ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
Ultraleftists call Xi Jinping's policy upheaval a new revolution that takes a harder line on everything from runaway capitalism to effeminate male pop stars.   © Illustration by Daniel Garcia
The Big Story

Bombard the headquarters: Xi Jinping's crackdown keeps growing

The new 'common prosperity' doctrine hearkens back to the Mao era

RICHARD MCGREGOR, Contributing writer | China

Billionaires banished. Celebrities canceled. Private businesses wiped out overnight with the stroke of the ruling communist party's pen, along with a ban on the once-common practice of raising money offshore.

All of which has been prompting officials, investors and indeed anyone with a stake in the future of the world's largest country to ask -- what on earth is going on in President Xi Jinping's China?

Ultra-leftist Chinese offered their own enthusiastic take, calling the policy upheaval a new revolution and urging a harder line against everything from runaway capitalism to effeminate male pop stars.

Not so fast, replied Hu Xijin, the editor of the party tabloid, the Global Times, who stepped in to warn against stirring up "confusion and panic." Hu is notorious in the West as a vocal hypernationalist. In this dispute, he was cast as the voice of cool moderation.

The extreme debate has prompted Chinese commentators to raise the specter of a new Cultural Revolution, an overwrought but telling comparison given the death and destruction wrought by Mao Zedong during the decade from 1966.

Jack Ma went from co-chairing the U.N. High-Level Panel on Digital Cooperation to barely being glimpsed in public.   © AP

The unusually public battle in September between the two commentariats, both amplified by state media and social media platforms, stirred mainstream officials into action.

Their explanations were more soothing, even if the placement of their rejoinders was not. Splashed across the front page of the People's Daily, the Chinese Communist Party's official mouthpiece, a spot usually reserved for important political announcements, Liu He, Xi's chief economic adviser, praised the private sector and insisted it was indispensable to China's development.

Earlier, the securities regulator had offered similar assurances. These came after a national security probe into Didi Chuxing, the Uber of China, was sprung days after Didi's listing in New York, cratering the company's share price.

But it will take more than reassuring words from Xi's inner circle to clear up the mess left by the helter-skelter of policy announcements in recent months.

If senior officials close to Xi are being forced to clarify the country's policy direction, then one can be sure that lower-level officials whose task it is to implement them have little idea.

Bonfire of the Vanities

The political and policy upheaval started last October with a speech in Shanghai by Jack Ma, the founder of Alibaba Group Holding, in which he attacked the country's financial regulators as having a "pawnshop mentality."

The central government's reaction was swift. Ma was summonsed to Beijing and the $30 billion to $40 billion initial public offering of Alibaba's fintech arm, Ant Group, planned for Hong Kong and Shanghai a few days later, was canceled.

The highflying billionaire was transformed overnight into a supplicant, abjectly apologizing to the same officials he had been lording over days earlier and offering the state any part of the company that they thought they might need to take.

His penitence was not nearly enough. Escorted back to the Alibaba headquarters in Hangzhou by security officials, Ma was effectively forced out of the company. Once a ubiquitous presence in China, Ma has barely been glimpsed since.

The downfall of the country's best-known billionaire was the trigger, first for a regulatory blizzard targeting large swathes of the private sector, including pop culture-makers and celebrity-driven media.

In the following months, Xi and his supporters progressively rolled out a more far-reaching agenda that amounts to a big bet that he can overhaul the economy and the rules that have underwritten the country's decadeslong boom.

In the short term, the number of individuals and industries, as well as pastimes that support industries, that have been buffeted by Xi's latest campaign is astounding.

Fintech. Youth gaming culture. Bitcoin mining. Tax evaders. Cloud computing, data management and algorithms. Overseas IPOs. Private tutoring companies. The rules surrounding these technologies, practices and businesses have been turned upside down in the space of a few months.

Celebrity ranking lists have been banned, though it is doubtful that can be sustained. On top of that, at least one celebrity was caught evading taxes and publicly shamed.

 Actress Zhao Wei earlier this year. She has since disappeared from sight.   © Getty Images

Zhao Wei, a famous actor and filmmaker, disappeared from sight almost overnight and saw her name erased from video platforms. She has not been charged with a crime, though some have speculated her closeness to Alibaba made her a target.

No oligarchs allowed

It is hard to pin the crackdown on one event or trigger, and most of the individual actions have their own dynamic and logic.

It is in part regulatory, because of the overreach of privately owned tech giants; in part political, because of the need by the party to stay in control of the economy and eliminate alternative power centers; and in part geopolitical, driven by the policy to decouple key sectors from the U.S.

There is also a whiff in China's crackdown of what America did in response to the excesses of robber-baron capitalism in the U.S. in the late 19th century, which resulted in groundbreaking anti-monopoly measures.

There is a reason why Chinese commentators compare the rise of local tech companies like Alibaba (e-commerce and finance) and Tencent Holdings (gaming and messaging) to 1890s corporate America.

Both eras featured new businesses that enjoyed periods of "barbaric growth" and monopoly dominance before politicians stepped up and used state power to rein them in.

"This is not the end of the socialist market economy, but China has decided to make the market a bit more socialist," said Bert Hofman, formerly the head of the World Bank in China.

The party has long worried about the creation of a politically powerful "oligarch" class, as happened in Russia in the 1990s. They were always going to make sure that did not happen in China.

The one thread that ties together just about all the recent measures is the singular figure of Xi. In power since late 2012, he has ruthlessly eliminated rivals and now commands every powerful position in the country.

Xi has compiled an enormously ambitious agenda, for himself, the ruling party and the country, with hard short- and long-term targets. The economic, cultural and political upheaval in recent months reflects that more than anything else.

Just over the horizon is the 20th party congress toward the end of next year, the once every five years meeting of the country's top communist leaders who will convene to consecrate a new Politburo and general secretary.

Chinese President Xi Jinping abolished term limits for the presidency in early 2018 and is now preparing the ground to win a third five-year term.

Having abolished term limits for the presidency in early 2018, Xi has been preparing the ground to take advantage of the rule change and buck recent tradition by winning a third five-year term.

The first step is securing his reappointment at the next plenum, or full meeting, of the Central Committee, in November, the last before next year's congress. The meeting will focus on why the party "succeeded in the past 100 years and know how it can sustain the success in the future" according to Xinhua, the official news service. Doubtless, Xi will figure in such assessments.

But as powerful as he is, Xi still needs to prepare a road map for the future for his colleagues.

Primary school students may have just been ordered to study "Xi Jinping Thought" as part of their curriculum, which brings them into line with their elders, who have apps on their phones tracking their loyalty to the leader.

Primary school students may have just been ordered to study "Xi Jinping Thought" as part of their curriculum.   © Kyodo

But Xi cannot run on a cult of personality alone, which provides him with a leg-up to a third term. Without a policy agenda, he would be vulnerable to attacks from his legion of enemies.

Running in parallel to internal leadership struggles is geopolitical competition with the U.S., a defining and hydra-headed contest strewed across military, regional, high-tech and ideological battlefields.

Chinese companies are already required to keep all their data onshore, as are U.S. companies, like Apple, operating in China. But as the national security investigation into Didi Chuxing illustrated, Beijing will not allow Washington's regulators even the tiniest of footholds in their companies amid the threat their data could be turned over to U.S. authorities. Zero-sum thinking is driving policy calculations on both sides of the Pacific.

"Common prosperity"

For Xi to command the country and the world, he needs to prevail in his final policy battlefield, in remaking the Chinese economy to ensure it delivers for the urban middle class.

It is here, in Xi's agenda for "common prosperity," the buzzword of the new era, that the contradictions are most at play. After all, Xi is presenting not just a "new deal" for China, but a "red new deal" designed to strengthen and entrench party rule.

Beijing's label for its economic system, "socialism with Chinese characteristics," has long prompted snickers outside of the country, as a rhetorical fig leaf that allows a communist party to preside over unbridled capitalism. No one is laughing anymore.

But while Xi wants the state to occupy the commanding heights of the economy, he also needs a thriving private sector to build businesses, create jobs and drive the kind of risk-taking needed to compete with the U.S. and other developed countries on technology and innovation.

Can he pull it off? Skeptics abound, including Kevin Rudd, a former prime minister of Australia and a Chinese-speaking expert on the country. Rudd told the Asia Society that external threats had empowered the "politics, ideology, security and intelligence" faction surrounding Xi. "And that team, frankly, don't know the first thing about how an economy ticks."

New red guards

On top of that is the hot political climate, of the kind embodied in the screed published in late August by Li Guangman. A hitherto marginal blogger whose writings had been largely confined to obscure neo-Maoist outlets, Li on this occasion was afforded prime real estate in state media to back radical changes to the economy and society.

"This transformation will wipe away all the dust," Li wrote in an essay that first appeared on the social media platform WeChat. "Capital markets will no longer be a heaven where capitalists can make a fortune overnight. The cultural marketplace will no longer be a heaven for sissy-boy celebrities."

The fact that Hu Xijin of the Global Times felt compelled to rebut Li's essay publicly was highly significant, according to Yawei Liu, of the Carter Center.

The usual targets of Hu's venom are liberal Chinese and the West. Lately, he has tangled more and more with Chinese ultranationalists inside his own country who have faulted Hu for being weak.

"Hu is an insider with strong knowledge of how the Chinese government approaches propaganda. Either his own conscience has dictated his behavior, or he was encouraged by someone inside the government to challenge Li," Liu said. "There is one thing for certain: This debate indicates there is a raging debate inside the CCP on the merits of reform and opening up, and on where China is today in terms of social and political stability."

In the Cultural Revolution, Mao Zedong, paranoid about what his rivals might have been up to, set violent gangs on anyone thought to be dissenting from his leadership.   © AP

The language of Li's essay uncomfortably echoed the Cultural Revolution, the decadelong period of chaos unleashed in 1966 by Mao Zedong. Paranoid about rivals, Mao set violent grassroots gangs, "Red Guards" and the like, on anyone thought to be dissenting from Mao's leadership.

The comparisons to the Cultural Revolution are considered overheated by many China experts. Not only is Xi's China vastly different from the country that Mao commanded, but Xi himself has no taste for such disorder.

"Xi Jinping is an intensely difficult person to read, but one of the things I'm most confident about is he thought the Cultural Revolution was a total disaster," said Joseph Torigian of American University in Washington.

"For Xi, the Cultural Revolution was somewhat like [Vladimir] Putin's Dresden moment -- a lesson in what people might do when government loses control." (As a KGB officer stationed in Dresden, East Germany, when the Berlin Wall was coming down in 1989, Putin lamented how the Soviet government in Moscow was paralyzed in trying to respond.)

In the 1980s, Xi himself criticized the Cultural Revolution as a "manifestation of 'big democracy,'" not in "accord with science nor the rule of law, but instead, in accord with superstition."

Carl Minzner of Fordham University in New York, however, is not dismissive of the comparison, saying the "problem is that specific policies adopted by particular leaders sometimes have the opposite result of their initial goals.

"The key question is what risk is there that Xi's revival of key elements of Maoist politics -- single-man rule, total party domination of society and state, and the primacy of ideology -- could lead, intentionally or not, to a revival of other features of Maoist China?"

Widening gap

Xi's new overarching policy of common prosperity did not fall from the sky.

China has debated income inequality ever since Deng Xiaoping set the market loose in the late 1970s and backed "letting some people get rich first" to kick start the economy.

"Since 1978, China has been living with an awkward compromise between Marxist ideology and an increasingly market-driven economy," Hofman said.

Every decade has had similar convulsions over whether, in the Chinese political parlance, policies should be "surnamed socialist" or "surnamed capitalist."

It is also true that China, judged at least by income, has become less unequal over the past decade. A tightening labor market has pushed wages up faster than GDP growth since 2010.

But as in the West, the gap has widened in wealth accumulation, in ownership of shares and property and other assets.

Conspicuous consumption has grown along the way. China does not just produce more than half of the world's steel, its consumers account for nearly half of all luxury goods sold globally.

But as happened in the US, rising inequality is gnawing away at the social compact in China. The cost of living, and of raising children, is becoming prohibitive, which has so far nullified the government's efforts to persuade women to have more children.

China's population will soon begin contracting, something that the ruling party sees as a fatal weakness in the long term.

An old woman walks as another supports her in Shanghai. China’s population will soon begin contracting. (Photo by Ken Kobayashi)

In that respect, Xi's soak-the-rich policy is likely to be popular, just as his anti-corruption campaign starting in 2013 was as well. Many Chinese are doubtless happy to see big shots get their comeuppance.

"What is the global trend?" prominent economist Ren Zeping asked in Caixin, a Chinese financial publication. "It is to reduce the profits and monopolies of real estate, finance, education, Internet, and other industries, as well as the long-term squeezing of people's livelihood."

In their place, Beijing's wants renewed focus on high-end manufacturing, science and technology, green energy sources and infrastructure, all of which will also help it compete with Washington.

So far, so easy. The policy implementation, however, will not be nearly so popular.

China's wealthy have seen the writing on the wall for some time, with a flurry of billionaires and their companies announcing new foundations to give away large chunks of their fortunes. Alibaba and Tencent made their announcements in late August to early September almost in tandem, committing billions of dollars to new charitable foundations.

But as the U.S. illustrates, no amount of ostentatious and generous philanthropy can address entrenched inequality and fiscal shortfalls on their own, nor can they systematically target specific problems.

For that, you need a functioning tax system, and here, China struggles.

After years of debate, the government still balks at taxing residential property, because there is always a bubble here or there that could pop and damage the financial system.

The only way that real estate is taxed is through capital gains after sale. Otherwise, capital gains are not taxed at all.

Residential buildings under construction are seen at Evergrande Cultural Tourism City on Sept. 23.   © Reuters

The bubbles are not imaginary. China Evergrande Group, China's biggest property developer, is currently trying to stave off collapse, with debts reportedly around $300 billion. The Evergrande crisis will induce greater policy caution in the short term.

China has high marginal rates to tax income but little compliance with them. In Beijing, in the noughties, the tax bureaus in different parts of the city were still competing to attract businesses to file their returns in their localities by offering lower rates, as they would benefit from the new revenue.

In 2020, personal incomes tax made up less than 10 percent of the central government's revenues. More than a third came from value-added tax revenue.

Enforcing personal tax compliance brings with it political pain, which so far the government has shied away from. But with the fiscal burden growing, to pay for pensions in a rapidly aging society and correct years of underinvestment in health and education, not to say underwrite a growing bill for defense and internal security, the government will surely have to bite the bullet.

Apart from having to restructure the fiscal system, mainstream Chinese economists worry that the leftward turn will anesthetize the economy's productive potential.

"We must be vigilant against common prosperity becoming a Great Leap Forward or something that blights development," said Li Daokui, a former adviser to the Chinese central bank. It was a remarkable, and brave comparison, as upward of 30 million to 40 million Chinese died in a policy-induced famine in the few years beginning with 1958.

Xi's new policies have a whiff of the campaigns of communist yesteryear, aimed at rearing perfect and politically compliant citizens, and they have been satirized as such in China.

"The socialist successor of the new era does not attend after-school tutoring, does not play video games, does not chase celebrities," said one internet post.

"They finish all their homework at school, read President Xi's selected works for one hour every day, go to sleep before 10 p.m., take the initiative to do chores, urge their parents to have more children, and help look after the elderly."

Xi's new policies are giving off a whiff of communist yesteryear and stoking satirical humor in China.   © Kyodo

The post was soon censored and taken down.

In his early days in office, commentators hunting for a reassuring spin on Xi's authoritarian rule often cited a local political idiom, that the Chinese leader was signaling left, only to turn right.

As far as politics go, it is a tactic as familiar in democracies as in communist-led states, as leaders throw red meat to their bases to shore up support before shifting back to the center.

After nearly a decade in office, nobody says that about Xi anymore. The Chinese leader turned left from the start, and he has stayed there.

Richard McGregor is a senior fellow at the Lowy Institute in Sydney.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more