The Year Ahead
Has China Decided That ‘Moderately Prosperous’ Is Good Enough?
As China’s growth model sputters and Xi Jinping prioritizes repression over reform, China looks unlikely to join the ranks of developed countries.
China has a new set of economic goals—and they’re far less ambitious than those of past decades. In October, when the Central Committee of the Chinese Communist Party (CCP) met to endorse President Xi Jinping’s agenda for the 14th five-year plan, the communique included a little-noticed second item: a statement that China would “basically achieve socialist modernization” by 2035 in order to finally “reach the level of moderately developed countries.” China’s admirers and detractors alike might be forgiven for thinking that the country was moderately developed already. What this vague new language seems to suggest is Beijing’s admission that its current growth model has run into what old-style communists might call internal contradictions.
Like everything else that comes out of the Central Committee, China’s vision is Xi’s vision. He first floated his goals for 2035 in a party congress speech three years ago and has now enshrined them in doctrine. In Xi’s vision, China’s economy will reach a “new level”—but so will the government’s capacity to monitor and control it. And that marks a crucial change in priorities: Although Xi cares about growth as his predecessors did, he cares about control much, much more. For four decades after opening to the world in 1978, China pursued economic growth at all costs, even if it meant gradually loosening the CCP’s grip on power through decentralization and liberalization. Not anymore.
Economic growth is certainly still a high priority for the CCP, but domestic repression now ranks higher. Xi has thrown more than a million Uighurs into forced labor camps, imposed a draconian security law in Hong Kong, and reactivated dormant party committees in private companies. Despite long-cherished plans to turn Shanghai into a major financial center, Xi quashed the initial public offering for Ant Group after its founder, Jack Ma, criticized regulators. On Dec. 24, Beijing announced it was investigating Alibaba Group, the online retail giant also founded by Ma, and last week ordered him to essentially break up Ant. Advocacy for economic reform, tolerated by previous CCP leaders as necessary for nudging the country in the right direction, is now considered tantamount to treason.
Xi’s preference for security goals over economic ones extends beyond China’s borders. His new brand of “wolf warrior” diplomacy is costing China its foreign markets for products and services. Take India: Chinese technology giants such as Huawei, Alibaba, and TikTok were well on their way to market dominance in the world’s second-most populous market until Chinese border troops killed 20 Indian soldiers in hand-to-hand fighting in Ladakh in June. In the ensuing backlash, Chinese smartphone makers faced consumer boycotts. Chinese apps have been almost entirely banned in the Indian market.
Frosty relations, a direct result of Xi prioritizing a more aggressive stance toward other countries, are hurting China’s economic growth elsewhere as well. China has clashed with Indonesia—another important Asian market—over control of the South China Sea, prompting Jakarta to turn to Japan for help with a flagship high-speed rail project. Also in the South China Sea, Chinese vessels have harassed Malaysian oil exploration efforts, accelerating a deterioration in relations that began when former Prime Minister Mahathir Mohamad returned to power in 2018 on a promise to renegotiate lucrative Chinese development contracts. China has even picked a fight with Australia, once its closest partner outside Asia, refusing to unload Australian coal and slashing other imports in retaliation for Australian moves to limit Chinese interference in its internal politics. The result has been power shortages in some of China’s richest provinces this winter, forcing the closure of factories and shopping centers. On top of all this, the U.S.-Chinese trade war looks set to enter its second presidency.
Xi’s prioritization of domestic and foreign security goals over economic ones will make it much more difficult for China to meet its 2035 targets. That may explain why they are so vague. China used to be known for making specific economic commitments—and sticking to them. That boxed leaders into pursuing ambitious growth targets at all costs. Those costs were often borne by the most vulnerable in society, and growth numbers were just as often fudged. Nonetheless, things got built, and a highly capable Chinese economy ultimately emerged from the wreckage of communist central planning.
When Xi took over as the CCP’s general secretary in 2012, he inherited a mandate from the outgoing Central Committee to create a “moderately prosperous society” by 2020. This was specifically defined as the doubling of China’s GDP over the course of a decade. Xi wisely decided to give himself a little wiggle room but not much: an extra six months. On taking up the position, he promised to deliver the moderately prosperous society by July 2021—just in time to celebrate the 100th anniversary of the CCP’s founding.
That six-month breathing space turned out to be a prescient insurance policy. Meeting the target required annual GDP growth of 7.2 percent—year after year. Even accepting the inflated growth numbers during much of the 2010s at face value, it would still require growth to exceed 6 percent throughout 2019 and 2020. The coronavirus pandemic put paid to that. The International Monetary Fund expects less than 2 percent growth for the Chinese economy in 2020.
Miraculously, Xi insists he can still deliver on the GDP target he agreed to eight years ago. The key is the strength of the coronavirus bounce-back. If it meets expectations, growth during the first half of 2021 will be sufficient to push the Chinese economy over the arbitrary “moderately prosperous society” line. (And if actual growth falls short, the numbers can always be massaged into compliance.) Either way, China’s first-half GDP figures will be released just in time to headline the centenary celebrations on July 23.
After the centenary, however, all bets are off. Four decades of breakneck economic development have brought China only to the level of GDP per capita enjoyed by South Korea and Taiwan in the early 1990s. These regional rivals reached China’s current level of development when both were still one-party military dictatorships, much as China is today. Experts still debate whether South Korea and Taiwan’s subsequent ability to grow into fully developed economies was only possible because of their liberalization and democratization. But it’s hard to find a single country larger than a city-state that reached the status of a developed economy under conditions as repressive as those of China.
China’s own history also suggests that fast growth may be much more difficult to achieve now that Xi has shifted to repression at home and brinkmanship abroad. Between the death of Mao Zedong in 1976 and the coronavirus pandemic in 2020, China’s slowest-growing years were 1989 and 1990, the years of the Tiananmen Square massacre and the ensuing national crackdown on dissent. These were also years of modest international sanctions, consumer boycotts, and corporate uncertainty. China only bounced back from its repression-induced downturn when it resumed its liberalizing trend. While the country never returned to the febrile political ferment of early 1989, daily life became much freer—or at least much more self-directed—between 1990 and Xi’s assumption of power.
That trend reversed after 2012, and it is perhaps unsurprising that the Chinese economy began to reverse along with it. Ever since Xi took office, China’s growth rate has been on a downward glide, even according to official figures. Now, Beijing has telegraphed that it will set a post-coronavirus growth target of 5 percent or less.
The slowdown is unsurprising, but it wasn’t inevitable. The economies of South Korea and Taiwan grew at average annual rates in excess of 8 percent in the 1980s, a phase when they were roughly at the same level of development as China during the 2010s. The two countries continued to grow at around 7 percent during the 1990s, when they were developmentally parallel to China today. (And their figures were real, by the way, not politically inflated like those reported by Beijing.)
Until the start of Xi’s tenure, China’s growth model mostly followed the East Asian miracle growth formula: export-led development fueled by an undervalued but slowly appreciating currency and piloted by entrepreneurs enjoying ever greater commercial autonomy as they gained the knowledge and sophistication to achieve global competitiveness. At the beginning of their growth trajectory, the four Asian Tigers—South Korea, Taiwan, Singapore, and Hong Kong—traded on their cheap labor. By the end of it, they were trading on their high levels of expertise.
China is now stuck halfway down that path, and the surprisingly unambitious language of the new five-year plan suggests Beijing sees it that way, too. China has developed pockets of world-class expertise but has proved unwilling or unable to allow its people the autonomy they need to flourish—and take their country beyond the “moderate” level of development it has already reached. Instead, China has turned toward increasing autarchy and control. Beijing might describe it using yet more faux-Marxist language, but the main thrust of its current development strategy is to build domestic production networks that fall under the exclusive jurisdiction of the CCP. That may be achievable, but it can’t possibly be an effective route toward developed country status.
The so-called middle-income trap—the fact that most moderately developed countries never manage to join the club of high-income countries—is not an economic phenomenon. It is entirely political. Nothing in economic theory prevents middle-income countries such as China from developing further. But when countries reach a certain level of development, their elites are apt to consider it “good enough,” unwilling to give up the wealth and control they enjoy for the unpredictable dynamism and decentralized power of a truly modern economy. As they look toward 2035, Xi and the CCP elite face a difficult choice between two possible futures: live as moderately powerful people in a highly prosperous society or retain absolute power in a moderately prosperous one. It now seems clearer than ever that they have chosen the latter.