Rarely if ever in recent history has Western press coverage, analysis of China been as far off the mark as in the case of the October 2022 20th Congress of the Chinese Communist Party and its consequences. That’s the more important and dangerous, of course, as the Congress ushered in the third term of President Xi Jinping as General Secretary of the Communist Party and chairman of the Central Military Commission, and thus paramount leader of China. Misreading and misjudging the now undisputed top Chinese policymaker’s foreign and economic policy precepts and directions could directly impact global peace and prosperity.
That – contrary to the biased and ill-informed “reporting” of the Western press – General Secretary Xi Jinping’s third term will not be characterized by further tightening of centralized controls of the economy and suppression of private-sector initiative by a tight-knit group of handpicked Xi loyalists, but rather by the very opposite, could and should have become clear to any unblinkered observer the moment then-Shanghai party chief Li Qiang walked out in the number two position behind Xi at the introduction of the new Politburo Standing Committee upon the conclusion of the party congress. The number two position makes Li the new premier-designate and leader of the new government (State Council) to be appointed by the early March 14th National People’s Congress.
Who is Li Qiang? A Xi loyalist, says the Western commentariat, satisfied with a dismissive term and too lazy to inquire further. “Promotion of Shanghai chief puts loyalty over everything,” is how Bloomberg News put it.
Yes, Li Qiang is a Xi loyalist. He started his political career as party secretary of Wenzhou, a proud bastion of free enterprise in Zhejiang province and one of China’s highest-income cities. It was the first major city to initiate and embrace economic reform in 1978, was the first to set up private enterprises and hasn’t stopped since. Per capita income over the period has grown 500-fold.
Following the stint in Wenzhou, Li obtained an MBA degree from Hong Kong Polytechnic University, one of Asia’s best institutes of technology, then worked under Xi Jinping in Zhejiang, became governor of the province in 2013 and in 2017 advanced to party secretary of Shanghai.
During his five years at the helm in Shanghai, Li – a good friend of Alibaba’s Jack Ma - made development of high-tech industries and financial and technological innovation in the Shanghai Special Economic Zone (SEZ) his hallmark achievements. He opened the new STAR market for technology companies of the Shanghai Stock Exchange and helped Elon Musk build the Tesla Gigafactory in Shanghai in the record time of ten months during his Shanghai tenure. Compare: Construction of Giga Berlin-Brandenburg took over two years.
And here now it becomes interesting: Li Qiang, in March/April of 2022 initially opposed the drastic Shanghai lockdown and failed to deal effectively with the large-scale Covid Omicron outbreak. Politburo “Iron Lady” Sun Chunlan was sent in to impose harsh lockdown measures.
According to Bloomberg’ leading the Western choir, “When Li’s initial lighter-touch approach to China’s strict Covid Zero strategy was breached by the more transmissible omicron variant earlier this year, [his] ascent was cast into doubt.”
Alas, Xi nonetheless wanted Li’s experience and reform drive to run the Chinese economy. Sun, meanwhile, has been retired.
Which raises the obvious question: Why would Xi pick a loyalist of Li’s pedigree to become his prime minister in charge of the economy if he wanted to pursue policies of the opposite direction? The neo-Maoist, autarkist command economy policies ascribed to him?
It’s a self-contradictory “analysis” only the hapless inhabitants of the Washington-attuned echo chambers could produce. The simple answer is that the appointment of Li Qiang, the loyalist, should be read as a clear indication of the economic policy direction Xi will pursue in his third term.
Over the past ten years, as Premier Li Keqiang ruled over the “North Palace” (the State Council) and President Xi over the “South Palace” (the CPC Secretariat), there was no outright rivalry or positional jockeying between Li and Xi. But there was friction, there were disagreements over policy priorities, and – most relevantly – impatient complaints from the “South” over the lack of expeditious execution of policy.
Now this friction will disappear. The decision on the key personnel issue for the new State Council as well as the overall policy direction of the future State Council were set just prior to the 20th Congress.
According to our sources close to the incoming State Council, the sudden pivot from Zero Covid to reopening was the key policy decision and entirely Xi Jinping’s doing. Most of the State Council, prominently including retiring Premier Li Keqiang, defended the lockdowns and argued that China’s economy would perform adequately despite them. However, shortly before the 20th Congress met, Xi concluded that Li Keqiang and others had drastically underestimated the negative economic impact of the lockdowns and forced through the pivot to reopening. Messaging has been choppy because the State Council members who were brusquely overruled remain in office along with their teams until the formal handover in March. But the deed is done and the new policies are set.
Western media now decry as vehemently the rapid abandonment of Zero Covid as they previously decried it’s harsh implementation. There are and will continue to be casualties. But China made the hard and difficult decisions that economic growth must resume. And at the bottom line, even if close to a million as some experts suggest might die, on a per capita basis that would still be less than 25% of deaths per capita in the United States and other Western nations.
Li Qiang will be at the economic wheel during Xi’s third term and can be expected to perform with the same degree of competence as his key reformist predecessor Zhu Rongji during the critical 1998 -n 2003 period. As premier, Li will have a competent team of similar pedigree as team members. Newly appointed politburo members Zhang Guoqing, Liu Guozhong, Chen Jining and Yin Li are tipped to serve on Li’s new State Council or in prominent local positions.
Zhang will likely oversee industrial policy. Currently party secretary of Liaoning, he previously served as mayor of megacities Chongqing and Tianjin. He holds a doctorate in economics from Tsinghua University and attended an executive management course at Harvard Business School.
Liu is the party secretary of Shaanxi Province, birthplace of Xi’s father. He previously served as deputy party secretary of Sichuan. Liu holds a graduate degree from the Harbin Institute of Technology and is designated to take charge of agriculture and food production.
Yin Li, the former party secretary of Fujian Province, is a health professional and has held leading positions in the China Food and Drug Administration and at the WHO. Between 2002 and 2003 Yin completed a study term as a visiting scholar at the Harvard T H Chan School of Public Health. He has served as vice minister of health and was just appointed party secretary of Beijing.
Chen Jining, former acting mayor of Beijing after serving as president of Tsinghua University and environment minister, is the new party boss of Shanghai. In 2018, he announced plans to improve Beijing’s air quality and succeeded as natural gas replaced coal in home heating and industrial use.
Another critical appointments expected in March is the replacements for vice-premier and economic czar Liu He (age 70) who will retire.
Liu He will most likely hand his mandate over to He Lifeng, the current head of the National Development and Reform Commission (since 2017) and also newly appointed politburo member. He Lifeng has collaborated closely with Liu in running economic and financial policies.
He studied finance at the Xiamen University School of Economics and obtained a PhD degree. He began his political career in the Xiamen municipal government and was instrumental in establishing the Xiamen special economic zone.
All these “Xi loyalists”, presumably a pejorative term, are highly qualified professionals, not bullet head neo-Maoists ideologues as the term Xi loyalist is meant to imply.
And we should not fail to mention China’s new foreign minister Qin Gang, the outgoing ambassador to the United States. His appointment signals the strong commitment to improved US- China relations.
On the basis of the abandonment of the economically destructive zero Covid policies, several global investment houses have recently upgraded their 2023 growth forecasts for China from the 4% range to well above 5%. We believe that’s much too conservative. An “explosive growth spurt” (in the words of a most experienced Hong Kong-based China investor) in the 7-8% range is highly likely as the current Covid wave recedes.
But the basic premise for explosive growth in 2023, is the impending appointment of an economic growth cabinet under the leadership of Li Qiang.
Since Li’s designation to take over as premier, all relevant Politburo and government agencies have uniquely pointed in the direction of a strongly growth-oriented, high technology-led, consumption-driven and monetary policy-supported economy.
Bloomberg quotes former Bocom International head of research Hong Hao, an outspoken China bear, as noting that there have been “policy pivots in just about every single sector.”
As for the multiple faster-growth policy pivots, we shall only list the most relevant and impactful ones here:
Guo Shuqing, Communist Party chief at the People’s Bank of China (PBoC), told Xinhua news agency on January 7 that the crackdown on fintech operations and platforms of the 14 main internet companies is “basically” over. “Next, we’ll promote the healthy development of internet platforms… We’ll encourage them to come out strong in leading economic growth, creating more jobs, and competing globally,” Guo said.
The PBoC has said that it will do whatever it takes (the famous Draghi vow) to lend monetary policy support to healing the property market and the overall growth of consumption and investment. After peaking at 2.8% YoY in September 2022, China’s inflation rate dropped to 1.6% in November – meaning deflation is now more of a threat. There’s ample room for monetary easing from the current prime loan rate of 3.65%.
Liu He, the retiring economic czar, has been put in charge of fixing the property market. He, more than anyone, has the credentials and political support to do so.
More affordable energy is needed to power the economic recovery. China has filled its reserves with cheap Russian oil. It has now lifted the two-year ban on the import of Australian coal as well.
January 8 saw the reopening of the Hong Kong-mainland China border. Aside from the pure joy of family reunions after three years, cross-border flows of people and goods are critical to the recovery of the Hong Kong and Guangdong province economies, China’s most productive along with Shanghai.
Lastly, the Central Economic Work Conference of December 2022, which set out economic policy for 2023, not only called for monetary policy support for growth acceleration. It also issued an explicit call for the rapid development of the digital economy and support for the role of online platform enterprises in economic growth. It further pointed to Chinese households accumulated over RMB6 trillion in excess savings in the 2020 – 2022 period, which is expected to give a strong boost to consumption.
This was all spelled out explicitly, unambiguously and without room for misinterpretation by China’s economic czar Liu He, at a special session of the World Economic Forum in Davos on January 17.
“Some people say China will go for the planned economy,” Liu said. “That’s by no means possible.”
Entrepreneurship is a key factor for wealth creation in society. Entrepreneurs, both Chinese and foreign, will play an important role as the engine driving China’s pursuit of common prosperity, the vice-premier explained: “Common prosperity is by no means a synonym for egalitarianism or welfarism.”
China will deepen restructuring of state-owned enterprises, support the private sector and promote fair competition, antitrust and entrepreneurship.
Opening-up, as a basic state policy, is a catalyst of reform and development and a key driver of economic progress in China, he said. “China’s door to the outside will only open wider.”
Uwe v. Parpart is editor of the online daily Asia Times - with offices in the capitals of Northeast Asia, China and Southeast Asia and in New York. Prior to journalism, he was an Asia strategist at Bank of America in Hong Kong.
David Goldman is economics editor of Asia Times and was previously head of fixed income research at Credit Suisse and Bank of America in New York for many years.
