Coronavirus: China puts a brave face on economic impact as Xi Jinping still vows to deliver promised goals

Zhou Xin

Shrouded in utmost secrecy, the Politburo Standing Committee is the inner circle of China’s power structure. The seven-member body, which is the core of the 25 member Politburo cabinet with general secretary Xi Jinping as its head, rarely publishes meeting schedules or agendas before or even after meetings.

The details of only four standing committee meetings have been published in the two and half years since Xi consolidated his power in late 2017, even though the group is believed to have met on a weekly basis. Two of the meetings were to listen to work reports from China’s government, parliament and the top court, one was a discussion about a grand plan to build an entirely new city in Xiongan, Hebei province, and the fourth concerned a low-quality vaccine scandal.

This all changed last month with the outbreak of the coronavirus, which causes the disease now officially known as Covid-19.

The conclusions of three standing committee meetings in three consecutive weeks have since been published, an attempt to make it clear that China’s leadership, in particular Xi himself, has a strong message to send to the country’s ruling apparatus and the general public.

During Wednesday’s meeting, Xi said control of the coronavirus had entered a critical stage despite “positive developments” in containing the outbreak, the official Xinhua News Agency reported.

However, Xi emphasised that the outbreak of coronavirus should not stop China from achieving its social and economic goals, while also continuing the country’s long-term rise.

“This year is the last year to complete the goal of building up a comprehensively well-off society” said Xi, with all levels of the government expected to ensure economic stability and social harmony to achieve set goals despite the coronavirus.

The meeting came just a day after Xi told his Indonesian counterpart, Joko Widodo, that China “has the capability, confidence and certainty to score an outright victory over the epidemic”. On Monday, Xi, wearing a face mask, inspected a community in Beijing.

We must see that the long-term sound fundamentals of our economy haven’t changed. The impact of the outbreak will only be short-term and [China] won’t be intimidated by the current problems and difficulties

Xi Jinping

“We must see that the long-term sound fundamentals of our economy haven’t changed. The impact of the outbreak will only be short-term and [China] won’t be intimidated by the current problems and difficulties,” Xi said according to Xinhua.

Xi comments indirectly refuted a wave of questions about China’s long-term prospects and its governance model which have followed the apparent mishandling of the outbreak in late December and early January.

The novel coronavirus, which has already killed more people than severe acute respiratory syndrome (Sars) in 2003, was first detected in the city of Wuhan, but local officials in the capital of Hubei province attempted to sweep the situation under the carpet until it became too big to conceal.

The outbreak, which has sharply slowed domestic economic activity and curtailed the movement of people and goods around the world, is expected to knock a hole in China’s economy this year, with the country’s private-sector – the source of most of the country’s growth and employment – set to be the hardest hit.

Wuhan’s seemingly clumsy handling of the public health crisis, including local authorities’ attempt to silence discussions of the outbreak among doctors in the early days, has invited criticism of the China’s top-down governance model, where the government controls information and keeps decision-making largely behind closed doors.

The death of Dr Li Wenliang, who initially raised questions over a new type of virus but was reprimanded by local police for spreading rumours about the outbreak, sparked public outrage and a wave of distrust of China’s ruling apparatus, which centres around Xi.

According to Chinese officials, who declined to be named as they are not authorised to talk to media, the takeaway for Beijing from the outbreak have not been about the need to boost transparency or independent media coverage but rather the need to boost effective control of local governments to make them accountable.

One government official, who has been briefed on the situation, said the Hubei party committee that was headed by Jiang Chaoliang had promised Beijing that the situation could be brought under control by locking down the city of Wuhan, an extraordinary and controversial move made on January 23. Hubei went ahead with its plan, but the outbreak continued to expand. On Thursday, Xi removed Jiang from his position as party secretary for Hubei.

In another example, after the death of whistle-blower doctor Li, the central government sent a team to investigate the outbreak in Hubei, hinting the fault over the handling of the case lies at a local level.

The next challenge posed by the outbreak is that it could significantly dampen economic growth this year, and so threaten Beijing’s grand vision for the country.

Xi did not specify the government’s exact social and economic development goals, with China’s annual economic growth rate target set to be included in the government’s annual work report which will be released at the National People’s Congress in early March, if it goes ahead as planned.

But it is one of China’s worst kept secrets that Xi needs to keep the economic growth rate above a certain level this year to achieve the goal of attaining a “comprehensive well-off society” by 2020, the first of the Communist Party’s so-called centenary goals.

The comprehensive well-off society goal is a stepping stone for China to become a “basically modernised socialist country” in 2035 and a powerful socialist country in 2050, according to Xi’s landmark report on China’s future made at the 19th National Congress of the Communist Party of China in 2017.

A key part of the well-off society target is that Chinese gross domestic product (GDP) at the end of 2020 will be twice the size of that in 2010. Economists calculate that China has to achieve a minimum growth rate of 5.6 per cent this year to fully achieve that goal – a rate that was within reach before the coronavirus outbreak.

Now, many economists predict that Chinese growth this year will fall below 5.6 per cent, with Goldman Sachs cutting its China GDP forecast for 2020 to 5.2 per cent, UBS predicting 5.4 per cent, and Moody’s 5.3 per cent.

Nevertheless, a growth rate slightly below 5.6 per cent this year would still bring China close enough to the target and enable Xi to declare victory since it is always “in the hands of the senior leadership to decide how precisely they want to interpret that goal of doubling GDP”, according to Louis Kuijs, the head of Asian research at Oxford Economics.

George Magnus, an associate at Oxford University's China Centre and Research Associate at SOAS University of London, said Beijing could use official data to “obfuscate” the true picture if there is a minor growth shortfall, as the failure to achieve the goal “would be a setback for President Xi and for the party”.

If growth failed to meet the target, it “would constitute reputational damage to have missed one of a handful of key pledges … especially if the main reason was the party’s mishandling of the coronavirus outbreak,” Magnus, the author of Red Flags: Why Xi Jinping’s China is in Jeopardy, added.

In addition to economic numbers, Xi is also trying to keep political implications of the coronavirus crisis under control.

Dali Yang, a political scientist at the University of Chicago, said successful containment of the coronavirus will “reinforce the perception of Chinese authoritarian resilience”.

If we review China’s history over the past four years, the Chinese leadership has also developed an enormous repertoire of tools to deal with crises, to put the crises behind, as well as to shape and control the [public] discourse

Dali Yang

“If we review China’s history over the past four years, the Chinese leadership has also developed an enormous repertoire of tools to deal with crises, to put the crises behind, as well as to shape and control the [public] discourse,” Yang said.

While the world may feel the coronavirus has exposed flaws in China’s governance, the eventual success of bringing the outbreak under control will be hailed as “a validation of authoritarian, top-down management,” according to Arthur Kroeber, the head of research at consultancy firm Gavekal.

At the same time, Chinese analysts say it would be too far-fetched to claim that the outbreak would pose a threat to China’s growth or its ruling apparatus.

Tang Jianwei, a senior researcher with the Bank of Communications, the country’s fifth largest lender, said there is still hope that a strong central government under Xi will be able to control the outbreak and get the economy back on track.

“A responsible government must step in when market failure is seen,” he said. “The government has begun to play a big role in the supply of relief materials and price stabilisation.”

Lu Zhengwei, chief economist at China’s Industrial Bank, said the actual impact of the current outbreak on the Chinese economy could be short-lived and smaller than seen during Sars, even though the coronavirus has already infected and killed many more people. Lu also noted that China’s economy rebounded strongly after the 2003 epidemic.

“We are facing an economy with overcapacities. So, what does it matter if a few weeks of work are delayed? Production can be made up in future months once the epidemic is contained,” Lu said.

Even the impact on the services sector could be smaller than expected, with people who have stopped going to cinemas potentially spending more via their online game accounts, Lu added.

The Chinese nation has endured many hardships … the greater the difficulties and challenges, the stronger our rallying power and combat capability

Xi Jinping

When China’s economy was hit by Sars in the spring of 2003, China’s headline GDP growth rate in the second quarter slowed to 6.7 per cent from a 9.9 per cent in the first quarter. China later revised the second quarter growth rate to 7.9 per cent as the impact on the services sector had been overestimated. The growth rates in the third and fourth quarter quickly rebounded back over 9 per cent, heralding a decade of rapid expansion.

Xi, the man who has built up a centralised governance system around himself over the last few years to achieve his “Chinese dream”, views the coronavirus outbreak as a “test” for the Communist Party to pass and a “war” for China to win, which will eventually prove the resilience of the Chinese model, according to his recent comments.

“The Chinese nation has endured many hardships … the greater the difficulties and challenges, the stronger our rallying power and combat capability,” Xi was quoted by Xinhua as saying on Tuesday.

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