Platt Perspective on Business and Technology

China and its transition imperatives 36: rethinking China’s emerging trends in challenges faced and responses made, and in how each reinforces the other 5

Posted in macroeconomics by Timothy Platt on September 3, 2016

This is my 43rd installment, counting fractional installment number supplemental additions to it. And I begin it by noting that in a fundamental sense, nothing has changed and nothing notable has happened that would indicate coming change. And that statement is damning. China is broken, at least for its current single Party system of governance, so a simple continuation of current policy and practice as be, does not and cannot bode well.

Quoting here from Part 35, I have said in the most recent few installments to this series that if China does not change its current course:

• That raises the specter of Tibetan and Uyghur independence and the break-up of China as it is now. To clarify the why of that, if China attempts to remain as it is, economic distress and public perception of inequality will rise to a level where it boils over into unrest, and increased efforts for have-not regions in China to break away, or to at least overtly struggle for independence.

If you look at the history of China over longer spans of time, or the history of essentially any great historical empire over its lifespan, you see growth and expansion and then a perhaps gradual, sometimes fairly sudden shrinking back as first border regions break away – or are taken over, and then their central core undergoes fundamental change as well.

This is not going to happen in China this year or next, or the year after. But every day, and certainly when China’s Party and government leadership strikes out to forestall stable, smooth-transition change, they make this old historical pattern at least incrementally more certain for themselves too. And that brings me to this posting’s puzzle pieces, as I continue building an at-least crude outline map of where China is now and where it is headed. And I begin here with a perhaps small piece to this puzzle that only gains significance for its long-term implications and consequences – but that might prove to be of vital importance over the course of those longer time frames:

China Reins In Communist Youth League, and Its Alumni’s Prospects.

Josip Broz Tito was the essential glue that held an ethnically and religiously diverse, historically fractious region that we briefly knew as the Socialist Federal Republic of Yugoslavia together. And when he died, his patchwork nation began a quick slide into chaos that came to divide it into a collection of smaller independent nations, but only after searing genocidal conflicts had finished tearing it apart. Tito held power as that essential unifying voice and figure, in part by systematically rooting out and killing off any potential competition for leadership there. That meant that there was no one in all of Yugoslavia in 1980, when he died, who had the experience or the breadth of public trust to be able to hold together any larger part of that country than could be contained within one of its individual, historically bitterly divided ethnic groups. I hold out this still recent historical tragedy as a cautionary warning to Xi Jinping and his Communist Party in China – as he systematically roots out and withers away the very same organization in China that he arose through and learned from and gained his social and political networks through, that led to his attaining ultimate power.

Xi is protecting his own here-and-now position by challenging and limiting and cutting off the very source of next generation power and leadership in his country, that he sprang from. Politically, Xi is eating his own children. And when I first saw the August 4, 2016 news piece that I offered above as my first puzzle piece here, I essentially automatically found myself thinking of Tito and how he set up his nation for chaos, by ensuring that no one was there who had both the experience, and the broad based connections and support, that would have been necessary to prevent it.

That news story is an easy one to dismiss and set aside for now, for its lack of any more-immediate, here and now and short-term consequences. But killing off the channels through which next generation leadership might grow within their one Party system, can only have one consequence, long-term. This news story represents a telling example of how China is killing off its future, at least for its one Party system in place, to protect its present and its current leadership.

Even with that point made, many if not most readers would see my raising Tito and Yugoslavia as a point of comparison here, as too overly extreme. I would certainly hope that future events will prove that more moderate assessment correct, but let’s consider the China of today and its ethnic diversity, and China’s relocation policy for controlling their more borderland minorities such as the Tibetans and Uyghurs.

The Han Chinese are the sociopolitical and economic leading demographic in China and they are also the largest ethnic group numerically. Xi is Han Chinese as are most of the most senior members of his Communist Party and government. And it is an ongoing policy and practice in China to actively encourage and support ethnic Han to move into areas of their overall country where groups such as the Tibetans and Uyghurs are and traditionally have been in the majority, numerically. The very overtly clear goal in this is to render these people numerical minorities in their own traditional homelands, and to dilute down and in time end their own traditional cultures and traditions in favor of those of the state as a whole – and make them effectively disappear as sources of significant diversity, or of potential challenge in China.

What I am writing of here is not going to happen today or tomorrow, this year or next. But China’s increasingly evident structural weaknesses in their system of governance and in their economy will have an impact. And that impact will most likely become unavoidably significant in its geographically and socio-politically peripheral autonomous territories such as the Tibet Autonomous Region and Xinjiang Uyghur Autonomous Region, and before anything like a tipping point of discontent can be significantly approached in the center.

China at least officially contains within itself, 55 recognized ethnic minorities, though that number significantly underestimates the actual ethnic diversity in their overall population. And there is a great deal of at least potential unrest, and a great deal of resentment and desire for recognition – and for increased independence in that too and throughout China. The more visible Tibetans and Uyghurs and their sometimes violent unrest at the periphery only represent the tip of an iceberg here.

I am going to switch directions with that, with my next puzzle piece, and I chose one here that I have been waiting to see become publically visible:

A Chinese Mystery: Who Owns a Firm on a Global Shopping Spree?

I have been writing a lot recently in this series, about the flight of capital and of wealth out of China, and certainly as its overall economy has begun to more overtly collapse. And I have written about both the middle class in China, and their 1% and 1% of 1% wealthiest and most powerful in this, and how they seek to protect their own assets and personal and family wealth by moving it out of the country. This link is an opening acknowledgement of another tip of an iceberg puzzle piece, whose real consequences will not show right away.

The Anbang Insurance Group is a privately owned and run enterprise that is officially headquartered in quiet and still largely pastoral Pingyang County in the prefecture-level city of Wenzhou, in Zhejiang , China. And this small office-front enterprise that collectively manages and holds the equivalent of some 130 billion US dollars in wealth has in recent years sent what is now more or less officially considered the equivalent of some $50 billion of wealth out of China, including the purchase of such New York City icons as the Waldorf Astoria Hotel as well as a great many less known and less visible assets.

My estimate is that this Anbang story only represents a small part of what this one largely-wealth transfer organization has been doing. And Anbang is just one of many such organizations. Officially, China is enmeshing itself as a global economic power through large-scale foreign asset acquisitions. But this is all at least as much a matter of wealth flight out of and away from China’s troubled and volatile economy. The Anbang Insurance Group itself is owned through a maze of shell corporations, set up to both mask their overall business activity and key wealth-transfer aspects of it, and to hide their true ultimate owners. But it now appears that Anbang as a whole is in significant part owned by the family of Deng Xiaoping: one of Xi Jinping’s more revered predecessors as China’s supreme leader, and other members of the Party elite and their families.

I have a number of other puzzle pieces waiting for their turn for inclusion in this series and its ongoing narrative. And I will add more of them to the picture that I am presenting here, in a next series installment, that will come out, going live on this blog in about a month. I actually wrote this posting on September 2, 2016 to go live the next day; I was waiting for a more public release of news regarding Anbang and was prepared to publish this later if need be but this story broke on the second, in the New York Times so I decided to run with it.

As a side note here, I have recently written about China and its economy in a separate series on economic models and systems, and I make note of that posting here: see Open Markets, Captive Markets and the Assumptions of Supply and Demand Dynamics 14.

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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