In September, the Chinese prime minister Li Keqiang stepped on to the stage in a conference centre in Tianjin to address the attendees gathered for the World Economic Forum’s annual China meeting. The offer of reassurance to the Davos crowd may be becoming a habit: Xi Jinping did it in 2017, in the aftermath of Donald Trump’s election. His message was that China will not abandon multilateralism; that China supports globalisation; that China will progressively open its economy. In Tianjin, however, Li Keqiang was obliged to address fresh anxieties: how fragile is the Chinese economy, overburdened with debt? Will the long-promised reforms to China’s market ever happen? Will China respond to the growing chorus of complaint about unfair trading practices, and will Trump’s trade war bring down the whole house of cards?
The premier acknowledged the difficulties, but repeated the steady-as-she-goes promises: no massive stimulus, no competitive devaluation of China’s currency, and a progressive reallocation of credit away from China’s giant state-owned enterprises (SOEs) and towards small and medium-sized enterprises (SMEs) in a growing and increasingly innovative private sector.
It was comforting, except that Li’s economic portfolio has been steadily eroded by Xi’s sustained power grab and the opacity of Chinese data obscures more than it reveals about the real economy. Moreover, Xi’s policies – a fierce centralisation of power in the party’s hands and his position as unchallengeable party leader – seem to contradict much of what Li had to say.
Two new books explore the questions raised: in Red Flags, the economist George Magnus offers a forensic take on why the Chinese economy will continue to be bedevilled by politics and why it matters. And François Bougon, in the slim but ambitiously titled Inside the Mind of Xi Jinping, peers into the black box of Xi’s ambitions and strategy. The conclusions of neither book are reassuring.
In the dramatic lead-up to Xi’s enthronement as party general secretary and president in 2012, speculation on his character and intentions suggested a liberal trend. Many among China’s business and party elite saw political reform as essential to future stability – as had the former prime minister Zhao Ziyang, before his fall in 1989. Instead, Xi has ridden a wave of truculent nationalism to reinforce party control, reversing or abandoning key pillars of the reformer Deng Xiaoping’s legacy and launching a personality cult that those with longer memories in China have reason to fear.
Bougon, who reported from Beijing for Agence France-Presse from 2005 to 2010, may not have access to Xi’s inner thoughts, but he does assemble the elements deployed by the leader of the world’s biggest communist party to make the case for the permanent right to rule. It is a case complicated by factors that seem to contradict communist principles: growing inequality; the rise of the super-rich (1 per cent of Chinese households own one third of the country’s wealth); the lack of civil and political rights or legal protections; and an increasing tendency to hereditary privilege among the elite. Given that list, what story could convince China’s millions that the party’s and the people’s interests are as one?
Foreign commentators tend to attribute a strong sense of history to Chinese leaders. Certainly Xi is given to classical references, but as with Boris Johnson, an awareness of history should not be confused with respect for the facts. Xi insists, for example, on a seamless account of China’s leaders: Mao Zedong waged total war against Chinese traditions and culture; Deng partially restored the liberty to think about the past; Jiang Zemin and Hu Jintao took the lesson that collegiate government was more stable than “strongman” rule. Xi denies any contradictions and argues that it all adds up to consistent progress under party rule.
Xi has assembled a narrative that no doubt he sees as apt for a richer, stronger China. It begins with Chinese exceptionalism, the elastic claim that China is the world’s oldest continuing civilisation and therefore that universal rules do not apply. Secondly, China must draw on its own traditions of politics and governance, including Confucian ideas, in marked contrast to reformers who, for more than 100 years, identified Confucianism as a key factor in China’s relative backwardness. Confucius argued that a kingdom would flourish under a virtuous ruler who would attract people by example. He set enormous store by ritual and well managed, unchanging hierarchical relationships. Xi tips his hat to Confucius, although, like Mao, Xi’s governing style owes more to the rival school of legalists, who argued that people need to be kept under control through harsh laws and punishments. Their rulers did not need to be loved, but feared.
As models for the 21st century, both systems are anomalous: they were designed for empire, and justified by the emperor. Since the fall of the last empire in 1912, when people took to the streets to demand “science” and “democracy”, China has struggled to answer one key question: to whom does the state really belong, the emperor or the people? With Xi we have, for the time being, an answer. By abolishing Deng’s term limits and elevating his own thought to constitutional status, Xi postulates a communist “mandate of heaven” (the Chinese version of the divine right of kings). To challenge Xi’s thought is now, potentially, an act of treason.
The myth of Xi – who, as the son of one of the first generation of revolutionary leaders, is part of the “red elite”– combines the image of a man of the people with that of a universal scholar. In addition to the Marxist canon and the works of Mao, Xi claims familiarity with a long list of key texts. While labouring in Shaanxi’s arid Loess Plateau in his two years as a “sent down youth”, he claims to have whiled away the evenings with bootleg copies of Marx and Engels’s The German Ideology, Albert Mathiez’s The French Revolution and Hegel’s Shorter Logic. Speaking to a literary forum in Beijing in 2014, he described walking 15 kilometres to borrow a copy of Goethe’s Faust, and a further 15 to return it.
In 2015, in the US, he cited Thomas Paine’s Common Sense, as well as Ernest Hemingway’s The Old Man and the Sea, and works by Thoreau, Whitman and Mark Twain. In Russia, he claimed his favourite writers included Krylova, Pushkin, Gogol, Lermontov, Turgenev, Dostoevsky, Nekrasov, Chernyshevsky, Tolstoy and Chekhov. In France it was Montesquieu, Voltaire, Rousseau, Diderot, Saint-Simon, Fourier, Sartre, Montaigne, La Fontaine, Moliere, Stendhal, Balzac, Hugo, Dumas – pere et fils of course – Flaubert, Maupassant, Romain Rolland and Jules Verne. There was a similar list for a visit to Germany. Begging the question of which of these he discusses with Trump, the claims tell us what Xi’s propagandists believe is required for the contemporary emperor of a globalising China.
Xi’s project – the “China Dream”, or Making China Great Again – is the flowering of a nationalist revival that had its roots in Mao and was cultivated after the suppression of the Tiananmen student democracy movement in 1989.
It answers the question “What is the party for today?” with the claim that it protects China from ill-intentioned foreigners. It further claims that Chinese power is no threat, and that Xi’s signature trillion-dollar Belt and Road project – an ambitious plan to build new land and maritime infrastructure in 70 countries – is a win-win for the world and that, in contrast to the failing liberal democracies of the West, China offers a helpful development model to the global South.
At home, though, the party has reinforced its defences with an Orwellian system of digital surveillance and social control. In the regions of Tibet and Xinjiang, where the historical ethnicity is not Han Chinese, a brutal experiment in cultural and political suppression is under way, complete with internment camps, enforced thought reform and social micromanagement. The party directs public attention to external enemies, but its actions suggest that its biggest insecurities lie at home.
How serious those insecurities might be is George Magnus’s topic. The party’s claim of right has rested, since 1989, on the promise of ever-growing prosperity, in large measure delivered in the rapid, credit-fuelled growth of the last three decades. Western engagement with China was premised in part on the expectation that economic success would lead to a liberalisation of China’s politics and that it would become a responsible international player, with greater transparency and accountability. Today, those expectations appear confounded as Xi presides over a regime that is extending party supervision through every facet of the economy and reimposing ideological controls that had long been in retreat in intellectual and cultural life.
Magnus probes the question of whether the foundations of the Chinese economy are sufficiently robust to carry it through. His answers do not offer much solace.
The concerns that Li Keqiang addressed in Tianjin – the mountain of debt, the slowing growth, the distortions created by the overmighty SOEs – are all examined here. The author assembles his economic data with precision and tells his tale with authority. At this point, Magnus argues, China faces four interconnected challenges: an ageing population, debt, the middle-income trap, and the internationalisation of its currency. A failure to deal with them will cast a deep shadow over the future.
The list is familiar, but the author brings a wealth of information to his analysis, in particular on the trajectory of China’s debt and the likely overhang of its effects. China has had debt problems before: in the late 1990s non-performing loans equalled 40 per cent of all bank lending and a major clean-up was required. Today, following the $580bn stimulus package launched in response to the 2008 financial crisis, and a renewed addiction to credit, China’s vulnerability is many times greater than in the crisis of 1990.
So far, the government has failed to deliver key policy reforms: of SOEs, household registration (hukou), social security – and of the division of fiscal responsibilities between central and local government that is at the root of the escalation of local government debt. Magnus argues that stabilising the rise in debt and gradually reducing exposure (the dangers associated with excessive debt) are essential for China’s economic health, but the task is complicated both by the proliferation of non-bank financial institutions (“shadow banks”), which makes it harder to assess and address the risk, and the fact that China’s growth in recent years has depended so heavily on debt.
Since 2015, he points out, “China has experienced a stock market rout, a mini currency crisis, corruption and risk management scandals in the financial sector” as well as problems stemming from non-performing loans and excessive debt. The weak regulation this list reveals is being partially addressed. But growing political interference, Magnus argues, is exacerbating the weaknesses in corporate governance. China has excellent scientists and important tech companies, but Magnus doubts that it will be able to encourage the disruptive changes that the next generation of general-purpose technology could bring. It is those changes, he believes, that deliver the prizes of fiercer competition and productivity gains.
There are contradictions, too, in currency policy. Magnus argues that the yuan cannot become a global reserve currency while China maintains capital controls, runs a current account surplus and is reluctant to allow foreigners to build substantial holdings of Chinese assets. Equally, the party claims that it wants a decisive role for markets, while exercising ever-tighter control on enterprises. China also faces the demographic problem of delivering social and health care in a system that is currently inadequate on both fronts, in a future that will have fewer productive, tax-paying workers.
The “middle-income trap” describes the condition of countries that aspire to get richer but find themselves squeezed between low-wage competitors and high-wage innovative economies, struggling to establish a competitive advantage either up or down the scale. The term is contested, but few economists would disagree that in order to continue to grow China must become more efficient, innovative and productive. These are all items on Li Keqiang’s list, but the key here, Magnus argues, is not so much technological and scientific prowess, but governance. He predicts that conflicts of interest mean the party will be unable to implement the necessary reforms.
Xi’s attempt to unify the middle classes around a reinvigorated ideology of nationalism fortified by repressive authoritarianism is an experiment that has yet to face a major challenge, though Trump’s trade war may prove to be that test. But the concern laid out here – that the party itself is the biggest obstacle to reform – is unlikely to be resolved under Xi Jinping.
Isabel Hilton is the editor of chinadialogue.net
Inside the Mind of Xi Jinping
Hurst, 232pp, £12.99
Red Flags: Why Xi’s China is in Jeopardy
Yale University Press, 248pp, £20
This article appears in the 10 Oct 2018 issue of the New Statesman, How austerity broke Britain