Xi Jinping Wants to Have It Both Ways in China

Chinese President Xi Jinping is still trying to have it both ways. How much longer can he get away with it?

Xi will be seeking endorsement from the Communist Party leadership later this year for a precedent-breaking third term at the helm.

To do so he needs to show two things: His hallmark policies are working (Covid Zero with stringent lockdowns), and that the economy is resilient.

Straddling those imperatives is increasingly difficult. Xi has personally attached himself to Covid Zero as China’s way to tackle the pandemic. But economic challenges are spiking, and some of them are outside his control.

Within China, Covid Zero-related disruptions to factory activity (a slate of PMI data releases on the weekend were poor) and supply chains are having an effect.

On top of that there are global headwinds, some related to Russia’s war in Ukraine, which could go on for months, if not years. Shortages of grains, cooking oils and fertilizer are pushing up prices and risking damage to crop production many miles from the conflict.

Europe’s bid to wean itself off Russian energy means it is searching for alternatives. That could see it pushing buyers out of existing markets elsewhere, including in Asia, and raising prices further.

Meanwhile the global shift from easy money is set to speed up as central banks reverse their pandemic bond-buying blitz.

Economists are already skeptical Xi can maintain his Covid Zero strategy and hit a 5.5% growth target for this year, as he called for last week.

Above all he must keep his people happy and believing in China as a success story, in order to sustain his hold on power.

Xi’s problem is figuring out a face-saving way to exit Covid Zero before the lockdowns and economic downturn prompt people to lose faith in his leadership.

Author: Rosalind Mathieson, Bloomberg