China strengthens socialism

Chinese President Xi Jinping has discovered his inner Chairman Mao and is now actively strengthening the socialist parts of his policy mix.

| 7 min read

Chinese President Xi Jinping has been bound at home for some time by Covid-19, by domestic politics – and by his concerns about deteriorating relations with the West. It was always likely he would not leave China fly to Scotland for COP26. The 19th Central Committee of the Communist party has announced it will be holding its sixth plenary session between November 8th and 11th, overlapping with the later days of the COP26 meeting.

Comrade Xi will be the main act at the plenary session, reviewing the last hundred years and correcting errors revealed by the latest inspection. He will doubtless use it to reinforce his latest thinking and to instruct his party officials to back up the new direction in their every word and deed.

At the core of the new Xi approach is the policy of common prosperity. Out will go the idea of fast growth in GDP mandated by annual growth targets. Out will go the reforming Deng Xiaoping's tolerance of entrepreneurial riches and personal business and cultural success. Out will go the acceptance of wide disparities of income and wealth. In will come more state enterprise, more detailed regulation of the private sector, higher taxes and the demand that the successful share their success with the community they serve.

A reformer no more

When President Xi came to power almost a decade ago western commentators and experts drew attention to his time spent in the US, to his wish to engage more fully with western markets and institutions, and to his continuation of Deng's reforms that tolerated or used more capitalist solutions.

Abroad, China was expected grow more prosperous and, as it did so, would mellow, accepting more of the world norms laid down by the advanced democracies led by the US. So, it seemed to be for a while, as the economy duly bounded forwards and as China entered more joint ventures, acquired more technology and assets from abroad, and relaxed some of the restrictions on trade and financial markets. The stock market hit a high in 2015 based on many smaller investors flocking into the market. The government brought that party to an abrupt end and the index still languishes well below that peak.

From his early days, President Xi announced a new foreign policy based on the phrase “community of common destiny for mankind”. Seen at first as a friendly acknowledgement of the need for global co-operation it came to be seen by the US, India and other leading critics as an attempt to create a unity of nations based on economic dependence on China, advanced through the Belt & Road policy. Attempts to get it established as part of the language used by the UN and other international bodies were resisted.

The policy of fast growth and tolerance of free enterprise started to change when President Xi announced he would not be appointing a successor nor standing down after the customary ten years. Instead, he developed the thoughts of Xi to modify or add to the collective thoughts, started rehabilitating Mao and reminded the Chinese that they are true socialists.

Appearing in a Mao suit for the 100th Centenary of the Communist party Xi made a nationalistic speech, stressing China's growing role in the world and threatening those who disagreed. This was followed by the launch of common prosperity policies revolving around the need to create greater equality, both by some state led levelling up but also vigorous cutting down of some of the tall poppies of Chinese capitalism.

Property in Beijing’s sights

One of the main ways Chinese growth had been propelled quickly to hit ambitious growth targets in recent years had been to encourage home ownership and massive building of new houses and flats.

Many better-off Chinese decided to keep much of their wealth by owning several, and by trading in new builds which tended to go up in price between buying off plan and their value once finished. It has been suggested that one third of Chinese wealth is held in residential property, and a significant proportion of capital investment in an economy that invests massively was in such construction.

The attack on Evergrande and the other leading private sector developers by Beijing is putting people off holding more wealth in this way – and undermining the wealth they already have at risk in such properties. The government is now deciding to trial a property tax in various regions as a prelude to nationwide roll out in due course, as another warning shot across the bows of those still attracted to the housing game.

To many Marxists property is theft, a tyranny of the rich on the poor. China is not about to abolish private property, but there is a new chill towards owning too much of it as the Communist Party reasserts itself against excess and luxury.

President Xi has long asserted his power over his party by rooting out corruption in officials. Most people are now watched or spied on to check their loyalty to the central messages. Conspicuous consumption is now a danger, with the possibility of a large tax demand or something worse. Party officials watch over senior public servants and each other. Diplomats are warned not to meet foreigners on their own.

The advent of an energy crisis, brought on by a world shortage of energy coinciding with biting emissions targets in China, led to a rapid reversal of the green targets and a central decision to go for more coal. Xi realised that even a population trained to believe that they need to be united and supportive of government would become difficult if the lights went out for any length of time.

It may be that soon China has to pump more money into an economy that is slowing rapidly. It may well be they are able to see the property deflation carried through without systemic damage to an overstretched domestic banking system. It may even have private sector favourites that it thinks can help innovate. These may allow money to be made from time to time in various sectors or even in the whole market.

The underlying outlook has, however, shifted markedly for the worse from the point of view of possible overseas investors wishing to entrust some of their capital to Chinese investments. There will be no remorse if foreign bond investors take a big hit over the change of stance towards property. If China is now unhappy to see locals making big money out of business, it will be even less pleased to see foreigners doing so. The new mood is anti-capitalist. President Xi has discovered his inner Mao and is actively strengthening the socialist parts of his policy mix.

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China strengthens socialism

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