Xi Jinping Aims to Rein In Chinese Capitalism, Hew to Mao’s Socialist Vision

An Aug. 29 online commentary circulated by state media called it a “profound revolution” for the country.

“Xi does think he’s moving to a new kind of system that doesn’t exist anywhere in the world,” said Barry Naughton, a China economy expert at the University of California, San Diego. “I call it a government-steered economy.”

A number of countries closely regulate industry, labor and markets, set monetary policy and provide subsidies to help boost their economies. In Mr. Xi’s version, the government would have a level of control that would allow it to steer the economy and industry along a path of its choosing, and channel private resources into strengthening state power.

The big risk for China and Mr. Xi is that the push winds up suppressing much of the entrepreneurial energy that has powered China’s boom and years of innovation.

For foreign businesses, the campaign likely means more turbulence ahead. Western companies have always had to toe the party line in China, but they are increasingly asked to do more, including sharing personal user data and accepting party members as employees. They could be pressed to sacrifice more profits to help Beijing achieve its goals.

“Supervision over foreign capital will be strengthened,” said a person familiar with the thinking at China’s top markets regulator, “so it won’t be able to obtain ultra-high profits in China through monopoly and capital-market operations.”

The Information Office of the State Council, China’s top government body, didn’t respond to questions for this article.

Before this year, Mr. Xi was distrustful of capital, but he had other priorities. Now, having consolidated power, he is putting the whole government behind his plans to make private business serve the state.

A once-in-a-decade leadership transition due for late 2022, when Mr. Xi is expected to break the established system of succession to stay in power, provided an impetus to act and show he is doing something big for the people to justify longer rule, officials involved in policy making say.

At internal meetings, some of them say, Mr. Xi has talked about the need to differentiate China’s economic system. Western capitalism, in his view, focuses too heavily on the single-minded pursuit of profit and individual wealth, while letting big companies grow too powerful, leading to inequality, social injustice and other threats to social stability.

Early this year, when Facebook Inc. and Twitter Inc. took down former U.S. President Donald Trump’s accounts, Mr. Xi saw yet another sign America’s economic system was flawed—it let big business dictate what a political leader should do or say—officials familiar with his views said.

A few months later, when the Chinese Communist party celebrated its centenary on July 1, Mr. Xi donned a Mao suit and stood behind a podium adorned with a hammer and sickle, pledging to stand for the people. After the speech, he sang along with “The Internationale” broadcast across Tiananmen Square. In China, the song, a feature of the socialist movement since the late 1800s, has long symbolized a declaration of war by the working class on capitalism.

Such gestures, once dismissed as political stagecraft, are being taken more seriously by China watchers as it becomes evident Mr. Xi is more ideologically driven than his immediate predecessors.

The difference between his vision and Western-style capitalism, he has said at internal meetings, is that in China, “Capital serves the people.”

Industries that Mr. Xi views as being led astray by a capitalist spirit, including not only tech but also after-school tutoring, digital gaming and entertainment, are bearing the immediate brunt.

A policy aimed at turning private education companies into nonprofit entities all but killed New Oriental Education & Technology Group Inc., which has provided English lessons to generations of students studying abroad. Its shares have plunged about 90% this year.

Founder Yu Minhong, nicknamed “Godfather of English Training” in China, broke into tears during a recent company meeting, according to an employee. “It’s devastating to him, and to all of us,” the employee said.

Mr. Xi’s policy changes have dashed more than $1 trillion in stock-market value and erased over $100 billion of wealth for entrepreneurs such as Alibaba founder Jack Ma and Tencent’s Pony Ma. Private companies and their owners are being encouraged to donate profits and wealth to help with Mr. Xi’s common-prosperity goals. Alibaba alone has pledged the equivalent of $15.5 billion.

State-owned companies, having already bulked up under Mr. Xi’s rule, are marching into areas that were pioneered by private firms but are increasingly seen as crucial to national security, such as management of digital data.

A ministry supervising state companies, the State-owned Assets Supervision and Administration Commission, is mapping plans to set up more government-controlled providers of cloud services for data storage, people familiar with the agency’s workings say. Such services have been dominated by private companies, including Alibaba and Tencent.

The city of Tianjin has ordered companies it supervises to migrate data from private-sector cloud platforms to state-owned ones within two months of the expiration of existing contracts, and by September 2022 at the latest, according to an official notice dated Aug. 12. More localities are expected to follow suit, the people say.

Government-controlled entities are acquiring stakes and filling board seats in more companies to make sure they fall in line with the state’s goals. ByteDance Ltd., owner of the video-sharing app TikTok, and Weibo Corp. , which runs Twitter-like microblogging platforms, recently have sold stakes to state-backed companies.

Mr. Xi is fully in charge of the campaign, instead of delegating details to Vice Premier Liu He, his chief economic adviser, as in the past. A central party office reporting directly to Mr. Xi has been sending out directives instructing ministries to take actions and coordinate policies.

Mr. Liu, known as a market-friendly reformer, spent the past few years representing China’s top leader abroad in trying to avert a trade war with the U.S. At times, he sought to cast Mr. Xi’s efforts to skeptical Americans as necessary for pushing through stalled market-oriented changes.

“The purpose of strong leadership in China is to implement reforms,” Mr. Liu told a group of American executives in Washington in early 2018, according to people present.

Mr. Liu, who faces retirement next year, had to offer a Mao-style self-criticism for not having stopped Didi from launching a $4.4 billion New York initial public offering in late June, according to people with knowledge of the matter. Self-criticism, traditionally used by the party to discipline members, is a practice Mao borrowed from Stalin and remains alive and well in Mr. Xi’s China.

Mr. Xi blamed a lack of coordination among regulators for letting the IPO slip through. While China’s cybersecurity regulator had sounded alarms to Didi about its network security before the stock listing, other regulators such as the transportation ministry, which reports to Mr. Liu, were largely supportive of the listing plan.

In the absence of being told explicitly to stop its stock sale, Didi proceeded. Mr. Xi has since ordered a multiagency investigation of the company.

Soon after the IPO incident, Mr. Liu said at a public forum: “In the new stage of development, we should coordinate the relationship between development and security.”

Chinese regulators also recently reviewed a deal involving private-equity firm Blackstone Inc., co-founded by billionaire Stephen Schwarzman, another key figure in U.S.-China relations. Like some other financiers, he served as a go-between for China’s leaders and the Trump administration.

In June, Blackstone agreed to acquire a majority stake in Soho China Ltd., a property developer, for about $3 billion. The price was about 40% of Soho China’s book value as of the end of last year, leaving Blackstone significant room for gains.

China’s social media quickly grew abuzz with posts describing the husband-and-wife team that runs Soho China, Pan Shiyi and Zhang Xin, as trying to cash out so they could leave China as sentiment turns against wealthy tycoons. Beijing’s censors, who often delete posts in the name of fending off negative energy, left these alone. The couple couldn’t be reached for comment.

The State Administration for Market Regulation in August started an antitrust review of the deal. A month later, Blackstone scrapped it as the review dragged on. In a joint statement Sept. 10, the firms said they wouldn’t be able to “satisfy the pre-conditions” in time to complete the transaction.

Blackstone declined to comment further. Soho China didn’t respond to requests for comment.

Mr. Xi’s plan to reset the economic order came together at the Central Economic Work Conference last December, an annual agenda-setting event, say officials familiar with the process. At the meeting, at a heavily guarded government hotel in western Beijing, Mr. Xi highlighted some acute imbalances brought by “big capital,” some of the officials say.

He singled out the internet-technology sector for having big companies that use capital markets and other resources to enrich their owners and investors—widening income gaps and diverting funds from parts of the economy important to China’s competitiveness such as high-end manufacturing.

His remarks came just a few weeks after Mr. Xi had personally intervened to stop Jack Ma’s fintech firm Ant Group from launching what would have been the largest-ever initial public offering. One issue was the big payouts well-connected people stood to gain, the Journal reported earlier this year.

To Mr. Xi, said Chinese officials, the sight of connected people getting rich could hurt the party’s standing among the underprivileged it is supposed to represent.

In January, at a meeting with senior officials from across the country, Mr. Xi stressed the importance of spreading wealth more evenly among China’s 1.4 billion people, a socialist objective of early party leaders. “Realizing common prosperity is not only an economic issue but also a major political issue related to the ruling foundation of the party,” he said.

The emphasis also reflected Mr. Xi’s conviction that Chinese socialism under sole control of the party will prevail over U.S.-style capitalism. Mr. Xi has indicated he thinks the China model has proven better than the Western system at fighting the Covid-19 pandemic.

“Time and momentum are on our side,” he said at the January meeting.

In Beijing, some officials have dubbed Mr. Xi’s effort to smack down big capital boluan fanzheng, or bringing order out of chaos. It is the new catchword for macroeconomic policy, a government adviser said.

To accommodate the planned overhaul, the leadership set a growth target of 6% for 2021, relatively low given the strong rebound at the time. “We should grab the window with lower growth pressure” to push ahead with changes, the Politburo said in April.

Mr. Xi and his underlings still talk about the need to develop the private sector, which accounts for 80% of China’s urban jobs. But officials say the focus now is on fostering small and midsize companies, in areas ranging from power equipment to sensors and semiconductors, that aren’t likely to become alternative power bases. These firms are expected to emphasize innovation that elevates China’s manufacturing capabilities over profits.

Underpinning Mr. Xi’s actions is an ideological preference rooted in Mao’s development theories, which call state capitalism a temporary phase that can help China’s economy catch up to the West before being replaced by socialism.

An ardent follower of Mao, Mr. Xi has preached to party members that the hybrid model has passed its use-by date.

A 2018 article in the party’s main theoretical journal, Qiushi, or Seeking Truth, laid bare his belief: “China’s practice shows that once the socialist transformation is completed, the basic socialist system with public ownership as the main body is established...[and] state capitalism, as a transitional economic form, will complete its historical mission and withdraw from the historical stage.”

On other occasions, Mr. Xi has been blunter. “Socialism with Chinese characteristics is socialism, not any other ‘ism,’” he told senior party leaders in January 2013—a warning he has often given party members since then, according to officials.

As Mr. Xi clamps down on capital, his popularity among the party’s original base, the working class and rural poor, appears to be growing, thanks to his initiatives to fight corruption and poverty.

In Xingguo, a southern county where rocky land makes large-scale farming difficult, Mr. Xi’s portrait hangs on the walls of some residents’ living rooms, space once reserved for pictures of Mao.

Local residents credit Mr. Xi’s targeted approach to poverty alleviation, which includes assigning local officials to affected households.

“Previous leaders also talked about helping the poor,” a resident surnamed Zhong told a visiting Journal reporter in the spring of 2020. “But he really cares about us.”

Thanks for posting OP. Fascinating stuff.

He's afraid of unrest. China's growing middle class sees a shitty health care system, precarious retirement and cutthroat competition for jobs and university slots.

It's a little like America.

The Wall Street Journal OP? Will you be linking to the National Review next?

back to stormfront with you, R 8

Kiss goodbye to foreign investment and the seemingly endless economic growth, while the best and brightest in China emigrate to Silicon Valley, Canada, Australia and Europe.

Just like the Great Leap Forward, the execution of this policy at the ground level will be a disaster with zealous CCP hacks going overboard enforcing it.

This is excellent news! He’s doing more to destroy the country from the inside than we ever could.

Hold me Wong. I'm scared.

Wonder if they will go back to the fashions of the Mao era? Little red books for everyone?

Lol, Xi Jinping doesn’t give a single fuck about Mao or socialism. His ONLY concern is consolidating and keeping power for himself, like every tinpot dictator authoritarian out there. He’s a fucking cliche. His economy is a lie, just look at Evergrande. His entire regime is about five seconds from disintegrating like Russia.

We’ll see how well this all works out for him.

the chinese people don't give a fuck either

I, for one, am interested in this development. Not because, as some are saying above, it will destroy China from inside. But because China might become a successful model of regulated capitalism, at scale (1.4B people, largest economy).

You see, capitalism does not self-regulate. And unbridled capitalism is bad for people (too many inequalities, playing field uneven) and the environment (growth at all costs). On the other hand, too much regulation kills innovation and competition (the extreme example being the utter failure of all communist countries in history).

Will China find a happy medium? I'm hoping it does.

[quote] Will China find a happy medium? I'm hoping it does.

Has China *ever* found a happy medium R16? I don’t think they’re going to become Asia’s version of Sweden, or Norway - examples of truly mixed economies but both which started with a political and societal system based on human rights, rule of law and liberal democratic values.

So guess we don't need to worry about China then, right? Great.

One of my favorite perks of being on DL: getting to read things that are hidden behind paywalls. Thanks, OP, for sharing this.

Xi’s plans are bound to fail. By and by, all his excessive and intrusive meddling and micromanagement will chip away at the astounding progress China has achieved for the past three decades. That’s my hunch.

Can you imagine living somewhere where they had the paint the dictator on every building? The guy is hideous to look at for a minute, let alone all day.

What an egomaniac that has the best worshiped like that. What’s so great about this con artist anyway. Can he levitate? Turn into a lion? What a loser.

These dictators are so insecure and can’t stand having their slave citizens think about anyone else for even 5 seconds.

Like the ultimate jealous, abusive boyfriend.

Everything is a fake show over there. Everything is a prop.

Does he really need 5 microphones? Just another prop.

Somebody needs to pull back the curtain over there and show the truth.

To add to that — and I’m writing this having just read the latest column of the FT’s Gideon Rachman on the muted praises the Aukus deal has been getting in the region — China did not do itself favors by acting like the predator it alleges its enemies to be. It’s practically bullied, in many ways and to varying degrees, all its neighbors. Which also probably explains, just as an aside, the growing anti-China sentiment in most of the Southeast Asian countries.

[quote] It’s practically bullied, in many ways and to varying degrees, all its neighbors. Which also probably explains, just as an aside, the growing anti-China sentiment in most of the Southeast Asian countries.

R23, exactly in what manners has China bullied Southeast Asian countries? And has it really been any different from how the regions' countries "bully" each other?

Countries have maritime disputes all the time (e.g., France and the UK, gunships at the read, a few months ago over fish).

It's the U.S. that's trying to make it a reason to get involved on the other side of the planet. And it's failing to rally SE Asian countries. That's why it can only get the Quad and the UK. Not a single SE Asian country wants in on it. They all prefer to handle it bilaterally.

The United States should have never become economically entangled with the PRC, despite any benefit received from it.

R23

Great. I guess Western companies can go build those factories back in the West now. Great. I'm waiting. I'm sure everything will be as affordable as it is today. Surely.

Let's hope for China's collapse. I'm sure it'll solve all our problems.

They need to hire Madison Ave talent to brush-up the branding. The communist iconography, terminology, and label need to go. It just doesn't apply anymore. It's ridiculous. Old people still think they're actually communist.

Come on, sucker.

Try us.

R24, to me, the most obvious example would be its aggressive militarization of disputed territories in the South China Sea. I’ve heard from many Filipino and Vietnamese friends how that’s rattled a lot of people in their countries.

R24 And while I agree that SEA countries tend to not side with either China and the US completely, the fact that some of them (not least, again, the Philippines and Vietnam) have begun ramping up their maritime defense capabilities contra China’s moves proves to me that they don’t exactly welcome their neighbor’s perceived aggression.

To try to strike a conciliatory tone: What do you think will cool down tensions?

#Chinasucks

Billionaires getting too powerful - threat to government.

Chairman Moe.

Excellent news!

R31, will write more later, but I think things would cool down if there's bilateral negotiations among all the parties with disputes in the area. The US is going to make that as difficult as possible, because they want a limited conflict and/or a blockade of China.

This will only benefit Vietnam, the Philippines, etc.

Watch those countries have huge growth in the coming years.

R37, Vietnam has been growing by double digits for the last decade.

WSJ is no longer a credible news source. Anyone who pays attention to China knows this story is bullshit. Xi is a gangster capitalist like Putin. Anyone who thinks he doesn't have billions of dollars squirreled away in offshore accounts is a fool. I don't think he even has an ideology. All the WSJ is doing is mindlessly parroting the official party line.

R31. Taiwan's claims in the South China Sea are no different from China's. Conflicting maritime claims are not unusual. It's a power on the other side of the planet that's trying to make them into something epic.

Maritime disputes in SE Asia. A routine thing.

Brunei vs. Malaysia, the Philippines, China, Vietnam

Malaysia vs. Brunei, the Philippines, China, Vietnam

the Philippines vs. Malaysia, Brunei, China, Vietnam

Vietnam vs. Malaysia, the Philippines, Brunei, China

[quote] The South China Sea is a concrete example. There were far more headlines about the South China Sea before Xi Jinping came on than after he came on. In one of my chapters — “Is China expansionist?” — I begin by saying that everyone in the Anglo Saxon world, especially those who read the Anglo Saxon media, are convinced by the story that Xi told Obama that he would demilitarize the South China Sea. And then, of course, the South China Sea was militarized. And everyone said, ‘There goes Xi Jinping! He’s a big liar.’ I quote a former American ambassador to China, Stapleton Roy, who told me, ‘Kishore, when Xi Jinping made an offer to demilitarize the South China Sea, America should have grabbed that offer and agreed to stop all our military activities in the South China Sea. That would have pushed the Chinese out.’ Of course, the Americans would be out too. But the South China Sea is much more important to China than it is to America. If America steps out, the Chinese military steps out. And that’s a win for America, right? Instead, the U.S. Navy responded by sending naval vessels. So Xi said, ‘Okay. You reject my offer. So be it.’

- Kishore Mahbubani (R31, if you're in the area, you know who he is, right?)

R31

[quote] Much has been made of the possibility of conflict in the South China Sea, through which roughly one fifth of all global shipping passes each year, and where the Chinese have converted isolated reefs and shoals into military installations as part of larger, contested claims to sovereignty over portions of the waters. But contrary to Western analyses, China, while undeniably more politically assertive in the region, has not become more aggressive militarily. The smaller, rival claimants to sovereignty in the South China Sea, including Malaysia, the Philippines, and Vietnam, control a number of islands in the waters. China could easily dislodge them. It has not done so.

[quote] When considering the familiar narrative of Chinese aggression in the South China Sea, it must be remembered that the United States itself has missed opportunities to defuse tensions there. A former US ambassador to China, J. Stapleton Roy, told me that in a joint press conference with President Obama on September 25, 2015, Xi Jinping not only proposed an approach to the South China Sea that included the endorsement of declarations supported by all ten members of the Association of Southeast Asian Nations, but, more significantly, added that China had no intention of militarizing the Spratly Islands, where it had engaged in massive reclamation work on the reefs and shoals it occupied. Yet the Obama Administration made no effort to pursue China’s reasonable proposal. Instead, the US Navy stepped up its patrols. In response, China increased the pace of its construction of defensive installations on the islands.

R31

[quote] The world is convinced China is being belligerent. Pictures of new military landing strips, anti-aircraft missiles and massive reclamation works in the disputed Spratly Islands have given that impression. But Beijing did not initiate the reclamation. Other claimant states started it: Vietnam began building an airstrip on Spratly Island in 1976; the Philippines built one on Thitu Island in 1975; and Malaysia started building an airstrip and a resort on Swallow Reef in 1983. However, most of this construction took place before the 2002 Asean-China Declaration of Conduct on the South China Sea. Since then, other states have made only minor upgrades and repairs, while China’s extensive work began in 2013-14.

Ray Dalio isn't worried one bit about Maoism or Evergrande.

WSJ's public university-BA writers don't know shit.

R8 and R40, the WSJ does excellent though limited reporting. Their editorials on the other hand...

China says being gay is a disease, they send muslims and christians to "retraining" camps...AND THAT IS ALL YOU NEED TO KNOW TO SEE THE TRUTH OF THE REALITY OF CHINA AND ITS POLICIES

I'm buying the new iPhone. I don't care. I need it.

This isn’t “fake news” at all. Xi is a Marxist, it’s been written about for years. He may be a crook, too, but he’s not merely a crook. Furthermore, China seems on the verge of a crisis right now, due to upheaval in its real estate sector, which may give the government grounds to assert further control over the economy.

R31. Just out. A good summary of how we're being fooled about the SCS.

Founders come first, then profiteers.