As the spent fireworks are swept away and the Year of the Monkey dawns in China, the country’s leader, Xi Jinping, is continuing to tighten his grip on the ruling Communist Party.

In recent months Xi been given the new honorific “the core” in state media, representing a new confidence in his already formidable grip on the country. More recently, under Xi’s direction, the Communist Party’s powerful Central Discipline and Inspection Committee last week launched an unprecedented attack on three of its shibboleths: the Communist Youth League, the China Academy of Social Sciences and the party’s own History Office.

The CDIC’s ongoing pogrom against corruption is also aimed at removing enemies — the most prominent being former security tsar and Politburo Standing Committee member Zhou Yongkang.

This open attack on key institutions of the party — with various accusations of not toeing the ideological line of the party — is well beyond the CDIC’s stated corruption campaign and is designed not to destroy them but to bully them into submission.

In concert with this power consolidation has been an ongoing squeezing of space for civil society, with yet another crackdown on critics in law and academia as well as increasing media censorship that is fast extending to Hong Kong.

These crackdowns further expose the smoke and mirrors that is his much-vaunted but little-seen promise of the “next wave” of economic reforms. For sure there has been financial liberalisation, but this has not been supported by macroeconomic or state-owned enterprise reform, leaving the whole program out of kilter.

Increased political control and an economy more exposed to market forces are essentially contradictory for myriad reasons, and the results have been on display in China’s lurching financial markets, the growth capital flight from the country and ever growing mountain of debt being held by the country’s corporations and banks

This matters enormously to Australia, a country that sends one-third of its exports to China. It is also the central narrative of China’s cheerleaders in the Australian government and business sector, who have long had only limited understanding of both economic fundamentals and how China really works, and who believe that economic reforms will save the day — and the commodities market.

It is these reforms that are supposed to underpin the sustained, albeit slower growth of the Chinese economy in the years to come. But right now, as has been well documented both here and elsewhere, the Chinese economy is faltering more quickly than both the country’s government and many highly paid “economists” had forecast.

Last year’s growth was officially 6.9%, but it’s a number few now believe, and there is a developing consensus that the real figure is about 4%. That means that some parts of China, such as the decaying industrial north-west, are flat-lining at the very least, or more likely in recession.

Now think about that number for a moment in the context of a country that recorded 20% credit growth last year. Has there ever been such a negative correlation between credit growth and economic growth? Certainly not in an economy that is being in any way well run or under control. Banks are lending to businesses simply so they can pay back loans, and an increasing percentage of these loans do not have sufficient asset backing.

The increased leverage is producing lower and lower growth rates. China’s banks are being used as policy instruments by the state and their debt now amounts to 300% of China’s annual GDP. At the same time the People’s Bank of China is spending hundreds of billions of dollars trying to prop up the country’s ailing currency, pissing away, quite frankly, taxpayers’ funds that would be far better spent elsewhere. Keen economists are now describing this ultimately unsustainable pattern to their clients in private newsletters as the re-sovietisation of the Chinese economy.

As Crikey has noted before, it’s not Armageddon for the Chinese economy — not yet and we hope not at all — but the underlying fundamentals continue to weaken and it’s hardly the reforming economy that the cheerleaders in many Australian boardrooms would have you believe

The sum total of Xi’s efforts — especially the latest attack on the Communist Youth League — are now squarely aimed at the 19th CPP Congress, due in October or November 2017. Here, Xi wants to install a phalanx of yes men, further crushing very healthy internal party debate. It’s worth noting that both Xi’s predecessor, Hu Jintao, and his No. 2, Premier Li Keqiang, were products of the CYL.

But in the meantime at least, there remains plenty of upside in China’s continued, albeit slower, growth and modernisation — which is a genie that’s extremely hard to put back in the bottle. On the back of continued strong numbers from Chinese international students, Australia’s international education sector had a record $19.5 billion-year in 2015, according to the latest government figures. And Chinese tourism into Australia continues its amazing boom.

Finally, perhaps the darkest and most troubling part of Xi’s relentless centralisation of control is its incipient nationalism and the rapid modernisation of China’s military with the fairly explicit aim of taking back its own sphere of influence, the Asia Pacific, which it began ceding to the West — and at times its hated neighbour Japan — two centuries ago.

There’s a saying in China that usefully describes Xi’s campaign(s): “Killing a chicken to scare the monkeys.” So then, “xin nian kuai le” (happy New Year), folks; welcome to the Year of the Scared Monkey.

Peter Fray

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