Chinese President Xi Jinping will find his goal of “high-quality economic development” unrealistic amid growing U.S.-China tensions and market stagnation, according to one expert’s analysis.

Xi recently secured a historic third term as general secretary of the Chinese Communist Party following the CCP’s quinquennial congress.

His personnel-shuffle strategy of conspicuously replacing executives knowledgeable about the economy with his close aides has also drawn considerable attention.

With these events in mind, Toshiya Tsugami, a visiting researcher studying the economic affairs in modern China at the Japan Institute of International Affairs, a think tank, provided his views on the future prospects for the massive economy in an Asahi Shimbun interview.

Born in 1957, Tsugami in 1980 joined what is currently called the Ministry of Economy, Trade and Industry. He has also served as a counselor at the Japanese Embassy in China, and is known for his recent book “Beichu Tairitsu no Saki ni Matsumono: Great Reset ni Sonaeyo” (What Lies Ahead in the U.S.-China Conflict: Prepare for Great Reset).

Excerpts of his interview follow:

Question: What is your take on Xi’s latest political report?

Tsugami: In short, there was nothing new in it. Based on the party congress’s report five years earlier, and considering the 14th five-year plan released last year, the report repeatedly stresses the nation will press ahead with efforts to make the Chinese people great again, and that China will become “stronger” from here out to usher in a “new era” now that poverty has been “eliminated” by overcoming the challenges to achieving wealth.

It implies he (Xi) needs to be chosen for his third term to respond to this grave turning point.

The story told through the two earlier documents serves as a big gimmick to enable him to be selected for a third time, so the plot apparently was unable to be modified.

Q: Do you think the expressions “strong country” and “Chinese modernization” reflect Beijing’s confidence?

A: The previous party’s congress was held in 2017. Seeing unbelievable events transpire in the West a year earlier, such as the Brexit movement and Trump taking office, China felt those signs represented the decline of developed Western nations.

Last year’s five-year plan was worked out amid increasing anti-U.S. sentiment and emotional uplift, as Beijing believed the “era of China” will emerge because it succeeded in containing infections, unlike the United States, where hundreds of thousands of people were killed in the outbreak of the novel coronavirus.

The latest political report, which looks like a copy of these two documents, also shows the confidence and emotional uplift expressed five years ago and last year.

But what developments have occurred over the course of one and a half years from last year to the present?

Among them are a real estate recession, financially struggling local governments and the heavy blow dealt by the zero-COVID policy to both the economy and society, along with events overseas, including deepening U.S.-China frictions, the Russian invasion of Ukraine and economies all over the world being forced to increase interest rates in the face of inflation.

Despite all that, Beijing is saying it will improve its per capita GDP (gross domestic product) to a level comparable to those of mid-level developed countries. I doubt that is really possible.

MORE LOYALISTS, FEWER REFORMISTS

Q: What is your opinion about the fact that individuals close to Xi were chosen as members of the highest leadership group or other high-ranking positions while other powerful figures were removed?

A: Given the difficult situation ahead, influential figures and experts from a range of fields should have been picked out for a party-wide approach.

Long-time aides from local areas, however, were allowed to secure most posts, so talented officials were given the cold shoulder. My impression is that this outcome shows how low caliber Xi is as a national leader.

Q: What is your view on the succession of economic reformists replaced through personnel relocations?

A: Although Vice Premier Liu He, Central Bank Governor Yi Gang and other such individuals (who were recently dismissed as Politburo and Central Committee members) have been respected due to their relationship of trust built over many years with governmental officials, businessmen and academics in the West, their successors do not have such links and it is unknown whether they are well-versed with the economy.

Policies will have to be rethought next year or afterward to decide on future economic tactics, and I suspect those people may not be able to carve out the right path.

Q: What do you think of the phrases “national security” and “action against monopolies” that are being used more frequently, while top priority is still placed on economic growth?

A: Measures against monopolies do not target large, state-owned monopoly firms, but they simply slam imprudent private companies. Entrepreneurs successfully becoming millionaires and private corporations’ market values exceeding those of their state-owned counterparts--things often found in the American dream--apparently go against the policy of Xi Jinping.

The Development Research Center of the State Council and economists in China have been calling for competition neutrality. Their argument is that offering special benefits to state-owned enterprises and providing other unfair competitive conditions will backfire.

But the Xi administration does not appear to accept that notion. The stated anti-monopoly policy thus pretends to do good to citizens but is designed just for the sake of the government.

Q: What’s your take on plans to include the term “common prosperity,” which refers to the goal of everyone becoming wealthy, in the CCP’s Constitution?

A: Common prosperity was proclaimed because Beijing is alarmed by the widening rich-poor gap. The phrase “rich-poor gap” typically reminds people of the Gini coefficient to measure the inequality of incomes, but the essence of the current issue lies in asset differentials.

China has become excessively dependent on real estate. Those with real estate will become wealthier while those who do not possess it are driven out to suburban districts due to surging rents.

Can the prices of real assets be lowered to fix this disparity? Forging ahead with the common prosperity policy in earnest will rather lead to common poverty.

The CCP would see its public confidence erode. Though a plan for a new tax on real assets was announced, it has yet to be introduced even on a trial basis.

INTERVENTION CAUSING MARKET DISTORTIONS

Q: Do you believe the Chinese economy will become sluggish as Xi secures his historic third term?

A: Aside from the real estate recession, local governments are financially struggling, resulting in a decline in infrastructure investments. The age where investments can play a major part (in growth) is nearing its end.

Consumption cannot be expected to rise since it is unclear how long the zero-COVID policy will last.

Although exports were brisk until last year, owing to recovered spending among consumers in the United States and Europe following the health crisis, it is feared the global economy will suffer from stagflation from next year (marked by higher commodity prices and an economic recession at the same time).

It is extremely tough to improve the Chinese economy under these domestic and global circumstances.

Meanwhile, the likelihood of the economic bubble collapsing like in Japan and the United States is low. That is because the government with its powerful economic power would step in to prevent that from happening.

It should be noted, however, that simply stopping the asset bubble from collapsing is not the point and that government intervention is rather worsening the problem.

Q: Could you elaborate on this point?

A: A lot of so-called zombie debtors, including local governments and companies, continue to borrow money without repaying their loans. Banks extending loans to those who likely cannot pay off their debts are normally supposed to register the bad debts as losses. But in China, the state intervenes in refinancing these zombies in a practice known as the hidden government guarantee.

Creditors receiving interest from zombies on a continual basis constitutes an unreasonable transfer of wealth. The issue is exacerbated when the interest goes to state-owned financial institutions and wealthy individuals who entrust large amounts of money with them.

The never-ending real asset bubble and the hidden government guarantee have been distorting the distribution of wealth through government intervention. This just means assets will be increasingly distributed disproportionately.

I project that China will be caught in a “middle income trap” and see its economy become sluggish before it reaches the standards of developed countries. While the CCP’s policy in the past two decades should be blamed for that, Xi’s approaches that deprive privately run corporations of energy, which should be serving as the engine for economic growth, will further worsen the situation.

Q: What impact do you think Japan and other parts of the world will experience from a possible prolonged sluggish economy in China?

A: I feel the way foreign-affiliated companies are looking at the Chinese market is changing. One reason involves concerns that China’s economic growth may slow.

Another reason is the lockdowns. Due to the lockdown of Shanghai, Japanese manufacturers had no choice but to reduce their production of automobiles, home appliances, information technology devices and other items, which exerted a heavy impact on them. If the same thing transpires again, supply chain reliability will not be able to be maintained.

Major U.S. electric-car maker Tesla Inc. and Honda Motor Co. are moving to push forward their decoupling tactics with an eye on not relying on parts made in China except for vehicles manufactured in the country. If this becomes a trend in the future, the economic relationships between China, which has been developing in line with globalization, and other parts of the world will change.

Not only China but also the world economy may undergo crucial change in or after next year. My ominous prediction is that the whole global economy might be reaching a significant turning point.

(This interview was conducted by Akihiro Nishiyama, a Beijing correspondent of The Asahi Shimbun.)