In late September, a major reversal in China’s economic policy occurred, with authorities implementing the largest package of stimulus measures in several years. Following this, China’s Finance Minister, Lan Fo’an, stated that massive measures would be taken to rescue the market. Former Chinese Communist Party officials have indicated that the Party leader faced setbacks in economic policy and that the time for Li Qiang is approaching. Analysts believe that the subversive reversal in China’s economic policy is related to a reshuffling of decision-making power within the Party in recent times.
On September 24, the People’s Bank of China introduced significant easing measures such as reserve ratio cuts and interest rate reductions, while also guiding a large influx of funds into the stock market, leading to turbulent market fluctuations. As the market awaited the implementation of fiscal stimulus measures, on October 12, the Chinese Ministry of Finance held a press conference where Finance Minister Lan Fo’an announced that they are prepared to “substantially increase” the issuance of national debts to support financially strained local governments, bolster the real estate market, and recapitalize state-owned banks to drive economic growth.
Market expectations had pegged Lan Fo’an to announce the implementation of 2 trillion yuan in fiscal measures. When asked about this, Lan Fo’an claimed that the specific allocation of funds would be publicly disclosed in due course following legal procedures. Regarding the government’s leverage space, Lan Fo’an stated that the central government has significant room for increasing borrowing and deficits.
In response to the fiscal measures introduced by the Chinese Ministry of Finance, Moody’s analyst Heron Lim expressed that without more detailed and specific key data, it’s difficult to comprehensively evaluate their effectiveness. He mentioned, “The Beijing government seems to still be finalizing the details of the fiscal stimulus plan, and the critical aspects of the matter often lie within the specific details. It would be best to provide some key figures to allow for analysis and consideration.”
Typically, fiscal stimulus measures outlined by the Chinese Ministry of Finance require approval from the Standing Committee of the National People’s Congress. The next meeting of the Standing Committee may take place from late October to early November, and the announcement of the specific fiscal scale will take some time.
In recent times, China’s economic policy has seen a significant divergence from previous strategies, sparking various speculations. Exiled former Director of the Legal Advisory Office of the Inner Mongolia Autonomous Region, Du Wen, stated on a YouTube channel that during the Third Plenum, under pressure from within the Party, Xi Jinping considered stepping down, as various forces were closely watching. In this scenario, Li Qiang’s rise became inevitable, with reports suggesting that he assured Xi Jinping of his ability to solve China’s economic issues.
Du Wen, a former legal advisor to Hu Chunhua, with extensive connections at high levels within the Chinese Communist Party, mentioned during an interview with Epoch Times that due to confidential sources, it’s not convenient to reveal details. He stated, “Xi Jinping has suffered setbacks in economic policy, and now relies more on Li Qiang. The State Council has officially entered the Li Qiang era, as Li Qiang, who has been quietly enduring for years, has finally come to the fore.” Xi Jinping faces a dilemma of devolving power.
According to Du Wen, Li Qiang has climbed up the ranks from grassroots level. While outsiders view Li Qiang as a minor figure, he is, in fact, a formidable character. “For economic policies like flooding, Li Qiang is daring. He believes that to eliminate deflation, massive flooding is necessary. Therefore, the future Chinese stock market is bound to be full of fluctuations, with surges and plunges alternating, leading to a short-term bull market but ultimately a bear market.”
The sudden introduction of a large-scale stimulus policy, with no prior signs, has raised questions. Usually, the Third Plenum of the Communist Party of China outlines the framework for China’s economic development over the next few years. However, this year’s Third Plenum was delayed by more than half a year, and despite expectations from the outside world that the Communist Party had held back for so long and must have a “game-changer” in store, the Plenum only set “improve the development of a new quality production system adaptively according to local conditions” as the goal for the coming years without unveiling any major moves.
Reflecting on Xi Jinping’s 13 years in power, there have been two instances where he abruptly made 180-degree turns in his policies without any prior signals. One instance was the sudden announcement at the end of 2020 to end the “dynamic clearance” epidemic prevention policy, and the other is the recent sudden implementation of a large-scale economic stimulus package, overshadowing the “new quality production forces” emphasized after the Third Plenum in news reports.
What reasons led to the sudden reversal of policies by the Communist Party twice? Commentator Jiang Feng, in his show on “Jiang Feng Moment,” analyzed that both times the policy underwent disruptive changes is related to Xi Jinping’s control over the central decision-making body, especially concerning military power. However, various indications suggest that this recent dramatic reversal in economic policy reflects Xi Jinping’s potential loss of control and passive changes.
“The reversal in epidemic prevention and control is due to Xi Jinping feeling surrounded by his cohorts post the 20th Congress, with no one daring to revolt, displaying his confidence in complete control of power. Conversely, this time it’s the opposite, indicating that Xi Jinping is marginalized in the core decision-making circle and military power, having to make a forced change after the Third Plenum,” says Jiang Feng.
The abrupt announcement to retreat from the “dynamic clearance” approach was also influenced by a catastrophic public revolt due to the stringent lockdown policies, particularly in Shanghai. Citizens took to the streets in mass protests, shouting slogans like “Down with the Communist Party! Down with Xi Jinping!” directing public anger towards the legitimacy of the Communist regime. Xi Jinping finally announced the withdrawal from “dynamic clearance” a month later.
The timing of this significant policy reversal in economic measures did not witness similar events. Commenting on this, Jiang Feng analyzed that although no external incidents occurred, there are indications that an internal upheaval within the Communist Party has taken place. At this year’s National Day Banquet, political elders made high-profile appearances, hinting at shifts in internal power dynamics.
During this year’s National Day Banquet, former political elders made prominent appearances on official channels, sitting at the main table with Xi Jinping, a departure from the previous year where only Xi’s current associates surrounded the main table. Notably, reformist figures like Wen Jiabao and Li Ruihuan were seated on either side of Xi Jinping, sparking various interpretations.
“The appearance of political elders often conveys a political signal, indicating changes in the Communist Party’s political landscape,” notes Jiang Feng. “The fact that the two reform-minded political elders appeared by Xi Jinping’s side, especially Wen Jiabao’s relaxed demeanor and cheerful attitude, rather than being insincere in showing unity with Xi, is the most surprising aspect, indicating a reconfiguration of power balance within Party decision-making.”
Commentator Tang Jingyuan, speaking to Epoch Times, mentioned that the appearance of “political elders meddling in politics” at the National Day Banquet is something Xi Jinping detests the most. Since Xi Jinping was elevated to “core” status, the appearances and expressions of political elders have been severely restricted. However, this time, it was a complete reversal, especially with Xi Jinping seated between Wen Jiabao and Li Ruihuan, an extremely unusual sight.
Tang Jingyuan believes that Xi Jinping often smiled and nodded at Wen Jiabao, possibly indicating a forced “surrender” behind it. It’s highly likely that due to the severe economic difficulties faced by the Communist Party, Xi Jinping is facing internal opposition focused on economics. Various signs indicate that Xi Jinping’s power within the Party may have been constrained, with political elders beginning to wield influence and already affecting many of Xi’s current policies.
Contrasting Xi Jinping’s speeches at the National Day Banquet from the previous year, many noticeable differences emerged this year. Xi Jinping began by acknowledging the contributions of the “outstanding older generation leaders,” the cornerstone of his leadership, the “Belt and Road Initiative,” was not mentioned, and the discussion on the Hong Kong issue shifted from the established “Patriots governing Hong Kong” back to “Hong Kong people governing Hong Kong.”
Tang Jingyuan remarked, “The unusual aspects of Xi’s speech at the banquet reveal compromises in various aspects of his policy, leaving room for speculation about the reasons behind his concessions.”
He stated that the entire source of power within the Communist Party revolves around “political power emerging from the barrel of a gun,” which is the fundamental chip for maintaining the authority of the Communist Party leader. The changes in military influence will be a crucial reference for observing future changes in the political landscape of the Communist Party.