Xi Jinping is targeting corporate China. Will it work?

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German think-tank Mercator Institute for China Studies (MERICS) is Europe’s leading think-tank on China. Founded in 2013 by Stiftung Mercator, a private foundation in Germany, MERICS conducts extensive research on socio-political and economic trends in China.

In March 2021, China sanctioned MERICS and several other organisations in retaliation for the European Union's sanctions on four Chinese officials for their role in the alleged human rights abuses in Xinjiang. The Chinese government described them as entities “that severely harm China's sovereignty and interests and maliciously spread lies and disinformation.” MERICS rejected the allegations and announced that it will continue its mission “to foster a better and more differentiated understanding of China” by presenting “fact-based analysis”.

In an interaction with THE WEEK, MERICS analyst Valarie Tan spoke about the various facets of contemporary Chinese politics and the major challenges faced by President Xi Jinping.

ALSO READ: With China at crossroads, Xi Jinping is relying more on his ideology czar—Wang Huning

Before joining MERICS, she was a correspondent for Channel News Asia in Beijing and Shanghai. She focuses on Chinese elites and global entrepreneurs, societal and media debates, as well as political communication. Tan observes that Xi Jinping is trying to push China in a new direction using ideology more than anything else. “[However,] it will get a lot of push-backs,” she says.

Edited excerpts:

There is a view that Xi was chosen in 2012 as a "compromise candidate" who could unite the two prominent factions in the Communist Party of China—the Youth League faction and the Shanghai Gang faction. In the past nine years, how has Xi impacted the factional politics in the party? Are there new factions emerging in the Communist Party of China (CPC)?

When Xi first came to power in 2012, his coalition was made up of princelings like him – leaders from elite families and connections. At that time, out of the seven members of the Politburo Standing Committee – the top leadership of the CPC, four leaders were princelings. The allocation was regarded as a tactic to suppress the dominance of the other coalition in the party known as the ‘tuanpai’ which is made up of mainly leaders from the Communist Youth League. In Xi’s second term, that changed. As he grew more confident and his rivals were taken out by the sweeping anti-corruption campaign, Xi promoted his closest associates and surrounded himself with his confidants at very top of party leadership. Princelings no longer dominate as before in the party’s top leadership. The dominant group now appears to be the Xi coalition.

But he has been in his absolute position to purge those leaders who he sees as corrupt. Xi has been part of the Shanghai Gang faction. But most of the leaders who got purged belonged to this faction. Is Xi going beyond his original purpose, which was to unite the factions?

The anti-corruption campaign served several purposes for Xi. When it was first launched as Xi took power, it helped establish Xi as a responsive leader taking concrete action in response to public outcry over widespread elite corruption. So the campaign has helped Xi shore up public support for his leadership. To some extent, the campaign also helped the party to repair its public image. But at the same time, the campaign also provided Xi with a useful tool to ‘clean house’, take out his political rivals, and secure power within the party. Now, the campaign has taken on a socio-economic aspect, and is being subsumed into the broader policy of ‘common prosperity’ where Xi has said that “illegal income” will not be tolerated since it contributes to widening the gap between the rich and the poor. So in sum, the campaign has been used tactically by Xi to essentially expand his power over the public and the party, even at the expense of purging leaders from a coalition he is supposed to be part of.

It appears that the group of intellectuals known as the Chinese New Left—who are strong critics of “crony capitalism” and neoliberalism and are led by scholars like Wang Hui and Cui Zhiyuan—has long been laying an ideological foundation for Xi's economic and political programmes. Their strong nationalistic stance and advocacy for the plight of China's poor and forgotten could be seen reflected in Xi’s reform measures. In your opinion, how influential is the New Left?

Those ideas expounded by the scholars who are identified as New Left are visible in Xi Jinping rhetoric. In social issues like inequality, crony capitalism, corruption, the New Left identifies these as problems which need to be tackled. These are the very issues that Xi has said he wants to address in his policies.

Their ideas are influential to the extent that it is read and popular in public intellectual discourse in China. But that is not to say for certain that Xi is a follower of the New Left, or XI is a New Leftist. Rather, Xi is borrowing relevant ideas from the New Left that are likely to gain popular support as well as expand his influence within the party.

As China gains global stature, New Left scholars have also pushed forward China’s system of development as a ‘model’ that can be potentially influential or inspirational for the world. So there have been New Left writings that explore and promote ideologies like “socialism with Chinese characteristics”

Xi stepped up his fierce attack against the country’s technology companies in the spring and summer of 2021. More than $1trn was wiped off the collective market capitalisation of some of the world’s largest internet groups, such as Tencent and Alibaba. Some business models—online tutoring, for example—were completely stopped. Will Xi’s crackdown on big tech contribute to his income redistribution plans?

From a regulatory level—especially when it comes to tackling anti-competitive behaviour and correcting bad business practices, consumer protection, the measures are long-overdue and necessary. But the crackdown on tech also means a period of uncertainty for an industry once considered a hotbed of Chinese tech innovations.

In the case of Alibaba, it was fined because it forced a lot of merchants to sign exclusive contracts to only sell their products on its platform. Now that that is no longer allowed, merchants are free to choose which platform they can use to sell. In principle, that means the merchants would be able to sell their products on multiple platforms and thus gain access to more customers. Merchants are no longer obliged to pay sometimes exorbitant fees to Alibaba under the exclusive contract. But that also means revenues collected by China’s big internet platforms will take a hit since the exclusive contracts had provided a steady stream of income.

So these regulations thus put China’s big tech firms in an uncertain transition period. By asking them to change their methods of business practices, China is forcing them to operate under a tighter regulatory climate. Another good example of that is the ban on pop-up ads on apps. For the consumer it is good—no more misleading ads. But for a lot of these apps and platform companies depend on, ad revenue is their main source of income. So, with revenue under pressure, they will have less desire to expand, less desire to invest and less desire to employ more people. Already, we’re seeing higher-than-normal retrenchments across China’s tech companies this year. This is likely to go on to next year when firms are forced to cut more staff in response to business restructuring.

That goes the same for the 9-9-6 regime which is now officially illegal. Yes, it is a good thing for workers’ welfare, but the overtime pay, the extra pay, was seen by a lot of workers as lucrative income.

So, in a way, I am not sure how the tightened tech regulations will redistribute wealth. Yes, on the one hand, there are some populist drivers to go after big tech, forcing big tech companies to make huge donations and redistribute their wealth. [But] I'm not sure [if] it is really reaching the people who need it. And, in the long run, it could really impact the private digital economy sector which has been a very good provider of jobs.

What we’re seeing is a form of mis-alignment and mis-coordination of policies in Beijing.

Just like the big tech and gaming sectors, the cosmetic industry also is witnessing a crackdown in China. The CPC’s mouthpiece People’s Daily said in September that it was “imperative and urgent” to “control the advertisement of cosmetic surgery procedures and treatments”. What is the intent behind this crackdown? Is there an overreaching narrative behind all these? What is the CPC’s plan for its semiconductor industry?

The industry was in-need of a clean-up. There have been many reports of false advertising, customers being duped into treatments and operations done by unlicensed practitioners and botched surgeries. So, the regulation is mainly targeted at consumer protection as well as reining in freewheeling businesses in a sector that has seen unbridled explosive growth. There is also an element of social behaviour correction in that the party says the crackdown is aimed at reducing “appearance anxiety” amongst China’s women and men. That is why online loans for plastic surgeries have also been banned.

The over-arching narrative is about regulating industries that have seen explosive growth but based on business models that do not align with the ideological objectives of the CCP. While plastic surgery drives consumption and it’s an industry poised for growth, the regime sees such consumption as not productive because it benefits only a selected group of people, it doesn’t drive wider economic development.

Furthermore, plastic surgery in China has taken on a digital angle. There are a number of apps with millions of downloads that use social media and AI to market and offer services to users. People can use the app to scan their faces, decide what needs to be done based on recommendations by the app, and then choose the right plastic surgeon based on ranked users’ reviews.

The data collected in these apps are revenue generators for the companies. The government is not keen to let these companies earn so much revenue from all these "not genuine" economic activities, which do not generate real economic growth.

About semiconductors, there is an overarching umbrella policy of self-reliance that China wants to [pursue with all core technologies]. That's their long-term vision—to be self-reliant in all these core technologies and to reduce reliance on Taiwan, the United States and Europe in the global supply chain. The bigger goal here of course, as Xi previously proclaimed in 2018, is to be a global leader in science and technology.

The CPC will have its 20th party Congress next year. What are the major issues that Xi has to deal with before next year's party congress?

In terms of leadership succession, he has cemented the pathway to assume another term as party chief. With the Resolution of History, an extremely important political passed in November, Xi’s status has been affirmed as the leader to take China forward to the future.

In terms of issues – there are many. The property sector, a cornerstone of the economy, is reeling from the bankruptcy of major property developers who are struggling to pay off their debts. There is a new variant of the Corona virus, and despite massive lockdowns and strict border controls, China has not managed to bring cases down to zero. The winter Olympics in February is being held under pandemic restrictions as well as international pressure over the safety and welfare of tennis player Peng Shuai who was allegedly raped by a high-ranking Chinese politician.

Xi, himself is introducing tension and confrontation into the system through his policies.

Under the umbrella of Common Prosperity, he’s targeting corporate China and forcing them to give back to the poor. He has called for further bolstering of the anti-corruption campaign as part of wider efforts to narrow the gap between the rich and the poor. The digital technology industry is forced to operate under tighter regulations. A pilot property tax may be rolled out to more cities next year which will have consequential implications for developers, property owners, investors and local governments. Within the party, he has insisted on stricter discipline and adherence to ideology as the way forward. His push for tech self-sufficiency has also roiled global partners and we could see a further conscious de-coupling from China in 2022.

Is Xi trying to go back to Mao's path? Why do you think he is invoking Mao’s ideas and copying even his looks?

The CPC is determined to stay in power for as long as it can. So, it draws from its history to see what has worked, because the party does not go through what other political parties in a liberal democracy do to gain legitimacy. So, for it to be legitimate, for it to be relevant, it draws upon history.

For Xi to invoke some kind of Mao's ideology, it ensures continuity. Lots of his speeches have a central theme that 'we want to make a Chinese people, happy', 'we want to realise the China dream'. These are things that have been said a long time before, and now he is just bringing them back. [ The idea is to ensure] continuity to the party’s rule. When he invokes Mao, Xi wants to say that there is no breakage—“We're going to the past to go to the future”.