Platt Perspective on Business and Technology

China and its transition imperatives 32: rethinking China’s emerging trends in challenges faced and responses made, and in how each reinforces the other 1

Posted in macroeconomics by Timothy Platt on May 13, 2016

I reframed this series as an overtly open-ended discussion, and an exception to how I more generally organize content in this blog, with its Part 31. And I continue from that, at least organizational turning point in it, with this installment.

I noted in Part 31 that I have accumulated a lot of recent puzzle pieces that would enter into an analysis of where China is now as of this writing, how it has reached its current impasse, and where it is heading. And I stated that I would at least briefly bring these news pieces into this ongoing discussion, analyzing them for their larger significance and for how they fit into China’s emerging story. I will do so here, for at least a few select entries in that ongoing and seemingly ever-expanding collection. And in further keeping with my expressed intent as stated in Part 31, I will discuss these puzzle pieces at least in part in terms of opacity and transparency, and both in what China’s government does and in how it responds to and reacts to external, and internal but non-governmental forces.

I include this series as a whole and this installment in it, in my Macroeconomics and Business 2 directory page (and see its Page 1 for Parts 1-12.5). As such, I chose an explicitly macroeconomic puzzle piece as a starting point for this posting’s narrative, that I will then connect other pieces to.

• And my first such piece here is one that was both a bit unexpected – but fully understandable when it first reached public notice. China, under Xi Jinping’s leadership and guidance, has decided to adapt what it can arguably present as a “nod to capitalism shift” in its basic economic doctrine, with an openly public move to what is now officially called supply side structural reform.

As noted in the New York Times, Xi Jinping’s Remedy for China’s Economic Gloom Has Echoes of Reaganomics. And I note that Times piece as much for the irony in its title as for anything else. Ronald Reagan is as well known for telling the already dying Soviet Union’s last leader: Mikhail Gorbachev to “tear down that wall,” referring to the then still-standing Berlin Wall and for his fight to end communism as a system, as he is for anything. So on the face of it, Xi’s and China’s overt turn to what sounds like a more Reaganesque economic model, sounds like a dramatic move to attempt to quell anxiety in the (almost entirely non-communist) rest of the world, and for all of their foreign trade partners. But let’s step back from the marketing side of this to consider exactly what this “change” means.

• China under Xi Jinping, and in fact China as it has existed under communism, and from the early days of Mao Zedong’s rise to power, has operated under a tightly controlling central authority, with essentially all real power held by their one Communist Party and its supreme leadership, and with their government itself functioning as a set of tools of power for their Party leaders.
• And as recurringly noted and discussed in this and related series in this blog, China’s Party and government have owned a tremendous range of their country’s entire productive capacity outright, fully owning even entire key industries. And what they have not directly owned, they have overtly and fundamentally controlled. And what they have allowed to be owned and at least nominally controlled by other, private sector hands they have significantly influenced. Production: the supply side to their economy, has been and still is largely owned by China’s one Party and government, and it is essentially entirely, at least fundamentally controlled by them too.
• So what does a shift to supply side structural reform actually mean when a centrally controlling authority that owns the supply side, switches to acknowledging a supply side centered economic approach?

And with that noted, I turn to consider supply side economics itself in this context, as it has been attempted and enacted in a West that China’s leadership and government are now trying to favorably influence. I have been actively discussing both supply side and demand side economic models and approaches in a concurrently running series: Open Markets, Captive Markets and the Assumptions of Supply and Demand Dynamics (see Macroeconomics and Business 2, postings 230 and loosely following and particularly its Parts 1-4.) And:

• One of the hallmarks of most large-scale attempts at implementing a more strictly supply-side approach, as exemplified by trickle-down economic thinking and its implementation,
• Is an ongoing redistribution of overall wealth and control into a progressively smaller and smaller number of progressively wealthier and wealthier hands.

And when those hands are in fact those of a Party elite and its official leadership, as is found in China with Xi and his senior colleagues, and with their hereditarily privileged Crown Prince Party members, this takes on an appearance of business as usual there.

And this brings me to a second puzzle piece that I would offer here, for how it dynamically balances with the first: how China’s government and Party have been spending down their foreign currency and other reserves at a furiously unsustainable rate as they attempt to keep their economic systems visibly afloat, and as they seek to quell any potential for societal unrest.

The basic assumption that China’s leadership is acting upon is that continued and even long-term stability are possible, and under their current centrally managed systems in place (see, for example, this March 3, 2016 New York Times piece: In New Economic Plan, China Bets That Hard Choices Can Be Avoided .) But at the same time they have been expending the equivalent of hundreds of billions of US dollars and more: actually over two trillion by now as they attempt to prevent a more complete economic collapse than they can endure and still forestall a sociopolitical one as well (see, for example: China Lending Inflates Real Estate, Stocks, Even Egg Futures.) And they have attempted to prop up what would otherwise be their globally competitively failing industries, such as steel production by pushing them to dump product at below cost of production rates on a global market – to keep those factories open and their workers employed (see, for example: China’s Steel Makers Undercut Rivals as Trade Debate Intensifies.)

And throughout all of this, Party and government in China have progressively clamped down harder and harder on any possible voice of dissent or even of concern, and both from within China and from outside of their country where word of that might leak in past their Great Firewall – their Golden Shield Project. And in this regard, I note China’s official announcements that their news organizations are now formally required to serve the interests of the state, above all else (see, for example: Xi Jinping’s News Alert: Chinese Media Must Serve the Party.)

I could cite dozens of specific examples of censorship and related, centrally mandated control here, that attempt to control the news story as to China’s current economic bind. And I for the most part, simply note that they involve Chinese citizens and their businesses and groups, foreign news media and what is allowed into China from them and what is blocked, foreign non-governmental organizations (NGO’s) and how their capabilities to offer what would normally be seen as laudatory social services (which are now being curtailed), and more. And for now at least and to keep this posting from turning into a links list, I only note one of those puzzle pieces here: China’s newly emerging policies and practices intended to restrain and limit NGO’s, or even eliminate their presence from their country – and even when they provide essential services in underserved communities (see Clampdown in China Restricts 7,000 Foreign Organizations.)

• I said that I would write here of transparency and opacity, but bottom line the puzzle pieces that I write of here are all more opacity-enhancing and message manipulating in nature, that they are transparency enabling. And that is one thread that runs through all of China’s official response to its developing and still only just emerging crisis.

I will continue this discussion with more puzzle pieces in a next series installment, most probably in a few weeks. 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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