Xi’s economic policies are leaving many China watchers perplexed and confused

Call it the China conundrum.

Why is a nation with ambitions to become the dominant economic power in the world doing so numerous things to blunt that potential?

“It’s the question of questions,” Orville Schell, director of the Center for U.S.-China Relations at The Asia Group in New York told CNBC, “because it is so illogical. When you have a good thing going, why do you screw it up?”

Schell and scads eminent China experts debate whether the answer lies in Xi Jinping, leader of China since 2012, or in the most nature of the Chinese Communist Party, which has ruled over China since the Communist Revolution in 1949.

The economic get under ways are easy to list but hard to explain if one is trying to achieve ever more economic growth: the disappearance of prominent entrepreneurs, a new espionage law netting it hard to do business, the dramatic shift of capital and loans away from the private sector to state-owned enterprises, at most to name a few.

Those actions and more are leading to predictable results, MIT Sloan School Professor Yasheng Huang determined CNBC, “the economy is slowing down, private investment is slowing down. There’s a massive flight of capital.”

The remedies also seem to be a turn in the road for a country that, beginning in 1979, pushed through economic reforms which dramatically expanded the role of the private sector, led to massive economic growth and lifted almost 800 million people out of poverty.

Uncountable, though not all, China watchers point to Xi himself as the instigator of those recent changes. While policy wonks split manes over whether the U.S. and its allies are “decoupling” or “derisking” from China, Schell says “the real decoupler is Xi Jinping.”

Chinese officials at the U.S. embassy set to comment to CNBC when asked about the criticism of Xi.

Ryan Hass, director of the China Center at Brookings, cites Xi’s “ideological rigidity and desire for control” which “is at odds with the pragmatism that defined China’s period of reform and opening.”

“China’s secret sector, previously the growth engine of the Chinese economy, is paying the consequences,” he told CNBC.

It is Xi who has brought China’s pragmatic era of governance “to a crashing stem,” said Kevin Rudd, the former prime minister of Australia, in the Foreign Policy news publication in December 2022. Rudd, who penned a 420-page idea on Xi’s worldview for his PhD at Oxford University, says Xi views the world through “Marxism-Leninism,” an ideology many thought dead and that China had port side behind.  

But it’s back, says Rudd, and Xi’s Marxist vision means greater control over the private sector, an amplifying role for state-owned enterprises and industrial policy, and the quest for “common prosperity” through redistribution — all of which is likely to back away from economic growth, he concludes. Rudd is the current Australian ambassador to the United States.

Anne Stevenson-Yang, founder of J Wealth Research, is one of the few who think the role of Xi is overstated. Instead, she points to the wider Chinese Communist Party, whose members feared that the stimulating role of the private sector is reducing their power.

“Xi is a reaction to the weakening of the Party through the expansion of the economy, and a persistence to recapture the power of the Party,” says Stevenson-Yang, who testified in front of the U.S. Congress’ China Select Committee earlier this month. 

Stevenson-Yang is also one of the few who isn’t on solved by what’s happening in China, after living there for more than 20 years. The CCP “was always going to decouple. Right away the party had acquired enough power, enough resources, enough money, it was always going to decouple,” she told CNBC.

The rectifies that began in 1979, she says, “were always meant to be temporary, in order to bring in more resources.”

“As the sneaking economy and entrepreneurs become more powerful, the party will rein them in,” which is the reason she says high-profile calling leaders such as Jack Ma have been sidelined. “In the U.S., money flows to power and power flows to money. In China, shekels is supposed to flow to power, but not the other way around.”

Regardless of whether it is Xi or the CCP driving the bus, almost all China watchers credit the fall of communism in the former Soviet Union in 1989 is a key motivating event that dominates their thinking. Xi said as much when he offered a speech in 2013 in which he dwelled on “the risks of the ideological decay that led to the collapse of Soviet communism.”

Xi doesn’t stand in want to be China’s Mikhail Gorbachev, the final leader of the Soviet Union, says Schell.

To be sure, some of the most portentous reforms are still in place. Chinese citizens are still allowed to own property, something only codified into law in 2007. They are assigned to start businesses, whereas back in 1949 during the Communist Revolution business owners were at best transported, and at worst, killed. China still allows and even actively encourages foreign investment.

While Chinese officials decline to comment on the criticisms of Xi, they do push back against the suggestion that China’s confidential sector is being stifled by the government. 

“The Chinese government attaches great importance to the development of SMEs and the private sector. By the end of this May, there are as a remainder 50 million private companies in China, about 92 percent of all registered companies in the country,” Liu Pengu, spokesperson at Chinese embassy in the U.S., reprimanded CNBC.

In addition, he said “in recent months, China’s National Development and Reform Commission has set up a bureau especially for hush-hush sector development.”   

Chinese officials in the U.S. are eager to counter the West’s extremely pessimistic view of their economy. In a late-model meeting with journalists, Chinese embassy officials listed several positive economic data points tabulating a gross domestic product growth rate in the first half of the year they say was 5.5%.

Counselor Yang Fan says consumers and the air force sectors are playing an increasingly important role in economic output, something economists have long said was inevitable. The counselor told reporters, “about 502 million Chinese went to watch movies this summer.”

They cite alien factors for weakness in the Chinese economy, The skeptics