China’s ‘Likenomics’

With the formal opening of the National People’s Congress session and the Chinese People’s Political Consultative Conference today, all eyes are on the Chinese leaders, particularly Premier Li Keqiang, who are expected to announce the direction of the country for the new fiscal year.

In an explicit recognition of China’s downward growth trajectory, Li announced a growth target of 7 percent for 2015, with an inflation target of around 3 percent. The Chinese economy is cooling down, with the threat of deflation hanging over the horizon.

Around 200 leading Chinese businessmen are participating in the event, reflecting the growing influence and integration of a vibrant entrepreneurial class into the upper echelons of the Chinese Communist Party. Among them are 36 billionaires, including Li Hejun, Zong Qinghou, Pony Ma and Lei Jun, an illustrious confab of business tycoons who are ranked first, third, fifth and tenth on the list of richest Chinese men, respectively.

The growing presence of capitalists in Beijing’s decision-making bodies has gone hand in hand with Li’s plan, dubbed as “Likenomics”, for the privatisation of inefficient state-owned enterprises, the liberalisation of financial markets, and encouragement of mergers in oversupplied sectors.

Great economic transition

For almost three decades, Beijing has vociferously pursued a minimum of 8 percent growth annually, supposedly the magic number necessary for the creation of enough economic prosperity and employment opportunities for China’s increasingly aspirational population.

China represents a classic case of “performance-based legitimacy”, whereby the ruling party demands political obedience/passivity in exchange for enhancing the economic conditions of its citizens. It is a tenuous social contract, which has underpinned the post-Mao Chinese polity.

Given the increasingly sophisticated nature of China’s economy, with hundreds of millions of average citizens now enjoying a truly middle class lifestyle, the focus of the Chinese leadership is on “quality growth” and high-value-added production. Ultimately, China wants to be a hi-tech, information economy, utilising its booming research and development sector to become a global technological leader by the middle of the 21st century. In the meantime, however, Beijing will have to grapple with slowing economic growth, deepening environmental crisis, and rising geopolitical tensions with its neighbours. 

Though Li, as the head of the government, will take centre stage during the mega-legislative gathering in Beijing, he will stand and speak in the shadow of Chinese President Xi Jinping, who is widely seen as the most powerful and charismatic political figure in China since Deng Xiaoping, if not Mao Zedong himself.

Xi must be obeyed

Continuing a long Chinese communist tradition of archaic sloganeering and abstract exhortations, Xi has staked his legacy on pursuing and consummating the so-called “Four Comprehensives”: comprehensively build a moderately prosperous society; comprehensively deepen reform; comprehensively govern the country according to the law; and comprehensively apply strictness in governing the party.

Xi is determined to catapult China, by all means necessary, to the next stage of economic development, combining structural economic and bureaucratic reforms with sweeping anti-corruption initiatives and an assertive foreign and defence policy.

Xi is determined to catapult China, by all means necessary, to the next stage of economic development, combining structural economic and bureaucratic reforms with sweeping anti-corruption initiatives and an assertive foreign and defence policy.

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After years of double-digit growth, China’s economy just fell short of achieving its target of 7.5 percent in 2014, marking its slowest growth in 24 years. There is a growing consensus among leading economists that the era of easy, double-digit growth is over, with more moderate growth rates of 5 percent to 7 percent representing the new normal in the coming years. China has effectively exhausted the optimal potentials of its export-oriented, low-end-manufacturing economic model.

Astronomical rates of infrastructure spending has also proven to be extremely unsustainable, as reflected in the myriad of ghost towns and under-utilised public transport systems across the country. China needs nothing short of decisive reforms under a determined leadership.    

As Xi settles into his third year in office, he has realised the limits of his power to overcome the inherent structural vulnerabilities of an autocratic, one-party-rule system, especially as a maturing economy slows down and growing panic over Xi’s anti-corruption drive – perceived by some circles as a disguised political purge of potential rivals and opponent – discourages many local leaders from taking tough and risky decisions, which are necessary for dynamic governance, out of fear of persecution.

A risky affair

Though China has been a global leader in the development of renewable energy, the country still grapples with an environmental crisis of unprecedented proportions. China’s economic miracle has lifted hundreds of millions of people out of poverty, but its economically empowered urbanised citizens are now demanding better living standards, particularly in terms of clean air and food safety.

Prominent journalist Chai Jing’s documentary on air pollution in China, “Under the Dome”, garnered more than 100 million views in less than 24 hours. Recognising the growing anger among citizens over environmental concerns, Premiere Li announced the plan to replace coal usage with renewable energy sources in heavily polluted areas.

Of particular concern to China’s neighbours is the announcement that the People Liberation Army’s military expenditure is to grow by 10 percent in 2015, topping the annual economic growth rate and marking decades of sustained double-digit growth in the country’s defence spending. Though the announced defence spending increase is the lowest since 2010, China’s neighbours have warily watched the PLA’s accelerated modernisation as well as growing presence across adjacent waters, particularly around contested areas in the East and South China Seas.

Overall, what is clear is that the Chinese leadership is determined to tackle burgeoning challenges head on, but it remains to be seen whether they can manage the sheer scale and complexities of China’s grand economic transition, festering environmental crisis, and precarious geopolitical tensions with neighbouring countries. The fate of China and the broader Asian neighbourhood hangs in the balance.

Richard Javad Heydarian is a specialist on Asian geopolitical/economic affairs and author of “How Capitalism Failed the Arab World: The Economic Roots and Precarious Future of the Middle East Uprisings”.