Why Xi’s Power Grab Will Hurt China’s Prospects for Reform

Since the conclusion of the 19th Party Congress—China’s quinquennial leadership transition—and its First Plenum on October 25, a widespread consensus has emerged that Xi Jinping enters his next five-year term as General Secretary of the Communist Party of China (CCP) as the most powerful Chinese political leader since Deng Xiaoping, arguably even Mao Zedong. 

Although there is less agreement on what he plans to do with that power, many believe that a newly empowered Xi will now focus his attention on the Chinese economy. In particular, the Western business community is optimistic that Xi could begin a push for long-awaited reforms.

According to Moody’s Investors Service, Xi’s power grab “could advance the process of economic reform and rebalancing, because one obstacle to reform has been the misalignment of incentives between the central leadership and other officials.” In a research note, Danske Bank argued that “markets are increasingly pricing a further push for reforms in 2018, as Xi Jinping is likely to have more focus on the economy following five years when a lot of focus has been on ‘cleaning up’ the party and strengthening his power base.” And in June, the investment firm PIMCO speculated that after the Congress, Xi might “use his enhanced stature to end policy paralysis and embark on a major reform agenda that improves the economy’s efficiency.”

The underlying logic of the “power-for-reform” bargain is straightforward: despite the CCP’s control over the commanding heights of the economy and its top-down Leninist structure, China’s is a “fragmented authoritarian” system, wherein subordinate actors, who enjoy local-level autonomy, often ignore, misinterpret, or subvert orders from the top if they are deemed detrimental to their interests. This diffusion of power throughout the system stands as a major obstacle to change. 

Given the realities of China’s system, many argue that what the country needs is a leader who can accumulate enough power to ram through painful measures, including property tax reform, debt reduction, and an increase in budget discipline for provincial and local-level state-owned enterprises. These critics attribute the lack of reform progress since 2013 to Xi’s unsuccessful battle against vested interests, intransigent bureaucrats, and recalcitrant cadres. Now that Xi is the unchallenged leader of China, so the logic goes, he can and indeed must use his centralized authority to send a clear and unified message about the country’s policy priorities. Those who drag their feet or otherwise display noncompliance will face the wrath of a disciplined and unified party apparatus under the command of the general secretary. 

This narrative is compelling. Unfortunately, it is also mistaken. Although an all-powerful “chairman of everything” may be able to use pure political will to drive forward certain reforms in the short-term, China’s governance will suffer as a result. As it stands, the policymaking process has already seen a significant decline in quality under Xi, with decisions becoming more opaque and politicized. And even if Xi were to announce himself as an unabashed market reformer (an unlikely proposition), the direction in which he is moving the political system will make good economic policy more difficult to implement, not less. 

CALL IT A HORSE

Xi’s consolidation of power is likely to impede China’s policymaking for a few reasons. First, since the ascension of Deng Xiaoping in 1978 and the beginning of the reform and opening period, political reform in China has been defined by the separate roles of the party and government. In short, although power has always remained firmly in the hands of the party, China’s leaders have sought to ensure good process and a clear division of labor by separating high politics—the responsibility of the party—from policy design and implementation, which has been left to the technocrats in the government.

Xi has changed this arrangement. Under his leadership, the party has hijacked much of the government’s power, raising questions as to whether the State Council, which officially heads the government, even matters anymore. For instance, the office of the premier, which chairs the State Council and has had primary responsibility for management of economic policy since the early 1980s, has been almost completely enfeebled, with power shifting over to the party and especially into the “leading small groups” dominated by Xi. Under this new arrangement, the policy process—now controlled exclusively by the party—has become more opaque, politicized, and thus unpredictable. This trend is likely to continue, given Xi’s statement “The party, government, military, society, education, north, south, east, west—the party leads everything.” 

A second reason for pessimism relates to Xi’s attempts to graft his own personage onto the very core conception of the Party’s structure and identity. This effort was epitomized by the 19th Party Congress’ addition of Xi Jinping Thought to the party constitution, as well as by Xi’s elevation last year to the position of core leader of the Central Committee. Both developments have made it increasingly difficult to challenge Xi on policy grounds.

It is unlikely that anyone but a select few will tell the emperor he isn’t wearing any clothes.

Consider the Belt and Road Initiative and Supply Side Structural Reform (an attempt to tackle chronic industrial overcapacity and corporate indebtedness), both of which are closely identified with Xi and have now been written into the party’s charter. To question either is to question Xi and thus the party itself. In other words, it is unlikely that anyone but a select few will tell the emperor he isn’t wearing any clothes. If Xi pursues wise and sensible policies, then problems will be limited. But since effective policymaking generally requires maximum input from key stakeholders and a robust debate of all possible policy options, Xi’s singular status within the party is a worrisome development—one that has increased the likelihood of a policy echo chamber emerging at the top of the Chinese government.  This dynamic is captured in the ancient Chinese proverb “point to a deer and call it a horse,” which referred to the practice of imperial advisers advocating policies they knew to be untrue in an effort to stay in the good graces of the emperor.

On a related point, political leaders normally require accurate data with which to effectively formulate and adjust policy. Take an extreme example: the Great Leap Forward (1958-1961), a devastating policy error that directly led to a catastrophic famine and the deaths of tens of millions of Chinese. Those who challenged Mao’s vision—a utopian drive to reach the United Kingdom’s level of industrialization in a mere 15 years—were purged, ensuring that no one would speak truth to power. Party officials even began to report inflated harvest yields to ensure they were meeting Mao’s expectations, thus making it harder for the government to correct its initial errors. 

Although the possibility of another policy failure on the scale of the Great Leap Forward is highly unlikely, Xi’s consolidation of power will only increase the political disincentive to report accurate information up the chain of command. China today risks developing an environment of “garbage in, garbage out,” wherein it becomes increasingly difficult to bring bad news to the leader, whose decisions are in turn shaped by inaccurate information. Policymaking, unsurprisingly, will suffer. 

XI'S BOTTLENECK

A culture of bad information, however, is not the only cause for concern. Consider too how striking of a departure Xi’s top-down governance style is from the bottom-up model of policy experimentation that defined China’s successful economic reforms over the past four decades. “Crossing the river by feeling the stones” was Deng Xiaoping’s famous aphorism for the policy of giving local political leaders the flexibility to adopt heterodox policy solutions to problems of economic development. This more adaptive system utilized localized knowledge and thus ensured that a wide-range of policy experiments were ongoing at any given time.

Yet over the past several years, power has reverted back to Beijing at a significant clip, narrowing the range of options open to local officials for policy entrepreneurship. Although this certainly brings uniformity—and, from Beijing’s perspective, predictability—it assumes the superiority of centralized policy solutions, which is rarely the case in a country as large and diverse as China. 

One final problem is that the consolidation of power into the hands of one individual means that decisions will be more authoritative, but also that there will be fewer of them. To put it another way, by becoming the “chairman of everything” Xi has also created China’s largest bottleneck. As Jamil Anderlini recently reported in the Financial Times, Xi personally approves all loans of China’s pandas to foreign nations. One should think the leader of the second-largest economy in the world, faced with a growing threat of nuclear war on its eastern border, has better things to do than allocate pandas. Micromanaging a country as large and complex as China is a recipe for stagnation, not innovation, a lesson we learned from the heady days of central planning.

In 1980, Deng Xiaoping told the Italian journalist Oriana Fallaci, “There is nobody who doesn’t make mistakes.” No leader is immune from error and miscalculation, which is why Deng fought (imperfectly and often hypocritically) for power to be constrained and distributed throughout China’s political system. Those cheering as Xi consolidates ever more power into his own hands should not forget Deng’s simple but profoundly important insight.