As Beijing gears up for the 70th anniversary of Communist Party rule, China’s propaganda machine has been churning out articles celebrating the country’s achievementsand projecting its greatness into a boundless future. In the Western press, by contrast, some argue that time is running out for China’s one-party rule. 

In communist Bulgaria we had a saying, “The future is clear, but the past keeps changing.” It conveyed the sentiment that the future under Communist rule could only be bright, but with each new leader the past was reinvented. 

The nostalgia with which Chinese people have now started to view the past is a subtle yet telling sign of trouble ahead for the Party. 

The discerning novelist Yu Hua wrote in 2018, “Wishing the past could return is a mood that is spreading through today’s society.” He sees two patterns: the yearning of the poor for the old days when everyone was equally impoverished and the desire of the rich to reclaim the past so they can build a life free of fear of losing all or being thrown in jail. 

For the poor, nostalgia is a way of venting their feeling of being left behind - a feeling with which Xi Jinping sympathises on a deep psychological level. He spent his formative teenage years in China’s poorest province, experiencing at first hand the plight of those who get by on next to nothing. 

Fighting income inequality is a noble task, but the way Xi has gone about it undermines two of the most important dynamos of China’s development model over the past 40 years: private enterprise and the authorities’ trial-and-error approach to policy change. 

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Under Deng Xiaoping’s leadership the Party allowed the private sector to flourish and accepted the capitalist class with a pragmatism that – at the time – could only be marvelled at. 

But when Xi took the helm, he ushered in a sea change in the party’s role in both state-owned and private businesses, ringing alarm bells at home and abroad.

The Party has always controlled state firms, but it went to great lengths to play down that fact in its dealings with the rest of the world. In its bid to attract much-needed foreign investment, especially as it started to list its firms abroad, it created Western-style corporate structures and talked the language of the free market – albeit with little of the underlying substance. 

But by 2018 state firms were required to write the role of the Party into their articles of association while a new corporate governance code demanded that listed firms, at home and abroad, include in their internal guidelines an expansive role for the Party. It has now become clearer than ever who is in the driving seat. The transparency is welcome, but openly assigning a primary role to the Party served as one of the wake-up calls for the US to reassess its China policy. 

Much more worrying is the Party’s efforts to control private firms as well. A new national intelligence law enacted in 2017 was the turning point. It states that “any organisation and citizen” shall “support and cooperate in national intelligence work”. It gives the authorities free rein to interfere and make whatever demands they like. 

Meanwhile, the Party has been busy setting up bodies not only in private but also in foreign-owned firms. By some estimates over two-thirds of the latter now have Party cells. 

Clearly, Xi’s ideological goal is to strengthen the power of the Party in both state-owned but also strategically important private enterprises and to subordinate business decisions to the needs of the Party. 

An example of this shift is news this week that the government of Hangzhou in the eastern province of Zhejiang has pledged to assign 100 officials to 100 local enterprises, including Alibaba and Geely. They will act as government affairs representatives – ostensibly as part of a plan to upgrade manufacturing in the city. 

Their appointment is a reflection of another crucially important and detrimental shift that is unfolding. 

With the Sino-US geopolitical confrontation in full swing, Beijing does not have the luxury of time to continue with one of the most successful aspects of its development model: changing policy by trial and error. 

Or, in Deng’s phrase, crossing the river by feeling the stones. 

It seems that Hangzhou’s plan to upgrade local manufacturing will be enforced from above rather than being the result of discovery through experimentation. The swing towards top-down directives is sure to work much less effectively than determining the best solutions at local level before rolling out policies nationwide. 

China’s “suck-it-and-see” approach to policy-making and supply-side changes has been instrumental in the gradual marketisation of the economy. The success of this strategy has improved efficiency and boosted productivity growth. Once broad agreement is reached about the objectives of a particular reform, local pilot schemes can be tailored to specific circumstances, creating space for initiative and innovation.  

To succeed in the future in an ever more complex environment and under conditions of increasing uncertainty,  when ‘what works’ is not knowable in advance, Beijing must not compromise on this aspect of its development model. 

Yet Xi’s determination to enforce central control, the paralysis of local leaders under his relentless anti-corruption campaign, and America’s aggressive efforts to contain China’s rise have combined to derail the trial-and-error method. The Party’s drive to subjugate big strategically important non-state firms is stifling private enterprise while Xi’s focus on frugality is dampening the enthusiasm of China’s well-off consumers.

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It’s a potent mix, which, together with China’s need to borrow from abroad if it is to sustain current levels of investment, has put the economy on a much more precarious footing than the leadership in Beijing currently realises.