In the aftermath of this year's Chinese National People's Congress (NPC), the key question is whether the gathering produced any evidence that the government can raise the business community's confidence in its ability to manage the country's most difficult challenges since the 1989 Tiananmen crackdown.
A year ago, President Xi Jinping was confident enough to abolish the constitutional term limit on his office. But the world has changed since then. Today, continuing economic slowdown and paralyzing uncertainty caused by the trade war with the United States have raised serious doubts, especially among Chinese private entrepreneurs, whether their leader can regain his credibility as a pragmatic, flexible problem-solver.
That is why the emphasis of the ten-day annual NPC gathering is on economic stimulus and measures to placate western investors. In his NPC report, Premier Li Keqiang announced corporate tax cuts totaling 2 trillion yuan ($300 billion) and issuance of 2.15 trillion yuan ($310 billion) in new local government bonds to support high-priority investment projects.
The NPC also passed a headline-making new foreign investment law that is supposed to broaden access to the Chinese market and improve the protection of intellectual property.
While these are positive steps, it is doubtful that they have succeeded in achieving the NPC's primary objective this year -- regaining the government's credibility as a reformist administration intent on replacing its state-capitalist system with a genuine market economy and rebuilding its tattered ties with the West.
Credibility is a precious commodity and difficult to regain once lost. Unfortunately, the Chinese government has in the last few years squandered much credibility through both unfulfilled promises and self-inflicted wounds. Few of the reforms pledged in the ambitious blueprint unveiled in November 2013 have been carried out. The unsustainable credit-fueled growth model remains basically intact.
When the government actually tightened credit to deleverage the economy in 2017, the private sector bore the brunt and a large number of private companies went out of business while deleveraging did not force any major indebted state-owned enterprises (SOEs) into bankruptcy. Instead, Beijing has repeatedly vowed to make SOEs "bigger, stronger, and better," as President Xi has said.
Taken together, the record of Beijing's economic policy in the last few years has sapped the business community's confidence in its intention to carry out real reforms and creating more opportunities for the private sector.
The challenge Beijing faces in reducing its credibility deficit can be seen in the discrepancy between its current rhetoric and action. Even as Premier Li declared reported to the NPC that China would continue to deleverage, the People's Bank of China disclosed that the total amount of social financing, a broad measure of new aggregate credit creation, reached 5.3 trillion yuan (about $800 billion) in the first two months of 2019, 1.05 trillion yuan more than the comparable period last year (most of the social financing, 4.67 trillion yuan, was raised in January).
What is most prominently missing in Beijing's efforts to restore confidence, however, is its willingness to address the non-economic factors that weigh on the minds of the business community. Few Chinese senior officials or delegates to the NPC annual session dared to broach these sensitive subjects.
Confidence in a government is holistic. Private entrepreneurs may pay special attention to Beijing's economic policy to evaluate its policy competence. But they also check vital political signs to see if the government is doing the right thing overall.
At the moment, it is not an exaggeration to say that political factors far outweigh economic ones in holding back the animal spirits of the business community in China. Besides Beijing's lamentable record in fulfilling its promises of structural reform, Chinese private entrepreneurs are especially concerned with the rapid deterioration in Sino-American relations on the external front and the revival of Maoist rhetoric and increasing social control at home.
Smart Chinese private entrepreneurs understand instinctively that the unfolding geopolitical confrontation between China and the United States will doom their country's economic prospects. China's tech sector and private companies producing for export markets will be hit the most if the unfolding Sino-American geopolitical rivalry escalates to a full-fledged cold war, as now seems likely.
It requires more than a temporary truce in the trade war to avert such a catastrophe. Yet, during this year's NPC session, Chinese officials continued to gloss over the fundamental causes of the Sino-American geopolitical conflict, such as clashing political values, incompatible economic systems, and conflict security interests. Instead, they rehashed tired rhetoric of mutual benefits from cooperation and offered no hint that Beijing would make critical changes in its foreign policy to ease American concerns and de-escalate geopolitical tensions.
On the home front, private businessmen may not be rooting for democracy in China, but they have no desire to return to the Maoist Dark Ages. They do not need to be reminded that a repressive regime is also bad for business. The arrests, imprisonment, and disappearance of well-known businessmen in the last few years have only underscored the ugly truth that their personal safety and property are at the mercy of their capricious rulers. To be sure, while such risks have always been there in post-Mao China, recent political trends, such as the revival of Maoist political symbols and rhetoric, intensifying social control, and ever-more blatant misinformation in the official media are all warning signs that the ghosts of Maoism may have returned.
Quelling fears about a great political leap backward demands major changes in Beijing's political rhetoric and practices, such as more honest coverage of China's problems in the official media, less propaganda glorifying the party's top leadership, and a significant loosening of social control. Yet, no one can detect from the NPC session that such changes are in the cards.
We do not know whether Chinese rulers are aware that it is impossible to restore confidence in their leadership if they do not complement their economic policy with crucial changes in their foreign policy and in domestic political and social control. But as long as they fail to make such shifts, those looking for evidence that Beijing is willing to address the real cause of its credibility deficit will continue to be disappointed.
Minxin Pei is a professor of government at Claremont McKenna College and currently holds the Chair in U.S.-China Relations at the Kluge Center of the Library of Congress