If the overly bizarre has intellectually thrown political risk analysts since time began, the other extreme – ignoring long-term, well-ordered strategies and strategists – is the mirror image mistake. Too often such chess players are seen as something less, with the day-to-day noise of the world obscuring long-held and highly rational patterns of thought and the goals of highly disciplined political actors. The key to first-rate analysis is spotting them early on. And, despite the undoubted fumbling of the recent stock market crisis, Chinese paramount leader Xi Jinping is one such chess player, with a clearly defined and diligently applied strategy for the transformation of his country.
Saying this, there can be no doubt the Communist Party Leadership has made a mess of the present equity crisis. Desperate to avoid looking in the mirror, it has scapegoated stock analysts for reporting the bad news, punishing 197 people for spreading “rumors”. As the market has continued to tumble, Beijing has commanded its giant government-controlled State-Owned Enterprises (SOEs) to buy shares to support prices. It has also doled out cash to large brokerages to do the same. Further, The Wall Street Journal reported that, in July 2015, Xi Jinping himself issued an otherworldly executive order that Chinese stock markets must go back up. None of this inspires great faith that the mandarins truly understand how capitalism works.
But for all that China is hardly likely to go down the plughole, showing few signs of heading towards a hard landing. China’s stock markets have indeed declined by more than 30% percent this summer, but only after share prices doubled in the course of the past year. The property market – a far more important indicator of the overall health of the Chinese economy than is the equity market – has actually stabilized in recent months. Adding on construction, it accounts for up to one-quarter of Chinese GDP, underpinning the banking system.
It is a fact that the economy is slowing markedly, but even at 5% growth this year, which is the bearish end of estimates, China’s growth in 2015 will add more to total world output (given its now immense economic size) than the whopping 14% expansion Beijing posted in 2007. For all the hysteria, Beijing is not about to economically collapse.
All this white noise largely obscures what it is Xi Jinping – the single most powerful Chinese leader since at least Deng Xiaoping – is trying to accomplish. His bold, reformist agenda has three planks. First, Xi wants to purge the admittedly corrupt party apparatchiks, and tame the vested interests within the leadership that stand in the way of his ambitious economic reforms.
These political goals are the primary impetus for Xi’s unprecedented corruption purge. In the seven months to the end of March 2015, 24 ministerial-level officials have been detained for corruption, bringing the total to 69 in just over two years, more than two times the number in the previous five years under Xi’s predecessor Hu Jintao. Startlingly, the Politburo Standing Committee has endorsed the detention of Zhou Yongkang, the former chief of domestic security who himself served on the committee until he retired in 2012. Zhou is the first man of his rank to be charged with corruption in the party’s history.
Such an all-encompassing program has quieted Xi’s would-be critics, as well as putting possible rivals in the local party leadership and SOEs on notice that they may be next. Easily the most popular of Xi’s initiatives, the anti-corruption drive has served the vital political purpose of cowing possible opposition to the second plank of his agenda, the fundamental economic reform of the country.
The second plank of the President’s program is escaping the “middle-income trap” and thus completing the country’s transformation. For the stock market ructions have exposed China’s medium-term existential economic problem. Can they – as has proven very rare in history – escape the middle-income trap? Can Beijing shift away from its old economic model of easy credit and export-fueled growth towards one based on services and domestic consumer spending? Beijing’s authoritarian government has proven itself adept at dramatically creating an export power out of a vast and heretofore poverty-stricken country. But it is an open question as to whether it can move up the value chain; such a transformation requires qualities of openness, creativity, and freedom that don’t spring to mind when thinking of the People’s Republic.
Such a dramatic transformation, even if it is mastered, will be wrenching and take decades to fully achieve. Along the way there are bound to be economic dislocations, as the market more and more dictates economic outcomes (in line with recent party pledges) and the state refrains from picking winners and losers. Such a sea change runs counter to what powerful managers of SOEs and local party bureaucrats have long grown used to; despite the threats emanating from Xi’s corruption crackdown they are already emerging as formidable opponents of his economic reforms. Further, growth rates as a whole are bound to tumble to a more sustainable 5-7% of GDP per annum, still fantastically good numbers, but a long ways from the breakneck 10% pace that so recently astounded the world. Managing these changing expectations will take all of Xi’s considerable political skills.
But the third plank of Xi’s plans – reshaping the very economic and political order in Asia – is the prize following on from the success of the first two planks. For a China that – as has proven the case with South Korea, Japan, Singapore, and Taiwan – has successfully escaped the middle income trap will be the economic magnet of the entire region; following on from this reality, political dominance may well follow. A China that in a generation has successfully adopted Xi’s program will be able to challenge American dominance in the region from a position of strength. Once China has become a fully-fledged great power – as Xi’s reforms would allow – it can then move confidently to find its rightful place in the sun. Disconcerting as this is to Western ears, this is the ultimate and frank goal of what Xi is aiming at.
But first China has to get there, successfully mastering Xi’s challenging reform program. Worst of all for both Xi and his allies, is that his success in accruing power has left him with absolutely no one else to blame should things go wrong. The only safe bet about China moving ahead is that Xi Jinping will emerge as a figure of true historical importance. Whether he is seen as a major success or a colossal failure is all to play for. The answer to this question will do much to determine the course of global foreign relations over the next generation.