CNN Predicts Xi Will Retreat From Crackdown On China's Moneybags

A year ago, Chinese leader Xi Jinping pledged to spend 2021 reining in "disorderly" private businesses that were growing too powerful and taking on too much risk. The sweeping regulatory crackdown that followed accomplished just that, claiming some high-profile casualties along the way.

Photo Insert: The crackdown started in late 2020 after Alibaba co-founder Jack Ma blasted the country's financial system during a controversial speech.

But the economy is now looking a lot shakier than it was, and Xi doesn't seem ready to rock the boat any further in the new year, Laura He reported for CNN.

The curbs on tech, finance, real estate, education, and entertainment hammered stocks and at one point wiped out trillions of dollars worth of value from Chinese companies on global markets. They also triggered huge layoffs among many companies, pressuring the job sector even as it tries to recover from the pandemic.

Further regulations on property firms that began last year have piled on the pain for major developers who were already carrying too much debt. Real estate — which accounts for nearly a third of China's GDP — is now in a deepening slump, with big players on the brink of collapse.

Add that to a handful of other problems in the world's second-largest economy, and you have some serious risks for the Chinese government to contend with in 2022. Even though China emerged from 2020 as the only major economy to grow that year, growth has slowed faster than expected in 2021, weighed down by the real estate crisis, repeated COVID-19 outbreaks, supply chain disruptions, and a power crunch.

Those headaches are making Beijing reconsider its policy approach. During a key economic meeting earlier this month, Chinese Communist Party leaders marked "stability" as their priority for 2022. That's a huge pivot from last year's meeting, when "curbing the disorderly expansion of capital" ruled the day.

"The emphasis on stability suggests that top leaders are increasingly concerned about the risk of instability," said Larry Hu, chief China economist at Macquarie Group.

"A year of regulatory tightening has hurt the business confidence," he added. "Now it's the time for policymakers to back down a bit." China is still expected to record significant growth in 2021, despite its challenges. Many economists project growth of roughly 7.8%, well above the 6% floor that Chinese authorities set as a goal earlier this year.

But 2022 is a different story. Many major banks have cut their growth forecasts to between 4.9% and 5.5%, which would be the slowest rate of growth since 1990 — a year when international sanctions following the 1989 Tiananmen Square massacre seriously curbed economic activity.

"The Chinese government's prior focus on regulatory and anti-monopolistic crackdowns was made possible by China's sky-high economic growth," said Craig Singleton, an adjunct China fellow at the Foundation for Defense of Democracies, a DC-based think tank.

"No longer, as the growth drivers of China's economy are quickly running out of steam."

The private sector crackdown started in late 2020 after Alibaba co-founder Jack Ma — easily the most recognizable of China's business elite — blasted the country's financial system during a controversial speech. An initial public offering for his financial tech firm Ant Group was suspended soon after. Since then, life has gotten more difficult not just for Ant Group but for a bunch of other companies too.

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