On February 17, during a meeting with prominent executives from leading Chinese tech companies in the private sector, President Xi Jinping’s speech indicates that the nation’s economic downturn has compelled authorities to cease their campaign against the private sector in China. This shift effectively undermines President Xi’s signature concept of “the socialist system with Chinese characteristics,” which posited that socialism would manage and direct the expansion of privately held capital.

Remarkably, apart from President Xi himself, the star attraction of the meeting was Alibaba co-founder Jack Ma, the wealthiest business tycoon in China, who had disappeared from public view for several months after his speech on October 2020 in Shanghai where he publicly criticized China’s regulators and financial systems. Among other business leaders present in the meeting were the CEO of the electric vehicle manufacturer BYD, CEO of Tencent which owns WeChat, Chairman of battery developer CATL, as well as representatives of mobile phone manufacturers Huawei and Xiaomi.

They represented the best of the tech industry in China, a sector that had faced intense scrutiny several years prior when President Xi led initiatives to tighten governmental oversight over these companies. He characterized the sector as chaotic and destabilizing despite its rapid growth, even with stringent regulations imposed on other sectors.

With the United States now aiming to prevent China from obtaining cutting-edge technologies, President Xi appears to be recognizing new realities. During the meeting, he assured private-sector representatives that the government will “truly safeguard the lawful rights of private businesses and entrepreneurs.” He stated, “This is an opportune moment for most private enterprises and entrepreneurs to demonstrate their capabilities,” and also committed to allowing them to “become prosperous first before fostering shared wealth.”

If China wishes to keep pace with the United States in the realm of advanced technologies, it must back its leading tech companies in the private sector. In reality, this situation highlights that within a communist system, governmental control over state-owned enterprises isn’t enough when it comes to fostering innovation. It’s the innovative drive from the private sector that brings about new ideas and progress in high-tech fields.

Under the red eyes of mandarins of the Chinese Communist Party (CCP), aspirations have been frowned upon. CCP leaders were wary of personal wealth and inequality in wealth distribution. Following President Xi’s call for “common prosperity,” billionaires in sectors from real estate to technology to finance had been at the receiving end of the crackdown. They had been asked to endure hardship and strive for the prosperity of China.

One of the main aspects of this regulatory push implemented at the end of 2020 involved antitrust measures along with penalties for how tech firms collected and used data, driven largely by an excessive focus on data protection and national safety. Additionally, under the concept of shared prosperity, businesses were compelled to participate in charitable activities and support governmental initiatives. Numerous tech corporations found themselves required to include government-appointed members on their boards. These actions have significantly undermined the trust that private business owners once held.

Deeply rooted in the strict Communist ideology of Mao Zedong, President Xi Jinping has overturned the policies initiated by Deng Xiaoping in the late 1970s that promoted free-market forces to drive rapid economic expansion in China. Under his leadership, the country’s economic growth has significantly slowed down. Following the conclusion of the recent National People’s Congress in China, the targeted yearly growth rate was set at just five percent. This indicates that the “socialist system with Chinese characteristics” has not been successful in delivering desired outcomes.

The tone of Premier Li Qiang’s report at the National People’s Congress contrasts with President Xi Jinping’s evaluation during a brainstorming session of the CCP in April 2022, where he stated that China has “worked hard to develop a new paradigm with the domestic market as the core.” In contrast, Premier Li’s statement asserts, “We will actively promote foreign investments.”

Efforts are being made to attract foreign investors who have become wary of investing in China. Previously, employees working at foreign firms within the country were subjected to questioning, harassment, and even arrest when performing routine activities such as conducting market surveys prior to launching new products, all due to an overemphasis on data protection and national security during the enforcement period. The report continues with assurances stating, “We will guarantee equal treatment for foreign-invested businesses regarding access to resources, license submissions, standard-setting processes, and participation in government procurements.”

The policy implemented by President Xi Jinping aimed at regulated capitalist development overseen by the government to promote fairer income distribution hasn’t come into fruition as intended. Research indicates that affluent citizens in China continue to amass greater riches, thereby exacerbating economic disparities within the nation. In 2024, the aggregate net worth of approximately 5.12 million Chinese households possessing assets exceeding six million yuan stood around 150 trillion yuan. Among these, the most privileged 130,000 families held 58% of this sum—a rise from their share of 56% recorded in 2023. According to data from 2022, China’s national Gini Coefficient came out to be 0.467. This index measures levels of income disparity, with a score of zero signifying perfect equality across incomes and one indicating extreme inequality wherein an entire population’s earnings are concentrated among just one person.

President Xi’s assessment during the 38th collective learning session of the Politburo of the CPC Central Committee regarding the sound growth of capital in China on April 30, 2022, has turned out to be inaccurate based on later events. The concept of a “socialist market economy” appears contradictory since a market economy relies on unfettered market dynamics for success but struggles within the controlled framework of a socialist regime.

He had correctly assessed in this study session that “non-public capital” (read private capital) must be given full play “in promoting scientific and technological progress.” But private capital could not be made to “contribute to the building of a modern socialist country,” as he had wished. President Xi’s resolve to subject the “intrinsic nature of capital to seek profit to regulations and constraints” was a sure way to kill the enterprise. The latest move of President Xi to woo back private capital in the technology sector is an indication that Marxist political economists will waste their time if they respond to his call to study, the “theoretical and practical issue,” and how to “regulate and guide the healthy development of capital under the socialist system.” A “socialist system with Chinese characteristics” under which private businesses promote “common prosperity” has no future. –

AA Online Desk