C&B Notes

Xi’s Limitations

Despite President Xi Jinping’s consolidation of power over the nearly four years of his leadership, he still has been unable to control centrally China’s economy.  His inability to limit steel production, for example, highlights his ineffectiveness in cases when the central government’s priorities and incentives conflict with those of local and regional governments.

By night the fires of Tangshan burn and the air stinks.  In this city in the northern province of Hebei, more than 100,000 people work in factories making steel and many more in firms serving the industry.  “Save energy and cut emissions,” reads a red slogan outside one plant, heavy machinery roaring within.  Earlier this year China’s president, Xi Jinping, ordered the steel business to cut production.  Small and inefficient mills like this one were supposed to close and larger ones to shut down some furnaces.  Yet many still operate around the clock.  Their city is close to Beijing, virtually on Mr. Xi’s doorstep, but the steel bosses openly flout his orders.

Nearly four years into his rule, Mr. Xi is commonly described as the most powerful Chinese leader in decades.  He has taken charge of all the most important portfolios, cultivated a huge personal following and purged his opponents. Bypassing ministries, he rules through informal “leading small groups”, heading so many of them that foreign commentators have labelled him “chairman of everything”. Rumors fly (without evidence) that Mr. Xi may even try to extend his powers beyond the normally allotted ten years.  Given his seeming strength, it would be logical to suppose that he could do almost anything he pleases.  The toiling mills of Tangshan, however, suggest how hard the president often finds it to persuade local officials to carry out his wishes.  Mr. Xi may be chairman of everything, and he may well be stronger than any leader since Deng Xiaoping.  But in a country so vast, diverse and with so many entrenched interests, he often seems to be master of nothing.

Mr. Xi spars with crusty generals, powerful bureaucracies and large state-owned enterprises controlled by the central government.  But an even greater impediment to his power is an age-old one: local authority.  This is reflected in a popular saying that refers to the compound in Beijing where China’s leaders live and work: “Policies do not go beyond Zhongnanhai.”

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Local businesses often pay more heed to the market than to mandates.  Some larger mills relit their burners as global steel prices rose.  Local governments have their eye on their revenues, too.  Hebei produces nearly a quarter of China’s steel.  In places like Tangshan the steel industry contributes substantially to tax revenues.  Local banks risk writing off large loans if mills have to shut.  At one, Tangshan Baotai, workers live on-site in low, grey housing.  Those who lose their job lose their home as well.  Local governments fear that lay-offs could fuel unrest.

People desperate to get on China’s property ladder may wish that their plenipotentiary president could do better. Mr. Xi was clearly behind measures announced this month aimed at holding down soaring house prices in the biggest cities. But this effort seems as doomed as previous ones, partly because local governments delight in the market’s surge.  Selling land is a big source of their income; big cities control a very limited supply of it, because of tight restrictions on their expansion.

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The problem is partly one of the party’s own making.  Since the late 1970s the central government has deliberately delegated much decision-making to lower levels of government, encouraging local officials to launch pilot projects and spread good practice.  This has helped the economy become agile and adaptable.  But it has also made top-down government more difficult, sometimes to the detriment of reform.  China’s political system displays “fragmented authoritarianism”, as Kenneth Lieberthal of the Brookings Institution calls it.

Market forces, rather than political ones, increasingly dominate government decision-making beyond the capital — as long as social stability is not compromised.  And with the flourishing of private enterprise, and the collapse of many state-owned firms, the party’s once omnipresent and all-powerful cells have atrophied and weakened.  So Mr. Xi wants to put politics back in command.

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