The writer is an academic teaching Chinese politics for more than 20 years, for most of that time in China.
China’s stock-market problems last week did more than shake investors and increase anxiety about Beijing’s commitment to market reform: Many observers now wonder whether the recent hammering of China’s stocks and currency will have political fallout for Communist Party leaders.
Twice last week, tumbling Chinese stock prices triggered a newly installed circuit breaker that ended trading early. After the circuit breaker sent traders home before 10 a.m. on Thursday, authorities pulled an embarrassing about-face and announced the new system would be suspended. The Shanghai Composite Index, still sucking wind to start the week, fell more than 5% on Monday.
With the questions about economic stewardship swirling around a party that has tied its legitimacy tightly to the country’s economic performance, it stands to reason that top leaders could begin to come under pressure.
There’s plenty of speculation that Premier Li Keqiang, who is in nominal charge of economic planning, might be held to account — possibly even removed from office. Others see Xi Jinping’s own standing in danger. After all, Xi’s emphasis on “putting politics in command” as a way to bolster the party’s image and influence has prompted some officials to complain that he’s discounting the economic worries that truly concern Chinese citizens.
Neither scenario is very likely. Just as China’s markets often seem immune to economic rules and rationality, China’s politics often lack the logic of accountability found elsewhere.
In fact, China’s economic travails could even strengthen the positions of both Li and Xi in the short-term.
Li, for his part, has argued on many occasions that China’s transition to a developed economy won’t happen while innovation and entrepreneurship are being stifled by too much bureaucracy; that central government oversight has given Chinese firms too little leeway in making difficult choices. So-called “zombie companies” — that is, state-owned enterprises that continue to operate, even at great loss (in Chinese)— are the result, as well as many other inefficiencies, Li can insist.
While a similar stock market rout last year resulted in a round-up of the usual suspects for criminal charges, it didn’t produce the sorts of market-based reforms that Li and his allies were urging. And so last week’s turmoil strengthens Li’s case that more market reform and less intervention is the only right way forward.
Xi, for his part, will maintain that while China’s economic fortunes rise and fall, what needs to stand fast is the Party’s leadership. He’ll argue that economic instability demands even tighter oversight of society, and that it’s the duty of the Communist Party to come to the rescue of citizens and companies, just as it did last year. Capitalism cares not for losers, Xi will surely note; only socialism can save China — and saving socialism means making sure that the Communist party is not only clean and loyal, but also willing and able to play the role of savior when the economy stumbles.
The problem is that this continuation of the political status quo won’t help to stabilize China’s economy so much as perpetuate the problems.
Officials who look for new initiatives from Beijing to deal with persistently problematic stock markets will look in vain. The fact that the debate between Xi and Li remains unresolved, with each arguing that their own method is the best medicine for an ailing economy, also means that cadres and companies alike won’t be experimenting anytime soon.
Finding a way to help an economy that shows further signs of unraveling means discovering a means of ending the political impasse, resolving whether it’s Li’s bureaucratic loosening or Xi’s social tightening that should be the remedy. There’s no sign in the party media at the start of this week that’s begun to happen, nor any clear signs that would indicate which way the leadership is leaning. It’s more likely the case that there’s simply political stalemate; that those in the upper echelons are convincing themselves this crisis can be solved just like last year’s stock rout seemed to have been.
In the past, Beijing got a great deal of applause—much of it justified—when it confronted natural disasters, such as floods and earthquakes. And plaudits might well be due for the various economic and social reforms the party has implemented over the years that probably served to stave off political collapse. But this time, it’s neither the stock market sell-off nor the fall of the yuan that should concern observers, nor is it the probability only that low-level political heads are likely to roll as the markets continue to be roiled. What should worry analysts and everyone else is Beijing believing that standing still is the same as being strong. http://blogs.wsj.com/chinarealtime/2016/01/11/the-consequences-of-chinas-stock-slide-for-top-leaders-in-beijing/
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