What Is Xi Jinping Thinking?

One question at the top of mind for investors is, in what direction does the head of China’s Communist Party want to steer his country’s economy? In this issue of Sinology, we explain why it is unlikely that the recent regulatory crackdown is Xi Jinping’s attempt to roll back China’s private sector. Rather, we believe Xi is attempting to address the same socio-economic concerns that most democracies are wrestling with, although initial implementation has been chaotic. If the regulatory process is improved, and Xi succeeds in reducing inequality and strengthening corporate competition, he could lay a foundation for the next phase of China’s market-based development. If he fails, it would be because of poor implementation of policies designed to create “common prosperity,” not because he is anti-entrepreneur. We’ve already seen some negative consequences of poor implementation, but expect these to be resolved in the coming quarters.

A “common prosperity” regulatory storm

A storm of regulatory changes have roiled many parts of the Chinese economy in recent months, stalling the property market, shutting some after-school tutoring businesses, pausing the launch of online games, and creating electricity shortages. Economic growth, while still rapid, has slowed, and foreign investor sentiment has been sapped. Party officials waited a long time before attempting to explain the rationale behind the regulatory storm, and even then, many foreign investors were left wondering, “What is Xi Jinping thinking?”

Two main schools of thought have emerged in the foreign investment community. One says that Xi wants to roll back the market-based reforms of the past few decades. The second believes that rather than an attempt to curb the private sector, Xi’s regulatory changes are part of an effort to address important socio-economic concerns, including income inequality and unequal access to education and health care.


The first view is that the regulatory storm is part of an effort to roll back the market-based reforms of the past few decades, including restricting the ability of entrepreneurs to innovate. Some even posit that Xi wants to return China to its Maoist past, when private enterprise was banned.

In my view, this perspective is based on the uncertainties caused by the rapid and chaotic roll out of new regulations, rather than on the long-term objectives announced by leaders of the Chinese Communist Party (CCP). Market-based reforms and the private sector have created the economic growth which has kept the CCP in power for far longer than most other one-party, authoritarian regimes. Reversing these reforms would destroy China’s economy, which would destroy popular support for the CCP. Why would Party leaders take what would clearly be a politically suicidal path?