Saudi Press

Saudi Arabia and the world
Saturday, Feb 22, 2025

Xi Jinping is reinventing state capitalism. Don’t underestimate it

Xi Jinping is reinventing state capitalism. Don’t underestimate it

China’s strongman leader has a new economic agenda
AMERICA’S CONFRONTATION with China is escalating dangerously. In the past week the White House has announced what may amount to an imminent ban on TikTok and WeChat (two Chinese apps), imposed sanctions on Hong Kong’s leaders and sent a cabinet member to Taiwan.

This ratcheting up of pressure partly reflects electioneering: being tough on China is a key strut of President Donald Trump’s campaign. It is partly ideological, underscoring the urgency the administration’s hawks attach to pushing back on all fronts against an increasingly assertive China.

But it also reflects an assumption that has underpinned the Trump administration’s attitude to China from the beginning of the trade war: that this approach will yield results, because China’s steroidal state capitalism is weaker than it looks.

The logic is alluringly simple. Yes, China has delivered growth, but only by relying on an unsustainable formula of debt, subsidies, cronyism and intellectual-property theft. Press hard enough and its economy could buckle, forcing its leaders to make concessions and, eventually, to liberalise their state-led system. As the secretary of state, Mike Pompeo, puts it, “Freedom-loving nations of the world must induce China to change.”

Simple, but wrong. China’s economy was less harmed by the tariff war than expected. It has been far more resilient to the covid-19 pandemic—the IMF forecasts growth of 1% in 2020 compared with an 8% drop in America.

Shenzhen is the world’s best-performing big stockmarket this year, not New York. And, as our briefing explains, China’s leader, Xi Jinping, is reinventing state capitalism for the 2020s. Forget belching steel plants and quotas.

Mr Xi’s new economic agenda is to make markets and innovation work better within tightly defined boundaries and subject to all-seeing Communist Party surveillance. It isn’t Milton Friedman, but this ruthless mix of autocracy, technology and dynamism could propel growth for years.

Underestimating China’s economy is hardly a new phenomenon. Since 1995 China’s share of world GDP at market prices has risen from 2% to 16%, despite waves of Western scepticism.

Silicon Valley chiefs dismissed Chinese tech firms as copycats; Wall Street short-sellers said ghost towns of empty apartments would bring a banking crash; statisticians worried that the GDP figures were fiddled and speculators warned that capital flight would cause a currency crisis.

China has defied the sceptics because its state capitalism has adapted, changing shape. Twenty years ago, for example, the emphasis was on trade, but now exports account for only 17% of GDP.

In the 2010s officials gave tech firms such as Alibaba and Tencent just enough space to grow into giants and, in Tencent’s case, to create a messaging app, WeChat, that is also an instrument of party control (see article).

Now the next phase of Chinese state capitalism is under way—call it Xinomics. Since he took power in 2012 Mr Xi’s political goal has been to tighten the party’s grip and crush dissent at home and abroad. His economic agenda is designed to increase order and resilience against threats. For good reason.

Public and private debt has soared since 2008 to almost 300% of GDP. Business is bifurcated between stodgy state firms and a Wild West private sector that is innovative but faces predatory officials and murky rules. As protectionism spreads, Chinese firms risk being locked out of markets and denied access to Western technology.

Xinomics has three elements. First, tight control over the economic cycle and the debt machine. The days of supersized fiscal and lending binges are over. Banks have been forced to recognise off-balance-sheet activity and build up buffers. More lending is taking place through a cleaned-up bond market. Unlike its reaction to the financial crisis of 2008-09, the government’s response to covid-19 has been restrained, with a stimulus worth about 5% of GDP, less than half the size of America’s.

The second strand is a more efficient administrative state, whose rules apply uniformly across the economy. Even as Mr Xi has used party-imposed law to sow fear in Hong Kong, he has constructed a commercial legal system in the mainland that is far more responsive to businesses. Bankruptcies and patent lawsuits, once rare, have risen fivefold since he took office in 2012. Red tape has been trimmed: it now takes nine days to set up a company. More predictable rules should allow markets to work more smoothly, boosting the economy’s productivity.

The final element is to blur the boundary between state and private firms. State-run companies are being compelled to boost their financial returns and draw in private investors. Meanwhile the state is exerting strategic control over private firms, through party cells within them.

A credit blacklisting system penalises firms that misbehave. Instead of indiscriminate industrial policy, such as the “Made in China 2025” campaign launched in 2015, Mr Xi is shifting to a sharp focus on supply-chain choke-points where China is either vulnerable to foreign coercion or where it can exert influence abroad. That means building up self-sufficiency in key technologies, including semiconductors and batteries.

Xinomics has performed well in the short term. The build-up of debt had slowed before covid-19 struck and the twin shocks of the trade war and the pandemic have not led to a financial crisis.

State-run firms’ productivity is creeping up and foreign investors are pouring cash into a new generation of Chinese tech firms. The real test, however, will come over time. China hopes that its new techno-centric form of central planning can sustain innovation, but history suggests that diffuse decision-making, open borders and free speech are the magic ingredients.

One thing is clear: the hope for confrontation followed by capitulation is misguided. America and its allies must prepare for a far longer contest between open societies and China’s state capitalism.

Containment won’t work: unlike the Soviet Union, China’s huge economy is sophisticated and integrated with the rest of the world. Instead the West needs to build up its diplomatic capacity (see article) and create new, stable rules that allow co-operation with China in some areas, such as fighting climate change and pandemics, and commerce to continue alongside stronger protections for human rights and national security.

The strength of China’s $14trn state-capitalist economy cannot be wished away. Time to shed that illusion.
Newsletter

Related Articles

Saudi Press
0:00
0:00
Close
Saudi Arabia and the United States Strengthen Ties Amid Global Developments
Saudi Arabia Hosts Global Conference to Promote Islamic Unity
The Impact of Artificial Intelligence on Education and Child Development
Saudi Arabia Announces Competition for Best Founding Day Outfits
Saudi-EU Food Security Officials Hold Talks to Strengthen Collaboration
Putin Expresses Gratitude to Saudi Crown Prince for Hosting US-Russia Talks
UK and Saudi Arabia Enhance Collaboration in Innovation and Technology
Denmark's Embassy in Riyadh Showcases Danish Cuisine with Saudi Influence
Saudi Artist Salman Al-Amir Unveils 'Tafawut' Exhibition in Riyadh
Saudi Arabia Offers Condolences to Kuwait Following Military Exercise Fatalities
Saudi Ministry of Islamic Affairs Completes Ramadan Preparations in Madinah
Etidal Secretary-General Hosts UN Counter-Terrorism Director in Riyadh
ADNOC Drilling Targets Over $1 Billion in Investments for 2025 Amid Gulf Expansion Plans
Derayah Financial Achieves Remarkable Growth in Saudi Brokerage and Asset Management
Saudi Arabia Shortlists 30 Firms for Mining Licenses in Eastern Province and Tabuk
Saudi Foreign Minister Engages Counterparts at G20 Meeting in Johannesburg
Oil Prices Decline Amid Rising US Inventories
Saudi Arabia's NDMC Plans Green Bond Issuance by 2025
Moody’s Affirms Egypt’s Caa1 Rating Amid Positive Economic Outlook
Oman and Saudi Arabia Strengthen Economic Ties with New Agreements
Saudi Arabia Investments Propel Expansion of Qurayyah Power Plant
Saudi Capital Market Authority Advances SPACs and Direct Listings
Global Energy Leaders Gather in Riyadh for Symposium on Energy Outlooks
Al-Ahsa Region Sees 500% Growth in Tourism as Saudi Arabia Prioritizes Development
Saudi Arabia Advances Entrepreneurial Ecosystem in Al-Ahsa with New Agreement
King Salman Approves Official Saudi Riyal Symbol
Saudi Credit Card Lending Reaches $8.4 Billion Amid Digital Payment Expansion
King Salman Approves Official Symbol for Saudi Riyal
Putin Thanks Saudi Crown Prince for Facilitating U.S.-Russia Discussions
Saudi Foreign Minister Attends G20 Meeting in Johannesburg
Saudi Arabia Prepares for Nationwide Founding Day Celebrations
Inauguration of Hira Park and Walkway Enhances Jeddah's Urban Landscape
Crown Prince Hosts Leaders for Informal Meeting in Riyadh Amid Gaza Rebuilding Plans
Saudi Official Highlights Achievements and Media's Role in National Transformation
Three Expatriate Women Arrested for Prostitution in Riyadh
Saudi Arabia's Diplomatic Evolution Highlighted at Saudi Media Forum
Healthy Eating and Preparation Essential for Ramadan Fasting
Saudi Arabia and Japan Forge Sustainable Textile Partnership
Advanced Limb Surgery Restores Mobility in Pediatric Cancer Patient
Jeddah Event Explores AI's Role in Boosting Saudi Arabia's SME Sector
UN Representative Highlights AI's Role in Perpetuating Gender Stereotypes
Saudi and Jordanian Leaders Discuss Enhanced Security Cooperation in Amman
Saudi British Society Honors Cultural Bridge-Builders at London Gala
Saudi Media Forum 2025 Explores AI's Role in Modern Journalism
Saudi Arabia's Saqer Al-Moqbel Appointed as WTO General Council President for 2025–2026
Saudi Deputy Ministers Engage in Diplomatic Discussions with U.S. and Dutch Officials in Riyadh
Saudi Arabia to Launch Iftar Program in 61 Countries During Ramadan
Saudi Visitors Expected to Spend £942 Million in UK During 2025
Saudi Arabia Gifts Kaaba's Kiswah to Uzbekistan's Center of Islamic Civilization
Digital Cooperation Organization Concludes Fourth General Assembly with Multiple Agreements
×