Supply-Side Reform, Chinese Style

17 june 2016

Xi Jinping Changes the Ideology of Economic Reforms

Olga Borokh is Leading Researcher at the Institute of Far Eastern Studies, Russian Academy of Sciences; she holds a Doctorate in Economics.

Alexander Lomanov is Chief Researcher at the Institute of Far Eastern Studies, Russian Academy of Sciences; he holds a Doctorate in History.

Resume: The proclaimed supply-side structural reform is not a carbon copy of Reagan’s policy. Rather, it is the continuation of the search for the Chinese way of development and efforts to adapt foreign teachings to Chinese conditions.

The Chinese economy is slowing down. According to official statistics, China’s GDP grew by 6.9 percent in 2015. This is a very good result given the slow growth of the global economy. Yet this is much below China’s growth rate of several years ago.

China’s leaders understand that a return to the former growth rate of ten-plus percent a year is impossible. Attempts to use the policy of short-term stimulation of the economy by government lending, which was widely used in the past 15 years, will no longer bring positive results. On the contrary, they would only exacerbate problems faced by the Chinese economy.

In this situation, the authorities need to solve two tasks. First of all, they need to formulate a new economic policy that would correspond to the new reality. Secondly, they need to amend and supplement the official reform strategy. Former slogans have become outdated and should be replaced. Although the development of a practical policy seems to be much more important than its ideological justification, in China these tasks are closely interrelated. The correction of the reform policy should be accompanied by the demonstration of compliance of the new policy with the main ideas of the ruling Communist Party in order not to call into question the legitimacy of the party leadership.

Xi Jinping, the General Secretary of the Communist Party (CPC) and President of China, is the central figure in addressing the two tasks. Since 2013, he has been working to expand the set of economic slogans, and since the end of 2015 this process has become unprecedentedly intensive. The Chinese leader has proclaimed a new economic strategy and has made every effort for it to become part of the state policy in early 2016 and an integral component of the ideology of building “socialism with Chinese characteristics.”

WITHOUT DEMAND

At the end of October 2015, the 5th Plenary Session of the 18th CPC Central Committee met to discuss the Committee’s proposals for the development of the 13th Five-Year Plan (2016-2020). The session proclaimed that the Chinese economy had entered a “new normal” amid the slowdown of world trade and the decline in investment and consumer demand inside the country.

The term ‘new normal’ stems from analytical studies of Western economists who analyzed changes in the global economy after the 2008 crisis. In China, the term was introduced into the official political lexicon by Xi Jinping. Starting from 2014, he repeatedly pointed to three main features of China’s “new normal.” Firstly, economic growth rates are declining from high to “medium-high”—but this should not cause alarm, because the growth rate is still very high. Secondly, the economy is undergoing necessary restructuring. Thirdly, China’s economic growth is now driven by innovations, rather than resources and cheap labor.

At the plenary session, Xi urged the country to adapt to the “new normal,” master it and direct it. He also warned that, to achieve the declared long-term goals, the annual growth rate in the next five years should be no less than 6.5 percent. The plenary session proclaimed the concept of “five development concepts,” according to which China’s development must be innovative, coordinated, “green,” and open to the outside world, and the results of the development should be available to all members of society.

The 5th Plenary Session closed on October 29, 2015. Two weeks later, on November 10, at the 11th meeting of the Central Committee’s Leading Small Group for Financial and Economic Affairs, Xi called for “structural reform on the supply side,” which was not mentioned in the plenary session’s materials. In December, this concept was presented in more detail at the Central Economic Work Conference, which set tasks for 2016. Since January, the supply-side structural reform has taken center stage in official propaganda. At a session of the National People’s Congress in March, it became an important part of the 13th Five-Year Plan.

What is at issue is a substantial correction, if not a complete replacement, of the economic paradigm of China’s development. The habitual policy of stimulating demand has been relegated to the background. The authorities have acknowledged that preserving the old model and continuing to accumulate debts is no longer possible. The supply-side structural reform requires reducing the excess production capacity, reducing the excess supply in the housing market, restructuring debts and cutting companies’ costs. The government also plans to “strengthen weak points” in many areas. These efforts include poverty reduction, technological modernization, the improvement of infrastructure, the development of education, and environmental protection.

The new policy is expected to produce results already in 2016, as it is to reverse the trend towards increasing companies’ costs and reducing prices of industrial products, and diminish financial risks.

Numerous comments in the Chinese media do not clarify why the supply-side structural reform was not mentioned at the plenary session of the CPC Central Committee—either in its resolution, or in Xi’s comments concerning the 13th Five-Year Plan. The sudden appearance of the new economic development concept indirectly indicates a marked increase in the party leader’s role in the economic decision-making system.

U.S. scholar Barry Naughton writes that “China now has two different, sometimes overlapping, systems of economic policy-making.” One is based in the State Council and headed by the premier, and the other is based on CPC leading small groups. In the past, five-year plans and economic policies were traditionally developed by the State Council, and the subsequent approval of its proposals by party bodies was merely formal. However, after Xi came to power, the balance between the two systems has changed due to an increased role of the party.

The Central Committee’s Leading Small Group for Financial and Economic Affairs was established in 1980, at the dawn of the reforms. Although the group is headed ex-officio by the CPC General Secretary, in the past his role in devising the economic course was less important than that of the premier. Xi has made this group an important tool for developing the economic policy. In 2013, the 3rd Plenary Session of the 18th CPC Central Committee established the Central Leading Small Group for Comprehensively Deepening Reforms and named Xi its leader. Thus the party leader has acquired control over two powerful tools for influencing the economic policy.

In Naughton’s view, the consolidation of the positions of the two leading small groups in the Central Committee has reduced the influence of the premier and the government in general. Formally, the distribution of powers has remained the same, but chances have increased that the government’s initiatives may be rejected or revised. “Policy exhibits an abruptness, a stop-and-start quality, that reflects the fact that decisions may be checked at the top by Xi Jinping, or suddenly made irrelevant by a new initiative coming from one of Xi’s LSGs,” the U.S. scholar writes. He believes the decision on the supply-side structural reform was influenced by Xi’s “close economic adviser” Liu He, the chief of the General Office serving the Leading Small Group for Financial and Economic Affairs. Whatever Liu’s role, the new concept was first proclaimed by Xi at a meeting of this Leading Group, which clearly demonstrated its importance as the center of strategic economic decision-making.

The concentration of powers in Xi’s hands, amid intensive propaganda of his achievements in governing the country and his ideological innovations, creates the image of a strong leader who is ready to resolutely use his power to successfully carry out difficult reforms. Against this backdrop, Premier Li Keqiang has turned into a technical figure. It is hard to believe that in 2013 foreign experts seriously discussed prospects of his economic policy, known as “Likonomics.” Huang Yiping, Chief Economist for Emerging Asia at Barclays Capital, said then that Likonomics consisted of the across-the-board reduction of debt, an end to massive stimulus practices, and structural reforms.

Now, these measures have become part of Xi’s supply-side structural reform; so the meaningful assessment of China’s economic policy was not erroneous. The experts wrongly identified the source of this policy, as they could not foresee that Xi would take the formation of the paradigm of economic reforms into his own hands. There has even emerged a new term in China’s mainstream vocabulary— “Xi political economics”—which has a high degree of ideological legitimacy.

The substantiation of the compliance of Xi’s economic policy with the policy of building “socialism with Chinese characteristics” helps to ensure stability for conducting the difficult reforms. China’s recent history offers two examples that confirm the importance of such efforts. On the one hand, the accumulation of economic problems and the growth of popular discontent, accompanied by the weakening of the party’s power, led to the crisis of 1989. On the other hand, the subsequent consolidation of power in the 1990s made it possible to carry out sweeping reforms of the public sector, which led to layoffs of millions of people, without social upheavals.

An open letter from anonymous “loyal party members” to Xi, posted on the Chinese Internet in March 2016 and calling on the Chinese leader to resign from all state and party positions, came as a reminder of possible challenges to the authorities. The letter made three accusations against Xi in the economic sphere. Firstly, as the head of the Leading Small Group for Financial and Economic Affairs, he allegedly created instability in the stock market, “allowing the wealth of hundreds of thousands of ordinary people to vanish.” Secondly, the reduction of excess production capacity within the framework of the supply-side reform has resulted in large numbers of layoffs at state-owned firms, the closing of private firms, and high unemployment. Thirdly, the “One Belt, One Road” strategy implies the investment of a huge amount of foreign exchange reserves into “chaotic” countries and regions with no return.

These accusations are more populism than economic analysis. The fall of stock prices after a boom among private investors, many of whom did not have the slightest idea about the stock market, was partly due to mistakes made by the China Securities Regulatory Commission. Previously, the top political leaders did not handle such matters; Xi’s interest was focused on strategic issues. It was not until April 2016 that the Politburo of the CPC Central Committee decided to discuss the issue of “healthy development of the stock market” for the first time. 

The criticism of China’s “One Belt, One Road” initiative is groundless, too. Potential investments will help to reduce excess production capacity in China not by destroying production facilities and equipment but by moving them to countries located along routes leading from China to Europe, which will facilitate foreign expansion of Chinese businesses. China’s partners in the Silk Road Economic Belt project include Russia and the Eurasian Economic Union. Their implication as “chaotic” regions where investments will have no return serves as a worrying reminder that an aggravation of internal political debates in China can jeopardize the development of Russian-Chinese relations.

The “loyal party members” did not offer any constructive alternative in the economic policy. As China needs to solve objectively existing structural problems, any other Chinese leader would have to conduct a policy that would be more or less close to the current one. At the same time, the warning about the growth of unemployment as a result of the supply-side structural reform is based on objective grounds. The Chinese authorities do not conceal the fact that the reduction of excess production capacity and unviable enterprises will be accompanied by massive layoffs.

REAGANOMICS VS CHINESE “ZOMBIES”

In the first days of 2016, People’s Daily published a detailed account of the content of the supply-side structural reform, presented as answers of an anonymous “authoritative figure” to the newspaper’s questions. The style of the full-page interview and the way it was presented leave no doubt that the text reflected the views of the top party leadership.

Will society be able to withstand the hardships of the new reform? The answer was: “Pain will be unavoidable, but also worthwhile,” and the right implementation of the reform will help make it acceptable. It cannot possibly please everyone, because some enterprises will face even more problems, which may result in their closure, layoffs or reduced incomes. Yet, this pain marks the birth of something new, and therefore it should be endured. The article said that a proper retreat was needed for a better advance just as Laozi taught: “The Tao, when brightest seen, seems light to lack; Who progress in it makes, seems drawing back.” China cannot allow “zombie enterprises” to ruin the best enterprises in the industry—only to die together with them. Obviously, one should get rid of “zombie enterprises” in order to release necessary resources and room for the market.

The article in People’s Daily pointed out that, in contrast to the reforms of the 1990s, the current reforms will be implemented amid good prospects for economic growth, broader employment opportunities, the expansion of the social security system, the strengthening of the state’s financial power, and the growth of its ability to withstand risks. There will be no large-scale unemployment, so people should understand and support measures to optimize the sectoral structure and increase efficiency, as this will help meet their expectations of better development, higher quality of products and even of the air inhaled by people. The problem of “zombie enterprises” will be solved through mergers and reorganizations, and “euthanasia” will be applied to bankrupt enterprises in a manner that will help solve unemployment problems and prevent social risks.

The article described the current situation in the Chinese economy as “four decreases and one rise”—on the decline are economic growth, prices of industrial products, the profitability of enterprises and financial income, while risks for the economy are growing. Overcapacity appeared in the “golden age” of global economic growth and high foreign demand for Chinese products, accompanied by fast growth in China. When the government fought the crisis by means of investment incentives, capacity increased again. But now that the world market has slowed down, increasing domestic demand alone will not solve the problem of overcapacity. “It is like two tables of food being set up, but only one table of diners is coming to eat. They will not be able to eat all food.”

Since problems of the Chinese economy are not cyclic but structural, it is impossible to expect a V-shaped economic recovery through short-term stimulation. Instead, the national economy is likely to experience an L-shaped growth period. The article said that Keynesianism won’t help much at the new stage of development. Structural reform is taking center stage. The “authoritative figure” urged cutting excess capacity and burying “zombie enterprises.” He warned that the window of opportunity “won’t stay there forever” and that the supply-side reform cannot afford any delay—“otherwise the ‘sickness’ will become graver.”

When describing the planned reform in China, analysts often use the terms ‘addition’ and ‘subtraction.’ On the one hand, the country needs to “subtract” unviable companies from its economy. On the other hand, the solution of the problem of excess housing supply will create a compensating effect of “addition,” which can stimulate economic growth. At a meeting with deputies to the National People’s Congress from Hunan Province in March 2016, Xi described the supply-side structural reform as a “tough battle” and stressed the need to grasp the “addition” and “subtraction,” current and long-term relationship, and principal and secondary contradictions, and correctly determine the relationship between the government and the market in order to win this battle.

The policy of deepening the supply-side structural reform does not negate the former task of increasing aggregate demand. Relying only on a policy of boosting demand, China will not be able to maintain the required growth rate. At the same time, the supply-side reform should not be taken as a complete negation of the previous policy. The keynote article in People’s Daily pointed to two “misunderstandings” of the new economic policy.

Firstly, this policy does not mean a contraction in demand. Demand and supply are interrelated and cannot be opposed to each other. At the current stage, however, the supply structure has become the main aspect of the contradiction; so this problem should be addressed first.

Secondly, some people see the supply-side structural reform as an attempt to create a “new planned economy.” In their view, the authorities do not intend to carry out privatization and market liberalization but will close or nationalize private enterprises and will increase the planning functions of the state. Such an understanding is wrong—the official point of view is that, in accordance with the resolution of the 3rd plenary session of the 18th CPC Central Committee (2013), the market will play a decisive role in the allocation of resources. In the past, the role of the market was insufficient, which led to the emergence of “zombie companies” financed and subsidized by local authorities. The market could not get rid of “zombies” because of excessive intervention by the authorities, but now this drawback will be eliminated. The transition to the supply-side reform means that some of the government’s functions will be limited, but it will not cease to exercise macro-control, regulate the market and provide public services.

Xi’s new economic policy resembles the neo-conservative “supply-side economics” of the 1970s, which served as the theoretical basis for Reaganomics in the United States. This similarity is not superficial. Ronald Reagan’s policy was a reaction to Keynesian demand stimulus practiced since the times of Franklin Roosevelt. China, too, has declared its renunciation of reliance on Keynesianism. In both cases, the role of the market is increased, and functions of the state in the economy are changed.

“Thatcher and Reagan are highly regarded because it was proven that they made the right choices under heavy pressure,” Jia Kang, an economist in the Chinese Ministry of Finance, told The New York Times. “Their spirit was one of boldly taking on challenges and innovating, and that’s certainly worth Chinese people emulating.” It is noteworthy that Jia was one of those who founded the China Academy of New Supply-side Economics in September 2013, a private think tank.

Although this praise was intended for external audiences, many Chinese experts cautiously acknowledge a remote connection between Xi’s new economic policy and Reaganomics and Thatcherism. Professor Wang Xiaoguang of the China Academy of Governance said that, to overcome short supply and inflation caused by a decline in production efficiency, Reagan reduced administrative functions and lifted price controls, which has similarities with the Chinese initiatives. Reagan also reduced taxes for companies to increase their investment activity. “I feel that these two aspects of supply-side economics are of major referential value for us,” Wang said. “Britain privatized some state-owned enterprises. In China, it is called a transfer into people’s management. All this gives us food for thought.”

Beijing’s plans to cut jobs at redundant steel plants and coal mines make one think of an analogy with Margaret Thatcher’s tough measures to close British coal mines. The search for coincidences between Xi’s new economic policy, on the one hand, and Reaganomics and Thatcherism, on the other, suggests that the CPC has taken the path of neoliberalism in the economy, which it has actively criticized since the late 1990s.

Xi Jinping addressed this issue at a seminar of provincial-level key leading cadres on January 18, 2016. He admitted that the idea of supply-side structural reform announced at the Central Economic Work Conference had triggered heated debates. “Some comrades” told the Chinese leader that they “do not fully understand” the new reform and that “many discussions in society are not quite clear either.” Xi did his best to dispel their doubts. “I need to be clear—the supply-side structural reform we are talking about is not the same as the supply-side economics school in the West.” He stressed that supply-side structural reform could not be seen as a replica of the Western “supply-siders” and warned some people against using their interpretations to promote “neo-liberalism” and create a negative public opinion. 

Xi recalled the history of the Western supply-side economics developed in the 1970 and even explained the Laffer curve. He said the proposed reform was a slew of structural measures to seek innovation, prosperity and well-being. In terms of political economy, the purpose of the reform is to meet the various growing needs of the population and therefore “realize socialist production goals.”

He believes that the problem is not about the lack of demand but insufficient supply. There is obvious overproduction in some sectors of the Chinese economy, but the supply of critical equipment and technologies continues to depend on import. The same is true of individual consumption. Chinese buy not only jewelry, designer handbags, watches, clothes and cosmetics abroad but also everyday goods like electric rice cookers, toilet seats, milk powder baby bottles, and the like. In 2014, the Chinese spent more than one trillion yuan shopping abroad, taking demand out of the country where it cannot be effectively supplied.

Chinese scholars explain the differences between China’s supply-side structural reform and economic policies of Western countries. Professor Chen Yongzheng of the School of Economics, Sichuan University, writes that, in order to avoid negative impacts of the Asian crisis of 1997 and the global crisis of 2008 on the Chinese economy, the authorities launched an active fiscal policy. The government became the main source of resource allocation and rectified the “market failure,” but conducting this policy for too long may lead to a “government failure” and stagflation, as it happened in the West. For the Chinese economy not to fall into the trap of Keynesianism, the government should abandon the role of investor and provide strategic economic management, including the supply-side structural reform.

The scholar described the essence of Reaganomics as large-scale tax cuts aimed at increasing the supply of private investment. In the 1980s, under the influence of neoliberalism, the U.S. adopted an ideology of deregulation. Although both the Chinese supply-side structural reform and Reaganomics are in opposition to Keynesian economics, they are different in essence. Large-scale tax cuts would be inefficient in China, because the share of tax revenues in Chinese GDP is relatively small. Whereas Reagan combated stagflation, a term meaning a period of inflation and unemployment, China does not have these, and its economy—even in the conditions of the “new normal”—is growing faster than any other economy in the world. The Chinese problem is not a lack of growth, but the need to maintain it through the stimulation of innovation.

The supply-side structural reform obviously will not give up demand management. Western supply-side economics is based on classical Say’s law, which states that “supply creates its own demand.” The global crisis of 1929-1933 showed the inconsistency of this idea and gave rise to Keynesianism which brought about postwar flourishing of Western capitalism. The neoliberalism of the 1980s dealt a blow to Keynesianism, and later the world crisis of 2008 shook the authority of neoliberalism. Chen wrote that the supply-side structural reform in China is being implemented through state strategic regulation. This approach cannot be equated to Say’s Law which rejects the role of the government and which states that natural balance can be achieved through free supply.

In February 2016, People’s Daily published an article by Liu Yuanchun, Executive Director of the National Academy of Development and Strategy, Renmin University of China, entitled “A Theoretical Basis for the Supply-Side Structural Reform,” which followed up on this subject. Liu wrote that, unlike America of the 1970s, China is now threatened not by stagflation but by external downward pressure on the Chinese economy; therefore tax and social security spending cuts will not help solve the Chinese problems. The economic ideas of Hayek, Friedman and Laffer, which underlay Reaganomics and Thatcherism, call for universal privatization and marketization, which is contrary to the Chinese mainstream ideology and is incompatible with China’s goal of achieving common prosperity.

Liu Yuanchun proposed going beyond the dispute over Keynesianism and supply-side economics within the western economic science and separate consideration of demand management and supply management. To restore the balance between supply and demand, China will have to compensate for the decline in external demand by increasing domestic demand, get rid of “zombie companies” using the “visible hand” of the government and comprehensive planning, and, in the medium term, liberate market forces. The supply-side structural reform cannot be equated to the rightwing slogan of “marketization, privatization and liberalization” or to the leftwing ideas of “holism, government intervention and partial planning.” These notions are not interchangeable. This is why the Chinese understanding of this concept cannot be limited to the traditional opposition between the right and the left, and between the role of the market and government functions.

XI’S “POLITICAL ECONOMY” FOR CHINESE SOCIALISM

Xi’s statement about his unwavering commitment to the dominant position of public ownership suggests that there will not be large-scale Reagan- or Thatcher-style privatization in China. Shortly after the Chinese leader first set out the concept of the supply-side structural reform on November 10, 2015, the CPC Political Bureau on November 23 held its 28th collective study session on the basic principles and methodology of Marxist political economy.

It seems that the sequence of events was not accidental. After advancing the new reform strategy, the Chinese party leader said that the official ideology would not be called into question. After participants in the study session had listened to a lecture by Gu Hailiang, Deputy Chair of the State Committee of Social Sciences at the Chinese Ministry of Education, Xi told them about his understanding of the connection between Marxist political economy and problems of today. He called on the audience to base their conclusions on the situation in the country and development practices, explain new features and new laws of economic development, elevate practical experience to the level of systematized economic theory, and develop contemporary Chinese Marxist political economy.

The theoretical achievements in this sphere, mentioned by Xi, included concepts and slogans formulated during his term in office. Among these were the “theory of implementing China’s new innovative, coordinated, green, open and shared development model,” approved by the 5th plenary session of the 18th CPC Central Committee in 2015; the “theory of developing socialist market economy, allowing the market play the decisive role in the allocation of resources, and giving better role to the government,” which was set out by the 3rd plenary session of the 18th CPC Central Committee in 2013; and the “theory of China’s economy entering the new normal,” advanced by Xi since 2014.

The ideological signal was clear and unambiguous. The Chinese leader made it clear that his economic concepts were full-fledged theories forming a system in Chinese political economy. The implication was that the supply-side structural reform should also be included in this system, which would free the new economic strategy from unnecessary comparisons with Reaganomics and liberal theories of the Western economic science.

Proceeding from Xi’s speech at the collective study session, Chinese social scientists delved into the party leader’s contribution to the enrichment and renewal of contemporary Marxist political economy. Professor Hu Angang of Tsinghua University enumerated new ideas advanced by Xi and aimed at resolving contradictions and problems in China’s economic development.

First of all, it is the idea of the “new normal,” which describes the peculiarities and tendencies of China’s economic development in the second decade of this century. Secondly, it is the “theory of two hands,” formulated by Xi in May 2014 when he proposed combining the “invisible hand” of the market with the “visible hand” of the government. Thirdly, it is the concept of the “basic economic system,” with public ownership playing a dominant role and diverse forms of ownership developing side by side. In March 2014, Xi put an end to the long dispute over the future of Chinese state-owned enterprises, saying that not only can they not be weakened but should be strengthened. Fourthly, it is the idea of “common prosperity,” aimed at reducing income inequality, developing backward areas, and overcoming poverty. Fifthly, it is Xi’s interpretation of “people as the subject,” in the interests of whom the Chinese economy is developing. Sixthly, it is the idea of innovative, coordinated, green, open and shared development, proposed in preparatory materials for the 13th Five-Year Plan.

In March 2016, during the National People’s Congress session, the Xinhua News Agency published an article on “Xi political economics:” “When people start talking about ‘political economics,’ does it not convey associations with voluminous scientific literature? Do not worry! Xi political economics stems from the great living practice of Chinese reforms and development, and it is closely connected with the life of each of us.” After this soothing introduction, the news agency listed eight “keywords” which almost coincide with the six points described by Hu Angang, with two more points added—the supply-side structural reform and commitment to an open economy. The appearance of a coordinated interpretation of “Xi political economics” suggests that these economic ideas will be included in an expanded concept of state governance, associated with the name of the Chinese leader.

The information about the collective study of Marxist political economy by the Political Bureau has inspired supporters of the socialist ideology. Xi’s words that Marxist political economy is a “compulsory subject” in upholding and defending Marxism have been taken as a directive to strengthen its position in Chinese universities, which have for long taught predominantly Western “bourgeois” economic theories. The idea of the supply-side structural reform, which has historical roots in Reaganomics, first gave rise to suspicions among adherents of the traditional ideology that some hostile forces were again trying to use the reforms as a disguise to “push through dark plans” to privatize state-owned enterprises and land and liberalize the market. There appeared statements on the Internet that the word “zombie” was deliberately used to denigrate the reputation of state-owned enterprises and justify their privatization by pleading “vagueness of property rights” and “low efficiency.”

The propaganda of Xi’s “political economics” has helped boost the authority of the Chinese leader and eliminate different interpretations of his economic policy. Obviously, Xi’s new economic policy will not be a Chinese edition of Reaganomics—if only because the practice of a “small government” performing the functions of a “night watchman” is fundamentally incompatible with the present policy of increasing and centralizing power.

In the fall of 2015, Foreign Affairs published online an article by Evan Feigenbaum and Damien Ma “Lenin’s Chinese Heirs. For Xi, Politics Comes First and Economy Second.” The authors say that the Chinese leader proceeds from Lenin’s understanding of the importance of enhancing discipline in a political party and strengthening its monopoly on power, which causes him to assign less significance to economic reform. Soon Xi proclaimed the supply-side structural reform, prompting Western media to compare the Chinese leader to Reagan.

Attempts to combine these assessments lead to the appearance of the image of Chinese leaders as followers of “Leninism-Reaganism,” whose essence is beyond meaningful description. The analysis of Chinese literature shows that Xi never mentions Lenin, let alone Reagan, in his public speeches as the source of modern Chinese politics. But he mentions Mao Zedong in this context very often.

The simplest hypothesis that Xi is an ideological heir to Mao may be the closest to the truth. Xi’s repeated calls to use the dialectical method for distinguishing between principal and secondary contradictions and grasping the “cow’s nose” (meaning the key point) in order to ensure onward development can be traced back to Mao’s legacy. “Xi political economics” acquires historical depth if we recall Mao’s attempts at the turn of the 1960s to rethink Stalin’s book Economic Problems of Socialism in the USSR and a Soviet political economy textbook issued in 1954.

In 1938, Mao proposed “sinicizing Marxism,” that is, adapting it to Chinese conditions. For decades, Chinese leaders pursued this line, seeking to create new concepts on the basis of the classical Marxist theory. Xi said at the collective study session that “it is necessary to open new horizons of contemporary Chinese Marxist political economy.” The change in terminology indicates a major shift in the official ideology. This means that the process of “sinicization” has already led to the creation of Chinese Marxism, which can serve as the basis for future theoretical research.

In this context, the proclamation of the supply-side structural reform is not a carbon copy of Reagan’s policy or an attempt to conceal the leader’s commitment to Lenin’s doctrine of political parties. Rather, it is the continuation of the search for the Chinese way of development and efforts to adapt foreign teachings to Chinese conditions. So if you find in the Chinese political discourse concepts tracing back to the Western concepts of New Normal and supply-side economics, do not make hasty conclusions that they are fully identical with the original.

} Page 1 of 5