Politics in Command in the Chinese Economy

At the heart of any communist political system is the Marxist emphasis on class struggle with the apparent objective of achieving the utopia of a society of perfect equality and free from want. But the class struggle itself and attempts to either promote it or to deal with it are the result of or depend on the economic conditions obtaining in the polity. It is, therefore, not without reason that Marxists and leaders of communist nations have a constant focus on the economy or on economic conditions, never mind the effectiveness of their prescriptions. 

China’s leaders have since the end of the Maoist era at least, not only been rather more careful than their counterparts in the former Soviet bloc countries in giving economic growth its due place, but also succeeded in shaping a successful economic model that has delivered decades of high rates of growth. They have understood the consequences of economic conditions for a country’s domestic politics and its international prospects better than most. 

Indeed, Chinese leaders consider it a necessary part of their skillset to be au fait with the latest economic developments both at home and abroad and it is part of their responsibilities to be able to pronounce on economic issues whenever the need arises. In fact, it is usually impossible to reach the top echelons of the Chinese leadership without some considerable experience in economic administration – some provinces in China can have GDPs as large as some developed economies while nearly all rank nearer the top of any ranking of developing country economies.

Politics as the Foundation 

The constant interplay of the political with the economic is an important feature of the Chinese economy that can often be ignored by casual observers. When Communist Party of China (CPC) General Secretary Xi Jinping declared in 2017 at the World Economic Forum in Davos that China was a champion of globalization,[1] it is easy to view this statement purely from an economic standpoint. This would, however, also be an entirely wrong approach to take. While it is true that China has gained much from globalization and hopes to gain still more from it, the fact of the matter is that its approach to globalization is a one-way street in practice. It has sought to attract global capital and high tech to its shores, and in turn to deploy its capital and tech abroad. 

However, China has also been mercantilist in its approach subsidizing companies operating in its jurisdiction with free infrastructure and low-interest loans and other forms of hidden subsidies in contravention of World Trade Organization rules while keeping its own economy closed with non-tariff barriers such as difficult legal requirements that undermine foreign entities trying to compete with local Chinese manufacturers. The Americans have only recently woken up to this reality of Chinese economic policy in which decoupling from the US economy was long the objective of China’s leaders – consider, for instance, how American tech companies and their products like the Google search engine and any number of social media applications such as Facebook or WhatsApp have been banned in China for years.

India is another victim of this Chinese behaviour as both its persistent trade deficit with China and the high number of anti-dumping cases it brings against that country at the WTO show. Even in sectors, where India is competitive such as pharmaceuticals, it has taken great effort on the part of the Indian government for its companies to enter and even then, only because the Chinese decided they wanted to make medicines cheaper for their own public healthcare system.[2]

Discipling the Private Sector

This brings us to an important issue that has been at play in recent months and years in China – why has the CPC actively targeted successful enterprises and sectors by imposing restrictions on their activity? Note that the Ant Group of one of China’s most internationally well-known enterpreneurs, Jack Ma, was prevented from launching an IPO worth a record US$37 billion in 2020, while earlier this year Beijing began a crackdown on sectors as varied as coal and edtech.

Ma had complained about China’s regulatory system at a major meeting in Shanghai with top political and economic leaders in the audience saying China was stifling innovation and that its banks had a “pawnshop” mentality.[3] The CPC response was only to be expected – under Xi, it has been very clear that “Party, government, army, the people and intellectuals – east, west, south, north, the party leads everything”. This Maoist-era slogan makes no allowances for private enterprises no matter how big they are in or important in the eyes of the rest of the world. Ma, himself a CPC member, was brought down to earth because he dared to criticise the Party forgetting that he owed everything to it creating and maintaining the conditions for his growth and prosperity. Other major tech giants have also been put on notice.

This then brings us to another important question – how ‘private’ is the private sector in China? 

In 2017, it was reported that some 70 percent of China’s privately-owned companies had Party organizations attached to them;[4] under Xi, the CPC has specifically targeted private enterprises aiming to increase its ideological work and influence.[5] This then has implications for Indian companies with any Chinese investments – especially in e-commerce and fintech, both of which are sensitive from the point of view of data security and privacy issues.[6] The CPC has an increasingly expansive definition of its legal remit to monitor, supervise and punish even across China’s international borders. Under such circumstances, for Chinese investors the CPC’s writ will always take precedence over the laws of the country where they operate or even international laws. Chinese capital will, thus, inevitably come with strings attached.

The attack on China’s edtech sector has been interpreted as part of the CPC’s efforts to regulate malpractice in the industry – similar concerns exist also in India, incidentally – but is also seen as part of the aforementioned wider crackdown on Big Tech as part of an effort to impose ideological order in the sector.[7] In September, in fact, the Chinese government released new guidelines for what it called ‘Strengthening the Construction of the Online Civilization’.[8] This appears to be an outgrowth from another Maoist-era catchphrase, namely, “spiritual civilization’, and an attempt to ensure order and ideological standards as mandated by the Party in China’s sometimes freewheeling and irreverent online universe. In India, we might consider this the equivalent of what is known as, “moral policing”.

Meanwhile, according to one estimate, as much as 44 per cent of China’s industrial activity has been affected by China’s massive power shortages[9] with power rationing in place in 17 of China’s 31 provinces.[10] While there are multiple reasons for the situation with coal shortages and high fuel prices from expanding post-pandemic industrial demand among them, the fact is that even here, the situation has been exacerbated because of political considerations. 

Xi had publicly announced at the United Nations in September 2020 a Chinese commitment to reaching peak carbon use by 2030 and achieving carbon neutrality by 2060.[11] Ever since there has been pressure on China’s local and provincial governments to reach their energy reduction targets set by the central government annually. Thus, local authorities have simply cut power and told industries to shut down to make sure they meet political expectations from the centre.

Centralisation 

The power crisis highlights another important trend in today’s China, namely the centralisation of power that is taking place at multiple levels in the Party-state.

The most visible and obvious form of centralisation is that of power within the CPC in the person of General Secretary Xi Jinping. Another form of centralisation is of power and authority from the provinces and regions to the capital, Beijing while a third form is of the privileging of the state-owned enterprises – what in India, we would call the PSUs or public sector undertakings – at the cost of private enterprises.

These forms of centralisation give us a sense of not just the factors that made China successful in the past four decades of reforms and opening up but also of the problems that cropped up from time to time that China’s leaders today are struggling to deal with.

It was precisely the expansion of the freedom of speech and opinion in the post-Maoist era under Deng Xiaoping, the decentralisation of power to the provinces and localities as well as the greater initiative and capital that flowed to private enterprises over time that powered China’s rapid, breakneck economic growth over decades. These reforms and freedoms – with brief crises in between such as for example, the Tiananmen Square crackdown in 1989 – put China in a place by the end of the last century from where it could launch the next phase and begin accruing political power and influence on the global stage to go with its economic strength.

But as with all things in authoritarian states, abuse of power, over-exploitation of resources, and ignoring of the greater common good followed and spiralled out of control. China in the 2000s was also a site of multiple protests over various issues ranging from ethnic discrimination to labour rights to environmental degradation. It is into this cauldron that Xi walked in as the new General Secretary of the CPC in late 2012. And like all leaders before him Xi sought to use China’s domestic and external capacities to strengthen what seemed to be the increasingly shaky foundations of the CPC itself and he has more of both kinds of capacities ever than any his predecessors.

There is a reason why China is called a party-state – the People’s Republic of China is first and foremost devoted to preserving the CPC in power and only secondarily concerned about questions or issues that we would normally understand as ‘national interests’. Thus, China’s aggressive and uncouth diplomatic behaviour across the world – now termed, ‘wolf warrior diplomacy’, might not make any sense from the perspective of a country trying to create a good impression of itself and to achieve its interests in other countries – the purpose of all diplomacy. It does, however, make a great deal of sense from the perspective of a Party trying to remain in power at home by portraying itself as the best possible defender of not just China’s territory and sovereignty but also of its image and its supposed civilisational greatness.

In other words, Xi Jinping has simultaneously used a mix of nationalism to rouse ordinary Chinese and state capacity to suppress them in order to achieve the Party’s strengthening. 

Those of us watching in India will find some of this familiar in the choice of language and actions the current ruling Bharatiya Janata Party uses in portraying itself as a distinctly better defender than other political parties of India’s interests and pride whether at home or abroad. Thus, what we are seeing both in authoritarian China and populist regimes elsewhere in the world is the conflation of regime interests with national interests.

Meanwhile, even it is nobody’s case that the Augean stables of Chinese politics do not need cleaning up, the way Xi has gone about the task has left him open to charges that his ruthless anti-corruption campaign – as much an economic necessity as a political one – has been both selective and incomplete. He has also in the process clamped down on what limited civil rights and freedoms in academia and media that existed in China before his arrival on the scene. Indeed, that Xi has had to do any of this at all should itself be a comment on the failings of the Chinese political system. 

New Concepts for a ‘New Era’

The CPC leadership understands this reality, including the fact that centralisation of power can only one approach to tackling China’s many ills. The Party has understood that it is equally important to provide an intellectual rationale to the watching public for this centralisation of power and the increasing dominance of the Party in their daily lives, so that political challenges can be prevented or pre-empted.

Nationalism by itself is not sufficient for this purpose or at the very least needs to be tempered so that it can be controlled by the CPC. Xi and the Party have, therefore, followed up with a regular stream of slogans and concepts pitched at both the popular and elite levels explaining the nature, objectives and rationale of the centralisation of power. Thus, Chinese politics today is suffused with such expressions or targets with economic imperatives as ‘poverty alleviation’, ‘rural revitalisation’, and ‘common prosperity’. Aligned to these economic goals are more obviously political goals asnational rejuvenation’ or to ‘forever walk at the Party’s side’.

Together, these phrases and the effort that goes into showcasing and achieving the goals they represent confirm the close interlinkages between economic performance and political legitimacy of the CPC. They also underline the fact that in China, it is always politics that drives the economy. 

Originally published as Jabin T. Jacob, ‘In China, it is always politics that drives the economy’, The Week. 31 October 2021. Issue Date 7 November 2021.


[1] https://www.weforum.org/agenda/2017/01/chinas-xi-jinping-defends-globalization-from-the-davos-stage/

[2] https://mobile.reuters.com/article/amp/idUSKBN1K80TH

[3] https://www.reuters.com/article/ant-group-ipo-suspension-regulators-idUSKBN27L2GX

[4] https://www.reuters.com/article/us-china-congress-companies-idUSKCN1B40JU

[5] http://www.gov.cn/zhengce/2020-09/15/content_5543685.htm

[6] https://www.moneycontrol.com/news/opinion/opinion-why-india-must-not-take-jack-mas-communist-party-of-china-ties-lightly-3247621.html

[7] https://www.protocol.com/china/china-edtech-crackdown-education-inequality

[8] http://www.news.cn/politics/zywj/2021-09/14/c_1127861062.htm

[9] https://www.bbc.com/news/business-58704200

[10] https://www.reuters.com/business/energy/china-coal-prices-hit-record-highs-early-winter-chill-adds-energy-woes-2021-10-15/

[11] https://news.un.org/en/story/2021/09/1100642


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