China: will reform be placed under the “Xi forever” banner?
[This colum was previously published in Les Echos on march 27th 2018]
The consecration of the new “Emperor Xi” should make it possible to handle the social cost of the country’s delayed modernization.
No astute China-watcher will have been surprised by the recent announcement of the constitutional change that gets rid of the limit on the number of presidential mandates. It is rather the timing of this decision that should give us food for thought.
History tells us that only regimes going through a period of temporary weakness grant full powers to one single man. So how is it that China, which is seen in the West as the rising power of the moment, could be experiencing such a degree of weakness as to make the political establishment agree to abandon the collegial approach of the post-Mao era?
Soaring debt
Giving such political strength to the Head of State can only be explained by the pressing need for the regime to finally initiate reforms that have been put off ever since Xi Jinping came to power in 2012. The impressive growth in Chinese GDP since the 2008 crisis has, in fact, only been the product of the equally speedy rise in debt, which stands at over 100 points of GDP.
Indebtedness is soaring at twice the rate as in the West, and yet Chinese productivity is no more than a quarter of what it is in the USA. During the last Party Congress, these adverse forces naturally led President Xi to postpone “Prosperous China” until 2035–2050, and to devote the 2020–2035 period to the building of “Modern China”.
By putting off market liberalization, China intends to wage war on the inefficient allocation of resources.
Under attack are corruption at all administrative levels and the mismanagement of public spending at local levels
However, one has to understand the notion of “Chinese-style reform”. By postponing market liberalization, the government wants to wage war first and foremost on the two main sources of the highly inefficient allocation of resources: firstly, corruption at all administrative levels — and not only within the Communist Party –, and then the mismanagement of public spending at local levels. The recentralization of power should put an end to laxity in the regions.
Heavyweight reforms
Three “decisive battles” have been clearly defined: firstly, the fight against poverty, which cannot conceal the huge disparity in wealth that exists; then the fight against pollution, now that protection of the environment is finally becoming credible thanks to the introduction, for the first time, of qualitative criteria into its growth objectives; and, finally, the fight against financial risk. The Financial Stability Board estimates “Shadow finance”, which is the only alternative to the traditional banking system as a source of finance, to have reached 7,000 billion dollars, i.e. over 60% of GDP.
China could well continue to surprise us with its unique model of extremely strong power.
This is the main challenge facing President Xi: these heavyweight reforms are going to come at a time when there is an unprecedented concomitance of factors that increase social inequality and affect both capital and labor. Exceptionally low rates of interest will continue to benefit only a small number of the elite whilst the forced march towards the introduction of artificial intelligence will affect almost 50% of jobs, mainly the least skilled ones.
It is here that one realizes why the consecration of the new “Emperor Xi” was timed as it was: only a “Xibercracy” will be able to handle the social cost of the country’s delayed modernization. China could well continue to surprise us with its unique model of extremely strong power, and yet with constant pressure to get results — pressure exercised by means of the social media — from one of the most disobedient peoples on the planet.
