Xiconomics @ 5

This month’s 20th Party Congress brings not just the announcement of China’s new leadership team. It also marks the fifth birthday of Xiconomics, Xi Jinping’s declared approach to the Chinese economy. Five years on, with the Chinese economy beset by unpredictable, stringent lockdowns and troubled real estate companies, how is Xiconomics faring? 

Introducing Xiconomics

‘Xiconomics’ has the ring of a term coined by western commentators, keen to adopt the framing of Reaganomics and Abenomics and, perhaps, to over-simplify and over-personalise dry matters of economic policy. Yet it is Chinese state media and not the west that uses the term most frequently. This year China Daily has published a stream of articles on Xiconomics or—to use the full and official name—Xi Jinping Thought on Socialist Economy with Chinese Characteristics. The insertion of ‘Xi’ is itself striking. Previously, it was China’s premier who took lead responsibility for economic matters. In 2013 The Economist and Financial Times were writing of Likonomics and not Xiconomics. They were wrong.

It was the December 2017 Central Economic Work Conference that saw Xiconomics declared to the world. Mr Xi, though, had set the stage two months earlier at the 19th Party Congress. Drawing on the vocabulary of party ideology, he announced a change in the ‘principal contradiction’ facing China, reframing the primary challenge that all policy needed to address. The focus was no longer simply economic growth—or, in party-speak, “the contradiction between the ever-growing material and cultural needs of the people versus backward social production”. Now, Mr Xi argued, the contradiction was “between unbalanced and inadequate development and the people’s ever-growing needs for a better life”. He argued that “the needs to be met for the people to live a better life are increasingly broad. Not only have their material and cultural needs grown; their demands for democracy, rule of law, fairness and justice, security, and a better environment are increasing.” 

Five years later, Xiconomics rolls on. June 2022 saw a ‘study outline’ published on Xi Jinping Economic Thought comprising 15 chapters. Party cadres and government officials were exhorted to study, learn and make better decisions.

Objectives are wide-ranging and hard to pin down

Xiconomics at its simplest takes the form of aspirational words, principles and philosophy. It is ‘people-centred’, ‘innovative’, ‘coordinated’, ‘green’, ‘open and shared’. It ensures ‘harmony between man and nature’. This all draws heavily on the wording of Mr Xi’s new development philosophy, articulated in 2015. But turning these warm words into precise objectives or guidelines against which progress might be measured is tough. 

In purely economic terms, a single GDP target is no longer enough. Income distribution matters more than before—between rich and poor, and between rural and urban. The environment matters. And, yes, engagement with the rest of the world still does matter.

But this is about more than economics. Matters of ideology and security feature prominently. All is now intertwined. And security matters go far beyond defence and public order. They include questions of economic, technical, cyber and resource security. Supply chains need to be efficient and innovative, but, in Mr Xi’s words, they also need to be ‘controllable’. 

The ‘Xi’ in Xiconomics highlights both this broad, holistic approach and a personalisation. The party ‘leads everything’ in China. And, of course, Mr Xi leads the party. With so many competing objectives, trade-offs are inescapable even if they are not made clear. Officials need to study and learn to make the ‘right’ decisions—but ultimately it is for Mr Xi to decide which objectives take priority when. 

Figuring out the policy implications

Beyond broad, sometimes ambiguous, principles to guide decision-making, a policy framework for Xiconomics has been slow to emerge. Most notable is Mr Xi’s 2020 announcement of China’s dual circulation strategy. This draws a sharp dividing line between the domestic economy (‘internal circulation’) and the rest of the world (‘external circulation’). In the future, the internal is to be the ‘mainstay’, with the internal and external ‘mutually reinforcing’ one another—a marked shift from China’s previous direction of joining the ‘great international circulation’ of the world economy. Such a shift fits well with the now-larger Chinese economy and a world of trade protectionism, US-China technology competition, export controls and broader tensions. Nonetheless, the long-standing theme of ‘reform and opening up’ persists, as does the Belt and Road Initiative as a platform for economic engagement overseas.  

However, beyond prioritising the ‘internal’, dual circulation has little new to say about how to develop the Chinese economy. The Chinese media restates that Xiconomics emphasises the market’s ‘decisive role in allocating resources’ while allowing ‘the government to perform its functions better’. This merely reiterates the need to find an effective blend of state and market, without stating what that blend is. This is perhaps unsurprising. China’s growth model has always been a messy, pragmatic mix of state and market, hard to describe in a few simple words. But Xiconomics calls for strong domestic demand to drive growth. As the limits of China’s real-estate and infrastructure-intensive growth are reached, this means increased consumer demand in particular. But this sectoral shift will not happen automatically, without supporting policies. Equally when the phrase ‘common prosperity’ took the spotlight in 2021, it was more an aspirational objective than a series of policies. Only in April this year did the announcement of a ‘national unified market’ draw explicitly on the framing of ‘economic circulation’ to make policy proposals. It did so to advance policies that would break down internal barriers and local protectionism with China, while centralising regulatory authority in Beijing.

Instead, Xiconomics has taken shape through actions rather than words. The state advances at the expense of the private sector—through billions of dollars of state funding pouring into technology investments; through increased, often sudden regulation (especially of the large technology ‘platform companies’); through demands placed on businesses at the local level for additional ‘contributions’ and ‘support’ to state efforts; and through a greater imperative to invest strictly in line with industry sector priorities. Technology leadership, digitisation, continued urbanisation, renewables and climate adaptation all feature heavily. Measures to address financial stability and unwind high debt leverage continue, pushing for adjustment while seeking to avoid crisis caused by moving either too quickly or too slowly. Separately, regulatory opening to foreign companies has continued. However, despite the dual circulation promise of greater mass consumption in China, there has been no real action to enable stronger consumer demand. This would mean increasing household incomes at the expense of, mainly, state-owned enterprises. Here too, the state advances, or—at least—does not retreat.