ever witnessed. His task is to ensure that every step of the way China’s intertwined state-dominated financial and industrial sectors, which still comprise the country’s backbone and are the Party’s raison d’etre, do not come undone and push the Chinese economy into a hard landing. Should that occur, that would be Xi’s downfall.

In effect, owing to the machinations Xi undertook during the previous Party Congress—in 2017—to ensure his ideology was enshrined while he was still alive, he was able to accomplish the amazing feat of formally placing himself and Mao on equal footing as the principal co-architects and co-thought-leaders of what is today the second largest economy on earth.

Most important for those looking for further movement by China towards a more open economy—one where competitive forces are able to flourish, there is adherence to transparent, rules-based transactions and property rights, and governance institutions are in sync with international norms—Xi’s newly elevated status at the more recent Party Congress will surely be a significant disappointment.

As in the past, Xi did not take advantage of this pivotal opportunity to finally bite the bullet and signal the need to unwind some of the most egregious contradictions inherent in the Party’s ‘socialist market economy’ paradigm underway since the early 1990s, which, year after year, have become increasingly evident as structural constraints on China’s long run growth.

Three of the most prominent of these are: (i) the incestuous relationship between the four large state-owned banks and the largest state-owned enterprises (SOEs), where the banks pretend that the money they give to SOEs are loans, and the SOEs make believe they pay back these debts to the banks; (ii) the inability to fulfill the government’s stated goal of transforming China into a bona fide consumer-led economy as long as the Party continues to hold dear and make sizeable capital investments in the already bloated industrial sector; and (iii) the inevitable tug of war between the interests of government and those of business that arises when the former, which is imbued with a focus on attaining social and political objectives, is the latter’s primary shareholder and slated to pursue commercial ends.

Unfortunately, it’s because of these unaddressed contradictions that over the last several years China’s economic chickens have begun to come home to roost. As the country continues its shift towards a lower pattern of growth and potentially an economic crisis, Xi may well regret that at the beginning of his third term, just as he did at the beginning of his second term, he has chosen to simply kick the economic reform can down the road.

Does this seem to worry Xi? Not one bit. At the closing of the Congress, he proclaimed: “Just as China cannot develop in isolation from the world, the world’s development also needs China.”

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