UVA Expert: Xi’s Top-Down Control Is Damaging China’s Economy

January 3, 2024 By Matt Kelly, mkelly@virginia.edu Matt Kelly, mkelly@virginia.edu

As he consolidates his grip on power, China President Xi Jinping should encourage innovation and flexibility in China’s economy, even as he wrestles with many economic and political problems, a University of Virginia expert believes.

Instead of clamping down, Syaru Shirley Lin said China should loosen governmental reins. The research professor at UVA’s Miller Center of Public Affairs and chair of the Taiwan-based Center for Asia-Pacific Resilience and Innovation spent many years living, working and teaching in Hong Kong, China and Taiwan. She describes herself as a political economist, which she says is a fit for studying China.

“In terms of discipline, a political economist studying Asia Pacific has a different way of thinking about things, because policy and economics must be considered together,” Lin said. “In China, there is no pure economist; they are all political economists. The bosses say what the gross domestic product growth is and that’s what you project. It’s not bottom-up, it’s top-down. Political economy, as a discipline, always has been an integrated science. It’s also very policy-driven.”

Lin, a Taiwan native who studied at Harvard University, worked on Wall Street and became the youngest female partner at Goldman Sachs. The 32-year resident of Hong Kong ran Goldman Sachs’ investments in Asia and had high hopes for China after Deng Xiaoping introduced reforms in the wake of Mao Zedong.

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“After Deng Xiaoping, they started to privatize all their companies, take them public so that people would own shares,” she said. “I was involved with privatizing China Southern Airline, Tsingtao Brewery, Yuchai Diesel Engine. These were huge projects where we were trying to make the government smaller and release shares.”

Opening markets helped people get rich, encouraged free thinking and new ideas that had long been discouraged, she said. In that way, the reforms seemed to work.

“We all benefited from China being integrated into the global economy,” Lin said. “Inflation has been lower, because China makes things that are cheap and Beijing had lower environmental and labor regulation. The original concept was ‘We’ll bring China into our system. We’ll all be one big, happy family.’ 

“And then over the last three years, we realized that wasn’t probably true.”

Lin said current leader Xi is neither a financial genius nor an innovative thinker, but he is on a mission. 

“Xi is an ideologue, which, in a complimentary way, is idealistic,” she said. “He actually believes we need to return to the original intent of the Chinese Communist Party. And that involves wealth distribution, which is what he’s doing.”

The concept has a support base because China has become one of the most unequal societies in the world, Lin said.

“So many billionaires have been created, some of them through corrupt schemes, getting concessions. A lot of people feel marginalized,” she said. “When Xi Jinping came, he saw all the problems of the last few decades of reform and opening. Since his youth, he’s been pretty clear about his belief in the orthodox Chinese Communist way. It’s not just Leninist, it’s the Chinese Communist way. And part of it is to create a more equal society.”

In structuring the Chinese economy, Xi sought to increase domestic consumption. COVID set China back.

“Xi Jinping, during the pandemic, locked down so many people, created so many crises after crises with a very high death toll. And now, after the pandemic, the Chinese economy has not picked up,” Lin said. “Youth unemployment in major cities is more than 40%. I think people are feeling really despondent about what they thought was a beautiful vision of China recentering itself after growing too fast.”

At the same time, China is facing a one-two punch of declines in demographics and productivity.

“China had been in double-digit growth for so long, and this year it is only growing a little bit more than 5%. In 2024, the current estimate is 4.5%, which is devastating,” Lin said. “Although it's not an official estimate, people’s expectations are probably even lower and that is why consumption will not pick up. Such low expectation is about the future means. It’s a huge change in the way people think and the way they’re governing.”

Portrait of Shirley Lin

Research professor and political economist Syaru Shirley Lin said China needs to be more flexible and pursue more innovation. (Photo by Dan Addison, University Communications)

China’s share of the world GDP peaked at 18.4% in 2021. Lin thinks China’s long-term growth by 2035 is only going to be 2.3%, which is roughly the same as Europe and the United States.

“So everything about China in the last few decades is changing. It’s not growing the same way it used to be and people are not able to get leverage,” Lin said. “Although it is devastating, actually China has huge policy space, whether fiscal or monetary policy. There’s very little inflation and the population declines are not really hitting China in terms of productivity until a decade from now. So China will slow down, but not as dramatically as some experts expect.” 

The decline looms as China wrestles with the legacy of its one-child policy, created initially by Mao Zedong and retained long after his death, which created a large pool of unmarried men and led to population decline. 

“The problem in a society that doesn’t have innovative thoughts is it just keeps doing things,” Lin said. “Now that they’ve lifted it, nobody wants to have kids, because it’s too expensive.”

But even as the Chinese population dwindles, Xi is reluctant to admit immigrants.

“He doesn’t believe in diversity at all and that’s why he couldn’t tolerate it when Hong Kong people wanted to remain separate and continue to do things a little differently. I think the issue with diversity is very challenging for him,” she said. “The Tibetans, the Uyghurs, the Hong Kongers – and never mind the Taiwanese – are the bane of his existence. They’re people who think they’re different.”

She said Xi cannot accept that people can have multiple identities, such as being Chinese and Hong Kongers

“Xi Jinping says, ‘No, it’s mutually exclusive,’” Lin said. “And I think that’s what’s creating so much work for him and making it impossible to drive ethnic nationalism. I think it’s impossible to govern a large country if you’re focused on conformity and top-down control all the time.”

Lin said the declining population is, in many ways, to be expected, and migration could answer both the population and innovation problems.

“The reason a country moves forward on the value chain is talent,” Lin said. “If you have no immigration, you cannot attract the most talented people in the world. You have to rely on your own people. How do you rely on your own people if your society doesn't have that foundation of innovation?”

Lin said while China strives to show the world an alternative to democratic capitalism, it is missing the larger picture.

“We’re in this race to figure out the most important things in the world – which idea is a better idea, and who actually can create more innovation. I don’t mean just computer chips or technology, but the best ideas about how to think, and how to govern. How do you create somebody like Thomas Jefferson? How do you raise a child to think openly differently than his parents and his grandparents?” Lin said. “Innovation is at the heart of what we need to think about.”

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Matt Kelly

University News Associate Office of University Communications