Xi Jinping aims to rein in Chinese capitalism, hew to Mao’s socialist vision

Xi Jinping’s campaign against private enterprise, it is increasingly clear, is far more ambitious than meets the eye.

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The Chinese President is not just trying to rein in a few big tech and other companies and show who is boss in China.

He is trying to roll back China’s decadeslong evolution toward Western-style capitalism and put the country on a different path entirely, a close examination of Mr. Xi’s writings and his discussions with party officials, and interviews with people involved in policy making, show.

For most of the 40 years after Deng Xiaoping first unleashed economic reforms in China, Communist Party leaders gave market forces wider room to flourish. That opening helped lift hundreds of millions of people out of poverty and created trillions of dollars in wealth, but also led to rampant corruption and eroded the ideological basis for continued Communist rule.

In Mr. Xi’s opinion, private capital now has been allowed to run amok, menacing the party’s legitimacy, officials familiar with his priorities say. The Wall Street Journal examination shows he is trying forcefully to get China back to the vision of Mao Zedong, who saw capitalism as a transitory phase on the road to socialism.

Mr. Xi isn’t planning to eradicate market forces, the Journal examination indicates. But he appears to want a state in which the party does more to steer flows of money, sets tighter parameters for entrepreneurs and investors and their ability to make profits, and exercises even more control over the economy than now. In essence, this suggests that he aims to rewrite the rules of business in what could someday be the world’s biggest economy.

"China has entered a new stage of development," Mr. Xi declared in a speech in January. The goal, he said, is to build China into a "modern socialist power."

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Mr. Xi’s overhaul has generated more than 100 regulatory actions, government directives and policy changes since late last year, according to a Journal tally, including steps aimed at breaking the market dominance of companies such as e-commerce behemoth Alibaba Group Holding Ltd., conglomerate Tencent Holdings Ltd. and ride-sharing leader Didi Global Inc.

The government’s recent measures to tame housing prices are worsening a cash crunch at China Evergrande Group, a heavily indebted real-estate developer, sending chills across global markets. Beijing is unlikely to bail out Evergrande the way it has rescued many state firms, analysts say, and could further tighten the regulatory screws on other private developers.

Mr. Xi has signaled plans to go much further. During a leadership meeting in August, he emphasized a goal of "common prosperity," which calls for a more equal distribution of wealth. This would be achieved in part through more government intervention in the economy and more steps to get the rich to share the fruits of their success.

An Aug. 29 online commentary circulated by state media called it a "profound revolution" for the country.

"Xi does think he’s moving to a new kind of system that doesn’t exist anywhere in the world," said Barry Naughton, a China economy expert at the University of California, San Diego. "I call it a government-steered economy."

A number of countries closely regulate industry, labor and markets, set monetary policy and provide subsidies to help boost their economies. In Mr. Xi’s version, the government would have a level of control that would allow it to steer the economy and industry along a path of its choosing, and channel private resources into strengthening state power.

The big risk for China and Mr. Xi is that the push winds up suppressing much of the entrepreneurial energy that has powered China’s boom and years of innovation.

For foreign businesses, the campaign likely means more turbulence ahead. Western companies have always had to toe the party line in China, but they are increasingly asked to do more, including sharing personal user data and accepting party members as employees. They could be pressed to sacrifice more profits to help Beijing achieve its goals.

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"Supervision over foreign capital will be strengthened," said a person familiar with the thinking at China’s top markets regulator, "so it won’t be able to obtain ultra-high profits in China through monopoly and capital-market operations."

The Information Office of the State Council, China’s top government body, didn’t respond to questions for this article.

Before this year, Mr. Xi was distrustful of capital, but he had other priorities. Now, having consolidated power, he is putting the whole government behind his plans to make private business serve the state.

A once-in-a-decade leadership transition due for late 2022, when Mr. Xi is expected to break the established system of succession to stay in power, provided an impetus to act and show he is doing something big for the people to justify longer rule, officials involved in policy making say.

At internal meetings, some of them say, Mr. Xi has talked about the need to differentiate China’s economic system. Western capitalism, in his view, focuses too heavily on the single-minded pursuit of profit and individual wealth, while letting big companies grow too powerful, leading to inequality, social injustice and other threats to social stability.

Early this year, when Facebook Inc. and Twitter Inc. took down former U.S. President Donald Trump’s accounts, Mr. Xi saw yet another sign America’s economic system was flawed—it let big business dictate what a political leader should do or say—officials familiar with his views said.

A few months later, when the Chinese Communist party celebrated its centenary on July 1, Mr. Xi donned a Mao suit and stood behind a podium adorned with a hammer and sickle, pledging to stand for the people. After the speech, he sang along with "The Internationale" broadcast across Tiananmen Square. In China, the song, a feature of the socialist movement since the late 1800s, has long symbolized a declaration of war by the working class on capitalism.

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