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Economy

Grand plans will test Xi's mettle

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Workers rest in front of a wall at a construction site in a business district in Beijing in October.   © Reuters

Since Xi Jinping became China's president in early 2013, three hallmarks have stamped his leadership style: rapid accumulation of power and high-ranking positions that has earned him the nickname "chairman of everything"; a robustly self-confident manner and strongman image, increasingly burnished by a personality cult; and a flair for bold, eye-catching initiatives.

     The president's energy and personal authority, exceeding that of any Chinese leader since Deng Xiaoping, are indisputable. But can he actually perform? Will he deliver the sweeping changes his country needs to meet pressing challenges ranging from a broken economic model and mounting debt to a fast-ageing population, severe environmental degradation and acute water shortages?

     His standout achievement to date, and by all accounts his overriding priority, is a relentless anti-corruption drive, aimed at purifying the ruling Communist Party and restoring its effectiveness as an instrument of political control. The drive has led to the detention and indictment of more than 100,000 people, some close to the pinnacle of power, and its net continues to widen.

     Progress on implementing other parts of Xi's agenda has been patchier, however. Wide-ranging economic reforms, intended to replace reliance on capital investment and manufacturing with consumption and services as the drivers of growth, have struggled to gain traction since they were announced two years ago.

     Caijing, an influential independent business magazine, has found that of 133 categories of reform, only 23 are on track and the rest are in the slow lane. Much of the action has focused on modernizing the country's still rudimentary financial system. In other crucial areas, such as slimming down bloated and inefficient state-owned industries, strong resistance by vested interests, political obstructionism and fear of large-scale job losses have resulted in a more cautious approach.

     In part, the slow start may reflect the fact that Xi, who is not an economist, has been heavily preoccupied with other issues, above all the anti-corruption campaign. Some economic advisors say they have difficulty arranging face-to-face meetings with him, while complaints abound that shifting decision-making out of government and into party committees that the president chairs has led to policy logjams and inertia.

The OBOR factor

Xi may judge that he can get away with leaving the economy to muddle through without radical surgery for a while longer; and, perhaps, that if things go badly wrong he can find a scapegoat to blame. But that may be harder with another grand scheme that has also got off to a slow start: "One Belt, One Road," the two-year-old plan to invest billions of dollars in land and sea arteries that will link China with about 60 countries in Asia, Europe and ultimately Africa, collectively accounting for 40% of global gross domestic product.

     OBOR, also known as the New Silk Road, is widely viewed as the signature theme of Xi's presidency and the tangible embodiment of his ambition to realize "the China Dream" of energizing national regeneration and cementing the country's place as a great global power. His personal prestige therefore has a lot riding on its success.

     However, OBOR is longer on sweeping vision than on nuts-and-bolts practicalities. Ben Simpfendorfer of Silk Road Associates, a Hong Kong-based consultancy, calls it "a mission statement." Less charitably, a western diplomat in Beijing describes it as "little more than a slogan." That has left Chinese officials struggling to turn lofty but often vague aspirations into a viable action plan.

     Few sizable infrastructure contracts have been signed so far and concrete projects remain scarce. European officials whom China has approached about participating in OBOR say Beijing has been slow to table specific proposals for co-operation and nobody seems to be in overall control (even though the influential National Development and Reform Commission is supposed to be in charge).

     Delays, indecision and bureaucratic turf battles are said to have left Xi increasingly frustrated. According to one senior Chinese official, he recently delivered an ultimatum threatening serious consequences unless at least one big, headline-grabbing project got off the launchpad in the coming year.

     One problem is that too many objectives have been set for OBOR. Economically, it is supposed to spread prosperity to backward Chinese provinces and other countries, while soaking up some of China's excess industrial capacity and providing more dependable routes for transporting energy and resources supplies. Financially, it offers a way to diversify part of China's foreign exchange reserves into more productive assets. And politically, it is intended to bind Asian countries into a dense web of economic networks, with China at their center.

     There is a security dimension, too. Beijing is acutely aware that US military withdrawal from Afghanistan may leave a power vacuum on the borders of the Chinese province of Xinjiang, with its large and restive Muslim population. By stimulating economic activity, it is hoped, OBOR will help stabilize the region and contain Islamic insurgency.

     The promise of government subsidies has led to still further objectives being tacked on, as local authorities have re-badged as OBOR projects pet schemes that they have so far been unable to fund. All this, however, threatens to turn OBOR into a Christmas tree, while loose overall control increases the risk of white elephant investments.

     Already, doubts are being cast on some of the project's economics. Experts say too few people live in the area between the Russian border and the Chinese city of Xian, where OBOR is due to start, for that section ever to be financially viable. Some central Asian states object that their development is constrained less by scarce capital than by their economies' limited capacity to absorb large amounts of it. In addition, China's expectations that its companies will get the lion's share of projects that it helps finance have not gone down well elsewhere.

     Meanwhile, Beijing's hopes of using OBOR to stabilize neighboring countries such as Afghanistan could backfire if, instead, it becomes sucked into complex regional entanglements and conflicts that it is ill-prepared to handle. Indeed, Wang Jisi, the influential dean of the School of International Studies at Peking University, has warned that insurgency, unrest and hostile reactions in other countries could put OBOR at risk, especially if China fails to underpin it with a coherent broader geopolitical strategy.

     On top of all that, the project may face financial constraints. Capital has been fleeing China in large volumes this year, while keeping growth going and dealing with debt seems set to consume more fiscal resources. As a result, some observers believe, the sums earmarked for OBOR may have to be scaled back.

     All this suggests that OBOR, like China's economic reforms, is likely to fall short of the initial, arguably overblown, expectations that they generated. However, it does not necessarily mean the initiatives are doomed to fail. Reforms must be implemented at some point, because failure to advance them would pile up still bigger economic problems, weakening the foundations of the Communist Party's claim to popular legitimacy and its monopoly on power.

     OBOR, meanwhile, is at least going with the flow. Simpfendorfer points out that Asia's growth and need for modern roads, railways, ports, electricity, telecommunications and other kinds of basic infrastructure are set to create sustained long-term demand for substantial investment. But how much OBOR will contribute to meeting that demand, how far Xi and his fellow leaders can plausibly claim credit for it and whether the results will match up to his visionary rhetoric are all still open questions.

Guy de Jonquieres is a senior fellow at the European Centre for International Political Economy, a Brussels-based think tank, and formerly a journalist with the Financial Times.

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