Platt Perspective on Business and Technology

China and its transition imperatives 30: rethinking China’s economy and the Party and government policy that shapes it 6

Posted in macroeconomics by Timothy Platt on April 10, 2016

My goal for this series has been to at least briefly and selectively document and analyze an historic transition that is taking place in China, and that in fact began well before Xi Jinping achieved his current positions of power in their government and in their one permitted political party: the Communist Party of China. I essentially always write and upload my postings to this blog well in advance of their date to go live. In that regard, I note that I am writing this posting on February 21, 2016 and about 50 days before it will go live to the site. But I am writing about a time of transition and change, and one where the unexpected can arise and intrude and at any time. So I have added what amount to more “breaking news” style addendum postings (with their fractional number posting labels) as well as my more regularly scheduled installments – and I have done that more often in this series than I have anywhere else in the course of writing this blog.

I begin this posting: this whole number regular series installment with that note because I have actively resisted the temptation to add any new last minute fractional number installments recently, even though I have had reasons that might have justified taking that approach. So I begin this posting by briefly, quickly noting at least a few events that have hit the mainstream news since I actually wrote Part 29 (scheduled to go live on March 9, but actually written and uploaded on January 23.)

• I have been writing for quite a while now about how China’s economy is in large part a shell game and a fraud, and of how their government and Party have been hiding deep-set structural weaknesses in it for a great many years now – and even as those points of weakness have expanded and even as they have begun to crumble. Right after writing and posting Part 29 (which, among other details considers how realistic their self-proclaimed overall economic growth rate of 6.8% is), I caught wind of a strong hint that the officials who have “taken responsibility” for coming up with those numbers are going to be brought up on charges in show trials.
• I wrote and posted a last minute addendum installment to go live this past December 25, 2015: Part 26.5: remembering China’s straw dogs. China’s Party and the government that serves it are quite willing to sacrifice from their own ranks and even from their presumed Party elite when that serves larger purposes, and certainly when that means protecting their one Party as a governing system, and its most senior leaders from the contamination of being held responsible for systematic failures.
• This pattern of scapegoating has of course continued and it has expanded too, as the unavoidably public face of China’s current economic downturn has expanded out. So to cite at least one major publication news piece relevant to that aspect of this larger story, I note here, a New York Times piece of February 19, 2016: Xiao Gang, China’s Top Securities Regulator, Ousted Over Market Tumult. Xiao Gang’s replacement with Liu Shiyu, chairman of the Agricultural Bank of China, as the new chairman of the China Securities Regulatory Commission only represents one of what will total many such “transitions” here. And this particular change does not necessarily bode any better for Liu Shiyu than it does for Xiao Gang. For a second recent, relevant news piece on this specific story see: Chinese Securities Regulator Is Out, but Little May Change.
• But this only addresses one thread of a rapidly emerging next step to China’s overall transition here. I wrote of China’s approach to quantitative easing in Part 29, and how they are trying to manage their economy and limit jolts to and from that. I simply add to that discussion, a confirming voice to what I have been saying for a long time now, as offered in this New York Times piece of February 19, 2016: China’s Foreign Exchange Reserves Dwindling Rapidly. I will simply add that China’s government has in fact been dipping into and spending down their primary nationally held foreign currency reserves at a faster rate, and to a greater degree than this news piece suggests. It is essentially impossible for anyone to know the true, exact figures here – and that “anyone” probably includes Xi Jinping and his inner circle too, given the nature of China’s economy and its system of management. But I find myself assuming that they have already spent down and committed to so spend, as much as half of the overall reserves held, from what was just over the equivalent of four trillion US dollars to the equivalent of two trillion, or even a bit less. If China’s red ink were to be compared to a cut, this would represent an arterial bleed, and of a relatively major artery at that. Scapegoating Xiao Gang and others like him for doing precisely what they were ordered to do and exactly as they were ordered to do it, cannot stop the blood loss here.
• Anyone who has read any of my earlier postings on China here, where I discuss issues such as their citizens’ spending and tax avoidance, and anyone who has read about that as it plays out in places such as Vietnam and Hong Kong (as I have written about, based on my own experience in both places), could probably guess what I would pick up on next as a third piece to this puzzle. China’s citizens do not trust their stock market and either for the stock offerings coming from their country’s state run enterprises, or for stocks offered for sale by their private sector businesses. They are increasingly skeptical of and distrustful of their national currency: the Renminbi too. And those who can hold and yes hoard foreign currency as personal savings, do so and outside of China wherever possible. This is a definite warning sign, as to future currency instability issues, as currency stability is as much a matter of public faith and trust as it is anything. (See Chinese Start to Lose Confidence in Their Currency for a recent news piece on that set of issues.)
• And China’s one true Party and its government have actively and strongly increased the pressures on their citizens to be loyal and politically correct, and they have stomped down all the harder on anyone who in any way challenges anything Party or official in any way. For a perhaps trivial but still very telling example of that, I would cite a thought provoking news piece that came out very recently prior to this writing: China’s New Wedding Vows: To Have, Hold and Not Violate National Interests. China’s people cannot have private lives of their own, apart from the state and its rights and its control. And the state has decided to enforce their control and public loyalty to it in what could and should be private weddings too. Nothing that the state can own and manage in their citizens’ lives is or can be overlooked or allowed to simply proceed as private matters of their people.
• And I end this brief updating narrative with a point that is anything but a new observation, and certainly here in this blog. But it is one that I have been waiting for a long time now, for the mainstream press to openly acknowledge: Xi Jinping Assuming New Status as China’s ‘Core’ Leader. He in fact is not simply trying to match Deng Xiaoping for reach and power and influence as this new story states. Xi’s ambitions run much deeper than that as he seeks to achieve a level of absolute control and authority that only Mao Zedong himself has ever achieved, throughout the history of the Peoples’ Republic of China.

And this progression of bullet point update notes leads me to a simple question as to what Xi Jinping is thinking as he watches his country’s economy unravel. Does he still fully and completely see himself and his interpretation of Chinese Communism as fully right and on all matters? And if so, and here is the key question: does Xi see China’s current predicament as simply the cost of his successfully making the China transition that he envisions happen, with him successfully ascending to the Mao’s pinnacle of all-but godlike power over his domain?

I noted in Part 29 that I will more fully discuss the global economic impact of China’s current and developing economic challenges. And I added that I would consider how transparency and opacity are used, and both in China and elsewhere as governments seek to manage their national economies. I will delve more fully into those and other issues in my next series installment, as well I expect, as looking into new news events. Meanwhile, you can find this entire series and all of its postings at Macroeconomics and Business as postings 154 and loosely following for Parts 1-12 and for a supplemental posting: Part 12.5. And see Page 2 to that directory for subsequent main sequence and supplemental installments to this. You can also find other, China-related postings and series at those directory pages, and at Ubiquitous Computing and Communications – everywhere all the time too.

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