China Policy “Straitjacket” May End After Party Congress, Economist Says

China’s economic policy is coming to a crucial crossroads at the Chinese Communist Party Congress starting on Oct. 16, with choices to be made between more pragmatic support for the private sector and more socialist-leaning directions, according to Ma Guonan, a senior fellow on Chinese economy at the Asia Society Policy Institute’s Center for China Analysis.

Interested observers and businesses should look carefully at leadership choices that come out of the congress, after what he described as a “straitjacket” on both economic and political moves of the gathering, Ma said at a conference organized by the Asia Society in New York on Monday, “China’s Future: What It Means for Asia and the World.”

Ma, a former senior economist at the Bank for International Settlements, Bankers Trust and elsewhere, didn’t predict an outcome but said: “The importance of economic development appears to have ranked notably lower on more and more occasions.”

Despite hopeful signs of stabilization of late after a rocky first half, “the Chinese economy has been struggling, to say the least,” Ma said. GDP growth in the second quarter, for instance, gained 0.4% from a year earlier.

Business has been hurt by international shocks such as Russia’s invasion of Ukraine, along with ongoing trade and technology tension with Washington, Ma said.

Domestically, however, China has further put itself in a bind over “costly, very painful” zero-Covid policies that have hurt growth, a crackdown on technology platforms, and fallout from policy tightening after years of excessive lending to real estate developers, Ma said. China’s current real estate woes, he noted, differ from the U.S. in 2008 in that America’s stemmed from lending to individual home buyers. China’s inability to reserve a birth dearth has also become a long-term drag on its economy, Ma said.

And yet policy responses by Beijing to date has been limited by a cautious political climate in the country in run-up to the party congress, which is expected to lead to a third leadership term for Communist Party Secretary Xi Jinping, he said.

On the one hand, China’s economic performance this year has hurt the credibility of government policy; yet at the same time, it has become harder to offer alternatives ahead of the big party event. Hence, Ma continued, politics and economics are “in a straitjacket together,” Ma said. “No one dares to make a major move.” Overall, he said, the outlook is “getting trickier and less favorable” to growth.

A favorable scenario going forward would be “less rigid and more pragmatic policy making” with more support for the relatively dynamic private sector, he said. Another would be associated more closely with a bigger state role.

For businesses and other China observers, “the newly chosen economic team” after the party congress may tip China’s future economic path from here, Ma said.

Other event speakers and panelists at the Asia Society event included former U.S. Secretary of State Henry Kissinger, as well as Wu Guoguang, senior research scholar at the Stanford Center on China’s Economy and Institutions; Chris Johnson, president of political risk consultancy China Strategies Group; Evan Medeiros, former top Asia advisor to President Barack Obama and current Asia studies scholar at Georgetown University; and Rorry Daniels, managing director of the Asia Society Policy Institute.

Other panelists included Dr. Selwyn Vickers, CEO of Memorial Sloan Kettering Cancer Center (MSK); Dr. Bob Li, MSK Physician Ambassador to China and Asia-Pacific; and Kate Logan, associate director of climate the Asia Society Policy Institute. Guest attendees included business leaders Joe Tsai and Ray Dalio.

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