Atlantic Council SCOWCROFT CENTER FOR STRATEGY AND SECURITY ISSUE BRIEF Xi Jinping’s Politics in Command Economy JULY 2021 DEXTER TIFF ROBERTS Executive Summary “All enterprises must persevere in putting proletarian politics in command and ideological and political work first.”1—Document of the Politburo of the Chinese Communist Party, September 2, 1975 China’s leadership has embarked on a new and risky path in economic policy The Scowcroft Center for making, one that has huge implications for the Chinese people and for the Strategy and Security works to world. It stands in marked contrast to the emphasis on market opening and develop sustainable, nonpartisan engagement with the world that defined the first decades of the post-Mao strategies to address the most period that started in 1978. Instead today Beijing is intent on strengthening important security challenges control over private companies and foreign investment, reserving set shares facing the United States and the of its market for indigenously produced technologies like semiconductor world. The Center honors General chips and electric vehicle batteries, and boosting the role of state-owned Brent Scowcroft’s legacy of firms. service and embodies his ethos of nonpartisan commitment to the cause of security, support It is all part of what can be considered a new form of state capitalism, defined for US leadership in cooperation by a top-down approach to the economy featuring government-directed and with allies and partners, and supported industrial policies with the goal of creating a far more self-sufficient dedication to the mentorship of country, and critically, one that continues to grow rapidly. At the same time, it the next generation of leaders. aims to be more egalitarian, overcoming some of the inequalities associated The Scowcroft Center’s Asia with the earlier approach of growth at all costs while avoiding the social insta- Security Initiative promotes bility that might result from too large a gap. Beijing sees it as providing a new forward-looking strategies and model of growth for developing countries around the world and as directly constructive solutions for the most competing with a Western free market model that China’s leaders believe is pressing issues affecting the Indo- becoming increasingly broken. In a speech earlier this year to top provincial Pacific region, particularly the rise of China, in order to enhance and national officials, Chinese President Xi Jinping, who is also general sec- cooperation between the United retary of the Chinese Communist Party (CCP), described the rest of the world States and its regional allies and partners. 1 Kenneth Lieberthal, James Tong, and Sai-cheung Yeung. Central Documents and Politburo Politics in China (Ann Arbor: University of Michigan Press, 1978). doi:10.3998/mpub.20021. ISSUE BRIEF Xi Jinping’s Politics in Command Economy as facing “chaos,” and noted with approval China’s growing Revolution, appears to be hurting China’s economy, one strength saying “time and momentum are on our side.”2 already beset by challenges. These challenges include a rapidly aging population, excessive reliance on investment Following the US-China trade war defined by punishing and debt, and growing wealth inequality. The challenge industrial tariffs pushed by former US President Donald facing China’s economy is most apparent when looking at J. Trump, the COVID-19 pandemic that devastated the productivity which has dropped off dramatically in recent global economy but which China emerged from relatively years. The emphasis on top-down planning and the use unscathed, and in the face of what has become the en- of multiple targets in the development of technology and trenched policy of Washington to try to block the global ex- elsewhere in the economy has also led to excessive waste pansion of China’s technology giants like Huawei, Chinese of resources and renewed pressure to fudge statistics, a leaders have become far more open about discussing their worrying trend that looks likely to skew policy making. ambitious goals. These goals include building a more in- ward-focused, technologically self-reliant economy, with a This issue brief will look at the key elements of China’s larger role for state planning and state firms, and with all new “politics in command” strategy, including its anteced- businesses, including privately owned ones, firmly under ents in Chinese history originating in the earlier Mao era, the thumb of the CCP. It includes huge top-down projects and how it was largely abandoned under the Reform and like Xi’s model modern city of Xiong’an, the “Greater Bay Opening policies pursued by Deng Xiaoping that helped to Area,” which attempts to link Hong Kong and Macau with power the rapid economic growth that defined the 1980s Shenzhen and Pearl River Delta cities in a massive inte- and 1990s. It will examine how the global financial crisis grated economic zone, and other domestic developments of 2008, during the administration of President Hu Jintao that aim to drive faster regional growth in China.3 At the and Premier Wen Jiabao, set in motion a resurgence of same time, China aims to continue to expand overseas, state capitalism and a reliance on investment that aimed through both Xi’s signature Belt and Road Initiative (BRI), to keep China’s economy growing fast and so avoid wides- and by creating its own domestic core technologies that cale layoffs for its workers. And it will look at how industrial can compete with and displace multinational versions in policy has now become a defining element of today’s eco- markets overseas. nomic strategy—and is being taken to new levels—under Xi. The report will examine the strategy’s key elements, Starting in 2020, Xi and his deputies began to refer to their including the strengthened role of state firms, the increas- new economic vision as the “dual circulation” strategy, a ing encroachment by the party on the operations of private phrase quickly picked up by cadres across the country and companies, its impact on foreign companies, the use of repeated ad nauseum in China’s state-controlled press. top-down industrial plans and state subsidies, the central One “circulation” refers to China’s continued engagement role of Xi in pushing it, and how it has affected policy mak- with the world through trade and investment as with BRI, ing among officials in lower levels of government including while the second is its much expanded internal circula- at the provincial level and below. tion—relying much more on the innovative abilities of its own people and companies to move up the technology A central question is whether the new economic focus will value chain and create China’s own globally competitive help Beijing succeed in its goal of maintaining rapid eco- high-tech products; and relying much more on the spend- nomic growth and higher living standards, central to contin- ing power of the Chinese people by continuing to expand ued popular support for the party, or whether it will hinder its middle class outside of big cities and along the coast, or even stall that growth in the face of the substantial do- and into the smaller towns and rural areas in the interior of mestic challenges of demography, debt, and inequality. (A China as well. future report will focus on those same domestic challenges to continued growth and their implications for China’s The new emphasis on what could also be called “politics development.) in command” (zhengzhi guashuai), a phrase Mao Zedong regularly wielded, including during the most political of That outcome will determine whether the party and Xi’s ad- eras, the disastrous 1966-76 Great Proletarian Cultural ministration are able to maintain the still high level of popu- 2 习近平 [Xi Jinping], “把握新发展阶段, 贯彻新发展理念, 构建新发展格局” [Seize the new development stage, implement the new development concept，build the new development blueprint], 求是网 [QS Theory], April 30, 2021, http://www.qstheory.cn/dukan/qs/2021-04/30/c_1127390013.htm. 3 Dexter Roberts, The Myth of Chinese Capitalism: The Worker, the Factory, and the Future of the World (New York: St. Martin’s Press, 2020). 2 ATLANTIC COUNCIL ISSUE BRIEF Xi Jinping’s Politics in Command Economy lar support they enjoy today, or whether it is likely to erode, tance of ideology in the economy. Even as he made it clear another question that will be examined in this and future re- that the political system would continue to be tightly con- ports. Similarly, how Chinese political elites might respond trolled by the party, Deng liberated business from politics. to Xi’s unprecedented amassing of power and now clear As he expressed it in two of his many memorable slogans— intention to stay in power for much longer than his prede- China’s economy would develop by “crossing the river by cessors, will also be considered. Finally, this report will pro- feeling the stones”—experimentation rather than through vide policy suggestions for other countries and particularly following any dogma; similarly, as Deng pithily put it: “It the United States, China’s largest trading partner, that aim doesn’t matter whether a cat is black or white, as long as it to slow China’s move toward an economic policy defined catches mice”—in other words, political orientation wasn’t by “politics in command” and lessen the potential negative important, getting the job done or, specifically, growing the impact it will have on their economies and companies. economy was what mattered.5 Background ‘Three Represents’ Brings Private Business into the Party “The changeover from…capitalist to socialist ownership In 2002, China’s then president Jiang Zemin took a step in private industry and commerce is bound to bring that was key to the future development of the private about a tremendous liberation of the productive sector.