Fang Lian Talks: How did Li Keqiang become the most powerless Premier? Would everything have been different if Li Keqiang had taken power? An objective evaluation of Li Keqiang | Li Keqiang's governance
This article reviews the life of Li Keqiang, his academic background as a top student, his political achievements while governing Henan and Liaoning, and his economic governance path after taking office as Premier of the State Council. The article analyzes the conflict between Keqiang economics and vested interest groups, the gradual hollowing out of his power, explores the reasons why his policies were correct yet obstructed by the system, and objectively evaluates Li Keqiang's merits and demerits regarding economic debt, tax and fee reductions, and the P2P incidents.
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On the afternoon of June 25, 2007, at 3:00 PM, the Chinese Communist Party held a meeting in Beijing. The number of attendees at this meeting was not large, only a few hundred people, but the power concentration of these few hundred people was extremely high. Some of them were members of the Political Bureau, and others were members of the Central Committee. What were these people gathered to do? They were doing only one thing, something sufficient to change the destiny of China: voting to elect the next General Secretary. This was one of Hu Jintao's rare democratic attempts, but the result was unsatisfactory. Xi Jinping won by a high margin to become the candidate for the next General Secretary, and in the end, Li Keqiang could only settle for Premier. So what exactly caused Li Keqiang to lose the election, how did Li Keqiang end up as the least powerful Premier, and if Li Keqiang had come to power, would China be different?
Hello everyone, I am Toronto Fang Lian. In this episode, we are talking about China's most powerless Premier, the last of the Communist Youth League faction, Li Keqiang. Whenever we talk about Li Keqiang, the first label that comes to mind is his identity as a member of the Youth League faction. A hallmark of the Youth League faction in China, compared to other factions of the CCP, is that they have education. And Li Keqiang is indeed like that; he can even be said to be the most book-smart and studious among all the successive leaders of the CCP. Unlike Xi Jinping, who had little cultural foundation and relied on bloodline power to secure a spot at Tsinghua, Li Keqiang had excellent grades since childhood. According to his classmates' memories, starting from elementary school, Li Keqiang's grades were always among the best. However, such an academic star Li Keqiang had no practical outlet for his talents back then, mainly because 11-year-old Li Keqiang encountered the Cultural Revolution. After the Cultural Revolution began in 1966, universities and middle schools across China were engaging in struggle sessions, but in elementary schools, you couldn't exactly have elementary school students struggle against others. Therefore, elementary schools at the time generally adopted a policy of directly suspending classes and sending teachers out to be criticized by others. As a result, Li Keqiang, who had just turned 11, had no choice but to follow his father back to the countryside to work as a cattle herder.
By 1969, as the first wave of the Cultural Revolution subsided and schools reopened, Li Keqiang resumed his junior high and high school studies. Throughout middle and high school, Li consistently ranked at the top of his class. However, during that era, academic excellence was utterly useless. Securing admission to university during the Cultural Revolution depended entirely on political background and loyalty. Since Li's father hovered near the edge of the "five black categories," Li naturally had no opportunity for a recommended university admission. Consequently, in March 1974, having just turned 18 and graduated from high school, Li immediately entered the workforce. Yet, in those days, a high school diploma still carried some weight, so upon graduation, the Party assigned him a job. And what was this job? It was being sent down to the countryside. After graduating, Li was assigned to Dongling Production Brigade, Damiao Commune, Fengyang County, serving as an educated youth. Fengyang was far from a pleasant place; it was famous for the Fengyang Flower Drum, which featured the saying: "Ever since an emperor named Zhu was born out of Fengyang, nine out of ten years have brought famine." Of course, Fengyang's persistent famines were not caused by Zhu Yuanzhang originating from there, but rather by its unique geographical environment. This environment caused one-fifth of Fengyang's population to starve to death during the Great Famine, making it one of the hardest-hit regions in China at the time. Nevertheless, Li Keqiang did not disdain these conditions—nor, of course, did he have the privilege to do so. Upon arriving in Fengyang, Li worked diligently. After a two-and-a-half-year trainee period, he successfully became the brigade party secretary. Because of his outstanding performance, by his fourth year, the county even intended to promote him to deputy party secretary of the commune. Yet precisely at this juncture, a turning point that would alter Li Keqiang's destiny arrived.
At 22, an age when many people today are just graduating from university, becoming a deputy party secretary of a commune would be a pretty good choice for most. But Li Keqiang was different. Not only had he excelled academically since childhood, but he also genuinely adored and loved reading. Thus, in 1977, right when China resumed the gaokao, Li resolutely decided to give up his job and retake the university entrance exams. Moreover, Li was quite talented, placing second in Chuzhou City and gaining admission to the Law Department of Peking University. Of course, there was a minor anecdote here: Li had not actually applied directly to Peking University as his first choice; instead, he put Anhui Normal College as his first choice because it covered meals and lodging expenses, saving money, and only put Peking University as his second choice. Ultimately, because his scores were simply too high, Li was admitted by Peking University anyway.
After arriving at Peking University, Li Keqiang's performance was equally exceptional, particularly in English. In the China of that era, having just weathered the Cultural Revolution and prolonged isolation, very few university students knew any English. Furthermore, many teachers who did know English had been severely whipped by Red Guards during the Cultural Revolution and, unable to bear the humiliation, hanged themselves. Naturally, Li Keqiang was no exception; when he first entered university, Li basically knew no English. However, the moment he stepped onto campus, Li began studying English intensively. To what extent did his English eventually improve? It became so good that during his university years, Li even participated in translating Lord Denning's work *Due Process of Law*. Of course, Li's tremendous effort in learning English was also tied to his personal career planning. Initially, his life plan was never to become a politician, but rather a scholar. He planned to graduate from Peking University, rely on his strong English proficiency and excellent academic record to study abroad in Europe or the US, earn a doctorate, and subsequently become a professor. However, because his performance on campus was overly outstanding, Li Keqiang was unfortunately targeted by the Chinese Communist Party. Ma Shijiang, then deputy secretary of the Peking University Party Committee, approached Li over ten times to talk him out of studying abroad, urging him instead to stay at the school as the Communist Youth League secretary. The Youth League secretary at Peking University was no ordinary school secretary; it carried immense weight in China, directly equivalent to a county magistrate or the bureau chief of a prefecture-level city. Faced with the temptation of power, Li Keqiang ultimately could not resist. Upon graduation, he abandoned his plans to study abroad and accepted the appointment as Youth League secretary.
However, after this, Li Keqiang remained very studious. By 1988, Li Keqiang had already reached the rank of Secretary of the Secretariat of the Communist Youth League Central Committee, becoming a bona fide vice-ministerial level official, sitting at the same table as Gao Yuliang. Yet, he still chose to continue his studies, beginning his transition to pursue economics. He studied for his master's and doctoral degrees under the renowned Peking University economist Li Yining. Although Li Keqiang's master's and doctoral degrees were obtained while in service, he was studying in earnest. In 1991, he published the article "On the Three-Dimensional Structure of China's Economy," engaging in a remote debate with the then-Nobel laureate in Economics, Arthur Lewis. Later, he co-authored "Strategic Choices for Moving Toward Prosperity" with Li Yining and Li Yuanchao, discussing the development of China's economy. In this book, Li Keqiang's arguments focused mainly on Chapter 7, an exploration of rural economic development. Li Keqiang believed that China should not treat the countryside as a sacrificial lamb for economic development. After taking office, Li Keqiang once stated that there were still 600 million people in China with a monthly income of 1,000 yuan. At the time, Li Keqiang's concern for the people at the bottom of society resonated widely with the Chinese public. But in fact, looking back, Li Keqiang's concern for the peasant class and the proletariat was already evident when he first entered politics.
So, what exactly was the governance philosophy of Li Keqiang, this studious academic star who seemed to care about the hardships of the people? Was his governance actually good? One can only say he was a giant in policy but a dwarf in realpolitik. Although Li Keqiang was an academic star and very knowledgeable about economics, he also fit the stereotype people have of such high achievers. Li Keqiang certainly had clear insights into the economy, but he was not a person who was very good at playing politics. As early as when Li Keqiang had just graduated, he suffered a setback. 2007 was not the first time Li Keqiang lost in an internal party election. As early as 1982, when he had just embarked on his official career, he encountered the first frustration of his life. In 1982, having just taken over as the Secretary of the Communist Youth League at Peking University, Li Keqiang faced the 11th National Congress of the Communist Youth League. Before the congress began, delegates had to be elected to go to Beijing for the meeting. For the Secretary of the Peking University Youth League to select Youth League delegates should have been a sure thing for Li Keqiang, but unexpectedly, Li Keqiang, as the Secretary of the Peking University Youth League, actually lost the election. This was equivalent to the Secretary of the Beijing Municipal Committee failing to be elected as a deputy to the National People's Congress; it was truly shocking.
As for why he was not elected, combined with various reports, it was likely because Li Keqiang was not smooth enough during this period and spoke too directly. Wang Juntao, a pro-democracy activist who studied at Peking University and later fled to the United States, once recalled that Li Keqiang during his time at Peking University maintained the idealism and independent spirit of a Peking University student, often expressing sharp opinions on certain issues on various occasions, which drew widespread dissatisfaction from Youth League cadres in other fields. Later, in the official records of the CCP, Li Keqiang's performance during this period was also commented on as having "poor speaking skills," which shows that what Wang Juntao said was likely the truth; it's just that the CCP simplified his idealism and independent spirit into "poor speaking skills." Of course, Li Keqiang's failure in the internal CCP election did not affect his promotion. Li Keqiang, who was valued by the CCP's top leadership, was still promoted exceptionally and was directly appointed and parachuted into the Central Committee of the Communist Youth League. Later, thanks to the appreciation of Hu Jintao, Li Keqiang continued to rise steadily, and finally began to serve as the Governor of Henan Province in 1998, beginning his tenure as a regional leader.
So, how did Li Keqiang perform after arriving in Henan and becoming a regional official? One can only say it was okay. First, regarding macroeconomic data, before Li Keqiang came to Henan, and including the current Henan, it was considered a low-lying area for China's economic development. Although Henan's total economic volume was relatively high, ranking fifth in China, because of its large population, its GDP per capita only ranked 21st in China. By the time Li Keqiang left, Henan's total economic volume was still fifth in the country, but its GDP per capita had risen from 21st to 17th. Of course, another characteristic of Li Keqiang's tenure was light taxation. When Li Keqiang arrived in Henan, the local fiscal revenue ranked seventh in the country, and by the time he left, this ranking had actually dropped by one. Meanwhile, the income of urban residents in Henan Province rose from 26th to 22nd in the country. After Li Keqiang came to Henan, the economy clearly improved, especially in terms of resident income, where the growth rate was significantly faster than the national average.
Of course, during Li Keqiang's tenure, a very well-known case broke out in Henan, which was the Henan blood scandal that shocked the whole country, namely the Henan AIDS epidemic. In the early days, because Henan was extremely poor, it became a blood-selling base for China. At that time, there was even a slogan circulating in Henan: "If you want to reach a moderately prosperous life, hurry up and sell your blood plasma." Meanwhile, in such a poor Henan, the medical and sanitary conditions of the blood-selling stations were naturally extremely poor. The reuse of a large number of needles led to the widespread diffusion of AIDS among the blood-selling population. Of course, the cause of this incident was not Li Keqiang; this phenomenon of blood selling originated as early as 1992, when Li Keqiang was still debating with Nobel laureate W. Arthur Lewis from afar. However, AIDS generally has a 10-year incubation period, and this problem began to erupt intensively during Li Keqiang's administration of Henan. A typical example is Wenlou Village in Henan, which was a major blood-selling village at the time. Later, according to an investigation by the Chinese Communist Party (CCP), among the 3,170 people in Wenlou Village, 241 cases of AIDS infection were found, and the infection rate among villagers who had participated in blood selling was as high as 42.96%. As for how Li Keqiang handled this blood epidemic, it was not enough compared to democratic officials, but compared to other CCP officials at the time, it could be considered relatively humane. Regarding the AIDS issue, China has always had a relatively authoritative official, or rather a scholar, named Gao Yaojie. She has always been known as China's number one person in AIDS prevention. She began focusing on the AIDS problem in Henan in 1996, and it can be said that she was the one who exposed the Henan blood scandal. Of course, everyone knows that in China, when a problem arises, it is usually not the problem that is solved, but the person who raises the problem. Therefore, Gao Yaojie, who discovered the blood scandal, was constantly subjected to various forms of suppression and censorship, which is another reason why the AIDS blood scandal was able to spread in Henan. During Li Keqiang's administration of Henan, it naturally did not escape the traditional fate of the CCP; the Henan government at this stage also controlled Gao Yaojie's speech, restricted her from appearing on programs for interviews, and simultaneously restricted her from leaving the country. However, the good thing is that Li Keqiang's attitude and views toward Gao Yaojie herself were relatively approving. According to Gao Yaojie's own recollections, Li Keqiang once personally met with her, held a conversation with her, and learned about the situation of the Henan blood scandal. As a result, Gao Yaojie retorted to Li Keqiang, saying, "In the past, I listened to what people said and believed what they did; now, I listen to what they say and watch what they do." This was a subtle jab at Li Keqiang, implying he was only pretending to be a good person and that she would have to see what he actually did to evaluate him. Surprisingly, when Li Keqiang heard this, he did not get angry; instead, he replied, "I will go down and see for myself," which left Gao Yaojie with a decent impression of him. At the same time, Li Keqiang did indeed spend a great deal of effort and money on preventing and treating AIDS in Henan. He sent people to shut down illegal blood collection points and dispatched working groups to reside in villages with high AIDS incidence to stop villagers from continuing to sell blood. Overall, the AIDS problem was brought under control during Li Keqiang's tenure.
After governing Henan, Li Keqiang governed Liaoning. During his time in Liaoning, Li Keqiang's performance remained similar to his time in Henan. Liaoning's total GDP and GDP per capita did not change much in ranking between the time Li Keqiang took office and when he left. When he took office, the GDP was ranked eighth in the country, and when he left, it was still eighth. When he took office, the GDP per capita was ranked ninth in the country, and when he left, it was still ninth. However, during Li Keqiang's tenure, the income of urban residents in Liaoning rose from 16th to 11th in the country, and residents' income saw a significant increase.
During this period, Li Keqiang's fundamental views on the economy—or rather, his views on governance—had also formed: he despised paper GDP growth and valued real GDP growth. Because Li Keqiang had long been rooted at the grassroots level and governed impoverished provinces, he was well aware of the widespread fabrication of GDP data by the Chinese Communist Party (CCP). Therefore, Li Keqiang was exceptionally resistant to the GDP metric, placing greater value on the growth of actual residents' income. While governing Liaoning, he even devised the Keqiang Index to measure the true economic development of a region. What is the Keqiang Index? It measures a region's true growth value using electricity consumption, railway freight volume, and bank loan disbursements. This economic logic of disregarding GDP growth also led to his later policy rivalry with Xi Jinping. Of course, that is a story for another time, because his showdown with Xi Jinping began much earlier—as early as March 2007. At that time, the US Ambassador to China, Clark T. Randt Jr., hosted a banquet in Beijing, entertaining Liaoning Provincial Party Secretary Li Keqiang, Zhejiang Provincial Party Secretary Xi Jinping, and Jiangsu Provincial Party Secretary Li Yuanchao. Why these three individuals? Primarily because they were seen by the US government as the frontrunners to become the next generation of top leaders of the CCP. The US government firmly believed the next supreme leader of the CCP would be chosen from these three, and thus hoped to engage with them in advance to understand their basic conditions. According to information later leaked by WikiLeaks, Xi Jinping and Li Keqiang displayed completely different traits at the meeting—traits that might actually be the exact opposite of everyone's impressions. Whenever we talk about Xi Jinping, we always feel that he is particularly adept at politics and knows nothing about economics. However, in the meeting with the US Ambassador, Xi Jinping reeled off Zhejiang's economic data with ease, and even compared Zhejiang, which he managed, with Jiangsu, managed by Li Yuanchao. At the same time, Xi Jinping repeatedly praised the important contribution of the private economy to social development, expressed his yearning for American culture, and stated that the CCP should grant a certain degree of freedom of speech. Li Keqiang was the exact opposite. He rarely discussed economic data directly, bluntly stating that economic data were all too fake; instead, he talked entirely about livelihood issues, complaining that China's subsistence allowances were too low and farmers' incomes were too low. Among these topics, Li Keqiang harshly condemned corruption, considering it one of the most severe problems facing the CCP at present. As for US-China relations, Li Keqiang appeared relatively tough, bluntly stating that US-China trade barriers should not exist and that America's concern over the trade surplus with China was excessively exaggerated. This was completely not the kind of talk we would expect from Li Keqiang, but rather what we would expect from Xi Jinping. In the end, the US ambassador's comment on Xi Jinping was that he used data effortlessly and skillfully, while his comment on Li Keqiang was that he was talkative, well-read, humorous, and confident. Truly, if you covered up the names, it would be hard to imagine Li Keqiang talking about corruption and Xi Jinping talking about the economy.
Time quickly moved to June 25, 2007. On this day, the CCP began voting to select the next top leader. Also according to classified reports from the US Embassy, the election results were astonishing: Xi Jinping's vote count far exceeded Li Keqiang's. This election was Hu Jintao's most daring attempt. He had hoped that through this democratic election, he could secure de jure legitimacy for promoting Li Keqiang as General Secretary. But clearly, Hu Jintao failed. Of course, as to why he failed, there are various opinions on the reasons. The currently mainstream explanations are as follows. The first is that Li Keqiang's old bad habit of being poor at building connections played out once again. After the election, the US ambassador privately contacted some of the voters, trying to inquire why they voted for Xi Jinping. The reasons given by these people were generally that Xi Jinping was smoother and better at building bridges among leaders, whereas Li Keqiang had offended many officials on his way up. As for another reason, it was the support of Jiang Zemin's faction. Ever since Deng Xiaoping, the CCP had established a system of intergenerational appointment to prevent excessive concentration of power and keep a Mao Zedong-style figure from reappearing in China. Therefore, 2012 should have been the time for Jiang Zemin to appoint someone to serve as General Secretary. However, due to various problems, Jiang's faction experienced a generational talent fault line, leaving no candidate they could appoint as General Secretary. Yet, upholding the principle of "if I can't have a good time, I will certainly not let you have one either," Jiang Zemin strongly resisted Li Keqiang of the Communist Youth League faction (the Tuanpai) succeeding Hu Jintao as General Secretary, to prevent the Tuanpai from dominating completely. Therefore, Jiang Zemin strongly pushed for Xi Jinping, who had the least Tuanpai background among the three candidates and political views closer to his own, to come to power. Ultimately, Jiang's faction began lobbying and voting to support Xi Jinping. Although Hu Jintao was General Secretary at the time, Jiang's faction still occupied the vast majority of high-level positions, which ultimately resulted in Xi Jinping obtaining a higher vote share. While securing a higher vote share, Zeng Qinghong also traded his retirement without retaining any titles in exchange for Hu Jintao's endorsement, agreeing to let Xi Jinping become General Secretary.
At the same time, the third reason is that, faced with this situation, Hu Jintao had another plan at the time. According to inside information revealed by The New York Times, Hu Jintao believed at the time that Xi Jinping was not as deeply tied to Jiang Zemin’s faction. Therefore, even if Li Keqiang was not elected as state president, because Xi Jinping’s faction was relatively weak, Li Keqiang could still potentially become China's actual number one figure in the future with the support of the Communist Youth League faction. Therefore, Hu Jintao judged that there was no need to have a falling out with Jiang Zemin right then; it would be better to push Xi Jinping to power in exchange for Zeng Qinghong's complete retirement. However, subsequent events exceeded Hu Jintao's expectations. In 2012, his capable lieutenant Ling Jihua was brought down by his son's scandal, which basically destroyed the layout of the Politburo Standing Committee and left Li Keqiang as the only Youth League faction member in the Politburo when he came to power, effectively making him a commander without an army. His influence in the Politburo was even inferior to that of Xi Jinping later on. In fact, looking at Li Keqiang's rise through the ranks, we can find that Li Keqiang had no problems in his governance philosophy, but he indeed had serious problems with his political ability, or rather, his power-play ability. This problem was not prominent before, mainly because he had always been under Hu Jintao's protection. When he offended people, Hu Jintao could cover it up for him and did not truly hinder Li Keqiang's political career. But after becoming premier and losing Hu Jintao's protection, Li Keqiang's shortcomings were instantly magnified. And this brings us to Premier Li Keqiang's term in office.
Since the era of Deng Xiaoping, China has always adhered to a principle: the General Secretary manages party affairs, diplomacy, the military, and politics, while the Premier manages the economy. This was true for the Jiang Zemin and Zhu Rongji combination during Jiang Zemin's era, and it was also true for the Hu Jintao and Wen Jiabao combination during Hu Jintao's era. This was also true at the very beginning of Xi Jinping and Li Keqiang's terms. However, very soon, Li Keqiang lost everyone's support. And this loss of support was not because of what people imagined—that Xi Jinping consolidated power through anti-corruption, which happened later. The reason for losing power was actually due to one of Li Keqiang's economic views and his personal trait of not knowing how to play politics. We have all heard of Xi Jinping on Governance, even though no one really knows how Xi Jinping governs the country. Of course, this cannot be helped; Xi Jinping keeps publishing books and forcibly quotas them out, making Xi Jinping on Governance the best-selling book in the world second only to the Bible. But unlike Xi Jinping, although Li Keqiang did not publish Li Keqiang on Governance, early on he truly had his own set of economic theories. This theory was called "Likonomics" by the Western economic community.
What is Likonomics? On June 20, 2013, shortly after Li Keqiang came to power, he pulled off a jaw-dropping move: lowering the reserve requirement ratio and deleveraging in China. What is lowering the reserve requirement ratio and deleveraging? This is a comparative economic term; to put it in layman's terms, after coming to power, Li Keqiang began to restrict government spending, and he did so drastically. Of course, there was a reason for wanting to restrict it. In 2008, due to the bankruptcy of Lehman Brothers in the United States, the global financial crisis broke out. The strategy adopted by the Chinese Communist Party (CCP) at that time was the 4 trillion yuan rescue plan, which meant the government flooded the market with liquidity and engaged in infrastructure construction to stimulate the economy. At the time, this saved China's economy, but it also created China's massive government debt. Moreover, this 4 trillion yuan flood of liquidity and infrastructure construction did not stop just because the financial crisis had passed. As the old saying goes, it is easy to go from frugality to luxury, but hard to go from luxury to frugality. Local governments got used to spending lavishly during the 4 trillion yuan rescue period, a habit they could no longer shake off afterward. This led to the continuous growth of both local and central government debt scales in China even after the financial crisis had ended, while also causing soaring housing prices. As soon as he came to power, Li Keqiang warned that China's macro debt-to-GDP ratio had reached 190%, and the annual debt growth rate far exceeded the GDP growth rate. If this continued, the CCP's fiscal discipline would run into trouble, and China's debt would explode. Therefore, as soon as he came to power, he began drastic reforms. Moreover, the direction of the reform was to cut government spending. Regarding the operation to cut government spending, Li Keqiang even held the determination to scrape the bone to cure the poison, even if it meant the Chinese economy could blow up.
After Li Keqiang's economic policies were introduced, Barclays Capital estimated at the time that if Li Keqiang's economic policies were fully implemented, reducing government spending could cause China's GDP growth rate to instantly drop from 7.7% in 2012 to 3% and remain there for three years, after which it could recover to the normal range of 6% to 8%. Of course, Barclays Capital expressed a relatively supportive attitude toward this operation, believing it to be a very good improvement measure for the Chinese economy, comparable to the Abenomics of the Abe administration in Japan at the time. As for the GDP explosion, Li Keqiang did not care about it. When the Keqiang Index was first proposed, Li Keqiang already held GDP growth in contempt. He believed that as long as the unemployment rate did not skyrocket and prices did not collapse, it did not matter if GDP growth fell; prices and the unemployment rate were the true reflections of the people's quality of life, not GDP. Of course, this does not mean that if Li Keqiang had truly implemented his "Likonomics," China's GDP growth would have really fallen to 3%. Li Keqiang proposed three pillars for his economic theory: no stimulus policies, deleveraging, and structural reform. The first two involve reducing government spending, which would naturally hinder China's economic development, but structural reform—that is, market-oriented reform—was seen by Li Keqiang as a way to stimulate economic development. Li Keqiang's core idea was to drive economic growth by reducing government control over enterprises, society, foreign investment, and industry regulation, thereby offsetting the growth losses caused by the decline in government investment. Of course, this set of policies was essentially a reform to make China more market-oriented, to thoroughly realize a "small government, big market" in China. In Li Keqiang's economic logic, GDP growth brought about by government borrowing for investment is low-quality growth; only growth brought about by a flourishing market economy is true growth.
Li Keqiang's economic thinking can be said to be completely sound, but for the officials of the Chinese Communist Party (CCP), it was a huge problem. Reducing government spending is tantamount to offending all CCP officials, from top to bottom. Low-level civil servants rely on massive government spending for their salaries, and mid-level civil servants rely on massive government spending to engage in corruption through projects. Opening up regulation would destroy the interests of the CCP elders, as a large number of CCP elders actually rely on monopolies to earn excess profits, such as the Li Peng family, which controlled the power system. If you now say you want to open up regulation and allow private capital or even foreign capital to come in and set up power companies, then how are these "red aristocrats" who rely on monopolies supposed to survive? Therefore, Li Keqiang was soon met with comprehensive sniping from the bureaucracy. The first round of sniping occurred in 2013. Li Keqiang initially hoped to establish a financial free trade zone in Shanghai, where foreign capital would be allowed to enter China's banking industry, but it was soon met with collective opposition from the China Banking Regulatory Commission and the China Securities Regulatory Commission. According to a report by the South China Morning Post at the time, Li Keqiang was very angry at the meeting and even slammed his fist on the table. Afterward, governments at all levels began various forms of "compliance in appearance but defiance in practice." The financial departments used methods of "reducing while increasing" or "openly reducing but secretly increasing" to fool Li Keqiang, and local governments directly confronted Li Keqiang through inaction and lazy governance. As for the red aristocrats at the top, they naturally exerted their influence as well, but their method of exerting influence was to use Xi Jinping to seize power from the State Council.
At the Third Plenary Session of the 18th CCP Central Committee in November 2013, the CCP passed a document titled "Decision of the CCP Central Committee on Several Major Issues Concerning Comprehensively Deepening Reforms," which was primarily an economic decision. Logically, since 1982, economic decisions should have been made by the Premier, not the General Secretary. However, the drafting group for this 2013 "Decision" was not led by Li Keqiang, and he was not even among the main drafters; it was entirely orchestrated by Xi Jinping, Liu Yunshan, and Zhang Gaoli. Subsequently, on December 30, the CCP established the Central Leading Group for Comprehensively Deepening Reforms based on this decision. Although Li Keqiang still served as deputy leader, the economy, which should have been under his sole authority, was now something where he was only the second-in-command. This meant a piece of his power had been seized—at least the power to determine the overall direction of China's economy had been taken by Xi Jinping. At this time, Li Keqiang had only been Premier for one year. Later, in 2015, Xi Jinping set the economic tone for China with supply-side reform, established the concept of a big government for national economic development, and set a red line for GDP growth at 6.5%. State Council officials were forced to read slogans about Xi Jinping's requirements for state-owned enterprises to become stronger, better, and larger, and for the Party to play a core role. Of course, Li Keqiang was still putting up a desperate struggle at this time. During the same period, Li Keqiang countered by proposing slogans for state-owned enterprises to slim down and follow market rules. But a desperate struggle is still a desperate struggle; the slogans Li Keqiang shouted remained just slogans and were completely ignored at the practical level. Of course, Xi Jinping's political talent was far superior to Li Keqiang's, but even if Xi's political talent was astonishing, it would have been impossible to successfully weaken Li Keqiang's power just one year after taking office. This weakening of Li Keqiang's power was clearly the result of a collective decision by the CCP's top leadership; it was the collective dissatisfaction of the CCP's top brass with "Likonomics," and the collective revenge of those officials whose interests were harmed by "Likonomics." It just so happened that this revenge ultimately benefited Xi Jinping. And Xi Jinping seemed to have found a path to expand his own power through this method, after which he began to repeatedly strip Li Keqiang of his power using similar means.
On January 24, 2014, the Politburo decided to establish the Central National Security Commission, with Xi Jinping as Chairman and Li Keqiang as Vice Chairman. On February 27, the Central Leading Group for Cybersecurity and Informatization was established, with Xi Jinping as leader and Li Keqiang as deputy leader. On June 13, 2015, the Central Leading Group for Finance and Economics held a meeting, with Xi Jinping as leader and Li Keqiang as deputy leader. On January 1, 2018, the management of the People's Armed Police was changed from the dual management of the State Council and the Central Military Commission to the dual management of the Party Central Committee and the Central Military Commission. Although from an architectural perspective, it is normal for Xi Jinping, as General Secretary, to serve as the leader of these groups and for Li Keqiang, as Premier, to serve as deputy leader, the problem is that these groups should not have been established in the first place. Economic and financial affairs, national security, cybersecurity, and the armed police in Beijing—these tasks were originally directly under the jurisdiction of the State Council and should have been under Li Keqiang's full responsibility. But after these groups were established, while there was still a seat for Li Keqiang, the overall authority was stripped away from the State Council. This situation reached its peak during Xi Jinping's second term. At the 2018 leadership transition meeting, the State Council underwent a larger-scale reform. After the reform, the number of ministerial-level agencies in the State Council was directly reduced by 8, and the number of vice-ministerial-level agencies was directly reduced by 7. The reduction of these departments actually meant that this portion of power was carved out of the State Council. Liu He, a Vice Premier from Xi Jinping's faction, directly stripped Li Keqiang of his power to oversee the economy. Later, during the China-US trade war, Li Keqiang had absolutely no opportunity to participate in the negotiations. Of course, although Li Keqiang's power was constantly being weakened, the title of Premier was still there after all. Even though he was severely restricted, he still managed to accomplish some things during his term as Premier, especially during his first term. How did these policies perform? To summarize, the directions were correct, but the results were mixed.
In 2013, Li Keqiang saw that sweeping, systematic reforms—namely reducing government spending, lowering government debt, and eliminating monopolies—could not be carried out in China, so he decided to achieve his goals on a smaller scale. His first move was to reduce government approval processes, or at least reduce the CCP's administrative intervention, to partially achieve his goal of a small government. Starting in 2013, Li Keqiang began to require local governments to reduce some administrative approval processes, such as the issue of obtaining certificates for starting a business. Before 2012, it was very difficult to start a business in China. It required three certificates: the business license, the organization code certificate, and the tax registration certificate. The materials required for these certificates were different, the issuing units were different, and the process was extremely cumbersome, which even led to the emergence of agencies in China that specialized in helping people obtain these certificates. But under Li Keqiang, these certificates were simplified into one, which later became the famous "three-in-one" certificate.
On the other hand, regarding the issue of dealing with government affairs, we now often hear people say that China is still stronger than before, that Xi Jinping's anti-corruption efforts have had an effect, and that you can see now for many matters, approvals are much more convenient than before, especially since many cities have introduced public service centers where basically all stamps can be obtained in a single building, saving people from running from one bureau to another. However, the credit for such progress in China actually comes not from Xi Jinping's anti-corruption campaign, but from Li Keqiang's simplification of government administration.
On the other hand, during his tenure, Li Keqiang also constantly promoted the burden-reduction campaign. Of course, the burden reduction here is not for students, but for businesses and individuals. For example, in the 2008 government work report, it was written that the Chinese Communist Party (CCP) reduced taxes for businesses and individuals by more than 800 billion that year, while reducing non-tax burdens by more than 300 billion. Coupled with social security reductions and exemptions, the cumulative tax reduction amount reached as high as 1.3 trillion. In 2019, the tax reduction quota plus the social security reduction and exemption quota even reached 2.36 trillion. Even the BBC gave praise at the time, saying this was the year with the lowest tax burden in China in 28 years. Of course, all of this only treats the symptoms and not the root cause. An important reason why taxes could be reduced and exempted was because land finance had become the main source of tax revenue for local governments at the time, rather than non-tax fees. But no matter what, Li Keqiang's actions were still much better than Xi Jinping's collection of an extra 2 trillion in social security over 4 years, and today's endless heavy taxes.
Of course, this kind of liberalism by Li Keqiang ultimately led to bad consequences, and what was this bad consequence? It was P2P.
To implement his own idea of breaking industry monopolies, after taking office, Li Keqiang began a drastic reform of the banking industry, and one of the important reform measures was to allow and connive at P2P. P2P sounds a bit abstract; it actually means allowing internet companies to assume certain duties of bank lending, allowing internet enterprises to absorb funds from the general public, and then lend them to other citizens. This model was not invented by Li Keqiang, but spontaneously generated by the private sector along with the rise of the internet. Because it was a lending system created by the free market, the early P2P industry showed astonishing vitality. It also greatly improved China's capital utilization rate, and of course heavily battered the banking industry's profits. According to statistics from Wangdaizhijia, in 2014 China's P2P platforms had an average deposit interest rate of 17.86%, far higher than the bank interest rate of 3% at the time. With 3% bank deposit interest versus 17% P2P deposit interest, where to put the money—everyone is naturally not stupid. Moreover, in the early years, the bureaucratic style and arrogant attitude of Chinese banks had long made everyone unhappy. Therefore, during this period, a large amount of funds was transferred to P2P enterprises, and the Chinese banking industry, which relied on monopolies to earn huge profits, also suffered heavy blows. Of course, this also angered those old fogeys in China's banking industry. In February 2014, CCTV Securities and Information Channel personally entered the fray to criticize this behavior, and even went so far as to claim that Yu'e Bao should be banned. But right at this critical moment, Li Keqiang stepped in to block it.
One month later, on March 5, Li Keqiang mentioned in his very first government work report in office that they would strongly advocate and promote the healthy development of internet finance. Subsequently, on July 18, 2015, ten departments including the People's Bank of China and the China Banking Regulatory Commission jointly issued the "Guiding Opinions on Promoting the Healthy Development of Internet Finance," specifically emphasizing the need to leave room and space for internet finance innovation. This saved Yu'e Bao and the P2P platforms of the time, forcing banks to begin optimizing their apps and improving their services during this stage. However, good times did not last long, and soon China's P2P industry entered a period of barbaric growth. The logic of P2P itself was very simple: it involved absorbing funds from depositors with high interest rates and then lending them to people who wanted to borrow money. Of course, theoretically, these internet companies shouldn't even handle these funds themselves; P2P should inherently be peer-to-peer, meaning a single deposit user matched with a single borrowing user. However, China is a country lacking the rule of law. In a country lacking the rule of law, how can anyone make money by doing business honestly and dutifully? The notion that P2P companies wouldn't handle users' money became a dead letter right from the start. Some companies later began resorting to underhanded tricks. To attract more capital, certain P2P companies even offered deposit interest rates far beyond what enterprises could sustain, and various P2P companies began falling into vicious competition. If you offered a 17% interest rate, I would offer 20%; if you offered 20%, I would offer 23%. It came down to a contest of who was bolder and who offered higher interest rates. Of course, in the end, P2P companies also discovered a problem: while offering such high interest rates could successfully attract deposits, no one was willing to borrow money at such exorbitant interest rates, leaving the funds completely unlent inside the companies. Initially, P2P companies still thought about finding college students and habitual debtors with weak repayment capabilities and an urgent need for cash to borrow money. But later on, these companies simply turned straight to running Ponzi schemes, fabricating borrowers. They no longer expected to use the raised funds for actual loans to earn interest spreads; instead, they directly relied on newly joined depositors to pay the interest and principal of earlier depositors. And what kind of model was this? Wasn't it a textbook Ponzi scheme? Ultimately, this P2P chaos came to an end in 2018.
On June 16, 2018, Tang Xiaoseng, a well-known P2P platform in Shanghai, fled. According to data claimed by the platform itself, its total number of users exceeded 10 million at its peak, and the transaction volume exceeded 75 billion yuan. The flight of Tang Xiaoseng immediately triggered a chain reaction. Seeing that a large P2P company like Tang Xiaoseng had fled, users of a massive number of P2P enterprises began withdrawing their funds, causing widespread bank runs on these P2P companies. This put immense pressure on the cash flow of P2P companies collectively, ultimately leading to a wave of bankruptcies among them. In July 2018, within just the first 20 days, 118 P2P companies suffered thunderous explosions (collapses). Finally, in January 2019, a document named Document No. 175 began circulating. The content of this document roughly meant that, aside from a few compliant platforms, other P2P companies should withdraw as much as possible and close down wherever possible. The P2P farce was brought to an end because of this Document No. 175, and the money that ordinary citizens had deposited into P2P software turned into nothing more than a bubble.
Of course, if you were to ask whether Li Keqiang's promotion of P2P was right or wrong, it was definitely right. China's banking sector clearly lacked vitality, but the success of P2P requires a sound legal and regulatory system. Yet, what did China have in terms of a legal and regulatory system? Only legal provisions, but no enforcement. P2P companies could bypass regulations through bribery, and some local officials, seeing that P2P was a key project heavily supported by the central government, were neither willing nor dared to stop it. Laws existed without enforcement; this was the root cause of the barbaric development of P2P in China. China has no rule of law, and Li Keqiang obviously had no way to build a complete legal system in China, which destined Li Keqiang's P2P plan to failure.
Of course, the 2018 P2P explosion incident was also a major blow to Li Keqiang personally. This huge policy misstep completely destroyed Li Keqiang's prestige. Given Li Keqiang's predicament at the time, the bureaucrats looked down on him, saying that while he was an economics doctor governing the country, his economic management was worse than that of Xi Jinping, an elementary school graduate with a doctorate. You knew the other party was deliberately looking down on you and disparaging you purely out of self-interest, yet you happened to be the most incompetent one, ruining everything you touched. From then on, Li Keqiang plunged into a massive downward spiral. Simultaneously, accompanied by Xi Jinping's power reshuffle in 2018 and the loss of prestige caused by the P2P incident, Li Keqiang's power began to shrink more and more. By the second half of his second term, his actual power was reduced to just that mouth of his. It became very difficult for Li Keqiang to influence specific economic policies; he could only express his attitude through continuous public speeches—such as saying that 600 million people in China had a monthly income of only 1,000 yuan, that humans act while heaven watches, and that the Yangtze and Yellow Rivers will not flow backward—expressing his dissatisfaction solely through words. But in the end, it could only be an expression, and eventually, Li Keqiang even lost the right to express himself.
Li Keqiang passed away unexpectedly due to a heart attack on October 27, 2023, and with that, Li Keqiang lost his last chance to speak. Of course, regarding the incident of Li Keqiang's unexpected death, many people say that Li Keqiang died from a murder by Xi Jinping. After reviewing Li Keqiang's entire life, I believe that Xi Jinping held a grudge against Li Keqiang; after all, Li Keqiang was once the biggest competitor in Xi Jinping's political career, and Li Keqiang's policies were completely opposite to those of Xi Jinping. However, to say that Xi Jinping killed Li Keqiang because he was worried that Li Keqiang wanted to restore his power is pure nonsense. Judging from Li Keqiang's personality and personal experience, he was more like a scholar than a politician. When he proposed policies, he only considered whether the policies were correct, without considering the consequences of the policies or whether they would offend people. Li Keqiang had already offended a bunch of people while in office, so how could he have organized an established opposition after stepping down, and how could he have outmaneuvered Xi Jinping, a top-tier political strategist?
Of course, finally, let's look at Li Keqiang's life. First of all, regarding Li Keqiang's governing philosophy, I can say that there was absolutely no problem with it; one could even say it was perfect in every way. Everything Li Keqiang worried about has now come to pass in China. The problem Li Keqiang worried about most back then was China's debt problem, and indeed, this has now become China's main issue. China's current macro debt ratio, which is the sum of government and private debt, has exceeded 300%, ranking among the top of the world's major countries, even higher than that of the United States. Looking at the government alone, the fiscal deficit brought about by a big government has reached the edge of being uncontrollable. Now, China's broad government debt ratio has reached over 120% of GDP, on par with the United States, and China is still maintaining a very high growth rate, with the annual deficit growth value even reaching about 14% of GDP. According to this trend, within 5 years, the Chinese government's debt ratio will exceed Japan's, becoming the highest among major powers. The Chinese government is actually on the verge of bankruptcy.
Li Keqiang also looked down on the GDP data back then, believing that only the growth of residents' income is real growth. Li Keqiang long emphasized increasing residents' income to boost consumption power, and this point of Li Keqiang's was indeed very visionary. The current China is falling into a wave of sluggish consumption, and the predicament of Chinese people having no money to consume, caused by long-term focus on superficial GDP data, is backfiring on China's economy. Of course, Li Keqiang's goal of a small government and a big market was even more correct. The so-called success of reform and opening up was the result of the government delegating power, a result of a small government and a big market. China is now also mired in massive overcapacity due to the government's various interventions in the economy. As for Li Keqiang's other policies, they were all beneficial and harmless. Tax cuts and reducing approval processes are naturally things worth praising. Even P2P itself had no problem in its direction; China's current banking industry is also a stagnant pool, which severely limits China's private lending and capital vitality.
However, however, good policies never equal good results, nor do they equal the ability to execute. This is why I say that what China always lacks is not a wise ruler, but institutional reform; what China always lacks is not the correct direction, but a system capable of executing policies. For Li Keqiang, the CCP's old problems still existed, that is, even if the direction was correct, there was no room for him to govern in China, even if Li Keqiang had become the General Secretary back then. From the perspective of the system and Li Keqiang personally, it would not have worked. First of all, even if Li Keqiang had become the General Secretary back then and Xi Jinping had been the Premier, the current result would certainly be a little better, but the improvement would definitely be limited. We all know that Xi Jinping is a mess at handling the economy, so if he were made Premier in charge of the economy, the result would be imaginable. As for whether Li Keqiang could have done what Xi Jinping did—usurping power and taking away the power of the Premier in charge of the economy while serving as General Secretary—I don't think it's likely. One reason is that Li Keqiang did not have such political ability, and the second is that Li Keqiang would not trample on the rules. On the other hand, even if Xi Jinping were just a traditional General Secretary, as weak as Hu Jintao, and Li Keqiang were given full charge of the economy, it would still be difficult for Li Keqiang to realize his political ambitions.
The resistance Li Keqiang faced during his tenure did not come solely from Xi Jinping. Li Keqiang only had significant real power in the first year of his term, and by the second year, he was basically sidelined. This was obviously not something Xi Jinping could have done alone; no matter how powerful Xi Jinping is, he could not have sidelined the Premier just one year after taking office. The reason why Li Keqiang's power was sidelined, in the final analysis, was because his policies were beneficial to the people and the country, but not to the officials. In 2012, Li Keqiang once said that reform had entered a critical period and a deep-water zone. For Li Keqiang, indeed, the reforms he wanted to carry out were all in critical areas and deep-water zones, because every one of his reforms was offending China's vested interest groups. This made it completely impossible for him to advance reform, not to mention that Li Keqiang was not a leader who was good at political maneuvering or understood gradual progress; he had always been a straightforward leader who offended people everywhere. When Wen Jiabao stepped down, he said that without the success of political system reform, economic system reform could not be carried through to the end. This sentence seems to have become the best message from the previous Premier to the next.
As I have said in my previous episodes, the system of the Chinese Communist Party (CCP) actually does not allow good people to exist. China has never lacked enlightened rulers or good policy makers; what it lacks is a good system capable of implementing policies.