Behind​ ​the​ ​Scenes:​ ​Xi​ ​Jinping’s​ ​plans​ ​for​ ​China’s​ ​economy

Xi Jinping, President of the People's Republic of China. || Jorge Silva, Reuters.

On October 24, 2017, 2280 delegates representing the Communist Party of China’s 89 million members met in the Great Hall of the People in Beijing. The purpose of such a gathering? Discuss various aspects of Chinese policy for the next five years. At these semi-decennial meetings, new goals are established for the next period, past objectives are analyzed and addressed, and China’s progress as a nation in fields such as sustainability, economy, military, and diplomacy are all reviewed. As China becomes more influential in the twenty-first century, these “National Congress Meetings” have begun to turn more heads, most notably from China’s competitors. Before discussing the highlights of this meeting, a bit of background information and insight into China’s economic history is necessary.

At this meeting, officially the 19th National Congress Meeting of the Communist Party of China, Xi Jinping stunned the world by revealing an unanticipated change in China’s economic policy: China is abandoning fast-paced economic growth. For the past three decades China’s focus has been to develop at a rapid rate, with annual growth consistently remaining over 10%. This policy, which has been dubbed the “new Chinese Golden Age”, originated from Deng Xiaoping’s economic reforms of 1979, in which the former General Secretary opened China’s economy to the foreign world and deviated from Mao Zedong's controlled economic views. Xiaoping made the most of China’s huge population advantage and the abundance of natural resources available, turning China into the world’s second-largest economy. Government spending increased, especially in the infrastructure sector, taxes were reduced to promote consumerism, and restrictions on pollution were eased to allow factory owners and state-owned corporations to boost output. In 2009, China surpassed the United States, Germany, and Japan in automobile production, producing an impressive 14 million vehicles in one year. In 2010, China became the world’s largest energy consumer, consuming more than 2252 million tons of oil, as more investors opened factories and consumer standards of living improved, allowing them to purchase more luxury goods such as televisions and automobiles. Even during the financial crisis of 2008 and 2009, China maintained a steady GDP growth rate of 9.1% while the majority of the developed world suffered huge blows to their annual GDP growth rates. This growth continued for 30 years. Although rapid economic growth is welcome in any economy, it definitely comes at a cost. To finance the construction of infrastructure and the subsidizing of state-owned corporations while simultaneously reducing taxes, the People’s Republic of China had to borrow large sums of money from other countries and sell large amounts of its foreign reserves. Although the borrowed money was being put to funding long-term investment programs, all debts eventually come due. In addition, China’s energy consumption and relative lack of any pollution regulations made it the world’s biggest emitter of carbon, surpassing the United States in 2007. These are not impressive titles to hold, and Xi Jinping realized the importance of addressing the various leaks in China’s economy. Perhaps the most revolutionary change that accompanied the Chinese Golden Age, however, would be the rising levels of income inequality in China. As a communist country, China used to take pride in treating all citizens equally and resisting the creation of an über-rich upper class. With the reduced taxes and loosening of government control in the economy, income inequality worsened. Currently, China has 10% of the world’s billionaires, but 1% of those individuals control more than 33% of China’s total economy. In 2016, China had a Gini coefficient —a measure of income inequality— of 0.61, well above the 0.4 threshold economists consider “destabilizing.” Although this behaviour isn’t impossible under a communist regime, it isn’t expected. Nevertheless, swift growth and rapid development have been trademarks of China’s economic policy for the past 30 years, and Xi Jinping’s proposal to slow down China’s economic growth, although logical, was also unexpected. To solve the issue of pollution and improve air quality in several Chinese cities, Jinping proposed tighter regulations, most notably on industry-based provinces such as Hebei and Tianjin. Additionally, subsidies which used to be given to manufacturing industries are now being transferred to renewable energy companies. The consequences of promoting renewable energy and imposing tighter pollution regulations, such as more frequent pollution checks, larger fines for surpassing quotas as well as higher carbon taxes in certain provinces and the reduction of subsidies for manufacturing industries will likely drive down investment spending in China for the next several years. Already, experts are pointing out how China’s investment sector, making up more than 10% of its GDP, has been experiencing slowdowns and growth reductions. Grace Ng, an economist at JPMorgan and Co. in Hong Kong states that “growth in the fourth quarter could moderate a bit mainly due to possible slower investment, but in general this year is quite stable” (Bloomberg). However, the predicted slower investment isn’t just due to sustainability campaigns, since Xi Jinping wants to mainly focus on bridging the income gap between China’s rich and poor. In his speech, he proposed better welfare and safety programs and workers’ rights, with some industries even being required to implement a minimum wage for workers. Instead of criticizing the Secretary General’s decisions, Chinese entrepreneurs have sided with him and expressed their cooperation. These include Jack Ma, founder of Alibaba Group Holding Inc., who stated that entrepreneurs who’ve obtained affluence have a responsibility to help others catch up. On top of benefits directly affecting workers, Xi Jinping wants to slow down economic growth by raising government revenues at the expense of the landed elite in China. Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai, expects to see rises in property taxes imposed on factory owners. Hu Jintao, the previous Secretary General of the Communist party of China, promised to double China’s GDP by 2020 from what its value was in 2010. However, Xi Jinping quietly avoided that promise, instead advocating for the creation of a “more moderately prosperous society” (Bloomberg). In essence, the new economic focus of the Communist Party will be to slow China’s economic growth in a controlled fashion, and replace the fast-paced development which left behind several groups of people and the environment, with a more sustainable, equitable, and qualitative growth. At the same time, the increased revenues generated by higher consumer incomes resultant from better working conditions and, in some cases, higher wages and the government’s new source of property tax revenue alongside the reduced subsidies from the manufacturing industry give the Chinese government desperately needed revenue to address its growing national debt. Until the next National Congress Meeting, we will see how successful Xi Jinping’s policy of “quality vs. quantity” really is.