Analyzing Xi’s push for a ‘unified national market’

     SinoInsight  1     

• The establishment of “a unified national market system and rules”;
• Breaking of “local protectionism and market segmentation”;
• Opening “key blockages restricting the economic cycle”;
• Promoting the “smooth flow of commodity factors and resources in a wider scope”;
• Accelerating the construction of a “unified national market” that is “efficient and standardized,” has “fair competition, and is “fully open”;
• Comprehensively promote the transformation of the Chinese market “from big to powerful.”

• Continuously promote the “efficient and smooth development of the domestic market and the expansion of its scale”;
• Accelerate the creation of a “stable, fair, transparent, and predictable business environment”;
• Further reduce market transaction costs;
• Promote scientific and technological innovation and industrial upgrading;
• Foster new advantages when participating in international competition and cooperation.

• Strengthen the unification of market-based systems and rules. Systems include property rights protection, market access, fair competition, and social credit.
• Promote high-standard connectivity of market facilities. Market facilities include circulation networks, market information interaction channels, and trading platforms.
• Create a unified market for factors and resources. Factors and resources include urban and rural land and labor markets, capital markets, technology and data markets, energy markets, and ecological markets.
• Promote high-level unification of goods and services markets. Those include commodity quality systems, standards and measurement systems, and consumer service quality.
• Promote fair and unified market supervision. This includes market supervision regulations, market supervision law enforcement, and market supervision capabilities.
• Regulate improper market competition and market intervention. Regulation includes five aspects—strengthening anti-monopoly work, investigating and punishing acts of unfair competition, smashing local protectionism and regional barriers, cleaning up and abolishing regulations and practices that hinder equal access and withdrawal, and cleaning up regulations and practices that violate unified market construction in the field of bidding and procurement.

Xi’s “unified national market” push, however, does not appear to be influenced by Mao worship, megalomania, or a preference for planned economy. When viewed in context of political and geopolitical developments over the past decade, Xi is more likely reacting to practical concerns about the survival of the regime and his personal power.

2. Xi Jinping inherited a Chinese economy with shaky fundamentals and which was already headed for decline when he took office in 2012. During the Jiang-Hu era when the Jiang Zemin faction was dominant, the economy pivoted away from the “real” (manufacturing, services, etc.) and towards the “fictitious” (financialization, local governments selling land, etc.) in the wake of the 4-trillion-yuan stimulus package in 2008, and saw the real estate bubble expand and debt surge to unhealthy and risky levels. The Jiang faction also laid the groundwork for many of the regime’s problems that are affecting the economy today, including sticking with the “one-child” policy despite growing signs of population crisis, as well as creating conditions that led to serious environmental degradation, energy problems, food problems, and rising unemployment.

Xi also needed to accommodate the CCP’s alternation between survival and dominance priorities on the world stage. After the 2008 financial crisis ravaged the U.S. and world economies, the PRC under Hu Jintao began to introduce a narrative that “the East is rising, the West is in decline” (東升西降). The CCP’s ambition to overtake America is perhaps best exemplified by Wang Qishan’s famous quip to then-U.S. Treasury Secretary Hank Paulson in 2008, “You were my teacher. But now I’m in my teacher’s domain, and look at your system, Hank. We aren’t sure we should be learning from you anymore.” The CCP’s focus on establishing its international domination saw Xi introduce policies like “Made in China 2025” during his first term.

However, Xi and the CCP would soon refocus their priorities on regime survival during Xi’s second term. Beijing struggled to cope with the Sino-U.S. trade war and the Trump administration’s “China Challenge” policies. The international community also grew more wary of and willing to stand up to the Party and the PRC over Beijing’s “great power diplomacy” (“wolf warrior” diplomacy), de facto ending of “one country, two systems” in Hong Kong, gross human rights abuses in Xinjiang, aggressiveness towards Taiwan, belligerence in the South China Sea and at the Sino-Indian border, and other subversive actions like economic espionage and United Front work. The CCP’s prioritization of regime survival led Xi to promote greater self-reliance through policies like “dual circulation” and “common prosperity.”

To support the Party’s “survival-domination” dynamic and fix the economic problems left behind by his predecessors, Xi had to implement market and economic reform. Notable earlier policies include:

• November 2013: Proposal at the Third Plenum of the 18th Central Committee to “deepen economic system reform by centering on the decisive role of the market in allocating resources, adhere to and improve the basic economic system, accelerate the improvement of the modern market system, macro-control system and open economic system.”
• May 2015: Roll out of the “Made in China 2025” industrial policy to grow China’s manufacturing sector and reduce reliance on foreign countries. Under the policy, the PRC aims to reach 70 percent self-sufficiency in high-tech industries by 2025 and attain a dominant position in world markets by 2049, the regime’s centennial.
• October 2017: Xi’s 19th Party Congress report said that the market “plays the decisive role in resource allocation, the government plays its role better, and industrialization, IT application, urbanization, and agricultural modernization go hand in hand.” The report also proposed to “do away with regulations and practices that impede the development of a unified market and fair competition, support the growth of private businesses, and stimulate the vitality of various market entities.”
• October 2019: The Fourth Plenum of the 19th Central Committee proposed building a “high-standard market system,” improving the system of fair competition, fully implementing a negative list for market access, reforming the production licensing system, and strengthening the bankruptcy system.
• May 2020: Introduction of a “dual circulation” policy that “takes the domestic market as the mainstay while letting internal and external markets boost each other.”
• October 2020: The Fifth Plenum of the 19th Central Committee proposed improving the market’s basic system; ensuring market participants get equal market access, fair supervision, openness and order, and integrity and lawfulness; and forming a “unified national market” that is “efficient, standardized, and observes fair competition.”
• August 2021: Announcement of a “common prosperity” equity agenda. Part of the agenda involves “persevering in public ownership as the mainstay” alongside the “common development of multiple ownership economies,” and allowing “some people to get rich first.”
• December 2021: The 23rd meeting of the Central Comprehensively Deepening Reforms Commission reviewed and approved an opinion on “accelerating the construction of a unified national market” (關於加快建設全國統一大市場的意見). In speaking to the meeting, Xi called for building a “new development pattern,” urgently speeding up the construction of a “unified national market” that is “efficient, standardized, observes fair competition, and is fully open,” establishing the system and rules for a “unified national market,” and promoting the smooth flow of commodities and resources on a larger scale.

3. For all his talk and policies, Xi Jinping has hardly seen any breakthrough in economic and market reform over the past 10 years. This is the result of three factors, namely, CCP bureaucratic culture, factional struggle, and Xi’s lack of political strength. The first factor has constantly haunted Xi throughout his tenure, while the latter two factors form the bulk of the reason for Beijing’s inability to actualize reform and the occurrence of prominent financial crises during Xi’s first term.

While Xi is a princeling, he came to office as a political “weakling” as he did not belong to any elite faction or possess one of his own. The Bo Xilai scandal and its aftermath immediately put him up against the powerful Jiang faction, whose cronies dominated the officialdom and whose members had a strong influence in the financial sector. Xi was able to launch the anti-corruption campaign shortly after becoming Party boss and move against Jiang faction officials because he had the backing of very influential Party elder clans (including the family of Ye Jianying) and other Party princelings who had a bone to grind with the Jiang faction. However, Xi still needed to consolidate power and establish his “quan wei” (authority and prestige) to ensure that his leadership’s orders are taken seriously and mitigate the severe problem of “orders not leaving the gates of Zhongnanhai” (政令不出中南海) that his immediate predecessor Hu Jintao largely failed to overcome.

CCP bureaucratic culture, factional struggle, and Xi’s lack of political strength were at play to varying degrees when Beijing sought to advance economic and market reform during Xi’s first term. China quickly saw a “cash crunch” in 2013 after Li Keqiang rolled out so-called “Likonomics” (ending fiscal stimulus, deleveraging, structural reform) and the central bank initially refused to ease monetary policy to benefit overleveraged shadow banks who were dependent on short-term funding; Jiang faction officials and those used to the way things were during the Jiang-Hu era appeared to have little regard for Xi’s political strength and ignored Beijing’s economic policy. Likewise, the “decisive role of the market” proposal at the Third Plenum of the 18th Central Committee in 2013, which generated much enthusiasm at home and abroad, petered out into nothing due to the three factors. The three factors also saw the Shanghai Free-Trade Zone failing to take off (an episode that saw Li Keqiang slam his fist on his desk in frustration) and the 2015 stock market turbulence, which Chinese observers believe was a “financial coup” by the Jiang faction against the Xi leadership.

Xi Jinping appears to have seen a reduction of significant factional struggle moves that resulted in economic and financial turmoil in his second term. This is due to continuous anti-corruption purges, Xi tightening his grip over the People’s Liberation Army in 2016 through military reform, and Xi consolidating power to a higher degree at the 19th Party Congress. However, Xi is still experiencing difficulties in pushing economic and market reform because the three factors had not been adequately dealt with.

The Xi leadership only started making inroads into clearing out factional networks in the financial sector in his second term because he did not have the political strength to even begin the endeavor earlier. Xi’s effort to clean up the financial sector has also moved slowly for most of his second term, likely because Wang Qishan was no longer anti-corruption czar and the Xi leadership is cautious of strong pushback that could result from ramped up purges and heightened enforcement of regulation. Indeed, the Xi leadership’s targeting of the Jiang faction when cracking down on tech giants in late 2020 and 2021 has had an adverse effect on the economy even as further financialization was curbed; Chinese tech stocks plummeted, tech companies began to layoff staff in the thousands, and foreign investors withheld or withdrew capital from China in accounting for rising political risks.

CCP bureaucratic culture and Xi’s political strength are linked to a degree. During Xi’s first term, officials used to lax Party discipline and looser central control felt that they could safely ignore the political “weakling” in Beijing and focus on local interests. As Xi gained political strength and showed with his sweeping anti-corruption purges that he meant business, officials have little choice but to take action only after Beijing issues orders. However, officials steeped in Party culture tend to adopt “prefer left rather than right,” “one-size-fits-all,” and “campaign-style” approaches when implementing central directives, and are wont to find subtle means of putting local interests before the broader needs of the regime. For example, some local governments have been known to set up regional economic barriers in the name of implementing “dual circulation,” while others have restricted the flow of goods from their localities on the grounds of “epidemic prevention and control.” CCP bureaucratic culture means that “orders not leaving Zhongnanhai” changed in form but not in substance even though Xi’s political strength increased over the years.

Xi is definitely much stronger politically now as compared to a decade ago. But he is still nowhere near the all-powerful, Mao-level dictator that mainstream observers make him out to be. For one, Xi would not need to constantly harp on economic and market reform for nine long years (see point 2) if his Third Plenum policies were being duly implemented. And even after consolidating power for a decade, the Xi leadership has only just issued an “opinion” on “accelerating the construction of a unified national market” now, which suggests that there is still a long way to go before it becomes an implementable policy. This in turn signals a lack of confidence in Beijing that the policy can be actualized and possible resistance to the plan.

4. To overcome the hurdles of bureaucratic culture, factional struggle, and political strength, the Xi leadership is looking to double down on centralization, consolidation, and regulation through the “unified national market” strategy.

On paper, the Xi leadership’s “unified national market” seems like an excellent solution to the PRC’s troubles. In the ideal scenario, the “unified national market” will tame the “disorderly expansion of capital,” attract investment to the “real economy,” reduce China’s dependence on exports, revitalize the manufacturing sector, and boost employment through “dual circulation.” The CCP’s much-hyped “1.4 billion-strong domestic market” is also fertile ground for the testing and application of new technologies, giving the PRC an edge over other nations. In time, Xi Jinping would be able to mitigate geopolitical pressures threatening regime survival and better support the CCP’s competition against the U.S. and world domination efforts. At home, the Xi leadership would overcome “local protectionism and market segmentation,” gradually root out factional resistance while establishing new power networks loyal to Xi, strengthen his control over the regime, and achieve the so-called “great rejuvenation of the Chinese nation.”

However, the reality of factional struggle and the inherent deficiencies of the CCP system conspire to dash Xi’s latest effort to resolve the regime’s “survival-dominance” problems and shore up his own leadership position. The bureaucracy’s inclination to Party culture stems from the CCP itself and its pernicious ideology, and cannot be overcome as long as the Party endures as such. Party culture and the stifling nature of a totalitarian regime also mean that Xi can accumulate power and control endlessly, but will still be rendered helpless to fix the economy, which usually thrives when people and businesses enjoy freer conditions. Finally, Xi’s political enemies will not allow themselves to be mopped up by Party Central given the “you die, I live” nature of factional struggle in the CCP elite, and will almost certainly fight fiercely even if it risks “perishing together.” Like his earlier economic and market policies, Xi’s dream of a “unified national market” is in all likelihood doomed to remain a paper project.