A new era in China could hurt economy
As China’s top leader, Xi Jinping, moved to extend his rule, he pushed out rivals who had been perceived as pro-business. He praised Marxism over markets. He placed security ahead of the economy.
Now, with his grip on China tighter than it has ever been, Xi begins a groundbreaking third term this week poised to expand the influence of the Communist Party over the economy.
Xi’s belief in the primacy of the party could shift the world’s second-largest economy back toward a more state-led model. Xi’s consolidation of power points to a new era in China in which national security and ideology would be a higher priority than maintaining robust growth. That could be bad news for an economy that has already been dragged down by official policies such as the stringent “zero COVID” strategy of lockdowns and mass testing.
Financial markets are already signaling their unease over what Xi’s extended rule — and his agenda — portend for China. In Hong Kong, share prices plummeted more than 6 percent on Monday, reaching 13year lows as traders dumped huge numbers of shares to limit their exposure to whatever Xi might do next.
In mainland China, stock markets fell nearly 3 percent even though the Chinese government puts heavy pressure on institutional investors not to sell during politically sensitive moments. And China’s currency, the renminbi, dropped to a 14-year low against the dollar as companies and affluent families continued to send money out of the country in search of safety and higher interest rates.
The heavy selling in China was particularly striking given that the Chinese government announced stronger-than-expected data Monday. It showed that the country’s economy grew 3.9 percent in the three months that ended in September, from the same period a year earlier.
Xi has put a premium on politics and security, even at the cost of slowing economic growth and employment. In a speech at the opening of the party congress Oct. 16, Xi mentioned security six times as often as he mentioned the economy. Last week, as the congress was underway, the government unexpectedly delayed the normally routine release of quarterly economic data, without explanation. Then over the weekend, as part of a twice-a-decade leadership reshuffle, Xi moved many of his loyalists into the top ranks of the party. He pushed out longtime economic policymakers like Premier Li Keqiang, whose doctoral dissertation won China’s top award in economics in 1994, and Wang Yang, an architect of the free market economic boom in southeastern China.
Under Xi, regulators have clamped down on the tech sector, contributing to widespread layoffs among young employees. Dozens of the country’s private property developers have defaulted on debts after Beijing discouraged real estate speculation. Tycoons have been fleeing the country. Lockdowns in cities and regions across the country to stop outbreaks of COVID-19 have taken a heavy toll on economic growth.