Katsuji Nakazawa is a Tokyo-based senior staff writer and editorial writer at Nikkei. He spent seven years in China as a correspondent and later as China bureau chief. He was the 2014 recipient of the Vaughn-Ueda International Journalist prize.
TOKYO -- Amid growing signs of weakness in the Chinese economy, President Xi Jinping's policies are facing headwinds as he pursues the goal of "common prosperity," or sharing the fruits of development.
An article published on Oct. 24 by state-run Xinhua News Agency hints at such anxiety, one Chinese source familiar with the country's economic policies said.
"We need to think of why the 'cake debate' reappeared after 10 years," the source said. "It is proof that there has been heated internal debate over how to proceed with common prosperity."
The title of the Chinese-language version of the article is: "10 questions about China's economy," and notes that "authoritative government bodies" and an "authoritative person" were interviewed for the piece.
One of the 10 questions goes:
"How to look at 'making the cake bigger' and 'dividing a good cake,' and what do we rely on to achieve common prosperity?"
The mysterious "authoritative person" has appeared before. In 2016, the person gained international attention by publishing an article on the front page of the People's Daily, the mouthpiece of the Chinese Communist Party, blatantly criticizing the economic policies of the State Council, China's government, led by Premier Li Keqiang.
Chinese Vice Premier Liu He, left, and Premier Li Keqiang. Unlike five years ago, Liu is on the defensive. (File photos by Reuters) The anonymous author announced that an L-shaped recovery, rather than a U-shaped or V-shaped bounce, is the new normal. Economic recovery through a massive amount of infrastructure investment is impossible, the person wrote, stressing instead the importance of structural reforms.
The "authoritative person" is widely believed to be Vice Premier Liu He, Xi's close aide and economic adviser.
Common prosperity is not about everybody "eating from a big pot of rice," the Oct. 24 article said. It is also a misunderstanding to see this as "robbing the rich to help the poor," it added.
Rather, it is about a "gradual realization of common prosperity for all people," it said. It is a message designed to give a sense of assurance to the business world as well as to markets that have been frightened by a looming policy-induced economic slump.
China's gross domestic product in the July-September quarter grew at a slower-than-expected pace of 4.9% in real terms, the government announced on Oct. 18.
Furthermore, the official manufacturing Purchasing Manager's Index, or PMI, stood at 49.2 in October, the government announced on Sunday. It is the lowest reading since February 2020, when the Chinese economy was hit directly by the coronavirus.
These are serious signs of weakness in China's economy.
Usually, economic data sets like these are reported to the nerve center of the Chinese government about 10 days before they are publicly announced.
According to informed sources, top leadership, shocked by the economy's rapid deterioration, held a secret emergency meeting to discuss how to cope with the situation.
Each of the leaders had likely noticed the abnormality in their respective fields: Premier Li through handling the power shortages across the country and looking for ways to help embattled small- and medium-size companies, and First Vice Premier Han Zheng, who is in charge of property tax reform, through real estate prices.
Evergrande's headquarters tower stands in Shenzhen. The debt-laden property developer is emblematic of the Chinese economy's rapid deterioration. © AP Even Vice Premier Liu, the chief enforcer of common prosperity, has been unable to ignore recent economic trends. As Xi's right-hand man, he cannot allow the leader to bear the blame of a sputtering economy as the party heads toward its all-important quinquennial national congress next autumn, when the boss will seek to extend his term.
The Xinhua article reflects the compromises made in various circles after a series of discussions.
Instead of solely crediting the "authoritative person," the article was in the name of authoritative departments and the authoritarian person, signaling that the course is also agreeable to the various departments of the State Council, managed by Premier Li.
With trusted aide Liu -- the authoritative person -- having come up with a new explanation for common prosperity, Xi has no choice but to accept the compromises.
Unlike five years ago, Liu is on the defensive.
The cake debate made a big splash ahead of the party's 2012 national congress. The cake here means the fruit of economic growth. The debate of how to divide it was deeply related to China's power struggle.
It took place between Bo Xilai, who was Chongqing's top official, and Wang Yang, Guangdong's top official. Bo is currently serving a life term, while Wang is currently serving as chairman of the Chinese People's Political Consultative Conference.
In a nod to public discontent over an unequal society and the worship of money, Bo insisted that the cake should be divided immediately and fairly. Wang disagreed and stressed the need to make the cake bigger before raising the income of the poor.
An irritated Bo countered that the objective of the "reform and opening up" policy is not to enrich a small number of people and that if the cake is not divided until after being made bigger, the public would lose its enthusiasm to work hard.
Bo Xilai and Wang Yang in 2013. It is ironic that the Xi administration's current economic messaging echoes what the now-imprisoned Bo was saying a decade ago. (File photos by Kyodo) Chongqing's party committee adopted a resolution on "promoting common prosperity" in line with Bo's argument. It is ironic that the message is so similar to his archenemy Xi's message today.
The cake debate took place in 2011 ahead of the party's 18th national congress, where Xi became the party's top leader.
Ahead of the party's 20th national congress in 2022, when Xi will aim for an unusual third term as China's top leader, the country finds itself in a similarly tense political environment.
What policy compromises were made and shown in the Xinhua article?
"To achieve common prosperity, creating a 'big pie' through high-quality development is the prerequisite and necessary condition," the article says. "In the process of 'dividing the cake,' we must expand the proportion of middle-income groups, increase the incomes of low-income groups and rationally regulate high incomes."
These expressions are vague and difficult to understand. They also seem to suggest that making the cake bigger and dividing it equally will proceed simultaneously.
When to divide the fruits of economic growth will be at Xi's discretion.
Unlike Bo Xilai, Wang Yang survived politically and is serving as a Politburo Standing Committee member.
The fact that Wang's "fattening-the-cake" argument was highlighted could have political implications.
There is speculation among some in China's political circles that by retaining Wang as a Politburo Standing Committee member next year and beyond and putting him in a suitable position, Xi can send assurances to companies, markets and the international community. The big cake theory is in some ways an extension of Deng Xiaoping's policy of "letting some people get rich first."
The speculation is being fueled partly by the fact that the relationship between Wang and Xi is not bad despite their coming from rival factions. They can often be seen talking for long periods of time at the Great Hall of the People in Beijing.
Alibaba Group founder Jack Ma visits Dutch flower grower Anthura in the town of Bleiswijk, the Netherlands, on October 25, 2021, in this handout obtained on October 28. © Reuters On another note, the Xi administration recently sent another signal to the business world.
Alibaba Group founder Jack Ma Yun in the second half of October abruptly went on what China calls an overseas inspection tour of Spain and the Netherlands, according to a Hong Kong newspaper affiliated with Alibaba.
It was thought in some quarters that Ma had been restricted from traveling abroad after his Ant Group, the financial arm of Alibaba, was forced to delay its dual listing in Shanghai and Hong Kong one year ago.
If that view is correct, then the restrictions have been lifted.
Said a private-sector source, "It is a signal of easing tensions sent to the business world by the leadership, which has become aware of an adverse impact of crackdowns on businesses."
Will China continue to send pro-business messages? Or will it revert to tightening its grip? Only Xi knows.