From Taiwan to the economy, the West is being overly pessimistic about Xi Jinping’s China

The West fears a reverse of economic reforms, sees a lack of political progress and accuses Beijing of becoming aggressive and provocative, particularly on Taiwan
Yet America’s China-bashing is closely linked to its domestic politics, and accusations of Chinese sabre-rattling must be seen in the context of US provocations

Chen Zhao

Published: 1:00am, 11 Nov, 2022

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There is an enormous amount of animosity in Western media towards Chinese President Xi Jinping’s purported power grab: Xi has been depicted as a Maoist ideologue who cares about nothing but absolute control of the party and economy.

Some China observers predict that Xi will reinstate a centrally planned system, dismantling or rolling back the free market reforms of the last four decades. These perceptions will prove excessive and simplistic.

First, although Xi will run the country with an iron fist, this does not mean overturning the policies that have produced economic prosperity. He understands the legitimacy of his rule is crucially dependent on delivering economic well-being. It would be sheer stupidity to reverse the pro-market economic policies that have worked.

Second, I can detect no major shift in economic policy in Xi’s report at the 20th party congress. He continues to stress the importance of economic growth, opening up the economy and the indispensable role of the private sector in China’s development.

Even on Taiwan, the basic tone is very little changed from Beijing’s long-standing policy: emphasising peaceful reunification while not abandoning the use of force if necessary. I see nothing suggesting China intends to take over Taiwan before 2024, as warned by Admiral Michael Gilday, chief of US naval operations.

Third, many have focused on Xi’s cabinet reshuffle, lamenting that all members of the Politburo Standing Committee are “his” people. Is this any different from other countries? Would US President Joe Biden appoint to his cabinet someone who is disloyal and always challenging his vision?

I am not unduly bearish on Xi’s team. Li Qiang, set to be China’s next premier, was the party boss of Shanghai and also led in the Zhejiang and Jiangsu provinces, the heartland of China’s economic boom and private enterprise. He has been known to embrace free markets and foreign investment. We should not jump to conclusions before Li starts his job.

Fourth, there seems to be runaway pessimism over the Chinese economy, with economists casting doubt on whether China can even grow at 2.5 per cent over the longer run. I am doubtful they will prove correct.

China’s zero-Covid policy has dealt a heavy blow to its economy, and caused public anger. History will show it is anti-science and unsustainable. But to conclude that China’s economy will no longer grow much above 2.5 per cent over the longer run will prove too pessimistic.

Since the pandemic started, China’s economic growth has averaged 4.7 per cent, 2 percentage points below its pre-pandemic trend. This rate of growth was delivered despite the draconian zero-Covid policy and restrictions on population mobility.

Lifting the zero-Covid policy will trigger a sharp rebound in the economy, letting it expand at its potential rate of around 5 per cent. Keep in mind, China is only a middle-income economy and has much potential to grow its productivity.

Fifth, there has been widespread dismay in the West that China’s economic prosperity has not brought about political change, with Xi’s unprecedented third term regarded as a giant step backwards. Forgotten, though, is that the Communist Party never intended to reform the Chinese political system or loosen its control over the country.

Deng Xiaoping, the architect of China’s economic reforms, said the party must have “two tough hands”: one for economic reforms and the other to reinforce party leadership. It does not make much of a political difference whether China is run by Xi or someone else.

A man walks past portraits of (from left) the late chairman Mao Zedong, former leaders Deng Xiaoping, Jiang Zemin, Hu Jintao and Xi Jinping at the Yanan Revolutionary Memorial Hall in Yanan city, northwest Shaanxi province, on October 15. Photo: AFP

Finally, a popular narrative from the West is that China’s foreign policy under Xi has become aggressive and provocative. This cannot be further from the truth.

America’s China-bashing is closely linked to American domestic politics. During his 2020 presidential campaign, Donald Trump blamed China squarely for the problems facing American society, deflecting from his disastrous handling of the pandemic.

The Biden administration has doubled down on Trump’s anti-China narrative and policy, and launched a de facto tech embargo on China, wreaking havoc in the global semiconductor industry and driving Sino-US tensions to new levels.

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But there is no sign China has become more provocative and assertive to its neighbours under Xi. There has been no provocative act by Beijing in the South China Sea for more than six years. China has cooled off military tensions with India over their border dispute. There has been a rapprochement with Vietnam, leading to a summit in Beijing last week.

China’s war games over Taiwan after US House Speaker Nancy Pelosi’s visit appeared excessive, but in my view, the sabre-rattling was a forced reaction aimed at preventing a much more devastating war down the road. There has been a strong movement in America’s political establishment favouring increasing military aid to and political exchanges with Taiwan.

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Beijing views this as America’s thinly veiled efforts to encourage Taiwan’s independence. Most American politicians don’t know or don’t care to know that Taiwan’s official breakaway from the mainland will drive the Chinese government to a corner.

Politically, no Chinese government will survive if Taiwan officially becomes independent. A military takeover would be the only option to avoid a total meltdown of public trust in the party, even if it means a wider war with the United States.

The war game over Taiwan is meant to send a message that Beijing means what it says, to dissuade American policymakers from taking the next dangerous step. In this regard, there is no difference between Xi’s war game and Jiang Zemin’s in 1995.

Chen Zhao is founding partner and chief strategist of Alpine Macro