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China. A Third Term for Xi Jinping.

The reconfirmation of Xi Jinping as Secretary General of the Chinese Communist Party (CCP) opens an unprecedented season for China and the world, as no one before him had been reconfirmed for the third time for this position.

This undoubtedly constitutes a signal of internal strengthening of the current leadership, which has managed to prevail over internal competition and to act as the only point of reference from both an ideological-political and economic point of view, despite the difficulties that the Chinese economy has encountered in recent years.

This reconfirmation could indicate a certain continuity with respect to the two previous mandates, suggesting that China in the coming years will continue the path it took during the first two mandates of Xi Jinping.

If on the one hand this scenario of predictability, which for the European partners can be a reassuring element, can be realized on most of the dossiers, on the other hand, the complexity of the current global economic and political relations will bring an element of novelty to the leadership of Xi Jinping, thus weakening certainties
and long-term forecasts.

The major critical issue that Xi Jinping faces has to do with the growth rates of the Chinese economy which, although high compared to other economies, are actually disappointing for Beijing’s ambitious projects, which aim to overtake the United States as a global economic power. Indeed, in the second quarter of 2022, the country’s GDP grew by just 0.4%, well below the forecast of 1%, and slowing sharply from 4.8% in the first quarter, thus registering the second lowest level since 1992.

The situation has improved in the third quarter of 2022, although the figures are also below expectations. From July to September, China’s GDP grew by 3.9% compared to the previous year, but this makes it significantly more complicated for Beijing to achieve the economic targets set at the beginning of 2022 by the Chinese government, which expected to close the year with a growth rate of 5.5%.

That the economic context is not particularly favourable is confirmed by the fact that the publication of economic data has been postponed due to the concomitance with the XX National Congress of the CCP, precisely to avoid a scenario where the not rather doubtful forecasts should weaken Xi Jinping’s position on the eve of his reconfirmation.

Another sign is represented by the black day recorded on the Hong Kong Stock Exchange, which, following the publication of data from the Statistics Office, recorded negative -4.22% and slipped to the lowest level for the last 13 years.

In this particularly critical context, it seems that Xi Jinping wants to continue a policy inspired by creating an increasingly self-sufficient economy, especially in the technology and food security sectors, favouring decoupling from the United States in critical sectors and promoting driven growth from domestic demand rather
than from exports.

In fact, the Chinese authorities, in line with the fourteenth five-year plan in which the country’s guidelines were decided up to 2025, aim to promote economic growth based on the revival of domestic demand, progressively moving away from the growth structure followed until recently, which focused on exports and attracting foreign investments. China aims to strengthen the expansion of domestic consumption while remaining open to international trade and investment.

Strategically, therefore, China under Xi Jinping’s third term will continue to pursue the goal of making domestic demand the first economic pillar of growth and maintaining openness to the outside without, however, being excessively dependent on it, so as to decrease the vulnerability of the Chinese economy to exogenous shocks.

In this context, it is therefore foreseeable that Beijing will continue with fiscal stimuli, also through tax incentives, to better support Chinese entrepreneurs. Infrastructure development plans will also continue to be financed, above all to connect the megalopolis with rural China.

From this point of view, therefore, Beijing seeks to overcome the previously prevalent approach of financing large infrastructure projects, to instead devote greater attention to the development of the domestic productive fabric.

It will be a priority for Beijing to maintain high consumer confidence and therefore support consumption, as a significant component of Chinese aggregate demand, also in light of trade tensions with Washington and the breakdown of global value chains.

Another factor of continuity seems to be that of the ‘Zero Covid’ policy that Xi Jinping intends to continue, despite the considerable impact it has had on the Chinese economy.

This picture had already emerged from the ‘two sessions’ – the plenary meetings of the National People’s Congress (CNP) and the Chinese People’s Political Consultative Conference (CPCPC) – which were held in March 2022 with the aim of outlining the strategic lines of China’s economic, trade, environmental, and industrial development policy area.

In fact, in the two sessions, the image of China aware of its potential and determined not to give up its strategic objectives was outlined, despite the challenges ahead.

In this context of continuity, Xi Jinping will nevertheless have to deal with a profoundly changed international context due to the war in Ukraine, given that China, which has not yet taken a clear-cut position on the conflict, finds itself in the complex situation of not being able to abandon Russia with the risk that this might further compromise the already troubled relations with Washington.

While Europe is struggling to find new partnerships, Beijing will seek to exploit the reorganization of international relations to find new markets and new ‘entry points’. German Chancellor Olaf Sholz’s trip to China on 3 and 4 November indicated that Germany is ready to offer itself as a partner for Beijing, despite the criticisms that this approach has raised, especially with reference to the sale of the port of Hamburg
to a Chinese logistics company.

In general, therefore, the third historic mandate of Xi Jinping begins with multiple difficulties and with an underlying continuity, aimed at pursuing the ambitious agenda of Beijing through the strengthening of internal stability and the achievement of such a level of self-sufficiency and resilience as to enable it to continue its growth policy without being overwhelmed by the sudden earthquakes that are shaking the international political and economic system.

However, this is countered by the need to rethink international strategies in view of the repositioning of countries due to the invasion of Ukraine by Russia, a necessity that requires a novelty component with respect to an economic policy that cannot fail to take into account the market reactions and the prospects of a global recession. (Photo:Xinhua/Huang Jingwen)

Carlo Palleschi/CeSI

 

 

 

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