President Xi's Shanghai visit: China yet to find a way out for its economy

This week, 11 months after China lifted its strict pandemic restrictions, Chinese Communist Party (CCP) General Secretary and Chinese President Xi Jinping made an inspection tour of Shanghai, a key economic centre and the largest international financial centre in China. This marks Xi's first visit to Shanghai in three years.

Public data shows that since he assumed the post of general secretary in 2012, Xi has made five visits to Shanghai, first in May 2014, then annually for four consecutive years in October 2017, November 2018, November 2019 and November 2020.

Previously, Xi's visits to Shanghai have been timed to coincide with major events happening in the city. In 2018 and 2019, he attended the inaugural and second China International Import Expo (CIIE), and in 2020 he attended the 30th anniversary of the development and opening up of Pudong. Until this week, when he went on an inspection tour of Shanghai following a Politburo meeting, Xi had not visited Shanghai in the three years since 2020, not even for the CIIE in early November.

From 28 to 29 November, Xi visited three areas in Shanghai: the Shanghai Futures Exchange, Zhangjiang Science City to look at Shanghai's technological innovations at a tech exhibition, and Minhang district to inspect the construction of government-subsidised rental housing projects in Shanghai, in particular the Homes for New Era City Builders and Managers (新时代城市建设者管理者之家) project.

This is a carefully designed itinerary to show the outside world China's policy thinking at the highest levels. The three areas visited align with three themes: finance, technology and livelihood, showing the emphasis that the upper echelons are placing on them.

In the past few years, the focus on technological innovation by China's higher-ups is clear, while the most noteworthy effort in finance was the proposal to "prevent disorderly expansion of capital" during the Central Economic Work Conference in December 2020.

However, the leadership in China has recently reiterated their emphasis on finance. While chairing the Central Financial Work Conference on 31 October, Xi stressed that the financial sector is the lifeblood of a nation's economy and a crucial component of a country's core competitiveness. He added that the competitiveness and influence of Shanghai as an international financial centre should be boosted. The conference - the highest-order finance sector meeting in China - was held for the first time in six years, having been elevated from a national level to a central financial work conference.

While in Shanghai, Xi hosted a symposium on 30 November on strengthening the integrated development of the Yangtze River Delta (YRD), highlighting the urgent need to enhance the institutional frameworks for YRD development, and to "push forward high-level opening up with an emphasis on institutional opening up".

The opening up emphasised by China's higher-ups must also go hand-in-hand with national security.

Xi stressed the need to enhance the YRD region's capability to coordinate development and security, strengthen and fill in the gaps of industrial chains in key areas and links related to the national economy and people's livelihood, and enhance industrial chain resilience and security while consolidating industrial collaboration with the central and western areas. He added that while expanding the institutional opening up of the financial sector, there is also a need to "safeguard national financial security".

CCTV footage showed several senior central government officials accompanying Xi on his visit to Shanghai, highlighting the importance of the trip. They include CCP Politburo Standing Committee member and director of the CCP Central Committee General Office Cai Qi; two Politburo members - Vice-Premier He Lifeng and head of the CCP Central Committee Organisation Department Li Ganjie; and chairman of the National Development and Reform Commission Zheng Shanjie. The first- and second-in-command of Shanghai - Politburo member and party secretary of Shanghai Chen Jining and Shanghai mayor Gong Zheng respectively - were also present.

While Chinese Premier Li Qiang did not participate in the first two days of the visit, he attended the Yangtze River Delta symposium. The party secretaries of Jiangsu, Zhejiang and Anhui - Xin Changxing, Yi Lianhong and Han Jun respectively - also spoke at the symposium.　　

China's top officials' visit to Shanghai has raised expectations among some market practitioners that China will further open up to the outside world. This is giving rise to hopes that the visit will boost confidence in China's economy, especially since the Politburo's meeting on 27 November did not mention when the much-anticipated third plenary session of the 20th Central Committee will be held.

Since the easing of anti-Covid measures, China's economy has been sluggish and various indicators have been bleak, with domestic and external economic challenges exceeding the expectations of many people, and perhaps even the authorities. The property sector is stuck in a slump and private sector investment remains weak. Meanwhile, retail sales significantly slowed after June, indicating that people are afraid to spend money.

In another recent warning signal, foreign investment into China declined by US$11.8 billion in the third quarter, turning negative for the first time on record, reflecting the extent of foreign investment outflow from China. 　　

Tense China-US relations as well as the US-initiated tech war and economic decoupling have exacerbated the pressures on the Chinese economy, and highlighted the problems with the country's growth model that heavily relies on investment.

Many old assumptions are now being rewritten, such as the belief that China's economy will only get better; consumers are confident of spending money; foreign investors will not withdraw from this massive market; and large-scale infrastructure investment will eventually bring economic benefits. Yet, Chinese authorities have yet to find a way out.

China's leadership team has already realised that the existing growth model is unsustainable, which is why it proposed high-quality development focused on the development of the high-tech sector. However, critics think that the government's approach reinforces state-led forces rather than the role of the market, which exacerbates problems. They believe that the solution is to expand fiscal spending and strengthen social security to encourage consumption and boost domestic demand. Furthermore, China's remedies have been too little, too late to create a substantial impact. 　

In sum, perhaps the strongest signal of the Shanghai visit is that China still needs to develop its economy, open up to the outside world and attract foreign investment. However, it takes time to introduce more powerful policies, which requires more research. This is why inspection and research is also the theme of the top brass' trip to Shanghai this time.

This article was first published in Lianhe Zaobao as "习近平上海考察释放什么信号".

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