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Xi Jinping’s remedy for China’s economic gloom has echoes of Reagan

Chinese President Xi Jinping applauded during the opening session of the Chinese People's Political Consultative Conference in Beijing's Great Hall of the People Thursday.Mark Schiefelfein/Associated Press

BEIJING — With the world looking to China for assurance that it can manage its slowing economy and tumultuous stock market, President Xi Jinping has begun pushing a remedy that sounds less like Marx and Mao than Reagan and Thatcher.

Xi is calling his next big economic initiative “supply-side structural reform,” a deliberate echo of the nostrums of tax cuts and deregulation advocated by those conservative Western leaders in the 1980s.

The new slogan, expected to receive top billing when China’s legislature convenes Saturday, represents an effort to rejuvenate Xi’s faltering plans to overhaul the Chinese economy. But he still faces widespread skepticism that he is committed to thorough restructuring, which would require reducing bloated state enterprises, along with millions of jobs.


“Thatcher and Reagan are highly regarded because it was proven that they made the right choices under heavy pressure,” said Jia Kang, an economist in the Ministry of Finance and the most prominent advocate of the new policies. “Their spirit was one of boldly taking on challenges and innovating, and that’s certainly worth Chinese people emulating.”

The supply side Xi is referring to would, like Reaganomics, include lowering taxes and reducing the government burden on investors. Yet its main goal appears to be shutting or paring down mines and factories that produce far more coal, steel, cement, and other industrial products than the market demands and reining in the credit and subsidies that feed that glut.

Some economists say the supply-side rubric is at least a step toward painful measures that could lead to healthier growth.

“It is an important new initiative designed to reinvigorate the reform process,” Barry Naughton, a professor of economics at the University of California San Diego, said by e-mail. “Policy makers have stumbled repeatedly, and overall the achievements in market-oriented reform have been meager. Policy makers needed to come up with another approach.”


Xi has reorganized China’s military and orchestrated a scorching campaign against corruption. But breakthroughs in the economy have eluded him, which many economists say have sapped business confidence.

On Wednesday, Moody’s Investor Service, the credit rating agency, lowered its outlook for China from stable to negative, citing “uncertainty about the authorities’ capacity to implement reforms.”

Skeptics attribute the problem partly to the repeated clash of Xi’s economic goals with his political objectives. While he has shown great enterprise in centralizing power, they say, he has been reluctant to restrain the reach of the state, especially to curtail state companies’ privileged, often monopolistic, access to loans, resources, and customers.

Several economists said Xi’s supply-side initiative may turn out to be cosmetic — promising market liberalization yet magnifying state control.

“To get the government more onto the market track, it would have to abstain,” said Ning Zhu, a professor at the Shanghai Advanced Institute of Finance. “But that’s exactly what they haven’t been doing.”

Many liberal economists remain unconvinced that for all the tough talk, the Chinese government would willingly reduce its own power and risk a backlash from displaced workers. Recalibrating state-supported industries to true market levels would mean cutting millions of jobs.

How far Xi is willing to go, given the economic warning sirens, may become clearer after the Communist Party leadership presents its economic plans to the legislature, the National People’s Congress.

“It remains to be seen if they walk the talk,” said Jorg Wuttke, president of the European Union Chamber of Commerce in China. “It would be terrible for China if they don’t.”


It could also be difficult if they do.

A recent study concluded that if the cuts go through, more than 3 million people in the steel, coal, and similar industries could lose their jobs in the next two years if state cuts go through. On Monday, the government said it would lay off 1.8 million steel and coal workers, around 15 percent of the workforce in those industries, though it did not say when.

“Pain will be unavoidable, but also worthwhile,” said a full-page article extolling supply-side structural reform published in January in People’s Daily, the Communist Party’s main newspaper. “It cannot possibly please everyone.”

But if the slowing of the economy is forcing Xi to act, it has also increased the costs of doing so.

Since the financial crisis of 2008, the government has spent heavily to stimulate the economy, increasing the debt. Chinese supply-siders say such splurging has reached unsustainable levels.

China’s steel production, for example, has “become completely untethered from real market demand” and amounts to more than double the combined production of the four next biggest producers: Japan, India, the United States, and Russia, according to a new report on China’s production overcapacity released by the EU Chamber of Commerce in China.