­­­­­­For an increasingly globalised and connected economy, open and transparent markets are key to sustained economic growth. Yet, it is this transparency that weakens the precious influence of the Communist Party over China’s domestic political landscape. In tandem with a widespread anti-graft campaign, President Xi Jinping has centralised power around his authority and leadership.

Chinese economic policy is in two minds. Much like the efforts of the Communist Party of China (CPC) to maintain party control in an increasingly open China, the Chinese economy faces a dilemma of ideology. China recognises two distinct truths about managing the economy but struggles to reconcile their implications. Economic liberalisation provides the financial strength that is key to maintaining the long-run security of the party but inevitably leads to reduced control over the economic performance that is so central to its stability. Under Xi Jinping’s leadership, this fundamental contradiction is yet to be resolved. Simultaneously, with the increased centralisation of economic policy under his authority and the recent crackdown on party discipline, Xi has positioned himself tactically in the lead up to the critical 19th Party Congress to be held in late 2017, solidifying himself as the “core” of the party. The implications of these developments raise questions about the direction of economic reform in China and whether Xi aims to correct the dilemma that plagues both his leadership and broader Chinese economic policy.

The operation of the Communist Party has centralised around Xi Jinping since he assumed control in 2012. Fear has once again beset the members of the CPC. In a style reminiscent of the Maoist cult of personality, a new disciplinary code came into effect in 2016. This code has been described as “unbearable and inhumane” by current party members, exacerbated by retroactive convictions for decades-old allegations of corruption. Furthermore, in a departure from tradition, Xi has asserted much greater control over economic policy: a role that has historically been delegated to the premier. Yet, even with this culture of fear within the party and increased centralisation of decision-making, the contradiction of stability and liberalisation still poses a serious threat to China’s economic stability. The Chinese stock market has faced significant turbulence since 2015 resulting in multiple ham-handed interventions by the central bank to stabilise prices. Numerous crises have ensued following the opening up of markets and subsequent rollback in order to prevent economic calamity. China seems to like markets, but only when those markets are agreeable.

So, where does this leave economic reform? The aforementioned anti-corruption campaign is central to resolving China’s economic dilemma. Difficult and controversial decisions need to be made for the sake of economic growth and, by extension, for the party’s stability. Ultimately, Xi needs to be secure in his leadership if he is to implement them. The 19th Party Congress will see five of the seven members of the Politburo Standing Committee replaced as well as two-thirds of the Central Committee of the Communist Party. Potentially, this crackdown has been driven by a need to shore up party discipline until the Congress, before taking care of the real economic heavy lifting that is needed so desperately in the Chinese economy. Or maybe Xi, like many in China, believes that a market economy is not the way forward, but an instrument that can be tweaked to sustain both growth and stability while avoiding any controversial reforms.

The actions that may be necessary to truly reform China’s economy have hurt it in the short term. Growth has been hindered by the anti-corruption campaign and the concentration of decision-making through Xi Jinping. Historically, policy has been passed down by the central government, with officials at all levels having extensive discretion through which to implement those policies. This has accommodated the wide variation within China’s provinces and the disparity between their economic positions. However, with the crackdown and implementation of the discipline code, officials are running scared, afraid of taking any risk that could make them vulnerable, ultimately stunting growth. This is not to say that corruption is good for the Chinese economy but rather that this slowdown may be a phase China has to go through to maintain domestic legitimacy. Accompanied by Xi’s consolidation of power, it is clear there needs to be delegation within the party. Sadly, both Xi and other party officials are opposed to both delegating and being delegated to, albeit for different reasons.

The dilemma facing the Chinese economy is playing out both in the leadership of Xi Jinping and in the nation as a whole. China struggles to find a balance between economic liberalisation and a desire for security and control of the market. Likewise, Xi has centralised and controlled economic decision-making in what may be either a political power play or an attempt to create a more open system in the long run. Domestic stability drives the CPC to allow short-term economic concessions for the sake of survival and stability. Simultaneously, Xi Jinping faces massive domestic pressure to deal with rampant corruption in order to maintain his legitimacy, despite its impact on the economy. This paradox of wanting stability and liberalisation, of wanting control and openness, is an issue that is not going away anytime soon. While it may seem like an ideological conflict on the surface, it has ramifications for China that, if left unresolved, will continue to plague the CPC for years to come.

Cormac Power is an international relations and economics student at the University of Western Australia. This article is published under a Creative Commons Licence and may be republished with attribution.