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Daily Archives: August 25, 2022

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7 ‘Xiconomic’ Policies that Have Guided Growth Over the Past Decade

Frank Tang wrote . . . . . . . . .

Xi Jinping has reshaped China’s major economic decision-making institutions – most notably the Central Economic and Financial Affairs Commission – since becoming president.

Helped by Vice-Premier and chief economic adviser Liu He, Xi’s first term between 2013-18 was devoted to addressing domestic problems.

These included high debt, a dwindling demographic dividend, industrial overcapacity and poverty, with structural adjustments and de-risking campaigns high on the agenda.

Xi hardened his economic thinking amid the trade war with the United States, growing tension with major Western economies and the coronavirus pandemic.

“Xiconomics” encapsulates the long-term guiding principles of the world’s second-largest economy, and is central to “Xi Jinping Thought”.

It has helped China claim around 18 per cent of global gross domestic product (GDP), and put it on track to overtaking the United States as the world’s largest economy.

But Xi’s economic philosophy has also led to the overnight collapse of after-school tutoring services, a crackdown on big tech, the boom-or-bust fate of property developers and China’s zero-Covid strategy.

Here are seven events that have changed China’s economic landscape over the past 10 years.

Belt and Road Initiative (September 2013)

The Belt and Road Initiative was first used to revive connections along ancient trade routes and tap non-Western markets before turning into an ambitious strategy to expand China’s influence in more than 60 countries in Asia, Europe, Africa and South America.

The initiative was predicated on infrastructure connectivity but expanded to include trade and investment, with the establishment of the Asian Infrastructure Investment Bank, Silk Road Fund and the New Development Bank.

Non-financial outbound investment in 57 countries involved in the belt and road strategy rose by 14.1 per cent year on year to US$20.3 billion in 2021, according to data from the Ministry of Commerce, up from US$14.8 billion in 2015.

Reform Document (November 2013)

The Reform Document, released during the third plenum closed-door summit in November 2013, mentioned for the first time market principles would play a “decisive” role in the economy.

The third plenum refers to the third time new leaders of China lead a plenary session of the Central Committee, which usually takes place a year after they are appointed.

Previous summits have had a major impact on China’s development and on this occasion the Reform Document blueprint detailed 336 specific tasks to be achieved by 2020.

These included establishing negative list for foreign investment, fiscal reform, an initial public offering registration mechanism and financial opening, all of which fuelled enthusiasm that pro-market reforms would continue.

Some of the most easily achievable tasks were completed, but many key tasks were eventually shelved.

‘New normal’, supply-side structural reform (2015)

The “new normal” placed an emphasis on quality, rather than the pace of economic expansion, with Beijing focusing on a medium-growth stage.

It downplayed GDP and concentrated on addressing problems like rising debt, rampant shadow banking and demographic challenges.

Policymakers introduced supply-side structural adjustments, including tackling industrial overcapacity, regulation of the property market and deleveraging.

The reforms led to around 150 million metric tonnes of outdated steel capacity and millions tonnes of aluminium and plate glass capacity being removed from the economy between 2016-20.

Efforts were also made to shrink the size of shadow banking – off-balance sheet lending – and defuse a variety of financial risks buried in local government financing vehicles, peer-to-peer lending platforms and problematic small banks.

At the same time, the government took steps to reshape the property sector – a pillar of growth in previous decades – by introducing the principle that homes are for living in, not speculation.

It introduced macro-control measures ranging from blanket purchase and pricing restrictions, to tightening mortgage requirements and clamping down on illegal financing.

Financial regulators set three restrictions – the so-called three red lines – including capping major developers’ debt ratio to 70 per cent in late 2020.

‘Stronger, better and larger’ SOEs (2016)

State-owned enterprises (SOEs) have long been the backbone to China’s socialist market economy. But Xi pledged to make them bigger and stronger.

Since 2016, their role has been solidified after Beijing launched a new whole-nation mechanism to counter US trade sanctions and fight the pandemic.

“They form the economic and political foundation of China’s socialist system and are a key pillar for the [Communist] Party’s rule. They must be built stronger, better and larger,” Xi said in 2021, adding the state sector’s role “cannot be negated nor weakened”.

Bolstering the importance of SOEs, together with Beijing’s Big Tech crackdown and “common prosperity” strategy, raised concerns about the future of the private economy.

Net assets of non-financial state firms rose to 76 trillion yuan (US$11 trillion) in 2019 from 40.1 trillion yuan in 2015, according to the Ministry of Finance.

‘Dual Circulation’ (May 2020)

The economic strategy highlighted both internal and external circulation, but marked a shift from China’s decades-old, export-oriented development model, setting a series of new goals for the next 15 years.

The plan places greater focus on the domestic market, or internal circulation, and is China’s strategic adaptation to an increasingly unstable and hostile outside world.

In the future, there will be less reliance on export-driven growth, or external circulation, although it will not be abandoned altogether.

Key to the strategy is tapping the potential of China’s huge domestic market and promoting indigenous innovation to fuel growth.

Despite new emphasis on self-reliance, Xi has said repeatedly that China will not completely close itself off from the outside world – and will instead open up more.

Still, authorities hope to boost technological independence and have offered incentives to improve production of semiconductors and other cutting-edge technologies, particularly in areas that could be squeezed by Washington.

‘Common Prosperity’ (2021)

China is pursuing common prosperity, which calls for fairer distribution of wealth, as the main objective in its next stage of development, while stressing the need to maintain an airtight economy to support the goal.

Common prosperity marks a further shift from the decades-old pursuit of rapid economic growth, which lifted hundreds of millions of Chinese out of poverty but also expanded inequality.

The goal is to reform income distribution so that the middle class accounts for most of China’s wealth.

The strategy focuses on grass-roots consumption as a driver of growth, rather than capital-intensive investment, which has been popular in previous decades.

To get there, China’s leaders have introduced favourable changes to taxes and social-security payments for middle-income earners; enacted policies to increase earnings of the poor; and cracked down on practices and loopholes that may give rise to “illicit income”.

Small and medium-sized enterprises are also getting more support.

Xi has called for the protection of property rights, reiterating the country will continue developing both the private and foreign sectors, while keeping public ownership at the core of the Chinese economy.

But common prosperity does not just apply to financial markets, it also applies to society’s spiritual and cultural life. It will be extended beyond cities to rural areas, where infrastructure and living conditions, in particular, need to be improved, Xi said.

The common prosperity concept also covers access to public services.

Leaders are demanding better financial supervision, while taking steps to punish corruption in line with market principles and the rule of law.

Common prosperity also encourages “third distribution”, referring to the creation of opportunities for rich people and big companies to give back to society, including through voluntary gifts and charitable donations.

China’s leaders have denied the policy is a Robin Hood-style “rob from the rich to give to the poor” plan, but the crackdown on Big Tech – particularly the warning against getting rich through illegal means via capital markets – has fuelled concern about the role of the private economy and entrepreneurs, weakening investor confidence.

Zero-Covid strategy (2022)

China was the first major economy to recover from the initial shock of the coronavirus, but the introduction of a zero-Covid strategy early in 2022 to fight the Omicron variant has taken a substantial toll on growth.

Strict quarantine and isolation have hit the contact-intensive service sector, putting many small firms out of business, and having flow on effects for household revenue, the job market, mortgage repayments and consumption.
The two-month lockdown of Shanghai, China’s commercial hub, and partial lockdown of other major cities, increased pressure on the economy in the second quarter, resulting in growth of just 0.8 per cent year on year.

The at-all-cost endeavour to curb the less-deadly Omicron variant, with which many Western countries have chosen to live with, has raised eyebrows at home and abroad.

Some argue the move has deviated from the decades-old focus on economic development.

Xi has defended the policy, claiming it is the most effective and economic way to deal with outbreaks, while also saving lives.


Source : SCMP

Infographic: How Water Powers the World

Source: Statista

Xi Jinping Looks to Take China Beyond Deng Xiaoping’s ‘Get rich’ Era with Historic Third Term

Frank Tang wrote . . . . . . . . .

Xi Jinping has stamped his mark on the economy like few of China’s leaders before him. But some experts say important reform has taken a back seat

How China will realize Xi’s goal of doubling GDP, as well as per capita income, by 2035 will be high on the agenda at this year’s 20th Party Congress

On a cold morning in mid-January, two dozen senior Communist Party officials, wrapped in black coats to protect them against the winter chill, stood solemnly in rows at the courtyard of Guohong Mansion, home to China’s top economic planning agency.

The group had gathered for the launch of the Xi Jinping Economic Thought Research Centre, the 18th research institution set up since the Chinese president’s philosophy was enshrined in the constitution in 2018.

A day earlier, China announced its gross domestic product (GDP) had grown 8.1 per cent to 114 trillion yuan (US$16.8 trillion) in 2021, beating expectations and moving it a step closer to supplanting the United States as the world’s No 1 economy.

The inauguration reflected not only Xi’s tight grip on power, but showed how central his economic thinking – dubbed ‘Xinomics’ – had become in China’s affairs.

Since taking office in 2013, Xi has expanded China’s economic influence abroad through the Belt and Road Initiative and introduced an inward-looking economic strategy at home. He has shaken up key industries and stared down US threats of decoupling. As president, he has left his mark on the economy like few before him.

“Xi Jinping is about taking China to a new era and a new direction of travel, under the guidance of his thought, not under Deng Xiaoping’s policy line,” said Steve Tsang, director of the SOAS China Institute in London.

“Whether he will succeed or not is of course another matter.”

Xi’s economic philosophy will be in the spotlight at the 20th Party Congress in autumn, where he is likely to be sworn in for a third term.

Historically, the event is a chance for Chinese leaders to review past policies and set the direction for new development. The economy, from which the Communist Party draws its ruling legitimacy, often dominates discussions, despite the congress being most well-known for ushering in a new group of leaders every five years.

In 1992, following late paramount leader Deng Xiaoping’s Southern Tour, the party resumed its mission of building a socialist market economy and opening up amid isolation from the West.

In 1997, private businesses were for the first time recognised as an important part of the economy, and entrepreneurs were officially allowed to join the party five years later.

This year the congress will lay foundations for Xi’s goal of doubling GDP, as well as per capita income, by 2035 – the basis of the Great Rejuvenation of the Chinese nation.

Chinese President Xi Jinping applauds during the commending meeting for Beijing 2022 Winter Olympic and Paralympic games at the Great Hall of the People in Beijing, China, April 8, 2022. Mark R. Cristino, EPA-EFE/file
Chinese President Xi Jinping applauds during the commending meeting for Beijing 2022 Winter Olympic and Paralympic games at the Great Hall of the People in Beijing, China, April 8, 2022. Mark R. Cristino, EPA-EFE/file
China’s Communist Party turns 100: How each generation justifies its rule

China is at a critical stage of development. Over the past decade, the economy has grown steadily and the country is now on the cusp of joining the high-income club.

On the other hand, it faces numerous headwinds: a demographic crisis, slowing growth, debt, deglobalisation, geopolitical tensions with the West and the coronavirus pandemic.

How well China navigates these challenges will largely be down to Xi, who has reshaped the country’s major economic decision-making institutions, most notably the Central Economic and Financial Affairs Commission.

“We must firmly grasp the problems concerning unbalanced and insufficient development, focusing on improving weak links, consolidating foundations and making full use of our advantages,” Xi told senior cadres in the Central Party School in late July. “New ideas and measures are needed to solve them.”

Helped by Vice-Premier and chief economic adviser Liu He, Xi’s first term between 2013-18 was devoted to addressing domestic problems.

These included high debt, a dwindling demographic dividend, industrial overcapacity and inequality, with structural adjustments and de-risking campaigns high on the agenda.

His second term was dominated by the trade war with the United States – which plunged relations to their worst point in four decades – and the coronavirus pandemic.

Faced with uncertainty abroad, Xi pivoted inward with the “dual circulation” strategy in 2020, putting emphasis on China’s huge domestic market and home-grown technology to power future growth. Some analysts said it marked a shift from China’s decades-old, export-oriented development model and participation in the US-led international system.

At home, Xi also sought to reduce inequality through the government’s “common prosperity” strategy and vowed to make state-owned enterprises (SOEs) “bigger, better and stronger”.

His backing of SOEs, which deviated from long-standing calls for market-oriented reform, fueled concerns about the place of private businesses in the economy. Those worries were amplified by the government’s regulatory crackdown on Big Tech and private tutoring.

The clampdown on the country’s big tech players, along with Beijing’s hardline zero-Covid policy, has shaken the faith of many foreign investors.

“Recent sporadic outbreaks of Covid-19 across the country and the corresponding snap lockdowns have taken away one of things most businesses have been able to depend on: a stable and relatively predictable business environment,” said the annual position paper of British Chamber of Commerce in China released in May.

A flash survey, which was completed by 372 European firms between April 21-27, when the commercial hub Shanghai was just part way through a two-month lockdown, showed 23 per cent of respondents are considering shifting current or planned investments out of China.

Now, with Xi’s third term in sight, a number of important questions have to be asked about the future of China’s economy. How important will ideology be in development? What will become of Deng’s mantra of reform and opening? And how will Chinese entrepreneurs and foreign investors fare in the years to come?

From rich to strong

Taylor Loeb, an analyst with research firm Trivium China, said the country is moving out of the Deng era of “Getting Rich” into the Xi era “Being Strong”, and his approach looks like a mix of wealth redistribution, a focus on self-reliance and supply chain resilience, decarbonisation, stability and quality growth over quantity.

“The state is the driving force behind realising all of the above,” he said. “China’s economic policies will become more inward looking.”

Market reform in China has stalled under Xi. According to China Dashboard, a joint project between Asia Society Policy Institute and Rhodium Group that monitors Beijing’s reform, there has been either zero progress or actual policy regression in most of the 10 major baskets of reform outlined in November 2013. Among them are SOE restructuring, competition policies, land and fiscal reform.

The assets of state-owned industrial enterprises have grown by 2.6 times to 259 trillion yuan (US$38.3 trillion) compared to a decade ago.

Nicholas Lardy, a senior fellow with the Peterson Institute for International Economics, said Xinomics includes more industrial policy and stronger support for state firms, while paying lip service only to inequality.

He said there was no “serious discussion” of economic reform, but rather a continuation of ineffective SOE policies of the past, such as corporatization, debt-equity swaps and mega mergers.

However, he pointed out that private firms continue to grow more rapidly than their state counterparts.

“Their returns remain much higher, most investment is financed from retained earnings, and private investment has held up remarkably well given the policy environment,” said Lardy, whose 2018 book the “State Strikes Back” charted the resurgent role of the state in the economy under Xi.

Derek Scissors, a senior fellow with the American Enterprise Institute, expected no change to overall economic policy after the congress.

“The core of Xi’s approach is [that] economics is subservient to politics, that economic gains must be sacrificed if they bring political risks,” he said, noting that the Chinese economy began falling short of its growth potential in 2015.

Unfinished reform

Reform may have slowed under Xi, but tackling deep-seated structural issues remains as critical as ever, economists say.

Addressing the country’s urban-rural divide is one pressing task, including more reform of the hukou system, which limits where people can live, work and receive public services. More spending in rural areas is also needed, analysts say.

“Migrant workers and urban residents enjoy different public services. It is urgent to break the dual urban-rural structure,” Cai Fang, a prominent labor economist and central bank adviser, said at the Caixin Forum in early July.

Urbanization, which draws labor into higher productive sectors, is still regarded by Chinese policymakers as a key way to drive growth and narrow gaps between cities and the countryside.

Huang Qifan, the outspoken former mayor of Chongqing, said the next stage of reform must focus on how to build a unified market.

“This is a top priority to unleash the potential of the Chinese economy’s super-large single market and form a strong gravitational field for the world economy,” said Huang, who is now a distinguished visiting professor at Fudan University in Shanghai.

“We need to use a reformist mind and pragmatic measures to eliminate obstacles in the economic system and internal circulation, and expand new market space with new policies.”

Whether Xi will heed these calls is unclear. China is still deeply embedded in the global supply chain and a major draw for foreign investment. But refusing to open up the economy further could come with consequences, according to some analysts.

David Zweig, an emeritus professor at Hong Kong University of Science and Technology, said it is unlikely that economic reform will return to the fore of policymaking in the short-term.

“China’s domestic market remains a powerful gravitational force, pulling in foreign firms despite the risks entering the China market can mean to their own survival,” he said.

“But as the clarity of that threat to the foreign firms and to the economic security of OECD countries intensifies, China’s mercantilism will keep relations with the world far more hostile than would have occurred under a more market-oriented and open strategy.”


Source : ABS-CBN

Infographic: U.S. Government Revenue vs. Expenditure in 2021

See large image . . . . . .

Source : Visual Capitalist