Xi’s contradictory vision for China

China's President Xi Jinping speaks during the opening session of the 20th Chinese Communist Party's Congress at the Great Hall of the People in Beijing on October 16, 2022 (Photo: AFP)
China's President Xi Jinping speaks during the opening session of the 20th Chinese Communist Party's Congress at the Great Hall of the People in Beijing on October 16, 2022 (Photo: AFP)

Summary

Chinese leader urges workforce development and innovation, but his policies have blocked foreign students and hurt employment at home

 

Chinese leader Xi Jinping’s big moment is finally here. But as he prepares to begin a third term at the pinnacle of Chinese power, he risks squandering China’s chance to become the world’s top economy in pursuit of an ill-advised bid for self-reliance. That could be a historic mistake.

Mr. Xi can point to some major achievements. For one, China’s income per capita reached more than $12,550 in 2021—about double the level in 2012 when he took the helm, and at the very edge of high-income status according to the World Bank’s definition. Few would argue that China isn’t now a “moderately prosperous society," a longtime aspiration enshrined in decades of Communist Party documents. China’s environmental problems remain daunting, but the country has made steady progress.

Despite these accomplishments, however, the vision laid out in Mr. Xi’s address on Sunday was deeply contradictory, and most notable for what it didn’t provide: a way out of China’s zero-Covid labyrinth or strong medicine to heal the deep wounds in China’s housing and technology sectors, and in the country’s labor market.

Mr. Xi’s speech, which ran to nearly two hours, was fundamentally political, but economics was at the heart of it: High-quality economic development—code for favored sectors such as high-tech manufacturing—and greater self-reliance in science and technology were flagged as the priorities for the next five years. The speech identified “talent as our primary resource" and highlighted plans to “attract the brightest minds from all over." And it concluded with an exhortation to China’s young people to take advantage of the historic opportunities in front of them.

It is here that a certain discordance becomes difficult to ignore. China’s youth unemployment rate is currently hovering around 19%. Much of that damage is due, directly or indirectly, to Beijing’s rediscovered obsession with self-reliance—often at the cost of growth.

China’s continued isolation under “dynamic zero-Covid" policies is partly the result of an early, political decision to forgo more-effective foreign mRNA vaccines in favor of domestic manufacturers—and the political benefits reaped from continually contrasting Western democracies’ disastrous early response to Covid-19 with China’s low death rate. Many of China’s elderly, already vaccine-skeptical and confident that the virus is contained, have declined to get fully vaccinated or boosted. Based on the latest publicly available vaccination data and the early 2022 Covid wave in Hong Kong—which also had a dangerously low elderly vaccination rate—Capital Economics estimates that opening up now could result in 1.5 million deaths in the over-80 age bracket alone.

As a result, China’s services sector—the main job engine for the young and educated—continues to lag behind, with no clear endpoint or strategy in view to remedy the situation. Meanwhile, far from attracting the best talent from the world over, many foreign students spent much of the past two years locked out of China, while Beijing’s increasingly aggressive rhetoric has hammered perceptions of China abroad.

The increasing focus on self-reliance and security, rather than growth per se, is also at the heart of the recent crackdown on some of China’s previously fast-growing sectors—internet technology and education—which until recently were key sources of well-paying-jobs growth. While the rectification campaign had many drivers, Beijing has repeatedly made clear that it views internet-platform companies such as ride-hailing company Didi as a data-security risk and a driver of inequality.

Rather than endure what Mr. Xi has called a “disorderly expansion of capital" built atop technologies such as advanced semiconductors owned and created by foreigners, the Xi administration would clearly prefer to simply indigenize those technologies—even at the cost of enormous economic dislocation and waste. Mr. Xi’s speech was notable for re-emphasizing the importance of the real economy—meaning manufacturing and bricks-and-mortar services. The digital economy is mentioned mostly as an endnote to the section on industrial modernization, in the context of the need to further integrate it with the real economy and the so-called Internet of Things.

To be sure, many of the West’s current ills—high inflation and shortages of skilled and unskilled labor—can also be laid partly at the feet of questionable attempts at economic self-reliance. But China’s economic miracle over the past 30 years was built on increased integration with the outside world, and developed democracies have the advantage of already dominating most high-technology sectors, rather than trying to reinvent them from scratch.

Self-reliance is a seductive concept, particularly in an era of heightened geopolitical tensions. But for China, it looks like a shaky foundation for further rapid growth.

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