As China struggles with a slowing rate of growth and unrestrained economic forces, the Chinese Communist Party (CCP) has continued its effort to consolidate direct control over capital allocation and markets.
The tightening regulatory control is representative of the CCP’s recent drive to increase state intervention into markets. The People’s Bank of China announced on Jan. 20 that it would be lowering interest rates, ostensibly to help enervate the country’s flagging property market.
At the same time that these rate reductions will be occurring, privately owned property giant China Evergrande Group continues to default on its debt. Impending legal action by the company’s international bondholders reflect poorly on the Chinese property market, and the CCP has previously compelled state-backed firms to buy Evergrande assets. The real estate market is an enormous—and critical—segment of the country’s economy.
This comes at an inopportune time for Chinese leader Xi Jinping. Recent moves by Xi are in line with his desire to reorient China’s economy away from real estate and toward capital market development. The recent opening of the Beijing stock exchange—the third in the country—has the objective of shifting savings from property markets into more innovative sectors of the economy. This should help facilitate the economic transition away from commodity exports and large capital goods production for domestic consumption.
In line with this goal is the recent introduction of stringent investment rules for private internet-based companies. These regulations will require giants such as Tencent and Alibaba to obtain CCP approval (through the Cyberspace Administration of China) before acquiring additional capital in large investment deals.
The unrestrained accumulation of capital is a threat to the communist regime as it could precipitate outsized private influence in the markets. The type of state capitalism practiced by Beijing requires a firm check on the size and subsequent scope of such private capital.
A series of new regulations by the China Security Regulatory Commission further acts to enhance the CCP’s ability to scrutinize capital market activities and broaden its regulatory oversight overseas.
Why would the CCP simultaneously be attempting to hinder the functioning of innovative industries while buoying the housing market, when its stated transition goals are exactly the opposite?
While the long-term development objectives of China do indeed require an economic reorientation, there is only one true North Star to Chinese policy: Ensuring the CCP’s hold on power.
Xi understands the necessary requirements to facilitate China’s sustained development; however, sacrificing short-term economic growth threatens to break the Faustian bargain that the Party has implicitly made with the Chinese people. High levels of growth have ensured the regime’s survival, as it has been able to assuage demands for political freedom with a continuously increasing standard of living.
However, as the country reels from the economic impact of COVID-19, the “zero-COVID” policy has further stifled domestic consumption growth at a time when Xi is most at need of his prestigious image. Xi is expected to take his most significant step yet in securing his power by announcing at the upcoming Central Party meeting that he will be supreme leader for a third term—contrary to the established custom.
Xi will not risk unfavorable economic numbers as he attempts this historic move. That is why Chinese state media continue to tout record-level revenue and profit by state-owned enterprises, all due to Beijing’s continued economic success under the leadership of Xi. As to his opposing the accumulation of private capital in the expanding Chinese tech sector, tighter control ensures that the Party is further able to direct the expanding base of Chinese economic power. Additionally, further control over the tech companies would ensure easier CCP access to massive troves of citizens’ private data. This alone is a tempting proposition for the burgeoning totalitarian state and its social credit system.
“Socialism with Chinese characteristics” is still Marxist socialism, and that means a belief in the progression of society toward a communist end state. Chinese state capitalism employs capital in a manner that builds strategic industries deemed historically necessary by the Party. State-directed investment in capital goods and domestic sectors, such as real estate and infrastructure, have modernized China; however, as the economy reaches the limits of industrial development, growth rates will slow and capital will necessarily flow to more innovative and dynamic sectors. Chinese tech was able to grow and prosper largely independent of overt CCP harassment. That trend is changing according to the interpreted laws of Marxist scientific socialism.
Greater control over private capital and guaranteed—if superficial—levels of high growth are therefore a necessary condition for both upholding the legitimacy of Xi’s consolidation of the Party, as well as the centralized authority of the Party in Chinese life. A failure to uphold either of these tenets could precipitate the collapse of communist rule; should that happen, the revolution will have collapsed, and with it the historical mission of the CCP.
But that is exactly what will happen if the current trends continue. These dual tenets will become increasingly contradictory as China reaches what Marxists interpret as full capitalist development. This is a problem for both Xi and the CCP.
Sooner or later, growth rates will drop. When they do, Xi may be banking on not only having increased control over private capital, but increased control over the entire social existence of the Chinese citizenry as well. For Xi, artificially propping up economic numbers—even if it has accentuated negative consequences down the road—are therefore worth it.
This is especially true if he can solidify his position of total control before those consequences are felt.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.