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Xi Jinping's Unlimited Rule Is New Wild Card For China's Economy

BEIJING (Alliance News) - Xi Jinping has built himself up as China's most powerful and ...

Alliance News 7 March, 2018 | 8:29AM
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BEIJING (Alliance News) - Xi Jinping has built himself up as China's most powerful and autocratic leader in decades. But the implications of his unlimited rule for the country's economy might be the riskiest move he has taken yet.

China is bracing for the return of lifelong rule. The question is whether this means it should also be bracing for the end of several decades of steady economic stewardship.

On Sunday, the National People's Congress, the country's rubber-stamp parliament, is almost sure to adopt a constitutional amendment that will scrap presidential term limits, effectively paving the way for President Xi to govern indefinitely.

It's a stark reversal from the "collective leadership model" that has been in place for the past 30 years, leading to China's continued economic growth and relative stability.

Starting in the early 1980s, after the death of communist China's founder, Mao Zedong, the ruling Communist Party instituted a system of rotating leadership every decade. That way, different political factions got their turn to lead, keeping each other in check and preventing any individual or group from accumulating too much power.

This "intergenerational bargaining", as China researcher Susan Shirk calls it, will be upended, with potential profound implications for the world's second-largest economy.

By many measures, China's economy is faring well. Economic growth clocked in at 6.9% last year. And, on Monday, Chinese Premier Li Keqiang announced an economic growth target of around 6.5% for 2018.

Li said, from the pulpit in the packed Great Hall of the People, that, though "there are still many hills to climb and gorges to cross...the fundamentals of the Chinese economy remain sound" and the government has tools to avert financial risks.

As the government is trying to direct the Chinese economy towards higher value-added industries, cut overcapacity in sectors such as steel and coal, and promote innovation and tech prowess, the perspective of Xi staying in office after his current term ends in 2023 is a wild card for the economy, observers say.

"The risks are 50/50, depending on how the reforms go," says Hu Xingdou, an economics professor at Beijing Institute of Technology.

If Xi uses his extended time in office to shake up rusty state-owned enterprises, strengthen the regulatory system and bolster the rule of law, the economy might benefit from the relative stability, Hu said. If on the other hand, he further tightens control over the market, it might frighten off foreign investors.

It all boils down to "whether you see the controlled economy as either inherently sustainable or risky," says Merriden Varrall, a researcher at the Lowy Institute in Sydney. So far, China has defied the idea that the party's control of the economy is risky; on the other hand, needed economic reforms are starting to be rolled back "when the political situation gets tight."

In general, says Rajiv Biswas, an Asia-Pacific economist at IHS Markit, after Xi has already led China through five years of stability and rising living standards, "there is underlying confidence ... that he will be a steady hand on the tiller to guide China to the status of becoming a high-income nation."

Xi's consolidation of power will add muscle to his current economic policies. However, the Communist Party's continuing prying into the inner workings of multinationals operating in China is likely to make life more testing for foreign investors, says Jonathan Fenby, a researcher at TS Lombard in London.

The Communist Party is pushing to create "party cells" inside foreign companies in China and has already come under fire for alleged forced technology transfers. Despite this, foreign businesses are certainly not rushing to leave.

"It's too important to be here," says an industry insider who asked not to be named. "This is just adding another layer of question marks, along with how to deal with party cells, etcetera."

A spokesperson for the European Chamber of Commerce in China said the business group doesn't expect "much change for now." However, the chamber sees that "the availability of good advice will be increasingly important."

One of the biggest risks Xi is exposing himself to as he inches towards dictatorship - other than being overthrown by rival political elites - is the lack of honest feedback, which could result in poor decision-making.

Already, Xi's subordinates are afraid to speak up about the risks or consequences of his decisions, an informed source said. It's a climate of fear that could deepen after a new National Supervision Commission this year will extend oversight from party members to all public employees.

"Xi is unfettered domestically; he has grasped all the levers of power and surrounded himself with sycophants," wrote Shirk, of the University of California, San Diego.

And to the extent to which he has associated with efforts to lift China out of poverty, he cannot afford to make economic policy mistakes.

"If his way of managing the economy will start to undermine China's rise, it will undermine his own legitimacy," Varrall says. "He can't afford to not let China rise."

By Simina Mistreanu, dpa

Copyright dpa

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