Xi Jinping says China must brace for ‘dangerous storms’ while fostering new economic growth engines

In his political report to the party congress that kicked off on Sunday, President Xi Jinping warns of mounting challenges facing the nation’s economy
Message largely reiterates everything China is already doing, without signalling significant changes in economic and coronavirus policies, according to one analyst

China’s 20th Party Congress

Frank Tangin Beijing

Published: 8:35pm, 16 Oct, 2022

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President Xi Jinping says China must strive for sustainable, quality economic growth while imposing risk controls and bolstering self-reliance in critically important areas such as food security and technological innovation.

The comments, made during Xi’s keynote political report to the 20th party congress that kicked off on Sunday, came as the world’s second-largest economy faces mounting headwinds that are forcing its leaders to put more emphasis on cultivating a strong domestic market and home-grown technologies to tap into new means of growth while evenly distributing wealth.

Both high-quality growth and common prosperity were prominent in Xi’s narrative of Chinese-style modernisation that dominated his political report to the party congress, and the tone he has set will serve to reshape the economic landscape of not only China, but the entire world.

“Our country has entered a period of development in which strategic opportunities, risks, and challenges are concurrent, and uncertainties and unforeseen factors are rising,” the president said, warning that “ black swan” and “ grey rhino” events could happen any time.

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“We must, therefore, be more mindful of potential dangers, be prepared for the worst-case scenarios, and be ready to withstand high winds, choppy waters and even dangerous storms,” Xi told about 2,300 delegates at the Great Hall of the People who are going to select a new team of Chinese leaders over the coming days.

Major objectives for the next five years, as outlined in the report, include achieving breakthroughs in high-quality development; realising greater self-reliance and strength in science and technology; and fostering a higher-standard open economy.

The goals include building up supply-chain resilience, raising productivity, ensuring that enough food is available to feed the world’s most populous nation, expanding domestic demand, and narrowing the wealth gap between various regions, including rural and urban areas.

Beijing unveiled its dual-circulation economic strategy in 2020. The plan placed greater focus on the domestic market – or internal circulation – and marked China’s strategic approach to adapting to an increasingly unstable and hostile outside world. This came amid a trade war and technological decoupling with the United States.

The most eye-catching part is the Chinese leader’s explicit worries

Ding Shuang, Standard Chartered Bank

The US’ containment efforts have since become even more evident, with the administration of President Joe Biden unveiling its long-awaited national security strategy last week, along with moves to hinder China’s hi-tech development.

Xi, who is also general secretary of the Communist Party, said regional conflicts, the coronavirus pandemic and a sluggish global economic recovery are among the challenges that China is facing.

Meanwhile, the nation is looking to cultivate a green and low-carbon economy, necessitating changes to its industrial structure, energy mix and transport methods.

“The most eye-catching part is the Chinese leader’s explicit worries, and it portends a harsher external environment over the next five years,” said Ding Shuang, chief Greater China economist at Standard Chartered Bank. “China’s potential growth may need to be reassessed … and it is hard to set specific growth targets under such uncertainties.”

China’s gross domestic product (GDP) more than doubled in the past decade to 114 trillion yuan (US$15.85 trillion) last year, with its share of global GDP rising by 7.2 percentage points to 18.5 per cent.

Economists have widely expected that an annualised growth rate of above 4.7 per cent is needed to achieve China’s target of doubling the size of its economy by 2035, relative to 2020 levels.

However, the nation’s economic growth has slowed significantly in recent years, averaging 5.1 per cent for 2020-21 and reaching only 2.5 per cent in the first half of this year, largely as a result of deteriorating relations with the Western countries and pandemic-related disruptions.

Beijing’s heavy-handed zero-Covid strategy, often associated with lockdowns and mobility restrictions, has sparked outcries from foreign investors and small businesses across the country. Meanwhile, its push for common prosperity, along with its abrupt crackdown on major Chinese internet companies last year, have led to concerns among entrepreneurs that the role of private firms in the economy is being weakened.

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Financial institutions have put China’s estimated GDP growth at around 3 per cent for this year, sharply down from the government’s estimate in March of “ around 5.5 per cent”.

Chinese officials earlier denied that the common-prosperity push would result in Robin Hood-style redistribution. And Xi earlier this year called for the use of a “red and green” traffic-light system to “regulate and guide the healthy development of all types of capital”, including private.

On Sunday, Xi also said China should foster new economic growth engines in sectors such as information technology, artificial intelligence, biotechnology, new energy, new materials, high-end equipment and environmental protection.

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Xi also said that China’s income-distribution reform will be based on the principle of encouraging people to become rich through hard work, and that it will utilise tax tools, a social security net and transfer payments. Meanwhile, the government intends to promote fair opportunities and eliminate workplace discrimination.

“[We’ll] increase the income of low-income people, expand the middle-income group, and standardise income distribution and the wealth-accumulation mechanism,” he added.

Scott Kennedy, a senior fellow with the Washington-based Centre for Strategic and International Studies think tank, who is currently visiting China, said that Xi’s speech largely reiterated everything China is currently doing.

“If you think there need to be significant changes in policies toward Covid, the economy, the relations with the United States and the West – you are probably disappointed,” he said.