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Abu Dhabi, UAEThursday 13 December 2018

Year in Review: China's leader consolidates position

But implications for China's future and for the country's role in the world of Mr Xi's ascension to quasi-imperial status are far from clear

Today, everyone is dispensable except president Xi Jinping, who appears set to remain in power indefinitely AP
Today, everyone is dispensable except president Xi Jinping, who appears set to remain in power indefinitely AP

China is entering the New Year with a leader, president Xi Jinping, at its helm whose domestic status and international image has been elevated to that of a kind of political and economic supremo or superman.

But the implications for China's future and for the country's role in the world of Mr Xi's ascension to quasi-imperial status are far from clear.

"President Xi has strengthened his leadership after the 19th Congress of the Chinese Communist Party [but] the climate for the Chinese economy, is facing a lot of uncertainty," says Yuqing Xing, an acknowledged authority on China and economics lecturer at the Graduate Resaearch Institute of Policy Studies in Tokyo.

In an apparent reversal of the relatively "laissez-faire" policy of the former Chinese president Deng Xiaoping, who declared that "getting rich is glorious" and who unleashed economic reforms to allow that to happen, Mr Xi has launched a sustained attack on wealth and corruption while reasserting the absolute authority of the Communist Party which he heads.

Some liken Mr Xi's achievement at the Party's National Congress in October in consolidating his power and having his "thoughts" embedded in the constitution as putting him on a par with the near-legendary Chinese leader Mao Tse-tung. Others see parallels with the way in which the Russian president Vladimir Putin neutralised wealthy business oligarchs.

The Chinese leader will share power with only a handful of key allies, which has led to suggestions that "collective leadership is dead" in China. And, with no obvious successor in view, Mr Xi's rule could continue well into the future, along with the exercise of new powers that could expand his crackdown on dissent at home.

Whether all this means that China's economic reforms and market-opening will gather pace under a "strongman" leader or or be stifled by the return of centralised authority is something analysts do not agree upon. But Mr Xi has deemed strong leadership to be essential for China to become a "mighty force" on global political, economic, military and other issues.

These include economics and business, which means a Chinese economy that seems to be reemphasising the role of state-owned enterprises has to find a way to co-exist with foreign business both inside and outside of China. And, China has to persuade - rather than command - other nations to accept its global schemes such as the "Belt and Road" infrastructure initiative.

Growth has strengthened somewhat in 2017, driven by services and some strategic industries, but is projected to soften in 2018-19, as exports decelerate. Industrial production growth has been picking up and profits have improved on the back of higher producer prices, the OECD said in a report last month.

"A series of capital control measures and the introduction of a new exchange rate fixing formula have reversed the trend of renminbi [yuan] depreciation. Curbing of 'irrational' investments has moderated outflows through the capital account and expectations of a stronger currency have reduced incentives to get funds out of the country by other innovative means," the report said.

"As a result, foreign exchange reserves have been rising anew for some time."

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Fiscal policy remains expansionary, though less so than earlier in the year, the OECD added, following renewed efforts to tackle illegal local government debt. Misuse of public-private partnerships, government foundations and borrowing disguised as government service procurement at the sub-national level prompted the central government to curb such practices.

"Views are quite diverse at this moment and I myself do not know which direction [China] will go in the near future," one high level international economist in Washington, who did not wish to be identified, tells The National. "This an issue we have to watch."

Among Chinese, says the source, "Xi’s power consolidation is believed by some to be helpful for reforms and to facilitate decision-making. They think it is still consistent with further opening-up and allowing the market to play a more decisive role." But, he adds, "many foreign observers have different views".

"They believe in general that political risks have increased with the shift from collective decision-making to a more authoritarian regime. It will be more difficult for negative news to reach the top, while policy priorities announced at the top will get over-interpreted, particularly as they relate to [Mr Xi's] Belt and Road Initative."

Increased centralisation and political control will, meanwhile, "lead to more inefficiencies and the environment for foreign companies to operate in China will become more difficult", says the source.

"This is a critical issue for foreign firms that already complain of over-regulation and official intervention in their business activities in China."

Elsewhere, the US president Donald Trump's America-first policy and Europe's problems including Brexit and the refugee crisis are generally seen as "gifts" to China by creating a global vacuum (giving China the opportunity to fill the space) and contributing to the view that the western model is failing, adds the source. "Younger generations in China are proud of China's rising power and they do not seem to mind Xi's power consolidation."

Toyoo Gyohten, a former chairman of the Bank of Tokyo and one-time vice finance minister for international affairs of Japan, sees positive aspects to the transformational changes in the Chinese leadership as these affect the climate for doing business in and with China.

The relatively liberal economic policies introduced by the late Deng Xiaoping, the paramount leader of the People's Republic of China from 1978 until his retirement in 1989, who famously suggested that "it does not matter whether the cat is black or white so long as it catches mice" did have a "dark side," says Mr Gyohten, a former head of the Institute of International Finance in Washington.

"If you free people to pursue material desires, that will inevitably create those who are lucky and those who are not - in other words disparity in society," he tells The National. "It also generated a tremendous wave of corruption throughout China,in government and business - and excessive dependence upon economic expansion resulting in a deterioration of the environment and scarcity of materials as well an overloading of debt."

When Mr Xi first came to power in 2013 "he was burdened with quite a heavy task", says Mr Gyohten. The Chinese president is "now trying to rectify the dark side left after Deng's regime while maintaining China's global power status."

Meanwhile, Mr Gyohten does not believe that Mr Xi is intent upon pushing his leadership role to the point where China challenges the US as a global hegemony. For the present at least, China's ambitions are limited to that of being the biggest player in Asia, Mr Gyohten suggests. Mr Xi wants China to become "the primary leader of the Asian region".

The Chinese leader, Mr Gyohten suggests, "knows well that China at this moment is still very much lagging behind the US in aggregate power".

"If you really want to beome the leader of the world you have to excel not only in economic but also military and technological power,cultural and diplomatic power and ideological power," he says.

"I have to conlude that in all of these areas Chin has still a long way to go before it can replace the US as the global leader.

"My guess is that what Xi Jinping is aiming at at this moment is to become a sole and and authentic leader of Asia. In history China always established prosperous and stable rule based on the eastern part of the Eurasian continent while dominating neighbouring regions in central, south-west and north-west Asia," says Mr Gyohten.

"It is the Chinese dream to establish a leading country on the eastern and western rim of the Pacific - a stable and prosperous sphere of influence. But even that is not an easy job for anybody."