China Watch: Economic Policy Under Xi’s Third Term

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The first plenary session of the Chinese Communist Party’s 20th Party Congress concluded on 23 October and elected a 24-person Politburo and a seven-member Politburo Standing Committee (PBSC).  These are the two most important decision-making bodies in China.  Many of these new senior leaders will not officially take up their State Council (cabinet) positions, such as premier, vice premiers, or ministers, until March 2023, but it is possible to discern their future positions based on their background, media commentary, and ranking on the PBSC. 

Xi is moving away from a technocratic economic team to better align with his objectives, which emphasize “zero COVID,” state-led initiatives, technological self-reliance, redistribution of wealth, and the importance of the domestic market.
  Although Xi has repeatedly stated that China is “open to the world,” the policies and personnel appointments revealed at the Congress suggest China will become more insular and less committed to economic liberalization.  Major foreign companies are unlikely to abandon China completely, but they are likely to hedge their bets and gradually move some production facilities out of China.


The new economic team, which will be in place by March 2023, is less experienced than their predecessors, at a time when China faces a severe slowdown due to its “zero-COVID” policy.  Overall, the new economic leaders’ career advancement has largely depended on Xi’s patronage, and they will be even more reluctant to resist the politization of economic policy.

Current Shanghai Party Secretary Li Qiang—a close Xi ally—is poised to take over as China’s new premier in March 2023.  Li is unpopular for leading a draconian two-month lockdown of Shanghai, but he was rewarded for sticking to Xi’s “zero-COVID” policy.  He will be the only premier since 1976 who has not previously served as vice premier.  Notably, current Beijing Party Secretary Cai Qi, who in late June said that the “zero-COVID” policy was likely to continue for five years, was also promoted to the Politburo Standing Committee (PBSC).  Cai is likely to take over the party affairs and ideology portfolio.

Xi’s chief of staff Ding Xuexiang is likely to be the next executive vice premier, and he too is less experienced than his predecessors.  Ding has never led a province, a major municipality, or a ministry—credentials that his predecessors had had since 1982.  Ding currently serves as the director of the Party’s General Office.   

He Lifeng, another close Xi ally, was promoted to the Politburo and expected to become one of the four vice premiers.  According to media reports, he may replace Vice Premier Liu He as the key interlocutor with the US

on trade issues.  He current heads the National Development and Reform Commission, as well as the Xi Jinping Economic Thought Institute.  Compared with Liu, He appears to be less reformist and has been more dependent on Xi for his career advancement.  The Institute advocates Party leadership over the economy.   

Three key leaders of China’s central bank—the People’s Bank of China (PBOC)—are reportedly stepping down in March 2023.  Their replacements are likely to be less experienced, less international, and more political.

  • Current PBOC Governor Yi Gang and Deputy Governors Guo Shuqing and Pan Gongsheng were not reelected to the Central Committee, suggesting that they will retire or move to less important positions.  Guo concurrently serves as the Chairman of the China Banking and Insurance Regulatory Commission.  Yi, Pan, and Guo are well respected internationally for their professionalism, reformist outlook, and adroit handling of China’s debt problems and currency reserves.  
  • The PBOC leadership changes may be driven by Xi’s perception that the central bank was too independent and too cautious in its monetary policy in stimulating the flagging economy, according to Western media.  Yi Gang, who is US educated and taught economics in Indiana before returning to China, is known as an economic reformer.  His likely departure coincides with the exit of other reformist leaders, such as Premier Li Keqiang, PBSC member Wang Yang, and Vice Premier Hu Chunhua.


Xi’s Party Congress report stated that national security, including economic security, is a precondition for economic development.  Xi emphasized the need for technological self-sufficiency to decrease China’s dependence on foreign technologies.   Xi called for state-led initiatives to foster innovation and technological breakthroughs.  He welcomed private businesses but stated that the Party plays a key role in “guiding” the private sector.     

Xi’s focus on self-sufficiency is part of a larger “dual circulation” strategy, which emphasizes the importance of the domestic economy, while continuing to develop foreign trade.  This strategy is designed to lessen China’s dependence on imports and foreign markets by boosting domestic demand and import substitution for key inputs.  It is not a rejection of globalization and foreign trade, but rather a response to tariffs, stricter Western export controls on key technologies, and international calls for an economic “decoupling” with China. 

Xi’s “common prosperity” concept was included in the amendment to the Party constitution, suggesting that it is one of his policy priorities.  While the intent is to address economic inequality and uneven development, the policy had a rough start last year as it was associated with the crackdown on wealthy businesspeople, celebrities, and technology companies.  Xi has since acknowledged that “common prosperity” is not crude egalitarianism and has designated Zhejiang Province as a testing ground to further refine the concept.  The policy could spur more spending on social safety net programs or aid to low-income populations.

The term “common prosperity” generally makes business people nervous because it was used by Mao Zedong in 1953 to justify greater economic collectivization.  Under Deng Xiaoping, the term was appropriated to mean overall economic development and allowing “some people to get rich first.”  China observers have long worried that Xi identifies more with Mao’s collectivism than with Deng’s individualism. 


Overzealousness in policy implementation is likely as leaders compete for Xi’s approval because it is the only criterion that matters in career advancement.  With the promotion of Li Qiang and Cai Qi to the top echelon of power, local officials will draw the lesson that doubling down on “zero COVID” is career enhancing.  Despite efforts to revitalize the economy, the political logic of being perceived as loyal to Xi will prevail.  As Xi refocuses on “common prosperity,” local officials may punish wealthy businessmen to show political fealty to Xi.   

Transparency and accurate information will fall victim to greater politicization.  Foreign observers cast doubt on Chinese economic statistics, and Beijing has been more reluctant to release data compared to years past.  China implemented a new data security law in September 2021 that prohibits businesses from providing data stored in China to foreign law enforcement or judicial authorities without prior approval. 

For foreign companies, Xi’s emphasis on technological self-sufficiency and economic nationalism is likely to lead to more pressure to transfer technology.  Under Xi, Beijing increasingly takes the view that foreign companies cannot make money in China while criticizing its human rights record or Taiwan policy.  Beijing may put more pressure on foreign businesses to denounce Taiwan independence or lobby against certain US or EU policies toward China.

  • At the same time, the emphasis on boosting domestic demand can present opportunities for foreign companies that primarily produce for the China market.  Western brands continue to be coveted by Chinese consumers and businesses, and the China market has ample potential for long-term growth despite its current slowdown.  
  • Companies that rely on factories or suppliers in China to produce for the global market are likely to continue to adopt the “China-plus-one” strategy of moving some production to Southeast Asia, India, Mexico, and other locations to hedge against risks and rising labor cost.  China’s manufacturing prowess means that foreign businesses have difficulties finding suitable, cost-effective alternatives for more complex manufacturing in the near