China spent 2021 battling business. Xi Jinping to play more cautiously this year

All these headaches are forcing Beijing to reconsider its political approach. At a key economic meeting earlier this month, top leaders of the ruling Communist Party of China marked “stability” as their top priority for 2022. It’s a huge pivot compared to the meeting of the last year, when “curb the disorderly expansion of capital” ruled the day.

“The emphasis on stability suggests that key leaders are increasingly concerned about the risk of instability,” said Larry Hu, chief economist for China at Macquarie Group, in a recent research note.

“A year of regulatory tightening has shaken business confidence,” he added. “Now it’s time for policy makers to step back a bit. ”

China is still expected to register significant growth in 2021, despite its challenges. Many economists are forecasting growth of around 7.8%, well above the low of 6% that Chinese authorities set as a target earlier this year.

“The Chinese government’s focus on regulatory and anti-monopoly repression has been made possible by China’s skyrocketing economic growth,” said Craig Singleton, associate researcher in China at the Foundation for the Defense of Democracies, a Washington-based think tank.

“Not anymore, because the growth engines of the Chinese economy are quickly running out of steam.”

Reining in, now calming down

Beijing’s firm stance on these companies is justified. For Xi, restricting private enterprise is the solution to solving long-standing issues of consumer rights, data privacy, excess debt and economic inequality. In other words, it is about taming the excesses of capitalism and embracing the history of socialism in the country.

But there is a balance to be struck. Now faced with the prospect of a hard landing for the economy, Beijing seems to be reversing its firm position vis-à-vis the private sector. AT their recent meeting, Chinese leaders praised the positive role private capital plays in the economy – a dramatic change in tone from how they spoke a year ago.

“There will inevitably be various forms of capital in the socialist market economy,” they said in a statement after the meeting. “Capital must play its positive role as a factor of production, while its negative role must be effectively controlled.”

This post suggests that “the peak of regulation is behind us,” according to Hu de Macquarie. “State control is important, but the Party does not want to kill capitalism either,” he added.

A big focus on employment

As Chinese policymakers attempt to stabilize the economy in 2022, a few key factors will be in mind.

Keeping unemployment low has been listed, once again, as the most important of a set of areas Beijing wants to focus on, according to the statement released after this month’s meeting.. (Other goals include preserving food and energy security and stabilizing supply chains.)

The focus on job creation comes as employment prospects deteriorate in China. Education technology companies laid off thousands of workers after the government curtailed tutoring in July. Other tech companies are also reportedly planning to downsize due to the crackdown on their companies.

The real estate crisis is also contributing to this. Cash-strapped real estate developers, such as the huge conglomerate Evergrande, have cut jobs and offloaded assets to stay afloat.

The notoriously stable unemployment rate, released monthly by the government, has remained stable this year, fluctuating only between 4.9% and 5.5%. But repeated calls from top executives on various occasions to bolster jobs suggest there may be a bigger problem than the data shows.

“I think jobs are now a greater sensitivity than GDP,” said George Magnus, associate at the China Center at the University of Oxford and former chief economist at UBS.

As a host of challenges weigh on jobs, including the Covid epidemics and the real estate crisis, Magnus said corporate crackdown is a notable factor. The private sector contributes 80% of employment, according to government statistics.

Singleton stressed that the party “is laser-focused on unemployment, fearing that massive layoffs could potentially endanger the party’s reputation.”

Xi’s power play will leave him a difficult path to walk

At the forefront of Xi’s mind is almost certainly the desire to keep the country going ahead of a historic third term.

“Xi’s message of ‘stability’ is aimed at the political establishment in China, which must absorb the weight of a historic power play, in addition to the business sector,” said Alex Capri, researcher at the Hinrich Foundation.

Xi has taken several steps to signal that he is focusing more on domestic issues than big international ambitions. The Chinese leader has not left the country since the start of the pandemic and has taken dramatic steps to secure his country’s borders and lock down entire regions to contain even a single case of the coronavirus – an approach “Covid-zero” abandoned by much of the world.

But Capri noted that Xi had to consider the outside world to some extent. He said Xi’s stability message was “also intended to allay growing concerns on Wall Street and other commercial and financial centers, which China relies on far more than it wants to admit. investment, technology and trade “.

It’s a precarious balancing act – and an Xi will need to think about it carefully over the coming year.

“Like other nations, China wants a future based on high levels of innovation and productivity, but is politically determined to create conditions that hinder both,” Magnus said.

“The main challenge for China will be, with Xi in the driver’s seat for a decade, will course corrections be possible? Singleton said. “And unfortunately, the historical record is that absolute power does not generally lead to a more pragmatic and flexible attitude.”