First, state-owned enterprises (SOEs) will be a key channel of post-outbreak stimulus. Xi has overseen a renaissance of the country’s SOEs, forcing mergers to create national champions in key sectors, including rail, nuclear and renewable energy and building materials, among others. And with economic activity constrained by the measures taken to combat the coronavirus, SOEs will take on an even larger national role. They will likely receive much-needed financing, given their connections to state-owned banks. And Beijing is pushing for more infrastructure investment to support the economy, an area where SOEs play a prominent role.
Meanwhile, privately owned small and medium enterprises have been disproportionately impacted by the lockdowns that blanketed the entire country, as locally-owned shops and restaurants with thin cash margins and greater difficulties in restarting business activity face imminent bankruptcy. The result: a further shift in economic weight toward SOEs controlled by Beijing and focused on implementing Xi’s policy priorities.
The distinction between the mishandled initial response and the strength of the Xi-led response touted by state media will provide political cover for him to discipline anyone who spoke out about the failures in addressing the outbreak. In this, Xi will also be aided by his mixed messaging. He has pushed for both containing the disease and restarting work as equal priorities. As a result, he has shielded himself from criticism in case of a renewed outbreak or ongoing economic weakness.
For Xi, the success in containing the outbreak so far justifies the aggressive quarantine efforts. But more broadly, it offers vindication for the political system that enabled the quarantine: a presidency with unchecked power over lower-level officials, the propaganda apparatus, and the levers of economic power.
As China digs itself out from the weeks-long shutdown, Xi will use this success to expand the party’s power over the economy, national dialogue and lower-level officials. He will be supported in doing so by the stumbling response in the US and will likely emerge in an even more powerful position, despite the political and economic weaknesses exposed by the initial outbreak in China.