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Crises Put First Dents in Xi Jinping’s Power
Chinese president is looking more vulnerable than at any time since taking office in 2012, insiders say
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China's top leader Xi Jinping has consolidated power faster than most observers expected since he took control three years ago. However, the country's slowing economy and tumbling stock market are proving to be his biggest challenges to date. Photo: AP
BEIJING—Shortly before President Xi Jinping boarded a plane last month to attend a summit in Russia, his office issued an executive order: China’s stock markets must go back up.
The massive state-backed share-buying that ensued propped up the markets briefly in mid-July, allowing Mr. Xi to showcase China’s economic might at the summit with emerging-market leaders. In recent weeks, though, share prices have plunged again, taking global markets with them and triggering an international crisis of confidence in Mr. Xi’s stewardship of the world’s second-largest economy.
Mr. Xi will project an image of strength when he presides over a World War II Victory Day parade on Thursday featuring fighter jets, ballistic missiles and 12,000 troops—an event China hasn’t marked in such a high-profile way before. Three weeks later, he heads to Washington for a state visit meant to convey China’s parity with the U.S.
Yet just as he stages these displays of power, political insiders and analysts say Mr. Xi—while still publicly popular in China—is looking more vulnerable than at any time since taking office in 2012.
His image as a bolder, more capable leader than his recent predecessors is being undermined by his botched handling of the stock market rout, a sudden devaluation of the yuan, an economic slowdown and a massive explosion at a toxic chemical warehouse.
The financial and economic woes, in particular, are feeding accusations among political insiders that Mr. Xi has concentrated too much power in his own hands and too much attention on political goals and international affairs, at the expense of the economy. “Xi is in control, no question about that,” said a senior party official. “The flip side of that is, everybody kind of expects him to sign off on everything before any action is taken.”
Since taking power in 2012 and outlining a “Chinese Dream” to rejuvenate the nation, Mr. Xi has established himself as China’s most powerful leader in decades by stamping his control of the military and targeting senior figures in an anticorruption campaign.
But the fallout within ruling circles from the past month’s events threatens to jeopardize Mr. Xi’s goals of strengthening the Communist Party’s power at home while forging a new geopolitical world order centered on China and away from the U.S.
Concerns over the weakening Chinese economy are now topping a long list of contentious issues on the agenda for his U.S. visit, including alleged Chinese cyberattacks and China’s island-building in the South China Sea.
Susan Rice, the U.S. national security adviser, discussed economic issues with a top aide to Mr. Xi last week in Beijing. She met Mr. Xi and other Chinese leaders and emphasized “the need to confront differences” on issues including China’s currency, the White House said. Mr. Xi told Ms. Rice that China and the U.S. should “effectively manage the sensitive issues between us” but didn’t publicly mention China’s economy or markets.
Mr. Xi has avoided public statements about the tumbling markets this summer. Many Chinese officials and investors have blamed Premier Li Keqiang, the party’s No. 2, for the failed intervention.
Some political insiders, however, said Mr. Xi contributed to the crisis by putting day-to-day decision-making—including on economic management, typically the premier’s purview—in the hands of party committees all headed by himself.
Premier Li’s limited authority was demonstrated after the markets began to plummet. At an urgently called meeting on Saturday, July 4, Mr. Li demanded financial regulators take steps to support share prices, according to people familiar with the episode.
The sole agency to respond immediately was the securities regulator, which announced the central bank would provide unlimited credit to a state-backed company to buy shares. The central bank didn’t publicly confirm its support until the following Wednesday—after two more days of steep market losses and an edict from President Xi, the people familiar with the episode said.
Mr. Xi’s executive order came via the party’s General Office shortly before he headed to the Russia summit on July 8. The markets “must turn red,” the order said, according to one of those people. When markets rise, stock tickers in China turn red, an auspicious color.
Mr. Xi wanted to stabilize the market, according to Chinese officials, before he met with leaders of the other major emerging Brics nations—Brazil, Russia, India and South Africa.
Representatives for the Chinese government didn’t respond to a request to comment.
“I think the political credibility costs to Xi Jinping are substantial,” said Barry Naughton, an expert on China’s economy at the University of California, San Diego.
“There are real reformers in the Chinese system, but whether Xi has a clear, coherent ‘economic team’ is part of what’s been thrown into doubt by this episode.”
Mr. Xi’s economic policy team is now rethinking its strategy, shelving reliance on the stock markets to help state-run companies pay off debts, according to political insiders. In the past week, state media have touted a theory attributed to Mr. Xi that calls for an accelerated shift to higher-level manufacturing and away from steel and other industries with excess capacity.
Worries among Mr. Xi’s supporters are that his troubles are emboldening influential interest groups, including captains of state industries and retired leaders who want to rein in his antigraft campaign and reforms of the state sector.
Supporters say Mr. Xi has weakened his opponents with the anti-corruption drive and by taking decision-making power away from a bloated government bureaucracy. Chinese authorities launched several investigations into share price manipulation last week and punished 197 people for spreading rumors online about the stock market and other recent events, according to state media.
Still, Mr. Xi needs widespread support in the party to endorse a new five-year economic plan at a meeting of the 300-strong Central Committee in October. He also needs help to ensure allies are promoted at the next leadership shuffle in 2017.
“Xi Jinping has created the impression that he’s very strong, but actually he’s facing very fierce and very persistent opposition,” said Huang Jing, an expert on Chinese politics at the National University of Singapore. “The current leadership is under huge pressure about the economic slowdown.”
Even before the summer, Mr. Xi faced resistance to his anticorruption campaign, which some within the party say is paralyzing the bureaucracy and causing rifts within the political elite.
A commentary in the main Communist Party newspaper warned this month that unnamed retired leaders were meddling in decision-making. Another commentary spoke of “unimaginable” resistance to economic reforms.
While markets bounced back Thursday and Friday on suspected government buying, they are down overall for the third month in a row.
The damage to Mr. Xi’s image is evident in social media comments mocking the parade. A cartoon, widely circulated online, showed haggard-looking stock market investors marching in the procession.
“The bears are roaring! The bulls are fleeing!” begins a satirical version of a famous anti-Japanese war song. “This summer’s only memories will be violent rain, violent losses and violent explosions.”
The parade will also show how Mr. Xi’s assertive approach to territorial disputes in Asia has antagonized the U.S. and many of its allies. No major Western nations are sending leaders or troops to the event.
Many of the dignitaries who are coming from Central Asia and Africa are hoping to benefit from Mr. Xi’s plans to build a network of new roads, railways, ports and pipelines linking Asia and Europe.
Those plans, however, depend on China’s ability to provide low-cost financing to foreign governments and Chinese construction companies.
“The foreign dignitaries, when they’re not clapping and being polite, will all be trying to find out what’s going on in China,” said Steve Tsang of Nottingham University’s China Policy Institute.
“They want to know if this is going to be sustainable.”
—James T. Areddy in Shanghai and Olivia Geng and Kersten Zhang in Beijing contributed to this article.
Write to Jeremy Page at jeremy.page@wsj.com and Lingling Wei atlingling.wei@wsj.comOTB
