Does Xi Jinping Control the Economy?

By | June 20, 2018

Xi Jinping is widely viewed as China’s strongest leaders since Deng Xiao Ping thirty years ago. He has consolidated control over the Party, rammed home an anti-corruption campaign, and pledged backing for the expansion of the state sector through programs like “One Belt One Road” and “Made in China 2025.”

But behind the flagship programs and bold statements lies a much more troubling picture. Due to a combination of fiscal constraints, the overwhelming rise of shadow banking, and the sheer size of the Chinese economy, Xi Jinping is more like a rider riding a bull during a rodeo than a President with his finger on the pulse of government. In fact, Xi and his top economic advisors have tacitly acknowledged their inability to directly control the economy by devising policy workarounds to keep the economy moving. These policies have both a political and an economic component.

Unable to provide the credit the local governments need, President Xi’s response has been to acknowledge the deficit and place responsibility for growth squarely on the shoulders of local governments.

As economist Barry Naughton of the University of California at San Diego noted:

“…the Chinese economy is simply too big to try to place under some kind of unified policy guidance….China is evolving towards some kind of new untested system in which a highly centralized and disciplined authoritarian political system is combined with a more decentralized economy.”

Thus, Xi is handing over more power to Provincial party bosses, who increasingly have greater control over the towns and counties below them. These local governments will be responsible for generating growth – with little help from Beijing.

For full report, contact Orient Capital Research