Crouching dragon

Xi Jinping's absolute power will test the world's second-largest economy

The expected confirmation of Xi Jinping for a third term as Chinese Communist Party (CCP) general secretary and the appointment of yes-men in the Standing Committee of the Politburo may offer China watchers and investors some visibility on the immediate political and economic trajectory of the emerging superpower. But none of these developments can be considered benign. Already “president for life”, Mr Xi’s unchallenged stranglehold on the party, the key institution through which China’s leaders exercise control on the country, points to a doubling down on irredentism and state control of the economy. Both trends were evident in Mr Xi’s inaugural speech a week ago, pointing to multiple challenges to the global political economy at a time when Chinese economic growth is slowing. To be sure, third-quarter gross domestic product growth, the announcement of which was delayed to avoid a clash with key party congress events, printed at 3.9 per cent, beating analysts’ expectation of 3.2-3.3 per cent. But even this performance is unlikely to help the country meet state planners’ target of 5.5 per cent.

The International Monetary Fund has forecast 3.2 per cent for this calendar year, which will be the slowest growth since the 1980s (excluding the pandemic year of 2020). The key cause of this slowdown has been Mr Xi’s implacable “zero-Covid” strategy, which has resulted in prolonged draconian lockdowns and a reduced pace of economic activity. This has been worsened by the festering problem of a real estate and banking crisis, for which Mr Xi is yet to offer lasting solutions. Together with the crackdown on fledgling private entrepreneurship as seen in the public humiliation of Jack Ma and Pony Ma, two global faces of the emerging Chinese entrepreneurship, these trends add a touch of uncertainty to China’s status as a factory to the world. That trend was contingent on China’s unique combination of state-directed private enterprise, which has hardened under Mr Xi to untrammelled state domination of the economy. Though this change, coupled with rising labour costs, has undoubtedly opened opportunities to countries such as India, Vietnam, and Indonesia as alternative global investment destinations, none of these countries has demonstrated the ability to replicate the enormous economies of scale that China offered for the past three decades. The country’s enormous technological strides have added to its relatively unassailable position as an emerging economic powerhouse.

This fact, when combined with Mr Xi’s undisguised territorial ambitions in the region, not least on Taiwan, has fateful consequences for the global economy. Taiwan is the world’s largest producer of semiconductors, a position that could be threatened by less equivocal Chinese aggression in the region. This much was clear from Mr Xi’s inaugural speech and the consolidation of his power heightens the threat perceptions for the world. It is possible that the US and its allies — including India — will be preparing for such maximalist exigencies. The fact is that dictatorships tend to be unpredictable — as Vladimir Putin has demonstrated in Russia — more so when economic power starts stalling. Mr Xi’s repudiation of the traditional post-Mao tradition of collective, low-key and gradualist leadership comes at a time when this relatively predictable fast-growing economic giant is transitioning to a slowing, ultra-nationalist emerging superpower. In these circumstances, history usually points to outcomes that demand extreme vigilance from the world’s democracies.