As of: March 7, 2024, 8:15 a.m
By: Christiane Kühl
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China's consumption is sluggish and the real estate sector has collapsed.
Nevertheless, Xi Jinping stoically sticks to restructuring the economy according to his own ideas.
And they do not provide for any economic aid.
The meetings of the provincial delegations at the current National People's Congress in Beijing only receive greater attention when state and party leader Xi Jinping himself appears there.
Like this time with the delegation from the booming coastal province of Jiangsu: There, Xi warned the provincial cadres against uncontrolled expansion of individual economic sectors.
The promotion of “new productive forces” desired by Xi himself is unlikely to lead to economic bubbles locally: “We must resist irrational, blind investments.”
Such speeches by Xi on the sidelines of the People's Congress usually give an idea of future key topics.
In China, the Prime Minister is traditionally responsible for the economy;
Premier Li Qiang gave the opening speech to the People's Congress on Tuesday and set a growth target of "around five percent".
But Xi Jinping has long been the real pacesetter for the economy.
To this end, the powerful party leader has gradually disempowered institutionalized structures and meetings that previously anchored the guardrails of economic planning.
Instead, he governs the economy through a network of Communist Party commissions.
For Xi Jinping, national security takes precedence - even before economic development
Premier Li Qiang occasionally hints that he is relying on the private business community to drive recovery in consumption, investment and the stock market in the current difficult economic situation.
And in February, Li told a plenary session of the State Council, China's cabinet, that Beijing should "take pragmatic and effective measures to enhance the confidence of the entire society."
But he admitted at the same meeting that his job was only to “implement” the party’s policies.
The party is Xi, and for him something completely different is in the foreground: “National security” is more important to the head of state than the economy.
And to develop a resilient economy, Xi envisions an industrial policy driven and controlled by the party state, for example to promote technology production - and not market-oriented reforms.
To this end, in September 2023, Xi breathed new life into the socialist concept of the “new productive forces”.
These forces, such as the technology sector, are intended to increase the productivity of the overall economy.
“Xi seems to believe that the current problems are the short-term pain necessary for the long-term gains of a more secure and independent economy,” write Neil Thomas and Jing Qian of the Asia Society Policy Institute.
The pain is a stumbling real estate sector, high youth unemployment, a crashing stock market and generally weak consumption.
Due to the difficult economic situation, people prefer to keep their money together.
But Xi appears unimpressed and insists on his position, according to the two experts.
Xi Jinping at the National People's Congress: The party leader alone directs China's economic policy today.
© PEDRO PARDO/AFP
Xi is against economic stimulus programs
This includes the fact that, despite the difficult situation, Xi does not want to put together a larger package to stimulate the economy or even to boost consumption - although this would directly ensure more growth.
There are also financial reasons for this.
Because that would require China to take on more debt.
However, many municipalities are already groaning under the debts from previous economic stimulus injections.
Loan-financed growth programs are therefore difficult to implement today and are no longer desirable.
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But without more debt there will be no more growth, says US economist Michael Pettis: “There is now an overwhelming consensus among economic advisors that tax revenue should be distributed directly to households,” says the China expert from the Carnegie Endowment think tank .
There are plenty of ideas for this, such as purchasing subsidies for cars and household electronics.
Pettis believes such things are certainly possible in the second or third quarter.
Supply policy instead of social equalization
But helping the disadvantaged directly is reluctant for Xi, who is said to have a personal aversion to the European-style welfare state because he believes it makes people lazy.
Alternatively, an increase in the state minimum wage, which varies regionally in China, could be used to increase purchasing power and consumption.
But that harms the competitiveness of the export-oriented country.
All of this would be a classic demand-side policy.
Xi, however, is relying on supply-side politics, observes Jacob Gunter, economic expert from the China research institute Merics.
Although many people currently want more help from the state, the state money is currently flowing less to households or to infrastructure projects that generate jobs - but to the supply side of the economy and thus "to the modernization and expansion of industry".
Keyword “new productive forces”: In his recent speeches, according to Thomas and Qian, Xi included biotechnology, commercial aviation, the digital economy, drones, green technology, quantum computers and venture capital.
In his speech, Premier Li mentioned some sectors that are likely to benefit from a support policy: electromobility, energy and environmental technology, digitalization, AI and semiconductors.
Meanwhile, Xi's warning about excess growth delivered to the Jiangsu delegation has a real background.
There is such huge overcapacity in the future photovoltaics sector that prices have crashed and manufacturers are producing well below their potential.
The consequences were felt in 2023 through a flood of exports of surplus solar modules to Europe.