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Former Australian prime minister Kevin Rudd (pictured) says President Xi Jinping has critically important decisions to make in addressing the economic turmoil from China’s zero-Covid policy. Photo: EPA-EFE

China’s slowing economy ‘the biggest elephant in the room’, Kevin Rudd says

  • Former Australian prime minister says China is dealing with ‘self-inflicted’ problems, including ‘poor policy choices’
  • Rudd also says Beijing appears to have pulled a U-turn in its ‘common prosperity’ drive, saying the term has all but vanished as part of an economic course correction

Reversing the trend of a slowing economy is the biggest challenge facing China’s leadership this year, especially with the Communist Party’s national congress only months away, according to former Australian prime minister Kevin Rudd.

His recent assessment was further underscored on Monday when the latest official data showed that China’s economy shrank dramatically in April.

“In 2022, the biggest elephant in the room on this score remains the [Chinese] economy,” said Rudd, who is now president and CEO of the Asia Society, during an address to the New York-based non-profit organisation on May 9.

“China’s economic headwinds are therefore manifold, complex and strong – and in large part self-inflicted, due to a number of especially poor policy choices by China’s leadership.

“The prospect of a faltering economic growth is one that should worry Xi the most.”

President Xi Jinping is widely expected to stay on for a third term, which will be decided at the 20th national congress this autumn.

The world’s second-largest economy has been facing mounting downward pressure since the second half of last year.

It has been further disrupted this year by stringent lockdowns under Beijing’s “dynamic zero-Covid policy”, which has hindered production and mobility across the country. But Beijing says its handling of the pandemic is proof of the superiority of its political system, and of how the party values life above all.

According to Rudd, the most important leadership decision Xi faces is how to balance the large-scale economic and social disruptions caused by the nation’s zero-Covid policy, which Beijing has doubled down on.

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“It appears that, despite the economic disruption and the public’s mounting impatience and frustration, Xi’s determination to stick with his so-called dynamic zero-Covid policy remains unchanged,” Rudd said.

“But as long as these lockdowns remain in place, the costs of China’s Covid policy on the Chinese economy will continue to compound over time and add to the political and economic headwinds facing Xi in the countdown to the 20th Party Congress in November.”

Meanwhile, Russia’s invasion of Ukraine has also added to the mounting challenges that the Chinese economy is facing this year, mainly through soaring global commodity prices and disrupted supply chains, Rudd noted.

Other challenges include whether Beijing can effectively boost private-sector confidence.

This has been especially dampened by last year’s regulatory lockdowns on the property and tech sectors as part of Xi’s “common prosperity” campaign, Rudd said, adding that there appears to have been a U-turn in that campaign, and that it is an obvious sign of economic policy course correction.
[‘Common prosperity’] was visible everywhere and on everyone’s lips. But this year, it has all but vanished
Kevin Rudd

“Last year, the term [‘common prosperity’] was visible everywhere and on everyone’s lips,” Rudd said, referring to Beijing’s call for citizens to share in the opportunity to be wealthy. “But this year, it has all but vanished.”

On Sunday, Qiushi, the Communist Party’s main theoretical journal, released a speech that Xi made during the annual central economic work conference in December, when Beijing sounded a policy shift to address the economic headwinds, including by fine-tuning policies to loosen a crackdown on the housing market and platform economy.

“To achieve the goal of common prosperity, we must first make the pie bigger and better through the joint efforts of the people of the whole country, and then correctly handle the relationship between growth and distribution through reasonable institutional arrangements, so as to divide the pie well,” Xi said in the speech.

“Curbing the disorderly expansion of capital does not mean totally abandoning capital, but letting capital develop in an orderly manner.”

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There have been signs suggesting that Beijing is also keen on loosening its tight grip on internet firms. A Politburo meeting in late April said that it would finish the business-recertification process for internet platforms and release “concrete measures” to support their healthy development.

But the actual impact of the correction has yet to be seen, and business confidence in China’s private sector business is far from restored, Rudd said.

“There are many mixed signals from the centre, suggesting there is a continuing internal debate on how to resolve, with finality, the central economic line.”

China has prioritised Covid controls while reiterating its confidence in achieving the challenging economic growth target of “ around 5.5 per cent” this year.

Economists, meanwhile, have called for stronger policy support to stem risks of a further economic slowdown.