China’s new No 2 faces challenge to make economy hum again

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AS the Chinese Communist Party's top boss in Shanghai, Li Qiang helped smooth Elon Musk's path to opening Tesla's first overseas factory. He's been an outspoken advocate for privately owned businesses, too. But he was also the driving force behind the Covid-related lockdown that earlier this year put the brakes on economic activity in mainland China's biggest financial hub.

Now he's been catapulted into the party's No 2 slot-behind President Xi Jinping-and all eyes are on how he might shape policy on the national level as the world's second-largest economy navigates an array of challenges, from demographic shifts and US technology sanctions to the fallout from continuing anti-Covid measures and a meltdown in the housing market.

Li's promotion puts him in line within the coming months to take over from Li Keqiang as premier, an important economic role overseeing all government ministries, including the central bank. In his three-decade career as a local and provincial politician on China's wealthy east coast, Li Qiang has carved out a pro-business position that seeks to encourage economic growth through investment in high-tech industries, balanced against environmental protection and maintaining a tighter rein on real estate speculation.

His position within the party's all-important Politburo standing committee rests first and foremost on his loyalty to Xi, who last month installed allies in the CCP's top posts and cemented his status as the most powerful Chinese leader since Mao Zedong. That's raised doubts about just how much any of Li's pro-business views might shape his choices in the central government.

Li's decision to impose a painful and unpopular two-month lockdown on Shanghai is potentially indicative. While he initially took a lighter-touch approach to combat Covid-19 than other cities did, maintaining economic activity through rapid contact tracing, that failed. He then shifted to a lockdown that led to shortages of food and medicine in some areas. Yet despite that-and the widespread popular discontent it fueled-Li used the policy as a chance to double down on his ties to China's paramount leader by saying Shanghai "won the battle" against the coronavirus and praising the role Xi's guidance played in its success.

Christopher Beddor, deputy China research director at Gavekal Dragonomics, says it's clear the role of premier has changed under Xi, and while Li has been viewed as a pro-business figure, it's unclear what kind of influence he'll wield. "Li Qiang's role as premier will be fundamentally different than Li Keqiang's role in 2013," he said. "Li will be viewed as essentially an adviser and an executor of Xi's will."

Li, 63, was born in Wenzhou, a coastal city in Zhejiang province that emerged as a hotbed of China's private-sector economy in the 1980s. Growth rates soared there as locals opened small factories making shoes, cigarette lighters and other products for export. He worked in a succession of local party posts, eventually rising to become the city's top official in 2002.

"His Zhejiang entrepreneurial spirit seems to be bred in the bone," says a Shanghai technology executive who's met with Li several times but declined to be named because of the sensitivity of talking about senior politicians. "He is pro-business."

Despite his pro-market leanings, Li was an early adopter of the view that expanding gross domestic product (GDP) shouldn't be the main aim of economic policy, arguing in 2004 that environmental protection and energy efficiency were equally important, a position he repeated after becoming Shanghai's top official in 2017.

Li's political ascent accelerated in 2007 when he started working under Xi, then the top official in Zhejiang province, in a role similar to a chief of staff. He was soon made the second-ranking official in the province. Shortly after taking that post, he told the financial magazine Caixin Weekly that the best gauge of the economy's health is whether the private sector is "active". He added that, while the "invisible hand" of the market needs to be paired with the "visible hand" of the government, "in recent years, it sometimes feels like the visible hand has turned into the 'overactive hand', stepping on the hands and feet of business. That needs to be avoided."

Li lacks the training in finance and economics of predecessor Li Keqiang, who graduated from the prestigious Peking University and earned a doctorate under one of China's top economists. He instead studied agricultural mechanisation in Zhejiang before embarking on his political career, and he's mostly adapted policies pioneered by other politicians rather than developing any influential concepts of his own. "He is a competent economic technocrat, market friendly," Cheng Li, an expert on Chinese politics at the Brookings Institution, told Bloomberg Television after the party congress.

While working under Xi in Zhejiang, Li bolstered his résumé by earning a part-time MBA at Hong Kong Polytechnic University. He also attended a training course for mainland officials, which included a session on Hong Kong's market economy run by Priscilla Lau Pui-king, a former business professor who remembers Li as being "open-minded".

Li has spoken in favour of deeper trade and investment links between China and foreign economies since his days in Wenzhou. As party boss in Shanghai he met with dozens of foreign executives, including BlackRock's Larry Fink, Apple's Tim Cook and Tesla's Musk. "He was an energetic, engaging and no-nonsense kind of guy," says a US executive who attended a meeting with Li about Shanghai's international economic links. "The session was around two hours, and he chaired, asking lots of questions. Of course, now he is moving into a new world."

One of the major challenges facing China's economy is the unravelling of the nation's real estate market, an issue with which Li has some experience. He dealt with the painful bursting of a housing bubble in Wenzhou a decade ago that resulted from a surge of financial speculation, giving him a vivid sense of the risks of overheating. That crisis was caused by companies moving away from the "real economy towards speculation on real estate", he told Caixin Weekly. The province's response was to crack down on the amount of credit flowing into property-now a nationwide priority under Xi.

Following his time in Zhejiang, Li shifted to become the top official in the eastern province of Jiangsu before being moved to Shanghai, a traditional springboard to promotion into the party's top tier. While there, he advocated for demolishing the kind of labour-intensive factories he once supported in Wenzhou and instead sought to promote more advanced industries, including microchips, biotech and finance.

The biggest achievement of that campaign was the opening of Tesla's first car-manufacturing plant outside the US. With the exception of Tesla, the biggest investors in Lingang-the high-technology district whose development Li oversaw-remain mostly domestic businesses, such as state-controlled Semiconductor Manufacturing International, artificial intelligence company SenseTime Group and electric-vehicle battery titan Contemporary Amperex Technology. Much of the district remains empty, Bloomberg News found on a recent visit.

With Xi consolidating more and more power into his own hands, though, there's a question mark over just how influential the next premier will be. The past decade has seen Xi move economic policymaking into the hands of various Communist Party committees he heads, along with trusted aide Liu He, who's retired from top party bodies. He Lifeng, a longtime Xi associate who heads China's state planning agency, is expected to take on Liu's position, while Li will be charged with making sure ministries and local governments implement Xi's plans.

In an economy as large as China's, and with the headwinds it faces, implementation will be important. Annual GDP growth is likely to weaken to about 3.3 per cent this year, according to the median estimate of economists surveyed by Bloomberg, well below the government's official target of around 5.5 per cent-and lower than the pace the country would need to reach the GDP per capita of a medium-developed country by 2035, another long-term goal the party trumpets as "Chinese-style modernisation". As the country's working-age population shrinks, however, and the global dividing lines harden, meeting that goal may be a considerable challenge for Li and the other party cadres charged with steering China's path. BLOOMBERG



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