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If Xi stumbles

Even the slightest perception of vulnerability is politically risky. He needs to change the subject in China.

Written by Minxin Pei | Published: September 11, 2015 12:15:37 am
china, china military parade, china parade, china world war parade, china world war 2 parade, world war 2 parade, beijing parade, china army parade, china military march, china military world war, china military, china military force, china news, world news, latest news Chinese soldiers take part in a parade commemorating the 70th anniversary of Japan’s surrender during World War II in front of Tiananmen Gate in Beijing.(Source: AP)

By any measure, China’s Victory Day parade on September 3 was an unforgettable show of force. For Chinese President Xi Jinping, the original intent of holding the first-ever Victory Day parade was to showcase his political authority.

Judging by international reaction to the display of goose-stepping soldiers and China’s most modern weapons systems, most outside observers seemed less impressed than worried. Instead of reassuring the rest of the world that China’s rise would be peaceful, the parade demolished the notion that China would be a different kind of great power. Even Xi’s announcement of a reduction in the size of the Chinese military by 3,00,000 soldiers failed to quell worries that feverish nationalist sentiments in China may drive the country in a more aggressive direction.

The impact of the parade on the Chinese people is harder to gauge. While official propaganda is not to be trusted, it is a safe bet that many ordinary Chinese must have been proud of the advances their country has made in military technology. It said that, to ensure that the parade would be watched by as many people as possible, all other entertainment programmes were stopped from broadcasting on the day of the parade.

If nothing else, a military parade is an entertaining sight.

However, it is impossible to assess the longer-term political effect of the parade. If Xi thought that the parade would boost his political capital, he needs to think again. This is not to say that holding this parade was unwise. The unfortunate truth is that the timing is a bit off. When Xi and his political advisors decided on the parade six months ago, they could not have foreseen the series of events this summer that has raised disquieting doubts about Xi’s leadership and political strength.

First came the stockmarket crash. The government’s attempt to save the bubble, reportedly on Xi’s order, turned out to be an expensive flop. After spending nearly $190 billion, the main stock indices have essentially remained where they were when the market-rescue operations began in mid-July.

Then there was the tragic explosion in Tianjin, which killed 160 people. Although the accident was blamed on corrupt local officials and unscrupulous businessmen who violated regulations in storing hazardous chemicals in close proximity to a densely populated area, the government’s handling of the incident, such as evasive answers to many key questions about the ownership of the company involved in the accident, the identification of the hazardous materials stored and the suppression of reporting by the media, severely damaged the notion that Xi’s reforms have made a difference in how officials behave.

The Tianjin tragedy was followed by perhaps the worst real economic event of the year: A sudden devaluation of the Chinese currency after a spate of bad news indicating stagnant growth. All of a sudden, popular perceptions of the Chinese economy and of the strength of Xi’s political leadership appeared to have changed. In their totality, these events revealed a clueless government that did not seem capable of getting things done the right way, or at all.

For Xi, even the slightest perception of a stumble is politically risky. In the two-and-a-half years since he came to power, his anti-corruption drive has turned many of his former comrades into bitter enemies. The bureaucracy, frozen in fear and outraged about the loss of many of its privileges, including entitlements to bribes, may well be cheering the apparent comeuppance of China’s new strongman. Xi’s rivals, cowed by his sheer display of power and momentum not too long ago, may smell blood now. Even though the horrid events of the summer may not have fatally wounded Xi, they have made him, for the first time, politically vulnerable.

To recover his lost momentum and repel any attempt by his rivals to challenge his authority, Xi has to do something quickly to demonstrate his political strength.

He has two options, one political and the other economic. The political option is to arrest and prosecute another very senior retired leader for corruption. This step will dispel doubts about his weakened grip on power. More importantly, escalating the anti-corruption campaign has deterrence value: Anyone trying to conspire against him will end up in jail. The risk of this option, however, is that it will further fuel the division inside the regime and have no effect on his standing with ordinary people, who are now waiting for him to deliver actual improvement in the economy.

The economic option is, therefore, more urgent and necessary. But unfortunately, it is also more difficult because it is more complex and, if poorly executed, could create even more economic turmoil down the road. A more sustainable way of fixing China’s sputtering economy is to apply bitter medicine in the short term. This will entail forcing zombie firms (mostly state-owned enterprises and real-estate developers) into bankruptcy to squeeze out excess manufacturing capacity and the property bubble. The price of this measure could be recession for two to three years as real financial deleveraging takes place, but the reward is sustainable long-term growth.

A less painful way of delivering the goods immediately is to stimulate the economy with more monetary easing and pumping more funds into investment projects (consumption would be nice, but Beijing may not want to hand out free money to ordinary people). This step can revive growth immediately, but at a high cost. China’s debt load will likely rise to potentially catastrophic heights. Zombie firms will continue to sap economic vitality. No real reform will be implemented. And artificially stimulated growth will sputter as soon as the stimulus is withdrawn. China’s current economic mess will only worsen.

It is hard to know which route Xi will take. None of the options is particularly attractive. But he may have no choice. As the image of the Victory Day parade fades, Xi has to show off — and preserve — his own political might.

The writer is professor of government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States.

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