China’s Communist Party runs low on creativity
HONG KONG, June 30 (Reuters Breakingviews) - The Chinese Communist Party turns 100 this week. A century after it was founded in Shanghai’s French concession, the institution has never been so popular at home or resented abroad. Its leaders are experts at the nuances of control, and long on ambition. But they are dangerously short on new ideas.
Under President Xi Jinping, the CCP has strode boldly on the world stage. It has founded multilateral lending institutions, pushed the yuan into the International Monetary Fund’s currency basket, and poured money into overseas infrastructure projects under the Belt and Road initiative. Back home, it has eliminated absolute poverty by its own measure and promises to be carbon-neutral by 2060.
Beijing has also fought the White House to a near-standstill on multiple fronts. Despite President Donald Trump’s tariffs, Chinese manufacturers held around 16% of the world’s exports market in March, Refinitiv data show: a share last achieved by the United States in the 1970s. Even as the diplomatic relationship with the United States frosted over, mainland companies have raised $70 billion on U.S. stock exchanges and borrowed $163 billion from American banks under Xi’s tenure, per Dealogic.
Finally, the CCP managed to rally its citizens to suppress Covid-19 after a fumbled start, and hauled the economy back into growth mode after a single quarter of contraction. Yet the list of stalled reform projects has lengthened even as the volume of bilious nationalist rants rises.
SLOWLY BUT SURELY
It’s worth remembering that China’s economic miracle, which began under Deng Xiaoping in the 1980s, was the result of considerable policy ingenuity. In post-Soviet Russia the government hastily ripped out controls and implemented free markets in an approach called “shock therapy.” Because Mao’s Zedong’s radical socialism had made the Chinese economy even more rigid and fragile than the Soviet model, that wasn’t an option for Beijing.
Instead, reformers under Deng’s aegis empowered local cadres to experiment gingerly with liberalisation, slowly reintroducing private property and allowing farmers and entrepreneurs to retain profits. The communists revived stock and bond exchanges and tapped U.S. financial markets to help convert clunky ministries into listed corporations.
They made some bold calls. Premier Zhu Rongji laid off an estimated 40 million employees of inefficient government enterprises in the 1990s. The CCP also executed one of the largest transfers of property assets from public to private control in history. The bulk of the credit for China’s economic revival belongs to its hard-working people. But its political leaders deserve a share for judiciously clearing the way – even if they created the mess in the first place.
Today the CCP’s creative juices show signs of running dry. Officials appear increasingly nostalgic for old solutions, like free trade zones, that can’t address current problems. Xi may be an excellent cracker of heads; his brutal anti-corruption campaign did much to restore flagging public faith in the CCP. But in economic terms his government has not halted reform so much as failed at it.
BACK TO THE WELL
Take the long-running campaign to reduce overinvestment in real estate, which cannibalises capital from more productive asset classes and is miring Chinese households in debt. Despite a concerted effort during the pandemic to keep stimulus funds out of real estate, home prices in core cities are rising too quickly again. That is in no small part because the CCP’s response to Covid-19 used an old playbook: spending on infrastructure while easing credit. Both inevitably flowed into housing, as they did after the global financial crisis of 2008. But officials could not stop it, nor has the government been able to get a property tax, which might have a cooling effect, off the drawing table.
Elsewhere, bureaucrats incline to see cracking heads in troubled industries as synonymous with reforming them. That’s not always true, and it could be an expensive misunderstanding. The CCP-led public cowing of technology giants like Alibaba (9988.HK), for example, is unlikely to spur investment or innovation. Meanwhile, Beijing is making a renewed push to become self-reliant in semiconductors, but has been throwing money at the problem for years with little success. As the national bad debt pile rises toward $2 trillion, China can ill-afford to stick with its wasteful innovation model.
The list goes on. The demographic crisis caused by a shrinking workforce is accelerating while the wealth gap is widening. Yet the CCP, increasingly dominated by “wolf warrior” men, still insists on micro-managing women’s birth decisions, arresting feminists and restricting labour mobility.
Sitting atop a $15 trillion economy, the CCP has vast resources and popular support. But the problems it faces are even more complex than those overcome by Deng’s reformers. If the party wants to celebrate another century in power, it will have to stop coasting on past successes.
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CONTEXT NEWS
- The Chinese Communist Party will celebrate the 100th year of its founding on July 1. It established the People’s Republic of China on October 1, 1949 after defeating the Kuomintang Party in a civil war and has ruled single-handedly since then.
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