The risky logic behind China’s economic strategy



In a marked shift from its once-sacrosanct policy of economic reform and market opening, China these days seems to be increasingly tightening the state’s hand over business. Its government-controlled press is warning multinationals like Nike and United Airlines to keep silent over the situations in Xinjiang and the Taiwan Strait—or risk being pushed out of the market. Officials are pressuring the country’s successful private companies to allow Chinese Communist Party (CCP) committees into their management and forcing them to bend to Beijing’s diktats. As the regime comes to see these companies as a rising threat, it’s becoming clear that we’re entering a new era of Chinese state capitalism.To get more China business news, you can visit shine news official website.

After Chinese regulators last year suddenly halted what would have been the world’s largest stock offering, Ant Group’s $37 billion IPO in Shanghai and Hong Kong, Jack Ma, the founder of parent company Alibaba and China’s best-known entrepreneur, vanished from the public eye and may be under orders to not leave the country. On April 9, Alibaba was slapped with a $2.8 billion anti-monopoly fine, the largest ever levied in the country, and Ma will likely be forced to sell his stake in Ant, possibly to a state-owned company.

All this is happening even as China’s economy slows in the face of serious headwinds including an aging population and falling productivity—a time when most economists would argue China needs a vibrant, less-fettered business sector. And yet it appears that China’s economy is being forced to take a backseat to politics, as exemplified by the Mao Zedong-era slogan “politics in command,” or zhengzhi guashuai.

From the perspective of the country’s leaders, however, all these moves are rational steps towards fulfilling their most important ambition: building China into a globally powerful and prosperous nation led by a Communist Party that brooks no opposition to its rule.

To understand this seeming contradiction, one must recognize how dramatically China’s economic strategy has changed in recent years. Setting aside its market liberalization when China entered the World Trade Organization in 2001, Beijing has moved decisively towards a more state interventionist, internally focused, and self-reliant economy—what its leaders call the “dual circulation” strategy. And while some date the shift to as far back as 2006, when officials touted the adoption of “indigenous innovation” policies to build up domestic industries, the implementation of the strategy really took off after Xi Jinping became the country’s top leader in 2012.

What we are seeing today is a “comprehensive, top-down economic strategy that aims to reshape the country’s economy and its economic interactions with the rest of the world,” said University of Toronto economist Loren Brandt in testimony to the US-China Economic and Security Review Commission on April 15. “This course represents a departure from the main elements of a development path that evolved over the course of the first three decades of reform from 1978-2007,” which included “a combination of bottom-up, decentralizing domestic economic reform and external opening.”

Former US President Donald Trump’s trade war plus ongoing US efforts to cripple its most successful technology companies like Huawei no doubt helped convince China’s leaders of the risks associated with being dependent on the outside world. But Beijing’s ambitions go further. In an April 2020 speech, Xi called for an all-out effort to develop an indigenous supply chain that the rest of the world relies on, thus creating leverage over other countries. “We must sustain and enhance our superiority across the entire production chain in sectors such as high-speed rail, electric-power equipment, new energy, and communications equipment, and improve industrial quality,” Xi told a party commission on finance and the economy that he heads. “And we must tighten international production chains’ dependence on China, forming powerful countermeasures and deterrent capabilities based on artificially cutting off supply to foreigners.”

To have any chance of making this shift, Beijing needs compliant companies that are vulnerable to the party’s whims and susceptible to its demands. Foreign companies, for example, should feel that sharing their technology with local partners is the natural price of access to the Chinese market. And for Chinese leaders to continue to successfully push the official narrative of a strong China led by an entrenched and unchallengeable CCP, they cannot tolerate anyone, including international business representatives, criticizing the country’s human-rights violations or its assertive push beyond its borders.

“Increasingly [the CCP is] saying you have to choose,” former US deputy national security advisor Matt Pottinger explained in a speech at the Mansfield Center in Montana in March. “You either have to live by our rules and norms, which means shut your mouths about things like genocide in Xinjiang, or the threat of war with Taiwan, or the undermining of the rule of law and democracy in Hong Kong … or you can forget about having access to the Chinese market.”