BEIJING – For most of last year, China’s top leader Xi Jinping has waged a fierce campaign to curb private capital and reduce social inequalities. Regulators have dealt with technology giants and wealthy celebrities. Beijing has asked the tycoons to return to society. And the Communist Party has promised that a new era of “common prosperity” is on the horizon.
Now the Communist Party is putting its campaign in the background. In doing so, Beijing has tacitly acknowledged that Mr Xi’s drive for wealth redistribution has troubled the private sector – a pillar of growth and job creation – at a time when China’s economic prospects are increasingly dim.
For Beijing, ensuring economic stability and growth is paramount this year, which is very important for Mr Xi. As he prepares to run for a third five-year term later this year, he seeks to portray China as more prosperous, powerful and stable under his rule. Officials have struggled in recent months to try to reverse the slowdown, exacerbated by rising world oil prices, uncertainty over the war in Ukraine and a blockade in China to contain the relentless influx of coronavirus cases.
“Overall prosperity is still here, but the growth situation is quite challenging,” said Huang Yiping, deputy dean of the influential National Development School at Beijing University. “The main priority is really stabilizing growth.
The delay is a tactical retreat rather than a complete abandonment of Mr Xi’s plans, which the party continues to describe as a long-term goal. Mr Xi’s campaign for “common prosperity” is a commitment to reducing the country’s vast wealth gap and building a middle class that can boost domestic consumption and reduce the country’s dependence on debt-fueled growth. It also serves political purposes: to support public support for Mr. Xi’s leadership and to protect China’s political system of centralized control as superior to the West.
The regulators focused on what they called “chaotic capital expansion.” They have shattered various businesses seen as bridging the gap between the rich and the poor, including after-school lessons, online financial products and online shopping. These moves suddenly wiped out Chinese companies worth more than $ 1 trillion and forced many companies to lay off workers or even file for bankruptcy. The campaign also intimidated investors and entrepreneurs by consolidating the party’s power over society and raising questions about the role of private business in the country’s future.
The party’s leadership began signaling in December as the economy slowed as it cooled in the campaign. When the Politburo met in the same month to decide on economic priorities for 2022, it did not use the term “common prosperity” in its official summary; instead, he emphasized “stability as a top priority.”
Beijing has also sought to reassure international investors that it is still open to business, saying to itself that China welcomes all forms of capital and that its campaign is not a boost to egalitarianism.
“We will first make the pie bigger and then we will divide it properly through reasonable institutional arrangements,” he said in a video speech to business leaders at the World Economic Forum in Davos, Switzerland, in late January. “As the rising tide lifts all the boats, everyone will get a fair share of the development.”
But investors at home and abroad continue to worry about Beijing’s crackdown on the private sector. Confidence in the Chinese economy has waned as China imposes strict quarantines to curb Covid-19 outbreaks and as Russia’s invasion of Ukraine raises commodity prices.
The steep sell-off in Shanghai in recent months – with a 17 per cent drop in the market from mid-December to mid-March – has sparked rare interference from Deputy Prime Minister Liu He, Mr Xi’s right-hand man on economic policy.
Mr Liu promised that Beijing would support the economy and limit the unpredictability that shook the markets. Any new government policy that could have a significant effect on stock prices and other financial market activity must first be approved by Mr Liu’s financial management team, according to a statement issued by the official Xinhua news agency.
Mr Liu may have suggested that last year’s repression was a form of excessive jealousy on the part of officials who were moving too fast to meet Mr Xi’s long-term goals, a point noted by some economists.
“Under President Xi Jinping, the Chinese government system works like a sports car – the accelerator pedal and brake pedal work extremely fast,” said Li Daokui, director of China’s center of influence in the world economy at Tsinghua University in Beijing. “When he wants to implement a policy, even a long-term one, the car speeds up instantly and may not be what it was intended to be.
Mr Li noted, for example, that officials were vying to respond to Mr Xi’s announcement in September 2020 that China would reduce its net carbon emissions to zero by 2060. Local authorities were restricting investment and coal production. impose restrictions on the use of fossil fuels without first inventing alternative energy sources to keep business booming. These moves caused uninterrupted power outages across the country last year and briefly paralyzed many factories in September as coal-fired power plants did not generate enough electricity.
He himself condemned last month any premature move to abandon coal, using a culinary analogy to describe how employees had to lay the groundwork before making major changes.
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“You can’t throw away cutlery in your hands before you have new cutlery in your hands – that’s not right,” he told a meeting of the national legislature controlled by the Communist Party of China.
There are indications that Beijing is reversing its policies in other sectors to support the economy. Chinese Premier Li Keqiang, for example, called on officials last Thursday to provide more support to Internet companies and help them add jobs.
The government tried to take over the real estate market after Mr Xi said a few years ago that “housing is for shelter, not speculation”. But these efforts have led to widespread malaise – as well as the default of huge developers like Evergrande. This has affected construction and related industries, which make up a quarter of China’s economy.
In recent weeks, the government has eased its strict restrictions on home purchases. The city of Zhengzhou in central China has lifted the limit on buying homes from people who already own them. Hengyang, a city in southern China, has introduced a grant of nearly $ 5,000 to help technicians and students buy their first homes. More than 65 cities have switched to lower minimum down payments and interest rates on mortgages or otherwise loosen policies, according to Zhuge Housing Search, the country’s online real estate and data brokerage service.
Beijing has also postponed plans to expand the property tax process, which has been at the heart of wealth redistribution. The party has long debated the introduction of a national property tax, which economists say could help the government raise money without holding land auctions and punish speculators who buy homes and leave them unoccupied.
In October, Mr Xi called on staff to “actively and steadily make progress on property tax legislation and reform” as part of plans to “wisely regulate excessive income”. But last month, the finance ministry said conditions this year were not suitable for expanding the property tax pilot plan, a statement seen as an effort to boost home purchases.
The party’s top priority for growth this year is also forcing it to put aside difficult changes that could address deep-rooted problems with the economic model. China has long insisted on releasing its economy from its dependence on loans for infrastructure projects, which have burdened the country with trillions of dollars in debt.
This year, China is poised to pursue its biggest abundance of construction projects since the 2008 global financial crisis. took large loans to help finance the construction of highways, bridges and the Beijing-Shanghai high-speed railway.
China is building more high-speed railways this year, as well as eight national computing hubs and 10 data center clusters.
“This year will be a repeat of 2008 and 2009 in terms of infrastructure promotion efforts,” said Qi Qinghua.
Do you contributed to research.