30 January-11 February 2023

Fortnightly newsletter tracking high-level policy signals sent by China’s top leaders. For more information, visit About Five Things.

Commentary

The next stage of China’s development is clearly the big thing on the mind of China’s leaders. Three of last week’s five most widely circulated articles in the country’s official media, and two from the week before, touched on this theme, topped by a report on Xi Jinping’s annual speech to the Central Party School (here; machine translation here).

What is striking about Xi’s speech and the articles is the way they show a leadership groping to find their way towards a new model to define the next stage of China country’s development. The proposal so far can broadly be defined as aspirational:

The report of the Twentieth National Congress of the Communist Party of China clearly summarized that Chinese-style modernization is a modernization with a huge population, a modernization with common prosperity for all people, a modernization with a harmonious balance between material civilization and spiritual civilization, a modernization with a harmonious coexistence between man and nature, and a modernization with peace. The Chinese characteristics of the five aspects of the modernization of the development path have profoundly revealed the scientific connotation of Chinese-style modernization.

There is almost no policy in this due to China’s policy development process still being at the early ideological stage. At this point, China’s leaders offer “ideological guidance” aimed at forcing officials to attempt to define what they think development should mean, not telling them what they think those officials should be doing. Speeches at the Party School presage a wave of responses and meetings to formulate more specific visions that Xi can approve or reject. What China’s development will be remains, well, undeveloped.

Preying on China’s leaders’ minds in the last two weeks is “decoupling” (“脱钩”). That this is a big worry could be seen in a hugely defensive commentary published in People’s Daily, the Communist Party’s top newspaper, on 2 February (here; machine translation here) noted the shortcomings of this approach for others:

Facts have repeatedly shown that China and the United States cannot be decoupled and the chain cannot be broken. The U.S. is pushing for “decoupling” with China, even at the expense of itself and its allies. This approach violates economic laws and is an irrational and unsustainable choice. Economic globalization is an objective requirement and an irresistible historical trend for the development of productive forces.

China’s problem however is not that it will find itself no longer making the biggest share of the world’s manufactured goods, but that will it not move beyond this. The globalization of the 1980s to 2000s opened the way for its sustained economic growth of the last four decades; the backlash of the last several years now threatens its continuing progress.

Positively, China will not lose its gains. It currently accounts for around quarter of the world’s manufactures; over the next decade, that figure is unlikely to change dramatically – too many supply chains start or have a major part in China for its economic ties to be unwound quickly. Indeed, economic logic will demand that the vast majority will broadly continue to function.

China’s challenge is converting its supply chain role into a further stage of sustained development – hence Xi’s promotion of further modernization of China’s economy, but this time more on China’s terms than that of foreign multinationals.

A fundamental part of this in China’s leaders’ view is having the country’s state sector play a key role, driven partly by a distrust of the private sector and partly by the belief that state companies are better at taking on the social role of ensuring the benefits of growth are shared more fairly.

The problem here, though, is that China’s leaders now seem to want both the state and private sectors to make everything to happen at once: drive growth, innovate, be socially responsible and answer to the Party.

Grouped together, this is the package of “Chinese-style modernization”. In good times, such a phrase might have served as a rallying call. Now, however, China’s leaders face the difficult prospect of assembling a coherent package of policies to guide the country through the more hostile environment of the post-Covid era.

Ensuring the economy grows strongly has clearly become China’s top priority following the damage done to it in 2022. Last December’s Central Economic Work Conference played up the government’s success in “stabilising economic growth, maintaining price stability and stabilizing the job market”; suggesting three things that are worrying China’s leaders – having the economy expand strongly again, stimulating demand and creating jobs for recent graduates and other young people. (For a thorough summary of the Central Economic Work Conference, see this reportby Xiaowen Zhang of the University of Alberta’s China Institute.)

In these circumstances, it is unsurprising that officials are looking to once encourage China’s big digital businesses to start pushing ahead once again and hoping they can find a way of reviving its property sector.

The underlying problem, however, is not growth per se, but finding growth driven by improved productivity rather than greater property values and spending on infrastructure. Here, there is a problem. The International Monetary Fund, in its just released annual report on China (downloadable here), noted:

Structural policy trends are clouding medium-term growth prospects amid weak productivity growth, in large part because of the role of low-productivity state-owned enterprises (SOEs) and declining business dynamism.

China’s statement on the report, attached as an appendix to its main body, attempted a rebuttal:

we have different views on staff’s assessments that “productivity growth is weak, in large part because of the role of low-productivity SOEs,” and “reforms securing competitive neutrality between SOEs and privately owned firms have been lacking.” Going forward, China will continue to deepen the reform of state-owned assets and enterprises and enhance their core competitiveness. China will maintain the principle of “reforming SOEs in line with their categories”, and strike a proper balance between the economic and social responsibilities of SOEs. China will continue improving SOEs’ modern corporate governance with Chinese characteristics and keep SOEs operating in accordance with the market-oriented mechanism. The Chinese authorities will establish legal and institutional arrangements to ensure the equal treatment of private enterprises and SOEs, and encourage the development of the private sector via policy supports and public opinions. Property rights of private enterprises and the interests of entrepreneurs will be protected according to law.

Trying to have everything all ways, however, is unlikely to result in the outcome China’s leaders wish for. Control remains their preferred mode; but the accompanying constraints hold back the forces required to eliminate the old as well as encourage the new.

Whether a rallying call based around the idea of producing a “modern” China can allow people to discover enough the means and space to overcome the CPC’s conservative, centralizing tendencies will be interesting to watch. The collapse of China’s zero-Covid policy showed that abrupt changes of direction are possible; it would seem unlikely, however, that they would become the norm, while an antagonistic US and suspicious Europe and Japan will make using imported expertise to improve productivity far harder than in the golden years of the 1990s and 2000s.

Top-ranked articles for 30 January-11 February 2023

% = percentage of publications carrying the article

1. Correctly understand and vigorously promote Chinese-style modernization
正确理解和大力推进中国式现代化
Xinhua News Agency, 10 February 2023
Chinese / Machine translation / 60%

2. Accelerate construction of a new development pattern, enhance the security initiative of development
加快构建新发展格局 增强发展的安全性主动权
Xinhua News Agency, 1 February 2023
Chinese/ Machine translation / 58%

3. Xi Jinping replies to students of Hungarian-Chinese Bilingual School
习近平复信匈牙利匈中双语学校学生
Xinhua News Agency, 31 January 2023
Chinese / Machine translation / 45%

4. Fully and strictly govern the Party and explore a successful path to jump out of the historical cycle rate relying on the Party’s self-revolution
全面从严治党探索出依靠党的自我革命跳出历史周期率的成功路径
Xinhua News Agency, 31 January 2023
Chinese / Machine translation / 43%

5. Xi Jinping meets Cambodian prime minister Hun Sen
习近平会见柬埔寨首相洪森
Xinhua News Agency, 2 February 2023
Chinese/ Machine translation / 43%

6. Chinese-style modernization is a major achievement of long-term exploration and practice by the Party and the people
中国式现代化是党领导人民长期探索和实践的重大成果
Xinhua News Agency, 8 February 2023
Chinese / Machine translation / 37%

7. Xi Jinping's economic thought provides scientific guidance for high-quality development
习近平经济思想为高质量发展提供科学指引
Xinhua News Agency, 7 February 2023
Chinese / Machine translation / 37%

8. Institutional advantages to ensure China’s development and stability
保障中国发展行稳致远的制度优势
Xinhua News Agency, 8 February 2023
Chinese / Machine translation / 37%

9. CMC chairman Xi Jinping signs order issuing “Regulations on the Administration of Military Medals”
中央军委主席习近平签署命令发布《军人勋表管理规定》
Xinhua News Agency, 28 January 2023
Chinese / Machine translation / 35%

10. Ice and snow pageant builds classics, marks starts of spring
冰雪盛会铸经典 向着春天再出发
Xinhua News Agency, 3 February 2023
Chinese / Machine translation / 22%

For more information about Five Things on China’s Leader’s Minds, visit About Five Things on China’s Leaders’ Minds or email fivethings@bilby.ai.