Do Xi’s plans for China’s economic growth imply a reset?
This article is authored by Sriparna Pathak, associate professor, Chinese Studies and International Relations, OP Jindal Global University, Sonipat.
China’s rise in the international system as the second most important player has hinged on its economic rise. However, the ‘new normal’ for the Chinese economy which once registered double-digit growth rates, is a slowed growth rate along a host of problems. The roughly $19 trillion economy continues to face a real estate market crisis, after an almost unbroken 20-year boom, which the government had encouraged and facilitated. At about a quarter of the total gross domestic product (GDP), housing now faces rapid shrinkage, as it is faced with chronic oversupply and lower household formation. Local governments. State enterprises as well as property developers all face high levels of debt. There is a total absence of inflation, reflecting inadequate aggregate demand. Productivity growth has stalled, with heightened politicisation of the business environment, along with associated problems of rapid aging, inequality, and high youth unemployment. United States (US) rating agency Moody downgraded China’s credit rating outlook in December last year from stable to negative. China is yet to announce a specific growth target for 2024, which can be expected to be around 4.6%.
In his New Year address, President Xi Jinping acknowledged that difficulties must be tackled to achieve further economic recovery while adding that China has shown signs of recovery from the shocks of the pandemic and has achieved progress in technology development, besides making advancements in building a modern industrial system. China, which rose to the peaks of its economic growth was known as the manufacturing platform of the world, as it leveraged the abundant supply of cheap labour and state subsidies to drive forth an export-led growth model. However, slack foreign demand, in addition to the scores of domestic problems has led exports to decline for at least most of last year.
While the questions of when and how will China’s economy rebound loom large, a quick look at some of the key meetings and statements from the Chinese leadership can shed some light on whether the economy will face a reset, and how much of that will rely on domestic or external adjustments. 2024 marks the 75th anniversary of the founding of the People’s Liberation Army of China and is a crucial year for implementing the 14th five-year plan. Adjustments in 2024 will have implications for the future trajectory of the Chinese economy.
Xi Jinping chaired the meeting of the politburo on January 31 this year, in which his emphasis remained on tightening political control and supervision; high-quality development, and balancing high-quality development and high-level security- all of which were also key points of the Central Economic Work Conference (CEWC) held in December last year. The event ended with a 4355-character outline detailing the economic plans for 2024. The multifaceted strategy aiming at a robust economy aims at various sectors and priorities. Some of these include boosting foreign direct investment (FDI) in China, increasing domestic demand, handling excess production, utilising scientific and technological innovation to advance the construction of a modern industrial system, undertaking reform initiatives in fiscal and tax initiatives, high-level opening, financial sector stability, promotion of agriculture and rural work, regional coordinated development, green low carbon development, the improvement of people’s livelihoods, and furthering developments in artificial intelligence. The policies of the CEWC are unified by the principle of prioritizing development before addressing problems, known in Chinese as xian li hou po (先立后破).
The 11th collective study session of the politburo held this year, again discussed solidly promoting high-quality development. It also stressed “strategic tasks” such as accelerating the construction of a modern economic system, and promoting self-improvement and self-reliance in high-level science and technology. Accelerating the construction of a new development pattern, promoting deep reforms and high-level opening. In February, in line with the policies outlined in either at the CEWC or by Xi’s speeches since January this year, Xi visited Tianjin ahead of the Spring Festival, and went to a village in the Xiqing district to learn about the recovery of farming activities after floods of last year; after which he went to an urban area to check the supply of goods for the holiday season. The two prongs of development- agriculture, and industry were of concern to the leadership. On February 9, Xi stated that China faces an exceptionally complicated international environment, along with the arduous task of reform, development, and maintaining stability; despite which “solid progress” had been made in pursuing “Chinese style modernisation”. The emphasis remains not just on domestic facets of the economy but also on the international atmosphere.
On February 8, Xi met with people from non-Communist Party of China (CPC) political parties and the All-China Federation of Industry and Commerce, and with other members of the united front. Wang Huning, chairman of the Chinese People's Political Consultative Conference; Cai Qi, the secretary of the Secretariat of the Chinese Communist Party and Ding Xuexiang, the vice premier of the PRC were also present. Xi spoke of the necessity to implement the guiding principles of the 20th CPC National Congress, to act on the principles of pursuing progress while ensuring stability, standing up to external pressures, and boosting economic recovery and development. Important to note in this context are the needs of the leadership to meet with the All-China Federation of Industry and Commerce and to emphasise the need to pursue progress along with stability. In all the statements, the existence of the need for ensuring stability indicates that political control is here to stay if not increase. The statements also emphasize domestic development and foreign FDI in China, or balanced development across regions. Thus, it is clear that just like in 1978, when China under Deng Xiaoping did embark on reforms and opening up without a blueprint and engaged in “crossing the river while feeling the stones”, China currently under Xi also has outlined the key priorities and will proceed on further reforms without a clear-cut blueprint with only principles to guide it. It is also very clear that China will try to leverage the global economy for its further rise while trying to address problems plaguing its economy.
This article is authored by Sriparna Pathak, associate professor, Chinese Studies and International Relations, Jindal School of International Affairs, OP Jindal Global University, Sonipat.