In speeches and writings, Chinese President Xi Jinping often delivers the rhetoric of a Communist Party hard-liner. Yet more than ever, capitalists worldwide are depending upon this Leninist — one who is in the midst of a power struggle — to prop up the global economy.
Concerns about China contributed last week to Wall Street’s biggest one-day sell-off since 2011, and the slide could continue when markets reopen on Monday.
Friday’s rout was triggered by a report that China’s manufacturing output had fallen to its lowest point since the 2009 global economic crisis. Investors increasingly fear that China’s slowdown could be a tipping point for many emerging economies, many of whom became dependent on selling commodities to China during its go-go days.
By some measures, China’s economy has grown to the size of the U.S.’s, and is still growing 7 percent a year. But that’s a slowdown from previous years, and the impact is huge on China’s trade partners.
In China, Xi is the final arbiter on all decisions. Since taking control of the party in late 2012, Xi has consolidated power more than any Chinese leader since Mao Zedong.
Like Mao, Xi has clamped down on dissent, and also railed against past communist leaders whom he sees as traitors to the cause — namely former Soviet leader Mikhail Gorbachev. At the same time, Xi has launched a broad anti-corruption crusade, which has enhanced his domestic popularity but has not given him unfettered power to pursue some of his priorities.
As China’s economic challenges mount, economists and investors are watching whether Xi’s actions match his reform agenda. Lately, they have been disappointed. Despite lip service for embracing market forces, China’s leaders intervened quickly in July when China’s two major stock markets tanked.
While equity prices in China have little effect on the nation’s overall economy, the government’s intervention has further damaged the credibility of China’s management of its markets. And the fact that the government’s interventions have failed to stabilize stock prices has led many to believe that China’s leaders are less omnipotent than is commonly believed.
Xi and his economic team have also come under criticism for China’s unexpected devaluation of its currency this month. Chinese leaders characterized the move as a first step in letting China’s currency, the yuan, float more freely based on market conditions. The yuan’s subsequent drop in value suggests Beijing may be sincere in that pledge, but skeptics have reason to wonder.