Chinese President Xi Jinping’s state visit to the United States this week is the sort of public relations opportunity that normally bolsters the Communist Party’s stature back home. Yet given a nearly 40 percent drop in China’s stock markets in the last few months, there’s hardly been a time in recent years when the country’s international reputation has been so widely doubted and questioned. Moreover, this poor economic performance means that the Communist party’s vice-like grip on power may soon be shaken—or at least confronted by an unhappy and much poorer Chinese middle class.
President Xi has long championed the “Chinese Dream,” which unlike its American counterpart, connects the fate of national leaders with the average worker’s ability to achieve affluence. Since the days of Deng Xiaoping, China’s leadership has portrayed itself as the only political entity with enough resolve and steadiness to bring the country into a century of profit and prosperity. And as long as money flowed into the pockets of a good portion of Chinese investors, businessmen, and professionals, the one-party state’s claim to rule has been met with little effective or widespread opposition.
With the steep drop in stocks, the government has tried to control and redirect the market. The markets have been pumped up for months by a stimulus package aimed at getting prices back to pre-crash levels. This has included lending billions of dollars to brokerage firms across the country (so they can buy up stocks) and police raids of investment firms, in which fund managers are forced to stop dumping and short selling stocks. The regime has even arrested hundreds of investment firm executives and finance journalists in an effort to blame the crash on media “rumors,” rampant insider trading, and outside meddling from Western governments.
The party also attempts to protect some Chinese sectors from direct competition—even inside the country–through a giant web of state-owned enterprises, which flood the market with an avalanche of cheap products. These state interventions essentially force domestic and international prices down. Yet investors anticipate that these programs won’t last forever, and they aren’t sticking around long enough to permanently lift prices.
Thus none of the regime’s heavy-handed measures seem to have eased investor fears. If anything, they have further eroded the party’s reputation as a steady force in times of crises, one formerly never prone to overreaction or paranoia.
Meanwhile, the Chinese middle class seems nervous, and for good reason. Credit Suisse, a Swiss financial services company, notes that a whopping 80 percent of China’s urban population owns some type of equity—and collectively have about 30 percent of their cash tied up in stocks. The recent crash has put a serious dent in their pockets, and the state-owned media isn’t exactly known for giving trustworthy financial advice.
This is why many Chinese are turning to apps like WeChat, a popular platform for self-styled financial gurus to trumpet their own “10 ways survive a bad economy” and the like. WeChat isn’t completely immune to state-control and censorship, but it still presents a certain level of information and discussion that doesn’t occur in many other places in China.
This trend of seeking alternatives to the state-preferred media represents a long-existing thirst in China for more accurate reports about their own society and the world. As long as the communist party can continue portraying itself as able to generate wealth for average workers, it will continue to dominate Chinese politics.
But cracks in this image mean cracks in the party’s credibility and reputation. Having prided itself on resourcefulness during hard times, the regime is now failing to stabilize the Chinese economy. Suddenly the party’s political prospects seem more uncertain.
If the ruling party fails to stop capital flight and millions of Chinese lose their investments, they may blame the government for their misfortune. Given just how much state control there is in China’s economy, they wouldn’t be entirely wrong. And if this kind of frustration and anger is sustained, then the current leadership’s reputation—as the only political entity capable of facilitating the “Chinese Dream”—will certainly suffer.
People will begin asking questions, and not because they’ve changed their mind about how their country should be governed. Changes in China’s political class may come because the people in charge didn’t deliver the money and profit that they promised they would.
This week, President Xi may try to reassure American leaders that Chinese markets will fully recover. Yet more than ever, his promises would seem to depend on economic factors that even the long arm of the Chinese state cannot control.
Steven Zhou is a writer and analyst based in Toronto, Canada. He is a regular contributor to the CBC News website, and his writings have also appeared on The Globe and Mail and Al Jazeera English.