Chinese Communist Party leaders are misreading the country’s situation. The world’s second largest economy is poised to pay a hefty price for the regime’s intensifying control.

That’s the opinion of Daron Acemoglu, professor of economics at the Massachusetts Institute of Technology (MIT).

In his opinion article published on Market Watch on October 29, Acemoglu said that China’s prospects today look far less rosy than they once were.

The reason is that Chinese leader Xi Jinping used the Party’s 20th National Congress to secure another term, and stacked the all-powerful Politburo Standing Committee with loyal supporters. It means Xi has eliminated many internal checks.

His grip on power comes despite major unforced errors by Xi.

The professor said that Xi’s “zero-COVID” policy was largely avoidable and has come at significant cost, as has his support for Russia’s war in Ukraine.

Those errors are dragging down the economy.

Acemoglu said that now that Xi wields unchecked power and is surrounded by yes-men, more and greater blunders are likely to follow.

Many experts believe that Xi will introduce more market-based incentives. But these interpretations overlooked a key question that China’s communist regime was already grappling with: How to maintain its political monopoly in the face of a rapidly expanding, economically empowered middle-class.

The most obvious answer—and perhaps the only answer—was greater repression and censorship. That is exactly the path Xi took.

For a while, Xi, his entourage, and many outside experts believed that the economy could still flourish under tightening central control, censorship, indoctrination, and repression.

Acemoglu wrote, “Yet there is mounting evidence to suggest that Xi and advisers misread the situation, and that China is poised to pay a hefty economic price for the regime’s intensifying control.”

Between 1980 and 2019, China was building on huge investments and technologies transferred from the West to achieve a rapid industrial growth rate. The country’s average annual growth was over 8%, faster than any Western economy.

The country then started making its own technology investments, producing patents and academic publications, and spawning innovative companies such as Alibaba, Tencent, Baidu, and Huawei.

But the innovation has stalled as the autocratic Communist Party tightens its iron grip over companies and research.

Following the government’s regulatory crackdowns on Alibaba, Tencent, and others last year, Chinese private companies are increasingly focused on remaining in the authorities’ good graces, rather than on innovating.

Meanwhile, the quality of Chinese academic research is improving only slowly, and state-led innovation is starting to reach its limits.

With Xi’s tightening grip over science and the economy, some observers pointed out that it does not bode well for the economy’s prospects. 

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