Xi Cements Role as ‘Chief Economist,’ Shrinking Space for Debate
- Top leader shows no sign of heeding calls for big stimulus
- Experts report less frequent, more rigid talks with officials
Drinking a glass of wine over lunch, Zhou Xiaochuan, China’s central bank governor at the time, talked freely as he was peppered with questions from economists at Western banks.
The laid-back atmosphere at the April 2015 meeting typified Zhou, a fluent English speaker who served as central bank governor for more than 15 years. He held exchanges every few quarters with analysts that offered China’s leadership the chance to hear different perspectives, according to a person familiar with the situation who — along with others Bloomberg spoke to — asked not to be identified discussing private meetings.
During President Xi Jinping’s first decade in power, policymakers sat down regularly with foreign economists and other analysts, in exchanges that were sometimes lively, according to people familiar with such meetings. Now, foreign experts only get irregular meetings with officials, which lack the meaningful debate of previous years, according to several people who have attended such talks.
Chinese economists say they can’t tell whether their proposals are being heeded, with officials mostly nodding and taking notes in meetings, the people added. Comments from prominent analysts are deemed noise disrupting from Xi’s top-down messaging, said one person familiar with the leadership’s thinking.
“Xi Jinping is now the chief economist of China,” said Stephen Roach, former Morgan Stanley Asia chairman, who was invited to attend an annual summit with senior officials and global executives in Beijing this year.
China’s most-powerful leader since Mao Zedong has been clear about his plan for advanced manufacturing to propel his nation’s $17 trillion economy, as he steers the slumping property market to firmer ground. Xi reaffirmed that path at a once-a-term meeting on long-term strategy last week, rebuffing economist calls for policymakers to focus more on boosting consumer sentiment to rebalance growth.
That reflects a mismatch in how Xi and market economists view China’s situation: Beijing is betting on innovations such as electric cars and solar panels to boost growth and spending. Economists and foreign officials including US Treasury Chief Janet Yellen argue Chinese consumers won’t reach deeper into their wallets without a better social security net.
Xi has refused to stimulate consumption with direct handouts, and his government has remained adamant about avoiding the big stimulus that fueled previous boom-and-bust cycles. The top leader has also made national security a priority, devoting $47.5 billion to a chip fund charged with ensuring China’s national champions can build cutting-edge semiconductors after the US moved to cut off supply.
Xi believes it was policies pushed for by pro-market voices that caused many of the problems he inherited when he came to power in 2012, such as decades of debt-fueled growth, said Neil Thomas, a fellow for Chinese politics at the Asia Society Policy Institute’s Center for China Analysis.
“The danger for investors is China’s leaders become increasingly out of touch with their concerns and implement policies that do little to improve economic conditions,” Thomas added. “Xi’s supreme leadership makes it risky for his advisors to share their own thoughts with analysts and scholars.”
Consumer Spending Underperforms Despite Fiscal Aid
Monthly factory output and retail sales (December 2019 = 100)
Source: Bloomberg Economics based on National Bureau of Statistics
When Xi consolidated power with a precedent-defying third term in 2022, he installed a coterie of loyalists to top policymaking positions cementing his control over the world’s No. 2 economy.
They replaced a generation of trained economists including former Premier Li Keqiang, who came from a rival center of power to Xi and was associated with a more market-friendly vision. During the pandemic, for example, he advocated for balancing lockdowns with keeping business humming.
Xi also retired Harvard-educated Liu He, who has built trust with advisors throughout his career, especially during his years with government advisory bodies, according to a person familiar. As vice premier in charge of economic and financial affairs, Liu’s policies earned him a reputation as the architect of his nation’s engagement with capitalist reforms.
The influence of Liu’s replacement, He Lifeng, is less clearly defined. Best known for working alongside Xi for decades in coastal provinces, his public speeches and scant writings on economic theory provide little insight into his policy beliefs. Even those in the system don’t know who He is influenced by or what guides his economic thinking, said one economist at a research firm.
That decrease in dialogue with foreign experts is part of a broader pattern of reduced openness as tensions with the US rise. China is increasingly hiding data deemed unflattering to the economy, last year holding back the youth jobless rate for months after a spike. Authorities have also pressed analysts to avoid writing negative commentary and warned against using certain terms, including deflation.
For US officials, He’s close ties to China’s most-important man means Washington is at least confident it knows where the government in Beijing stands after speaking with the vice premier, according to a person familiar with such matters. Foreign executives see him as quick to action minor requests, said Victor Shih, who heads the 21st Century China Center think tank. But ultimately, “he’s someone who makes the vision of Xi Jinping into reality.”
China’s No. 2 official, who traditionally oversees the economy, is also shifting gear. While Premier Li Qiang has maintained regular seminars with economists, those meetings have omitted the presence of experts affiliated with a foreign institution since he took office last year.
In March, Li ended a 30-year tradition for the premier to hold an annual press conference. The removal of a rare opportunity to ask a top official policy questions sent a clear message: All eyes should be on Xi.
Days later, state media published a sweeping 6,000-word profile trumpeting the Chinese leader as a pro-market reformer on par with Deng Xiaoping, who opened China’s economy to the world more than four decades ago. What role the top leader had in the destruction of the $100 billion tutoring sector or abrupt suspension of a would-be record initial public offering were not mentioned.
If any official was tempted to question Xi, the consequences are even greater in his third term. At the last leadership reshuffle, the party enshrined a new slogan — the “Two Upholds” — into its constitution, making any deviation from the big boss cause for discipline. For reform-minded officials, there’s little incentive to leave a paper trail of their thinking.
“Investors and analysts now have nothing to go on beyond Xi Jinping speeches,” said Wen-Ti Sung, a political scientist with the Australian National University’s Taiwan Studies Program. “But as the top leader rather than first-line manager, Xi will be speaking from a 30,000 feet perspective, rather than espousing policy specifics.”
— With assistance from John Liu, Jenni Marsh, Rebecca Choong Wilkins, Christopher Condon, Tania Chen, and Katia Dmitrieva
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