Column | Why China is rediscovering 'Communism' 40 years after opening up its economy

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After 40 years of allowing market forces to drive prosperity and becoming the second biggest economy in the world, China is discovering the merits of “common prosperity” by demolishing mammoth enterprises and imposing state control over the vital sectors of the economy. It is not very clear whether this change is prompted by the extraordinary economic problems China faces like the slowdown of the rate of growth, falling property market and power failures or by the pressures within the Chinese Communist Party on the eve of President Xi Jinping’s unprecedented third term. The pandemic, measures in the Indo-Pacific against China and China’s adventures in Ladakh, Hong Kong and Taiwan also had an impact on China.

Story goes that President Xi was having a chat with some school students in June this year when the issue of the enormous cost of private tuition came up. Acknowledging the growing pressure on students and their parents to spend time and money on private tutoring, Xi promised to ease their burden. “We must not have out-of-school tutors doing things in place of teachers,” he said. “Now, the education departments are rectifying this.” Soon, there was a crackdown on tutoring companies, showing the starkest illustration yet of the Chinese president’s commitment to a sweeping new vision for China, where the interests of investors take a distant third place after social stability and national security.

China ordered tutoring companies to become non-profits, accelerating a sell-off that erased $1.5 trillion from Chinese stocks and dented the portfolios of some major companies. Deng Xiaoping had held that there was no harm in some people getting rich ahead of the others, but now China has set different goals: common prosperity and national security.

Three big mountains”

The focus is now on what has been dubbed the “three big mountains”: the crushing burden of payments for education, healthcare and property. With its Communist mindset, China has no concern about discouraging flourishing companies or even about letting them leave. The tech companies have been targeted in the name of data security like in the case of Alibaba and some other giants of technology.

In view of the unaffordable property prices for the middle class, China has begun to clampdown on huge building conglomerates like Evergrande, driving them to huge debt.

Three priorities now

China this year began a new development phase with three priorities, National security, which includes control of data and greater self-reliance in technology; common prosperity, which aims to curb inequalities; and stability aimed to reduce discontent among stretched workers, stressed parents and small start-ups.

The regulatory pace intensified when a top economic planning meeting chaired by Xi vowed to rein in the “disorderly expansion of capital.” China sees the economy as something that can thrive through state planning, even if that rides roughshod over the rights of entrepreneurs and their backers. China is not even averse to the idea that some companies and financiers should leave China. There are already efforts to increase self-reliance in some areas, which entail replacement of foreigners.

Climate change too matters

China appears to have also realised that it should give attention to climate change even as it fights, like India, for climate justice, pointing out that net carbon zero targets are not achievable without external funding and technology. Having agreed tentatively to 2050 as the target year for net zero carbon status, it is keen to begin decarbonising during the Winter Olympics to demonstrate their sincerety. China is also reducing domestic consumption of coal and gas and appears willing to accept a slower growth.

Will new direction alter growth trajectory?

Though the direction that China is giving to its economy is clear, its impact may eventually hurt the economy and a push back may become necessary. The cost of the changes may take some time to show. Even if China succeeds to deliver on growth, the focus on “common prosperity” may alter the growth trajectory and investors will have to settle for smaller profits. Just as the US strategy of decoupling is not working as Chinese exports to the US are growing, China may not be able to reduce its dependence on foreign markets and investments. Once Xi secures his next term and the post-Covid world stabilises, the lure of the market forces may attract China again. Tasting the blood of the market economy may turn addictive even to the Communists.

Lessons for India, others

The world gets impacted whether the dragon grows big and seethes fire or gets weaker and looks for alternative strategies. The changes in China will be deeply studied by the world. Some of its actions may have a message for India also. The trend in India of tutoring agencies replacing school education at much higher costs with foreign investment is something we should look at in the light of Chinese experience. Like China, India already has an “atmanirbhar” agenda. Whatever system China may adopt, the world will remain watchful and alert.

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