As the country’s economy faces a downturn, the president’s assignment is simple: maintain the party’s iron control.
As the country’s economy faces a downturn, the president’s assignment is simple: maintain the party’s iron control.
I t is a truism that authoritarian and totalitarian leaders often arise at times of political and economic crises. The 20th century had many examples, including those totalitarian leaders whose defeat at the hands of democratic capitalism defined the century.
In our time, an emerging orthodoxy about China’s Xi Jinping stands this lesson on its head. As the 20th Party Congress of the China Communist Party approaches — at which Xi is expected to extend his power indefinitely — there are daily stories about how his strong-arm tactics have provoked a backlash: The economy is slowing, and China’s growth and prosperity are being derailed. According to this analysis, Chinese society’s adherence to the ideological dogmatism of “Xi Jinping Thought,” the disastrous zero-Covid policy, the weaponization of corruption charges to purge “moderates” who pose a threat to him, and other heavy-handedness has hardened the party apparatus. It is undoing the economic progress wrought by his predecessors and chasing off decades of global investment, which now is fleeing the country. Recently, social-media stories were trending about a possible “coup” against Xi, ostensibly at the hands of enlightened, market-driven moderates who are alarmed about the direction Xi is taking the country.
While political leaders typically enjoy seeing themselves trending, it’s not good when the word “coup” is associated with them. And we should spare any sympathy for President Xi. But this emerging conventional wisdom is nonsensical and probably wrong, like the prior conventional wisdom that China and its leaders had discovered a “third way” — neither capitalist nor communist — and that economic growth would continue forever. Many believed that China had tools that democracies lacked to control the economy and that growth was assured.
That has not been borne out. Xi may be in office and about to get an extension precisely because of the understanding of the party leadership — even if Wall Street analysts and corporate chieftains seeing endless market opportunities missed it entirely — that China’s “economic miracle” and rapid growth was unstable, unbalanced, uncoordinated, and unsustainable. Don’t take my word for it: These four “un’s” is how premier Wen Jiabao described the PRC — in 2008, well before Xi took office.
The PRC’s challenges are the natural result of the inherent inconsistencies and doomed-to-failure characteristics of centrally planned economies with authoritarian leadership. That so many people suspended skepticism for so long, wanting to believe that the CCP had created something different, reflects a seven-decade bout of global self-delusion from which the world appears to be rousing itself. Targets, quotas, mandates, and a philosophy of punitive penalty for failure — the hallmarks of totalitarian central planning — will never match the economic outcomes of vibrant democracies and capitalism, which accept failure as a catalyst for learning, progress, and growth. Xi’s CCP today is simply harvesting the bitter fruits of a system that has never succeeded anywhere.
The inevitable path toward the crises the country faces today has been knowable since the inception of the CCP, even if the era of reforms initiated by Deng Xiaoping masked the underlying incoherence. The challenges Xi faces today have their roots in the earliest days of the communist regime.
Consider just one matter: the forced collectivization of agriculture in the second five-year plan (the PRC is on its 14th such plan now) and the Great Leap Forward. Begun in the late 1950s, this policy resulted in the greatest famine in the history of the world. As many as 50 million people died, not including the landlords and dissidents who were killed and the countless suicides. The extent of this central-planning folly included such gems as the “four pests” campaign, in which the government directed the population to get rid of flies, mosquitoes, rats, and sparrows. The program was “successful” enough to decrease rice yields because of the lack of sparrows to eat the locusts and other insects that fed on the grain. Refusing to admit failure, Mao replaced sparrows with bed bugs to keep the four-pest campaign going. Of course, millions perished anyway.
The Great Leap Forward institutionalized in China a pathology of rural poverty that continues. Even now, hundreds of millions of China’s rural poor subsist on a few dollars a day. The hukou system of household registration keeps the rural population stagnant and unable to permanently migrate elsewhere. Migrant workers from the country who come to the cities are eligible for services only in their household of record. According to Scott Rozelle in his book Invisible China (2020), 70 percent of China’s labor force lacks a high-school education. In rural areas, that figure is much higher.
Which brings us to the great reformer himself. Deng Xiaoping stands as the West’s favorite communist leader, alongside Mikhail Gorbachev. Deng had suffered under Mao’s Cultural Revolution, having been attacked as a capitalist. It was Deng with whom Jimmy Carter negotiated U.S. recognition of the PRC and the downgrade of U.S. relations with Taiwan. Deng mandated the market reforms that stimulated the growth that some now accuse Xi of stifling.
The Deng-era CCP did mandate reforms, but it put China on the path of being a primarily investment-driven economy. With mandates, quotas, and forced market manipulation came unprecedented structural official corruption, and inflated government stimulus to juice growth. Today’s wasted infrastructure, half-empty trains to nowhere, environmentally destructive hydroelectric power projects and dams, and ghost cities with their associated real-estate collapse trace back to that earlier era.
Whatever progress might have been made through market mandates, though, the benefits fall well short of the immense damage done by Deng’s other legacy diktat: the one-child policy that he initiated shortly after taking power. From that policy stem the profound demographic challenges China faces today, notably the ageing and inevitable shrinkage of China’s population. By some estimates, China’s population, which today is 1.4 billion, could decline to 700 million by the end of this century. Worse, that smaller population would have a higher percentage of less educated, poorer rural dwellers, as the urban educated found fewer and fewer opportunities and had fewer children. Already, urban unemployment is at 20 percent and growing.
Heart-wrenching stories of forced abortions and sterilizations on a horrific scale are bad enough. But what we capitalists call the law of unintended consequences is another matter: China has now lost generations of its most productive working-age population. That caused insurmountable socioeconomic strains, as a single child must care for two parents and four grandparents in a country without a meaningful social safety net.
Deng’s one-child policy created other pressures on the current economy and society. Xi is attempting (and failing) to control them. Consider the current, collapsing real-estate market. This sector accounts for about 30 percent of China’s GDP. The speculative bubble that is bursting was inflated in part by single sons, who significantly outnumber eligible women because the one-child policy entailed sex-selected abortions. Those men seek apartments as a marriage offering. Online citizen journalists are reporting about betrothments falling apart as unfinished apartments pile up and the hope of marriage is dashed. Government central planners, of course, have played their parts by inflating the economy with more and more infrastructure and real-estate spending, never mind that units being built are never completed and occupied, just flipped by the urban educated middle class seeking to create wealth and savings. The music is winding down; what will happen is unknown. To a significant degree, Xi has Deng to thank for that.
The corruption that bloomed in the Deng era was such that even the Tiananmen Square massacre, the most notorious incident of his tenure, was stoked by the frustration of many ordinary citizens who had had enough and wanted to change the system. Much of the world was quickly over it. Western businesses pressured their governments to back the chimera of Deng’s market reforms and accept that there would be setbacks along the way. The PRC was growing, and growth would lead to more market openings and, ultimately, political openings. Of course, none of that panned out. Tiananmen instead created a lasting reputation of the CCP as a ruthless power and massive human-rights abuser. A generation of human-rights activists have added the tragedy to the litany of PRC sins, alongside Tibet, Nepal, Xinjiang, and now Hong Kong.
Yet another area in which Xi must contend with the structural failures of a command-and-control economy over many decades is access to natural resources, notably water. China has a water crisis. That is hardly Xi’s fault. Even Mao understood, from the outset of his time in power, that access to water for China’s growing population was a fundamental challenge for the CCP. His oft-cited observation was that the south of China has plenty of water, but the people are in the north, where water is scarce. In his formulation, the north should borrow a little.
Not much has changed. Wen Jiabao said in 2005 that the water shortage was a threat to “the very survival of the Chinese nation.” The primary approach to the problem has been to issue mandates and water-price controls and to launch a top-down series of major water projects, notably the South-to-North Water Diversion (SNWD) Project. The SNWD consists of tunnels, canals, and reservoirs to divert water from the Yangtze River basin northward as far as 1,000 miles. One of the channels has elements that are 2,500 years old — this is not a new challenge for the country. The project has displaced nearly half a million people. The government has closed industries along the route to minimize water pollution. But as usual, the party apparatus, which exercises iron control, cannot abide failure. The government has instituted price controls to hide the true cost of water. This prevents conservation in agriculture, industry, and household consumption. Together with the effects of climate change and China’s poor record of industrial water management overall, the program has yielded little so far. Beijing officials have warned that the water infrastructure of the capital is nearing the limits of its capacity.
Most concerning for the CCP is that not only do the challenges facing Xi and the leadership extend back many decades, but there have been warnings about the inevitability of PRC failure for nearly as long, and they were visible to all. I first visited China in 1985. It was hard not to be struck by how poor the country was, just a few years into Deng’s tenure. The broad avenues of Beijing were packed with throngs of people on bicycles and low-grade trucks moving goods around the city. While the city did not have the same industry-driven pollution one sees today, I remember Beijing from that period as having all the characteristics of the low end of underdeveloped economies.
I returned in the late 1980s and had my first opportunity to travel outside Beijing. Although still poor, the country was beginning to grow. People were friendly, and it was exciting to be there. I remember the Great Wall Hotel, at that time one of the city’s finest, and holiday decorations made by the pastry chefs and chocolatiers. It was beautiful and welcoming.
I spent a great deal of time in the PRC also in the 1990s, a period of visible change. Jiang Zemin had become the paramount leader in 1989 and remained in that office throughout the time I was professionally engaged in China. Jiang’s objective was to keep growth rates high, and he mandated massive investments in construction and infrastructure projects. His rule commanded that the large state-owned enterprises in every industrial sector become larger.
With all of this came lack of transparency, lack of competition, and graft and more corruption, which have become the most defining characteristics of operating in the PRC. While Deng’s prior policies of market reform would more than likely have led to the growth of a billionaire class in China, the phenomenon took hold in the Jiang Zemin era of massive state-led funding programs. The systematic program of theft of intellectual property from companies of the advanced economies attempting to invest and profit in China also swelled during this period.
In 2002, I became chairman and managing director of the State Department’s American Institute in Taiwan. That same year, the RAND Corporation published a short analysis, Fault Lines in China’s Economic Terrain, by Charles Wolf Jr., K. C. Yeh, Benjamin Zycher, Nicholas Eberstadt, and Sungho Lee. Despite the perception of visible growth and modernization, Western investment analysts published reports about how China was doing something different and enduring. They ignored history’s record of failed central planning. The authors of Fault Lines, in contrast, laid out with amazing foresight every major problem China faces today.
To those of us who had seen the growth but knew something wasn’t right, and who always doubted that the Chinese Communist Party had somehow figured out how to make central planning and authoritarianism — with a dose of market reforms — work, the RAND analysis validated our skepticism. Long before Xi, it was knowable that, as the CCP eventually became unable to deliver rapid growth through ever increasing government spending, it would close off and tighten and become repressive. The party’s philosophy reflects the maxim that if you can’t succeed with everyone’s cooperation, then proceed without it.
Today, this philosophy translates to state intrusion into the lives of ordinary citizens and to the repression of anyone who doubts the supremacy of the party. The CCP has one goal now: maintain the party’s power. Xi Jinping is the man who has been given the assignment.
That’s why the 20th Party Congress will extend Xi’s mandate. Much has been written about the unprecedented nature of a third term for the PRC’s maximum leader. Just as unprecedented, though, is the way the world seems to have awakened to the serious difficulties — economic, social, political, and diplomatic — that the PRC is facing. The fundamental flaws of central planning and of authoritarian government are becoming too obvious to ignore. Xi’s hard-line leadership is not what is causing China’s problems. Xi Jinping is in office because the Chinese Communist Party knew that a hard line was the only way to deal with the inevitability of the failure of the system they created. That is the essential problem with oligarchs, autocrats, and dictators: Because they cannot risk failure, they haven’t the first idea how to manage it.