Platt Perspective on Business and Technology

China and its transition imperatives 34: rethinking China’s emerging trends in challenges faced and responses made, and in how each reinforces the other 3

Posted in macroeconomics by Timothy Platt on July 3, 2016

China has been going through an historically significant transition, and for a number of years now. I began writing about China in this blog at a time when it might be argued that that country and its government and Communist Party were still just setting themselves up for having to endure significant crisis, and certainly as an explicit structural economic threat. But they have taken a long succession of what are at least individually small steps, that have led them for their cumulative impact to what amounts to the edge of a precipice now, at least judging from their current and still actively emerging economic and related challenges. And this progression of decision and action, and decisions to simply put off and postpone any action, collectively represents a precipice edge that they have all but reached now. The twin questions that China and the world as a whole face out of all of this, in the increasingly unavoidable here-and-now that we all face, are at least simple and straightforward to state as a matter of principle:

• What can and will China’s leaders do now in addressing this largely, if not entirely self-inflicted crisis?
• What if anything can they do to effectively address this, long-term that would not be overtly crisis management in nature, and societally disruptive for the lack of public confidence that that would engender?

I write here in this posting in general terms of this emerging challenge; I have been discussing the specifics of it in preceding postings to this series and in my earlier China postings and series too. What can China’s leaders do now? Their window of opportunity here for resolving this before it is too late for their system to be able to handle it, is probably not going to be that long in duration: perhaps a few more years at most before they truly reach a point of no real return. What will they do to acknowledge their current and still growing predicament and what will they do to address it? How will they address this publically and for transparency too, so as to both enlist the support of their people and allay their fears? Their more routine attempts at silence and censorship have not, cannot and will not work and certainly long-term.

Will China’s government and Party leaders fully and definitively take those last same-direction steps along the path that they have been following up to here, that would take them over this cliff edge and make all of the possible negative consequences that could emerge from that status quo approach, their reality? I have been arguing the case that I at least, do not see either Xi Jinping or his government and Party colleagues as holding either the vision or the will to step back from this edge now, for the personal costs that they would incur from doing so and with their loss of face and of personal authority that this would demand of them. And I do not see China’s leaders accepting and working to accommodate what would have to include a fundamental ending of their Chinese Communist Party as China’s sole arbiter of all political, legal and governmental authority that is in place and allowed, and the inclusion of change and of New in their governance and in their society as a whole.

I finished Part 33 of this series, written to go live on June 3 of this year, by citing an interview with a China scholar: Minxin Pei where he albeit briefly shared his assessment of China’s long-term viability, or lack thereof as a communist state of the type it is now. And I noted in that posting, something of my own matching conclusions too, where I have come to see the same endpoint in all of this for China, but with my having commenced my analysis of that country from a very different starting point (see my first series on China here: The China Conundrum and Its Implications for International Cyber-Security, at Ubiquitous Computing and Communications – everywhere all the time, postings 69 and loosely following for its Parts 1-23, with that dating back to late 2010.) I step back from both of these predictive conclusions here to raise the possibility that China, its current leaders, and its current system might find a way to evolve and endure, and essentially as-is as an “at least officially communist state” – where the Soviet Union and Communist Eastern Bloc states of the old Warsaw Pact could not survive their existential crises as such.

China does still hold vast sources of strength and both industrially and in its manufacturing, and in the scale and influence of its markets, that government and Party can and do wield as if clubs in bringing foreign interests and foreign governments to accede to their wishes. They still hold real strengths. And to cite one instance of that in particular that has recently been cited in the news and globally, they are now the leading nation for producing entries on the top 500, fastest supercomputers list globally (see China Has the World’s Most Powerful Computer (Again). And they now hold the title of having produced both the currently fastest supercomputer on this list, and the title for having the most supercomputers on this list. And they build their fastest entry supercomputer this time, using central processing unit chips that were designed and manufactured in China – impressive. Up until now, China’s fastest supercomputers were build using central processor chips that were foreign designed and manufactured and primarily by Intel. (Also see Top 500: the list for a discussion of this competition and this annual top performance list as offered by the organization that officially researches and maintains it and according to internationally agreed to performance testing standards.)

It has been argued by some that China’s newest fastest of the fast computers, clocked at performing 93 petaflops/second (93 quadrillion floating point math operations per second (FLOPS)) in LINPACK benchmark testing, was designed and build specifically to excel at that type of peak speed testing, and that it is so specialized for this one set of performance testing tasks as to be limited for overall supercomputer use – including the algorithmically more complex, wider-range simulation testing that most supercomputers would be expected to perform. I have not seen a sufficient amount of information on the basic architecture or detailed design of this machine to even begin to assess the accuracy of that type of claim, and I have to admit that I doubt that the people making it have seen enough such information either. So I accept as a given, and certainly unless and until proven otherwise that this is simply a very fast and powerful computer and even the current world leader for overall computational power. So China holds real strength in the design and construction of high-end computer and supercomputer systems.

Whether China does or not hold a genuinely industry-leading position in this is not however the issue here, and this same point applies to any and every other field that China has heavily invested in as symbolically representing its overall strength as a nation. The real question is one of whether their current government and their current one political Party system can sustain this type and scale of effort, and not strangle it from their ongoing profligate corruption and inefficiency.

This is the third of a succession of recent postings to this series in which I successively offer a set of recent, in the news puzzle pieces that both individually, and collectively tell a story as to where China is now and where it is headed, under its current system of governance in place (see Part 32 and Part 33.) And setting aside the fact that my first such puzzle piece here is largely technological in outline and format, I more formally begin what might be considered the core line of discussion for this installment as I did those other two postings, with an economic and macroeconomic point of consideration which I offer now. I turn to consider a second and much more overtly economic puzzle piece next, with

MSCI Delays Adding China Stock to Emerging Markets Benchmark

The basic story here is very simple. The People’s Republic of China was a closed-off and isolated nation for much of its history. And then it began to open up to contact with and trade with the outside world, and with its ideological opponents in the West. And in recent years, China and its government and Party leaders have sought a place at the table as a leading global power. Xi Jinping: their current supreme leader has been very active in advancing this cause, following a path that dates back at least to Deng Xiaoping and his policy of rapprochement and engagement. But this has meant, or at least required China breaking from its past as far as openness and transparency are concerned, that violate core principles and unexamined assumptions that go to the core for their system of government. And I add that this means breaking with China’s longer-term historical path too, going back to way before the advent of Chinese Communism too.

One of China’s goals in this recent step to globally reaching engagement that they have in fact recently achieved was to bring their currency, the Renminbi to a level of acceptance that would prompt the International Monetary Fund to rate it as a major benchmark currency, globally. And they have now reached that goal as I have discussed in recent earlier postings to this series. But the required transparency and openness and the increased scrutiny that this led to, probably helped shed light on their economy as a whole that at the very least made their current economic crisis more visible, if not larger for its impact – and also quite globally.

A second such goal for Xi Jinping and his government has been to bring their still young stock exchange, equal levels of global acceptance and recognition too. And this, for a still new stock exchange and for a country that has only recently begun to allow publically traded stock shares, would mean acceptance by the MSCI of China’s stock market as a valid emerging market enterprise that is organized and run according to their regulatory standards. Note: China and India represent the two largest emerging markets in the world as of this writing, and the standards that an emerging market stock exchange would have to meet to receive MSCI approval are more relaxed than would hold for a developed market as are found in the United States, Canada, Western Europe, Australia and Japan. But the MSCI has ruled against including China’s stock exchange in its Emerging Markets Benchmark – and largely because of a complete lack of essential transparency and openness in that market and for the businesses that would offer stock shares through it. And their current economic instabilities have not helped China there either with MSCI’s consideration of this too, indicating to them a toxic combination of uncertainty and risk.

I am going to continue this discussion in a next series installment where I will discuss what this means. And I will at least begin to discuss how China’s leadership could use this failure and their drive to achieve global economic systems recognition, as tools for affecting meaningful change and reform – and to perhaps help them to find a path forward that leads them away from the cliff edge and the precipice beyond, that their current policy and practice are bringing them towards.

I will also discuss at least one likely consequence that China will face, if it does not change course. And in that regard, I note here in advance that I will raise the specter of Tibetan and Uighur independence and the break-up of China as it is now. I will raise the specter of economic distress and public perception of inequality as leading to unrest, and increased efforts for have-not regions in China to break away, or to at least overtly struggle for independence. And I fully expect to add in new puzzle pieces in my next series installment too. I finish writing this posting on June 27, 2016 to go live on July 3, and I will write my next installment in this series to go live in about a month.

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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