Platt Perspective on Business and Technology

China and its transition imperatives 42: some thoughts concerning Xi Jinping’s American dilemma

Posted in macroeconomics by Timothy Platt on February 8, 2017

This is my 49th installment, counting supplemental additions, to this ongoing and even open-ended series on China. Basically, what I am doing here is to trace how China has changed under the rule of Xi Jinping, with this series narrative starting approximately one year after he first took leadership of their Politburo Standing Committee, and through that of their entire Communist Party of China and of China as a whole (see Part 1, as written to first go live on this blog on February 8, 2014.)

The relationship between China and the United States has been complex and nuanced for a long time now, and certainly since president Richard Nixon first reached out to the Beijing government, visiting China in 1972 to help create an openly acknowledged point of connection based on mutual recognition as supported by dialog and trade. This relationship was in effect permanently complicated and strained in 1989 by an event that the Chinese government and their Communist Party still denies ever actually happened, but that was photographically broadcast to the world at least for its beginnings, and for word of what happened from after the cameras were forced away too: the Tiananmen Square massacre. The images of that event that did make it out of China for the world to see, were seared into people’s minds – including but not limited to haunting photos such as that of a lone protestor standing in front of a line of People’s Liberation Army tanks in an attempt to convince at least someone not to drive forward into the crowds. I do not know if he survived that, or if he did if he survived the immediate days to come following that specific incident. Well over a thousand unarmed, peaceful protestors did not.

I write that in most dire terms for a reason; it is that image and others like it that have shaped and reshaped the relationship that China holds with the United States and with the West in general since 1989, for the cautionary note that it offers as to how the Beijing government might act next too, if for no other reason, to put this in the perhaps mildest terms. That memory: that image and message are in fact why I posted the way that I did when the yellow umbrella protests erupted in Hong Kong over Beijing’s ham handed behavior in reining in what they see as restrictions in the treaty under which Great Britain turned Hong Kong back over to China (see my two 2014 supplemental postings to this series: Part 12.5: an inserted news update re Hong Kong and its Part 12.6 continuation.)

Concerns have seemed to settle down that a Tiananmen Square type of response might be repeated since 2014, and perhaps particularly when the Beijing government showed some self-restraint when faced with Hong Kong’s challenge to their overall authority in the region as arose in these protests. And the Beijing government did show restraint, certainly in comparison to what happened in 1989, resorting to legal challenge and procedural responses instead.

The United States has continued to adhere to the One-China Policy , among other measures to assure China and their government that their concerns were being respected, and under both Democratic and Republican presidential administrations. Trade and commerce, and open travel between the two nations has continued and flourished, and efforts have been made on both sides to at least blunt the potentially sharp points and edges of the sometimes real points of disagreement that do arise. Issues of state-allowed if not entirely state-sourced cybercrime and worse, and of currency manipulation on the part of the Chinese come to mind there, as just two of this set of sticking point issues, and I add that these are two of the challenge points that I have been delving into in this blog for years now.

No one in the United States government or in the governments of the West in general seem to have been at all happy with China’s efforts to claim rights and even hegemony over the larger sweep of the South and East China Seas, and certainly as that has become China policy under Xi. But this type and level of disagreement has been viewed for the most part as calling for a negotiated diplomatic response and without overt challenges let alone threats that would simply create resistance to change or accommodation from Beijing. And then Donald Trump happened. He ran for the Republican Party nomination, and then ran as their party standard bearer and presidential candidate, on a narrowly xenophobic and isolationist platform, as driven by ego and narcissism and an unwillingness to listen to anyone who was not telling him what he already thought and already believed – and even contrary to any real world empirical evidence to the contrary.

I wrote the immediately preceding three installments to this series about China, in large part from a Trump perspective and on his decisions, actions and threats as they have been addressed towards China and its interests (see Part 39: rethinking China’s emerging trends and challenges in the emerging era of a United States Trump presidency and its Part 40 and Part 41 continuations.) And from the first of them on, I stated that I would pivot back from pursuing these issues from an American and a Trump administration perspective, to one of examining the China perspective on this complex of issues.

With this 700+ word historically framed preamble in place, I begin to do that here with this posting. I have reported here on issues such as Trump’s direct rapprochement with the Taiwan government and about something of his personal business entanglements with Taiwan in earlier postings, on the negative side of any international relationships ledger between the US and China as it would be viewed from the Beijing perspective. And I have written of a few more positive entries there, as they would view them with Trump’s repudiation of the Trans-Pacific Partnership (TPP) as a perhaps most significantly impactful example of that. How is all of this playing out from Xi Jinping’s government’s and his Communist Party’s perspective?

I have mostly focused in that on what China would see as the negative side of that in the last three postings here, as these ledger entries are more plentiful and more visible, and certainly as a matter of general public awareness. I begin flipping the orientation and perspective of this discussion by considering a positive, that is in the long-term and perhaps even in the shorter-term likely to hold more importance and value to China and their elite in Party position and wealth, than the demise of the TPP ever could. And I begin addressing that by briefly recapitulating a few details here that I have been delving into in more detail for well over a year now: the current state of China’s economy and the valuation of its currency, and how the government of China has sought to prop up both in order to stave off economic collapse into deep recession – and social unrest – by expending vast proportions of their hard-earned monetary reserves to do so. And the key detail that I would repeat here, relevant to that is in how anyone who can move personal wealth out of China from their middle class on up, has been doing so. And this has added up to a flight of wealth from China that adds up into at least the hundreds of billions of US dollars, equivalent, and into the billions for at least some single “investors” from their counterpart to the US top 1% of the top 1% (see The Richest Rich Are in a Class by Themselves for a Bloomberg News piece on them.)

I begin examining this story as it has started to play out in a now suddenly Trump era, by citing a news story that came out after Trump was elected but before he was sworn into office as the sitting president of the United States. I simply add in anticipation of offering the link itself, that neither Donald Trump nor the members of his family who advise him as president, not his personal business empire have in any way backed away from doing business with China’s elite, including most senior members of their Party and government as they seek to protect their personal wealth by moving it into financial safe harbors that show more long-term potential for stability then they could find at home. And this definitely still includes investments and the parking of liquid wealth in the United States still, and certainly where Trump and his businesses are invested and involved too:

Jared Kushner, a Trump In-Law and Adviser, Chases a Chinese Deal.

First of all, aside from Kushner being Trump’s son in lay and husband to his daughter Ivanka, he is formally and even officially one of Trump’s closest and most trusted advisors. And he would not pursue a deal of this sort without Trump’s active support, or probably without at least a level of his more active participation too. So this is not a Kushner story or a Kushner business deal alone; it is at least as much a now-president Trump story and deal too.

I have written, and particularly in the preceding three installments to this series as noted above, of Trump’s cozying up to the Taiwan government in pursuit of a massive infrastructure deal there, that would enrich his and his family’s businesses. Donald Trump is overtly and without any effort at understanding the consequences, seeking to play off both sides against the middle here between the People’s Republic of China, and what they see as their runaway province of Taiwan. That fact has to be overtly obvious to China’s leadership and particularly as they personally off-shore their wealth through business organizations such as the Anbang Insurance Group that is highlighted in this January, 2017 news story. And this, among other still emerging progressions of events both lead to and create the dilemma, or quandary if you prefer that Xi and his Party and government leadership face right now and with all of the uncertainties that an unconsidered snap-decision driven Trump administration can engender.

For a third party perspective on the Trump administration that in fact mirrors both my own views here, and those of others I know and respect, see this management-perspective piece on how Donald Trump performs, and as both a would-be manager and leader:

Case Study in Chaos: How Management Experts Grade a Trump White House.

But to return this narrative back to a China perspective on their international context as addressed here, I want to add two more puzzle pieces to this posting’s narrative, both of which involve Chinese investments and efforts to develop them in the United States:

MoneyGram Deal May Test Trump’s View on Chinese Investment and
Trump and Trade: Extreme Tactics in Search of a Point.

The first of these is a news analysis piece on how an Alibaba Group spin-off: the Ant Financial Services Group (formerly known as Alipay) is trying to buy out a large US based payment processor and money transfer company (that is still dwarfed in size by its main competitor: Western Union.) This type of acquisition essentially automatically comes under review under terms of the Exon-Florio Amendment as initially passed into law in 1988, as a review mechanism for evaluating such deals in terms of their national security implications and risk. It was enacted as a part of the larger Omnibus Foreign Trade and Competitiveness Act of 1988 and serves as one of its key regulatory mechanisms – which is a curious tool for a president Trump to want to invoke, given his seeming across the board desire to limit or repeal financially impactful regulatory law and practice. But if for whatever reason Trump would want to block this particular deal, as part of his general challenge-and-attack approach towards China, this is the tool he, or rather his inner circle will use. Will heated political talk and his campaign rhetoric-driven China policy kill this deal, or will his self-interest in working with Jack Ma of Alibaba, and its spin-offs sway him to step back and allow this to proceed? Ultimately, to put this in admittedly cynical terms, that probably depends at least in significant part on whether this deal would or would not present itself as serving Trump’s own personal interests.

The second of these puzzle pieces is easy to summarize by citing its original print version title, and a tagline text that the Times appends to it when someone shares a link to it via email or text. The original title was “On Trade, Trump Wields Sharp Tactics That May Not Have a Point.” And the tagline text reads “Rejecting the premise of international accords is one thing. But displaying irrationality for effect, without a rational objective, can end in war.” And with that I offer two more recent, in the news puzzle pieces to this mix:

Task Force Urges Better U.S. Engagement With China
U.S. Policy Toward China: Recommendations for a New Administration.

The first of these two news pieces is a February 6, 2017 New York Times piece about a just-released bipartisan report that urges president Trump to act more prudently and consistently in his dealings with China. And it urges him to do so in accordance with something of a real, organized, communicated policy, and both to avoid trade war and to limit the risk of what in the South and East China seas in particular cound become military incidents and skirmishes, that could arise as tensions and responses to them escalate. The second of these puzzle pieces offers a link to an Asia Society news story on this report, and I specifically note here that the online version of this news piece as pointed to here offers PDF file download links to both an executive summary and a full text version of this report itself.

And with this all noted I find myself thinking back to the chaos in management news analysis piece that I offered above, as my second puzzle piece to this posting. The issues and challenges that are raised there and that we see validated for their relevance seemingly every single day now from what comes out of the White House and Trump’s Twitter account – they collectively represent the core of the dilemma, the conundrum, the challenge that Xi and his Party and government now find themselves facing – and at a time in China’s history and in their term of rule in it when China’s own internal instabilities and uncertainties call the most poignantly and loudly for something in the way of certainty and stability that they can rebuild from. That is not going to happen, at least from the United States: one of China’s biggest and most important trade partners, and certainly in anything like the near-term.

I am going to continue this series and its narrative in a next installment, that at least as of this writing will probably go live to this blog in approximately one 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. (And as a time stamp, I wrote this as a single draft on February 7, 2017.)

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