The After-Party

Now that the Party Congress is over, Xi Jinping has one big decision to make: return to the pragmatic policy path that made China rich and kept the Communist Party in power; or set a course for managing COVID and the economy that inhibits innovation and growth. A review of recent history and speeches by Xi, as well as considering what is in Xi’s own self-interest, leads us to expect him to be pragmatic.

A History of Pragmatism

It's worth remembering that the leadership of the Chinese Communist Party, including under Xi, has succeeded when it has been pragmatic.

When I first visited China as a student in 1980, its per capita GDP was less than that of Afghanistan, Haiti and Bangladesh, and 80% of China’s population was living below the World Bank’s poverty line. Today, Chinese consumers are estimated to account for 20% of global luxury sales.

When I returned to China in 1984 as a junior American diplomat, there were no private companies—everyone worked for the state. Today, almost 90% of urban employment is in small, privately owned, entrepreneurial firms. With the state-sector continuing to shrink, all of the net, new job creation comes from private companies.

That was the result of pragmatic policies that emphasized market-based reforms and de-emphasized the economic role of the state.

The last few quarters have been rough, but Xi’s 10-year track record as Party chief has been pretty good: China has seen average annual inflation-adjusted (real) income growth of 7% (vs. 2% in the U.S.); average annual real retail sales growth of 8% (vs. 3% in the U.S.); and China accounted for 36% of global economic growth during that period (vs. an 11% contribution from the U.S.).