China’s economy after 10 years of Xi Jinping: what worked, what didn’t

Xi’s biggest problems – economic slowdown, demographic challenges, inequality, pollution – were inherited but so were the main policy solutions
What changed most under Xi was the mode of implementation – announcing major policies suddenly and without much apparent deliberation has been economically harmful

Nancy Qian

Published: 4:30pm, 11 Oct, 2022

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Xi Jinping is poised to become the first three-term president in Chinese history when the Communist Party’s 20th National Congress convenes this month. That makes this an opportune time to take stock of Xi’s economic-policy record from the past 10 years and explore some steps to improve economic performance.

When Xi assumed China’s top political position in 2012, the economy was thriving but also had many serious problems. Gross domestic product had been growing at an average annual rate of 10 per cent for over a decade. But a slowdown was inevitable, and growth rates have declined almost every year since 2008.

By the start of this century, inequality in China had surpassed that of the United States. Meanwhile, pollution was literally killing China. By 2013, Beijing’s air had an average of 102 micrograms of PM2.5 particles per cubic metre. Chinese city dwellers increasingly complained about the cardiopulmonary illnesses and early mortality associated with pollution.

China was also plagued by water pollution, owing to the chemical run-off from its factories, farms and mines. In rural areas, entire villages and towns sometimes had to move because their water supply had been irreparably contaminated.

China was also gradually losing its workforce. Fertility rates of around six children per woman started to decline in the 1970s and reached their current levels of under two children per woman in 2000. China’s working-age cohort shrank from 80 per cent of the population in 1970 to only 37 per cent in 2012. The share of individuals over age 65 doubled, from 4 per cent in 1970 to 8 per cent in 2012.

These trends left the government stuck between a rock and a hard place. Though policymakers needed to keep the population from ballooning, they also needed to maintain the supply of young working people. Social discontent was rising and public perception of government corruption doubled between 1991 and 2012. Around 1,300 labour strikes were documented in 2014; by 2016, that figure had more than doubled, to 2,700.

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Xi took great pains to confront these challenges. But the results have been mixed. PM2.5 readings in major cities like Beijing and Shanghai have been halved over the past 10 years, and China’s Gini coefficient is back below that of the US. But other indicators are less favourable.

Between 2012 and the beginning of the Covid-19 pandemic, China’s annual GDP growth rate has either remained flat or declined. Even though the government abolished its one-child policy, fertility rates have remained very low.

The share of individuals aged 65 and older today is nearly 13 per cent, a new peak for the modern era. And 10 years after Xi launched a highly touted anti-corruption campaign, public perceptions of corruption are higher than ever.

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Still, it would be misleading to lay all of the past decade’s accomplishments and failures at Xi’s feet. Xi inherited the biggest problems he has faced, which were the consequences of China’s rapid growth, and political and economic history. Xi also inherited the main policy solutions.

After all, China started requiring state-owned energy grids to invest in renewable industries back in 1994, and earlier governments also emphasised policies to improve conditions for the poor. Basic medical insurance was introduced to urban areas in 1998 and rural areas in 2003. Aggregate inequality began to decline two years before Xi taking office, and earlier governments regularly pursued their own anti-corruption drives.

As Xi continued many of his predecessors’ policy initiatives, the things that were improving continued to improve, and problems that were hard to fix remained unfixed. What changed most under Xi was the mode of implementation.

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With a few exceptions, such as the one-child policy, post-1978 Chinese policymakers before Xi tended to be cautious and discreet. Important changes, like the introduction of rural elections, were usually piloted quietly and only announced as a “national policy” when the central government felt confident it understood how the policy would work.

This trial-and-error method had the advantage of creating political space for deliberation among important stakeholders, leading to the success of highly complex initiatives such as China’s national health policy. It also allowed for flexibility. And because these policies were not associated with any one person, the political costs of admitting mistakes were low.

Xi has dispensed with such subtleties, announcing policies personally, suddenly and without much, if any, apparent deliberation. This modus operandi has been economically harmful, even when the motivations are benign or well-meaning.

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Consider last year’s ban on private tutoring, intended to curb the punishing hours that Chinese children spend studying and reduce wealthier students’ advantages over their peers. But the roll-out was so blunt and sudden, it reduced major Chinese education companies’ market capitalisations by tens of billions of dollars and created a black market.

The economic ramifications reach beyond education. The possibility of sudden and unanticipated policy changes discourages investments in all sectors.

Another example is Xi’s zero-Covid policy. Though successful in keeping the coronavirus at bay when there were no vaccines, it fared poorly with changing conditions. While other countries are shifting back to business as usual – or have done so – China seems stuck in an endless game of Whac-a-Mole.

The implications for the Chinese economy are clear: the authorities should stay the course in terms of economic-policy goals, but change their policymaking methods. Moving slowly and cautiously served China well for more than 40 years. It could work well for many more.

Nancy Qian, Professor of Managerial Economics and Decision Sciences at Northwestern University’s Kellogg School of Management, is a co-director of Northwestern University’s Global Poverty Research Lab and the founding director of China Econ Lab. Copyright: Project Syndicate