China Stock Market Slump’s Silver Lining for Xi

4:56 pm HKT
Jul 9, 2015

Law & Politics

By Russell Leigh Moses

China’s continued stock market instability is anything but good news for the Chinese leadership, raising as it does grave questions about Beijing’s ability to manage future economic challenges.

But it might not turn out to be dreadful news for President Xi Jinping’s chosen agenda.

One reason is that Xi has girded himself for such a moment by placing his top priority on politics. His main focus has been not market forces, but rather ideological forces, with the goal of renewing public trust in China’s Communist Party by making what officials do relevant to the daily lives of Chinese citizens.

It’s true that Xi has amassed more power than China’s recent leaders. But he has largely left the day-to-day handling of the country’s economic challenges for Premier Li Keqiang and his associates to confront.

In Xi’s view, addressing the inefficiencies and inequalities that remain in the Chinese economy is important, but even more crucial is ensuring that when economic problems emerge—as they already have and likely will arise again–citizens would look to the Party for solutions and salvation. That is a goal that Xi has pursued in part through his sweeping anti-corruption campaign, and it’s one that’s likely to remain his top focus throughout the stock market upheaval.

So, the Party’s flagship newspaper Peoples’ Daily has by and large concentrated on commanding officials to “practice a politics that’s sensible”—one that “responds to peoples’ new expectations.” Cadres continue to be charged to “engage in self strict-discipline“ and tobe innovative.

Likewise, a front-page editorial in the Thursday edition of People’s Daily – following a further selloff of shares and amid growing anxiety about what the crisis might mean beyond just the stock markets – told officials to “use party organizations to mobilize the broad masses to accomplish important work,” with nary a word about the shaking stock exchanges in Shanghai and Shenzhen.

And when citizens have carped about the state of China’s exchanges, the reaction has been that the fault isn’t with the Party line, but in how the Chinese public is interpreting it.

For Xi and his comrades then, the stock market slide seems to be something of a distraction from what they see as other major tasks. Apart from staying the course on attempting to rejuvenate the Chinese Communist Party, Xi has gone ahead with his trip to Russia, to attend both the annual summit of the Shanghai Cooperation Organization and a major meeting of the group of five major emerging economies known as Brics. Other leaders of state typically stay close to home when financial crises seem to be taking hold. Xi, on the other hand, takes off, apparently confident that his main agenda remains unscathed.

There’s good reason—and good politics—for Xi to think that.

First, if there emerges a scapegoat among China’s top leaders amid the continuing selloff, it is more likely to be Li rather than Xi. After all, it’s been Li who has been the public face of faster and deeper financial reform, and it was Li who called on Chinese banks to step up lending amidst signs of a slowing economy. While China’s leadership puts a strong emphasis on presenting a united front, the stock market slide could well exacerbate existing policy differences, leaving Li and his allies to explain why the sorts of reforms they have been starting to implement didn’t stave off the recent skid.

There’s another interesting upside for Xi’s camp amid the stock market’s slide: one could argue that the crisis vindicates Xi’s crackdown on dissidents and other Communist Party critics over the past two and a half years.

Xi and his allies can contend that angry activism resulting from a sliding stock market is precisely the sort of threat that their tightening was designed to deal with – and that by cracking down, they may have preempted far greater threats to the Communist Party and the country.

At some point, China’s stock market decline could start to take a deeper hold and end up evolving into a major challenge for the political leadership. But, at least for the time being, Xi Jinping likely sees the slide in Shanghai and Shenzhen differently – as a justification of his strategy to elevate ideology over economics, strengthening Xi’s position.

That self-assurance may comfort his supporters, but it also raises questions about how Xi will react in other crises when a reconsideration of previous policies might be the better move.

Russell Leigh Moses is the Dean of Academics and Faculty at The Beijing Center for Chinese Studies. He is writing a book on the changing role of power in the Chinese political system.