Why China may resort to more policy U-turns.

3 Min
Why China may resort to more policy U-turns.

At the World Economic Forum in Davos earlier in January, Chinese Vice-Premier Liu He declared that after three years of pandemic isolation, China was open for business. In a message that cheered the world’s business elite, Mr Liu said foreign investors had an “important role” to play in driving China ’s development, and the country’s door to the world would “only open wider”.

His speech in Davos capped off what has been a slew of dizzying policy changes since the end of the Communist Party’s quinquennial congress last October. The most notable was China ’s abrupt roll-back of zero-Covid restrictions that began in early December. Beijing has also changed course in its crackdown on the property sector and tech firms.

On the foreign policy front, Beijing has signalled a desire to ease tensions with the United States, inviting top US officials Antony Blinken and Janet Yellen to visit China. The changes had caught many by surprise since they seemed uncharacteristic of Chinese President Xi Jinping who, after securing a third term in power during the party congress, had been expected to take China down a more authoritarian road. But long-time observers of China say such drastic policy changes are not unique to Mr Xi’s term in power.

For instance, in 1978, Deng Xiaoping broke the ideological shackles of the Mao era with his decision to launch economic reforms and open China to foreign investment. His pragmatic decision saved the Communist Party following the chaos of the Cultural Revolution.

Mr Xi’s decision to abandon zero-Covid had been made out of similar existential reasons, said Associate Professor Alfred Wu of the Lee Kuan Yew School of Public Policy at the National University of Singapore. Mr Xi had long stressed the advantages of the Chinese system in curbing Covid-19, and few had expected the wholesale abandonment of his signature zero-Covid approach in early December. But the mass protests in some Chinese cities in November had shown the frustrations over the Covid-19 policies and its impact on the Chinese economy, said Prof Wu.

“They offered a signal to the party that their legitimacy was being shaken, that they were no longer as strong or as popular,” he said. Under pressure from Covid-19 controls and a slump in the housing market, the Chinese economy grew by 3 per cent last year, its lowest rate in four decades. This erosion of the party’s performance-based legitimacy was what drove the U-turns on zero-Covid, and also on the tech and property sector, said experts.

With its economy in the doldrums, Beijing needed private sector businesses including its tech giants to restore dynamism and provide jobs, said Dr Willy Lam, a senior fellow at the Jamestown Foundation. To do so, it had to lift some of the pressure on tech giants such as Alibaba, Meituan and Didi that had been subjected to regulatory probes and increased oversight in the past two years.

Beijing has also eased borrowing limits it had imposed on the property sector two years earlier in a bid to curb unsustainable borrowing by developers. This, too, had caused the real estate market to slump and drag down economic growth. “These shifts are about the economy. If there existed a kind of social contract between the party and the people, this would be based on economic growth and nationalism,” said Dr Lam.

Mr Xi has taken steps to preserve the party’s hold on power, but he is unlike Deng, who allowed local officials leeway to experiment and look for policy solutions, said Prof Wu. “Now, policy decisions are made from the top. Xi likes this kind of centralisation he wants his policies to be executed in every corner of the country. But this is also difficult because China is so big,” he added.

Since he came to power in 2012, Mr Xi has consolidated and centralised power in a way that his immediate past predecessors Jiang Zemin and Hu Jintao had not. He launched an anti-corruption drive to sweep away political rivals, and during last October’s party congress, stacked the seven-member Politburo standing Committee the apex body of the Communist Party – with his supporters, a highly unusual move.

“In the past, the Politburo standing Committee always had checks and balances you would have other senior leaders (from different factions). But now, it is just Xi Jinping ’s will that matters, the other people are his loyal supporters,” said Prof Wu. The result, say experts, is that local officials are more risk-averse and wait for policy decisions to be announced from the top, meaning dramatic changes can come suddenly.

“What is different under Xi is that, due to the extreme concentration of power, local officials have lost the agency to make the necessary preparations before a policy change is announced, leading to dire consequences such as what happened in December when China ended the zero-Covid policy,” said Singapore Management University law professor Henry Gao.

The suddenness with which China had abandoned its Covid-19 restrictions in early December had left people without adequate medicine and hospitals struggling to cope with the surge of cases in the immediate aftermath. So, while businesses are cheering China ’s reopening, the lesson here from recent policy shifts is more unpredictable changes could lie ahead.

—-by Danson Cheong in Straits Times, Jan 31, 2023
The writer is the China Correspondent of the daily