China congress: Economic trends to watch as Xi consolidates power | Business and Economy

The 20th Chinese Communist Party (CCP) Congress, which begins on Sunday, will be closely watched for clues as to the future direction of the world’s second largest economy.

The five-year gathering, designed to secure Xi Jinping an unprecedented third term that will make him a potential president for life, comes at a time when China’s economy is in a precarious state.

After decades of rapid growth, China’s $18 trillion economy is facing its worst headwinds in decades, including draconian COVID-19 restrictions, western sanctions, capital outflows and a deflationary housing bubble.

Here are three areas affecting the Chinese economy to watch for at the key conference.

leadership change

While there is little doubt that Xi will remain leader – either by remaining as general secretary of the seven-member Politburo Standing Committee (PSC), the CPC’s top decision-making body, or establishing a new post such as that of party leader – Congress – will come in a row of senior positions responsible for economic policy.

One of the biggest questions is who will replace Chinese Premier Li Keqiang, the PSC’s second most senior official, who has emerged as the most prominent voice on economic issues during the pandemic.

Li, who hails from a rival faction linked to former President Hu Jintao, announced in March that this year would be his last as premier, although he could potentially remain a member of the PSC.

After being on hiatus throughout Xi’s tenure, Li, a fluent English-speaking man well known in the overseas business community, has come into better sync this year with dire warnings about the economy and the need for local officials, pandemic containment and growth to bring importance.

While Li has not directly criticized Beijing’s ultra-tight “zero-COVID strategy,” his emphasis on the economy has fueled speculation of a split within the party over how to manage the pandemic after nearly three years of punishing lockdowns, mass testing and border controls.

Li Keqiang
Chinese Premier Li Keqiang announced his intention to retire earlier this year [File: Jason Lee/Reuters]

Among the names that have been mentioned as possible successors to Li are Chen Miner, the top CCP official in Chongqing and a close associate of Xi; Wang Yang, a former chief of Guangdong Province known for his relatively liberal and pro-market attitude; and Hu Chunhua, a protégé of former President Hu, who is the Vice Premier in charge of Poverty Alleviation, Agriculture and Trade.

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Another key figure to watch is Vice Premier Liu He, Xi’s top economic adviser, who is widely expected to step down from his position in the 25-member Politburo, the CCP’s second most powerful body.

Harvard-educated Liu, who is believed to have known Xi since childhood, has stressed the need for a sustainable growth model that prioritizes economic risk mitigation, poverty alleviation and environmental protection.

Taylor Loeb, economic and trade analyst at Trivium China, said Liu’s successor may be China’s most powerful economic official.

“The two most likely candidates are the current chairman of the National Development and Reform Commission, He Lifeng, and the current chairman of the China Banking and Insurance Regulatory Commission, Guo Shuqing,” Loeb told Al Jazeera.

“If he takes Liu’s role, we’re probably looking at a more Xi-led, state-centric economic policy. If it’s Guo, the trend will be towards greater liberalization of capital accounts and deleveraging.”

State control versus private enterprise

Under Xi, China’s economy was brought under tighter government control.

After decades of pro-market reforms initiated by his predecessors, Xi has repeatedly prioritized political control, national security, inequality and other concerns over economic growth.

“The key question for me is whether the Chinese economy remains subservient to what is meant by the label ‘national security’ – that is, the security of the status of Xi Jinping and the elites and the elite system that surrounds him – or whether they economic is development and the well-being of Chinese citizens is becoming the overriding goal,” Carsten Holz, an expert on China’s economy and a professor at Hong Kong University of Science and Technology, told Al Jazeera.

“I suspect that ‘national security’ will continue to be the dominant theme. The Chinese economy then plays a role only to the extent that it endangers or promotes ‘national security’.”

Under Xi’s quest for “general prosperity,” authorities launched an all-out crackdown to curb industries ranging from education and real estate to gaming and technology.

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In a 12-month period that coincided with tightening regulatory scrutiny of giants like Alibaba and Tencent, the 10 biggest players in the tech sector lost about $2 trillion in market value.

While Xi has framed the move as an attempt to tackle rising inequality, the raids are also widely seen as an aim to stave off future challenges to the CCP’s monopoly of power.

Xi has also doubled down on “zero-COVID” lockdowns, mass testing and border controls that continue to cripple economic activity even as the rest of the world lives with the virus.

According to the World Bank, China’s economy is expected to grow by just 2.8 percent in 2022, which would be among its worst results in decades.

“Until now, ‘shared prosperity’ has been a relatively nebulous concept: does it mean cumbersome redistribution? Does it mean more equal opportunities to improve equal opportunities?” said Löb.

“I expect we’ll get more information at Congress on exactly how the party thinks about ‘shared prosperity,’ which will set the stage for how the policy will be put into practice.”

Alicia García-Herrero, chief economist for Asia-Pacific at Natixis in Hong Kong, said she expects Congress to solidify the transition to a state-led economic model.

“We’re starting to hear about a new concept, which is ‘people-centric economy’ rather than market economy,” García-Herrero told Al Jazeera.

“This is clearly a very socialist concept with Chinese characteristics that will gain in importance after the congress. It’s basically a justification for a state-driven economic model, but it puts the people before the concept and defies the market.

“Shared prosperity is the accompanying concept of a human-centric economic model,” García-Herrero added.

“President Xi has already made it clear that China has no intention of following Europe with its welfare state model, but is looking for something else. In fact, shared prosperity is about government playing an even more important role and avoiding excessive wealth concentrated in a few hands.”

Autonomy versus globalization

Despite presiding over a massive trade expansion that helped double the size of China’s economy, Xi has stressed the need to strengthen economic self-sufficiency.

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In speeches, the Chinese leader has called for greater self-sufficiency in sectors ranging from science and technology to energy, food and finance.

Xi’s calls for self-sufficiency have been fueled, at least in part, by concerns that China’s economy is vulnerable to attack from Western countries, particularly the United States, which has imposed a series of sanctions designed to weaken Chinese tech companies, including semiconductor makers.

For Xi, the risks of integrating into the global economy have been further underscored by Western-led sanctions against Russia over its invasion of Ukraine.

zero COVID
China’s ultra-tight “zero-COVID” policy has put pressure on the economy [File: Aly Song/Reuters]

At the same time, many foreign companies are viewing China as increasingly hostile due to its strict pandemic restrictions and growing hostility towards private enterprise and outside influence.

As China and the West increasingly view each other less as trading partners than as threats, economic decoupling is widely expected to continue, if not accelerate.

“A third term for Xi would cement the notion in Washington and other Western capitals that China’s political and economic divergence from the West will persist — making deeper economic engagement increasingly difficult, including in green tech supply chains where China has an advantage.” , said Logan Wright and Agatha Kratz in a recent commentary for the Rhodium Group. “Nominations from technocrats seen as a little distant from Xi’s personal networks may reignite hopes of an embrace of limited reforms but promise fatigue is real.”

Loeb said Beijing could use Congress to flag increased domestic investment in industries considered critical to China’s supply chain, particularly in the technology sector.

“Beijing will redouble its pursuit of technological self-sufficiency and security over key assets, but we’ll be watching to see if policymakers will discuss what role foreign companies will — or will not — play in those ambitions,” Löb said.

García-Herrero said she expects the CCP assembly to redouble the message of self-reliance.

“In fact, China may not open up fully – restrictions particularly on outbound flights may remain in place – but this will be justified on national security grounds and this will also be a case of self-reliance,” she said.

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