Since Chinese Communist Party Secretary General Xi Jinping came into power more than a year ago, much has been written about his consolidation of political power, his more hardline approach to foreign policy as well as his anti-graft campaign.
On the economic front, Premier Li Keqiang has been doing most of the talking. He has resisted the temptation to open the purse to stimulate the economy in the face of much weaker growth momentum.
So what does Xi, arguably the most powerful political leader in China since Deng Xiaoping, think about the economic policy? Yang Weiming, the deputy head of the leading group for financial and economic affairs (the most powerful economic decision-making body in the country) penned an article in Study Time, the official journal of the central party school, explaining Xi’s top ten economic priorities.
(1) Beijing plans to double the country’s GDP as well as the income of its citizens within this decade. Provincial and local officials usually set up their growth goals above the national target in order to stand out, but Xi wants to make sure that local officials take regional disparities and local conditions into account when setting their goals.
Many provinces have recently lowered their own GDP growth targets to cater to Xi’s preference for slower and more sustainable growth. Hebei province, which is responsible for much of China’s steelmaking capacity, is deliberately shedding capacity to meet Beijing’s demand for more environmentally friendly industrial policies.
(2) When comes to the economic growth rate, Xi thinks speed is important, but quality, efficiency and sustainability also matter. Though Beijing has an official growth target of 7.5 per cent, it has made it repeatedly clear that the government would tolerate a slower growth rate below the target provided that certain red lines -- such as the unemployment rate -- are not crossed.
(3) Xi understands that China is going through a tough period of economic adjustment. The country is under a triple assault of recovering from the after-effects of 4 trillion yuan stimulus package, which saddled local governments with debts and excess capacity, implementing painful structural change as well as adjusting to much lower growth.
After three decades of fast growth and a lost decade of reform under the previous government, a lot of problems are beginning to surface. 2014 and the subsequent few years will be a very testing time for the Chinese leadership.
(4) Xi wants to maintain “strategic calm” in face of mounting problems, which means resisting the temptation to fall back into the old habit of using fiscal stimulus to prop up the economy. It seems that the bitter after-effects of the 2008 stimulus package still haunt policymakers today.
(5) Xi is determined to rein in the problem of massive over-capacity in the Chinese economy. Yang says the party boss is willing to break his “bones and tendons” to address the issue of overcapacity in sectors such as steel, shipbuilding and solar industries.
For example, the steel industry has a debt to equity ratio of 80 per cent and many steel mills are essentially on life support from China's state-owned banks. The government has been taking a relatively hard line in shutting down blast furnaces in provinces like Hebei to curb excess capacity.
(6) Beijing sees urbanisation as the next new driver of the country’s economic development. China’s urbanisation rate is 53.7 per cent. However, Xi warns against development aimed at lifting the urbanisation rate artificially.
Urbanisation should be regarded as a natural process of Chinese economic development and it should not be pursued as a political objective, says Xi, according to his senior economic advisor Yang. It is clear that China is already suffering from massive over-investment in the property sector, especially in third and fourth-tier cities.
(7) Xi wants to create a mega-metropolis around Beijing that would incorporate Hebei and Tianjin and he wants to transfer some of Beijing’s non-essential functions to other smaller satellite cities around Beijing. In fact, there are market rumours about moving part of the government bureaucracy to Baoding, a medium-sized city in Hebei. The property market there is going through the roof.
(8) Xi wants to pursue a more environmentally responsible development policy. All evidence suggests that China is on the brink of an ecological disaster: 20 per cent of the country’s soil is heavily polluted and air pollution in cities is causing tens of thousands of premature deaths every year, according to official statistics.
The Chinese population is getting increasingly agitated about the environment and there have been many protests against new petrochemical plants in the coastal areas. The world’s second largest economy is creating millions of environmental refugees who are fleeing to places like Australia and New Zealand.
(9) One of the most repeated mantras from the government is centred around improving people’s livelihood. Though Chinese wages have been increasing at double digits for the past few years (for example, wages of Chinese migrant workers increased 13.9 per cent in 2013), the trouble is that social inequality is widening even faster than increases in wages.
(10) Xi wants to exert greater control over economic policymaking. It is consistent with his approach to consolidate power under his personal authority including national security and taking charge over the country’s entire reform process.