Neil Thomas 牛犇

What We Are Watching "What is good for Xi Jinping is not always good for China. Since ... the 20th Party Congress in October 2022, the country has endured a difficult post-COVID recovery marked by economic pessimism, weak consumption, and an enduring property crisis." 2/25

This year "may see a worsening disconnect between Xi’s personal power and his ability to deliver governance outcomes, which could bring even greater policy volatility and economic uncertainty." 3/25

"However, Xi’s own decision-making remains a key variable, as he has shown a degree of ideological flexibility when it serves his own political interests." 4/25

The Context "Xi believes that his policies are right for China. He wants to shift the focus of the country’s political economy from the pace of growth to the quality of growth, which he believes should be more equal, green, innovative, open, and coordinated" 5/25

"He wants to make China’s future more economically sustainable and geopolitically secure by changing its primary growth driver from debt-fueled property investments to advanced manufacturing, emerging technologies, and high-productivity industries." 6/25

"This is why Xi stuck to his guns on domestic policy at the Third Plenum in July 2024. He dismisses concerns about consumer difficulties and trade frictions as short-term 'problems of transition' as China completes a long-term economic evolution." 7/25

"Recent stimulus measures do not negate this plan; rather, they aim to stabilize short-term growth and local government finances to enable a longer-term focus on high-quality development." 8/25

"Xi thinks that China’s problems stem less from the content of his policies and more from cadres not implementing them properly. This is perhaps the key difference [in perspective] between Xi and the many observers who disagree with him." 9/25

Last January "he complained at length to the Politburo that many cadres have 'inadequate understanding,' 'old-fashioned concepts,' and 'insufficient ability' when it comes to executing high-quality development." 10/25

"His response was to double down on internal discipline and ideological control. Several [CCP] directives have sought to enhance cadre supervision and improve policy implementation ... the CCP opened disciplinary investigations against [a record number of central cadres]" 11/25

"Unfortunately for Xi, these measures often create fear and paralysis among officials and are unlikely to solve China’s fundamental economic problems." 12/25

"However, Xi is a more complex figure than is often recognized. In one of his most revealing speeches, after the 19th Party Congress, he admitted to senior cadres that even though he said the CCP would be around for a millennium, he actually felt 'a deep sense of worry'.. 13/25

...because even the greatest Chinese dynasties eventually collapsed amid corruption and rebellion. This anxiety about regime security infuses Xi’s worldview and is evident in the growing tension between short-term and long-term economic policies." 14/25

"Long-term economic policy, [like] in the Third Plenum decision, remains focused on structural reforms, but many of them involve difficult adjustments—such as limiting investor options and absorbing losses in the property sector—which put downward pressure on GDP growth." 15/25

"Short-term economic policy allows more consideration of fiscal and monetary stimulus, though bazooka-style stimulus, [significant direct stimulus] for consumers, and marketization remain unlikely." 16/25

"Xi understands that some baseline level of growth is necessary to maintain social stability, propel high-tech industries, and realize his ultimate goal of national rejuvenation." 17/25

What to Expect in 2025 1⃣"Xi will continue to dominate elite politics" "An increasingly empowered disciplinary system enforces cadre loyalty, while a sophisticated domestic security apparatus keeps a lid on elite discontent and public dissent ..." 18/25

2⃣"Xi may increasingly struggle to enact his agenda." "Fiscal strain in local governments, low confidence among entrepreneurs, broader skepticism about Beijing’s agenda, and the possibility of a tariff war...will limit the effectiveness of [Xi's economic policies" 19/25

"A key watchpoint for Xi’s stimulus measures is the extent to which they strengthen indicators of real economic activity, such as private investment, rather than how much they boost the stock market." 20/25

3⃣"[Xi] could double down on political control, economic statism, and assertive nationalism, or he could consider new approaches to policymaking" "Xi’s record implies the former ideas will remain important themes of his governance" 21/25

"But [Xi] is at least somewhat sensitive to economic distress and popular discontent, as shown by moves such as the sudden elimination of COVID-19 lockdowns and the recent loosening of restrictions on private tutoring." 22/25

"A best-case scenario would see Xi ... invest major political capital in an ambitious implementation plan for Third Plenum reforms related to central-local finances, the [hukou] system, and private sector participation in innovation, manufacturing, and technology." 23/25

"The key watchpoint for whether recent stimulus measures portend a broader economic rethink will be Xi’s proposals for the formulation of the 15th Five-Year Plan [for 2026-2030] ... which he should outline at [a CCP plenum] in late 2025." 24/25

Read our piece in full and the other great pieces from my @AsiaPolicy colleagues here: https://asiasociety.org/policy... 25/25