The address of Chinese President Xi Jinping at a meeting with leaders of major Chinese technology firms in the private sector on February 17 is a signal that the economic slump facing the country has forced the authorities to end the crackdown on the private sector in China. This also marks an abject collapse of President Xi’s pet theory of “socialist system with Chinese characteristics” under which the socialist society will control and guide the growth of private capital.
Remarkably, apart from President Xi himself, the star attraction of the meeting was Alibaba co-founder Jack Ma, the wealthiest business tycoon in China, who had disappeared from public view for several months after his speech on October 2020 in Shanghai where he publicly criticized China’s regulators and financial systems. Among other business leaders present in the meeting were the CEO of the electric vehicle manufacturer BYD, CEO of Tencent which owns WeChat, Chairman of battery developer CATL, as well as representatives of mobile phone manufacturers Huawei and Xiaomi.
They were the cream of the technology sector in China, the sector against which some years ago President Xi himself had spearheaded campaigns and had increased government control over them; describing the sector to be unruly and disruptive as it had undergone huge expansion, notwithstanding the tight state controls around other industries.
Now with the U.S. out to cut off China from the access of the latest technology, President Xi seems to have seen the light of the day. At the meeting he promised the representatives of the private sector that the government would “sincerely protect the legal rights of private business and entrepreneurs according to law.” He said: “It is the right time for the majority of private business and entrepreneurs to show their talent;” also agreed to allow them to “get rich first, and then promote common prosperity.”
The Chinese government has no choice but to support the private sector technology giants if it wants to stay in competition with the U.S. The Chinese experience is, in fact, an eye-opener that when it comes to the sphere of cutting-edge technology, where innovations are necessary, the controls of the state sector in a communist society cannot be a substitute for the fresh winds which the private sector can introduce.
Under the red eyes of mandarins of the Chinese Communist Party (CCP), aspirations have been frowned upon. CCP leaders were wary of personal wealth and inequality in wealth distribution. Following President Xi’s call for “common prosperity,” billionaires in sectors from real estate to technology to finance had been at the receiving end of the crackdown. They had been asked to endure hardship and strive for the prosperity of China.
Among the key features of this crackdown, imposed in late 2020, were anti-trust regulations and fines and scrutiny of data collection and usage by technology companies out of a misplaced emphasis on data privacy and national security. Under common prosperity, companies had been made to contribute in charity and in government projects. Many of the technology companies had been forced into appointing state-nominated directors in their boards. This has dealt a massive blow to the confidence of private sector entrepreneurs.
Steeped in the hardcore communist model of Mao Zedong, President Xi had reversed the policy ushered in by Deng Xiaoping in the late 1970s of unleashing the powers of free enterprise to usher in an era of double-digit growth in China. Now under the controls introduced by President Xi, the growth rate of the Chinese economy has plummeted. The recently concluded National People’s Congress of China has settled for an annual rate of growth of mere five percent. The “socialist system with Chinese characteristics” has failed to deliver.
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The tenor of the report of Premier Li Qiang at the National People’s Congress runs contrary to the assessment of President Xi at a brainstorming session of the CCP in April 2022 that China had “strived to foster a new development pattern with the domestic market as the mainstay.” On the contrary Premier Li’s report says: “We will vigorously encourage foreign investment.”
There is a move to woo back foreign investors who are now shunning China. Employees of foreign companies in China had been questioned, harassed, even arrested for carrying out perfectly legitimate tasks like market survey before the introduction of a new product under the misplaced emphasis on data privacy and national security in the crackdown era. “We will ensure national treatment for foreign-funded enterprises in fields such as access to production factors, licence applications, standards setting and government procurement,” Li’s report goes on to promise.
President Xi’s policy of controlled growth of capital under the supervision of the state to ensure a more equitable income distribution has failed to materialize. Recent studies suggest that the wealthiest individuals in China have continued to grow richer, widening economic inequalities in the country. The combined wealth of the top 5.12 million families in China with over six million yuan in assets was about 150 trillion yuan in2024. Of this total, the wealthiest 130,000 families accounted for 58 percent, up from 56 percent in 2023. The National Gini Coefficient for China was 0.467 in 2022; with a coefficient of zero representing perfectly equitable income distribution and 1 representing maximum inequality where a single individual in a society has all the income.
The prognosis of President Xi at the 38th group study session of the Political Bureau of the CCP Central Committee on healthy development of capital in China on April 30, 2022, has been proved wrong by subsequent developments. His use of the term “socialist market economy” does not make much sense as a market economy, which requires the free play of market forces to flourish, cannot develop under the command structure of a socialist system.
He had correctly assessed in this study session that “non-public capital” (read private capital) must be given full play “in promoting scientific and technological progress.” But private capital could not be made to “contribute to the building of a modern socialist country,” as he had wished. President Xi’s resolve to subject the “intrinsic nature of capital to seek profit to regulations and constraints” was a sure way to kill the enterprise. The latest move of President Xi to woo back private capital in the technology sector is an indication that Marxist political economists will waste their time if they respond to his call to study, the “theoretical and practical issue,” and how to “regulate and guide the healthy development of capital under the socialist system.” A “socialist system with Chinese characteristics” under which private businesses promote “common prosperity” has no future. - AA Online Desk
