Platt Perspective on Business and Technology

China and its transition imperatives 45: thinking through Xi Jinping’s current realities in a larger context 3

Posted in macroeconomics by Timothy Platt on May 15, 2017

This is my 53rd 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.)

I have been repeating variations on the above orienting paragraph in essentially every installment to this series, as a means of maintaining a clear continuity of discussion and focus in it. But I explicitly step back from that starting point here, even as I repeat it to note that this series is at least as much about how Xi Jinping has changed in the crucible of his seeking to lead China too. He has had to change and adapt his vision and understanding, and both in response to forces and demands arising from within China and from those arising from the outside world as well. The later source of influencing forces and pressures has included in it at least some factors that have been predictable and certainly categorically if not always in detail. But some of the most consequential of the events and emerging forces that Xi has faced have also been disruptively unexpected and unpredictable too, and even in general terms.

That includes factors such as the “predictably chaotic unpredictability” coming out of Pyongyang and North Korea’s government, as led by number three in the Kim family dynasty there: Kim Jong Un. And that disruptive chaos has become particularly irksome as North Korea has developed progressively more advanced nuclear weapons and ballistic missiles and as it has become more aggressive in asserting its independence from China and their strategic needs, and certainly regionally in Asia. But more importantly, this includes factors such as the election of Donald Trump as president of the United States.

When I first began writing of the impact of Donald Trump United States presidency on China and on Xi’s leadership there, in Part 39: rethinking China’s emerging trends and challenges in the emerging era of a United States Trump presidency, I had disruption and uncertainty in mind, and certainly as Xi would seek to plan for stability and both in his country and in his leadership there (and also see Part 40 and Part 41.) President Trump and his brand of chaos and in essentially all areas and arenas that he has influenced at all, have had significant impact and both within the United States and globally as well.

But uncertainty coming out of the US White House, and the risk potential that creates is only one element that a Trump presidency all but compels Xi Jinping to face and respond to. The other really significant element to that, that I would address here is a direct cause and effect consequence of that chaos and uncertainty: a sudden globally impactful power vacuum that a failing and ineffectual Trump presidency is creating, where the United States was a stable source of strength, and globally until Donald Trump’s election and inauguration.

Much of what Xi has faced in China and in his dealings with the world at large are unchanged by this turn of events, and certainly as of this writing at just over 100 days into the Trump presidency. But this power vacuum creates opportunity for Xi and I add for a great many other national leaders and their governments, even as it hinders and concerns others (such as the leadership of America’s traditional allies.) And this brings me to reassess China and where it is headed as a nation, as Xi faces new and disruptively unexpected opportunity as well as risk.

Let’s consider where this new and emerging context is being built from, from a China perspective. And I begin with a consideration of Xi and his agenda and then move on from there to consider China as a whole.

Does Xi Jinping still seek to be Mao Zedong’s one true successor in absolute power in China, and in a way that none of Mao’s successors in Communist Party leadership have been able to even approach? I would contend that the answer to that is still an emphatic yes, and perhaps now more so than ever. Xi clearly sees himself as China’s one and only truly indispensible man and the only person in China who can successfully navigate the troubled and uncertain currents that his nation now faces. Mao was The Great Helmsman in his day and Xi, whether he would use that identifying term or not, sees himself as China’s one true helmsman now in this still early 21st century and with all of the challenges that have been emerging, including ones that have long festered and that are now coming to a head. And he sees himself as the one person who could best lead China in the face of a Donald Trump American presidency.

And if he can succeed in gaining value for China from his dealings with Trump, by a combination of flattery for Trump’s ego and shrewd negotiations in managing the details with Secretary of State Tillerson and others, that would greatly increase his chances of succeeding in staying in office for a third term as leader of China’s Communist Party’s Politburo Standing Committee, and as such of their Communist Party and government as a whole.

A Trump presidency per se cannot alter, let alone eliminate China’s internal challenges, that I have been writing about for years now. So China’s economy is still in many respects a Potemkin village, to use the old Tsarist Russian term, as repurposed and continued under Soviet Communist rule; it is a convenient and attractive fiction in many respects and certainly when its purported underpinnings and its actual fundamentals are considered.

• Their Party bureaucracy is still both powerful and corrupt and inefficient, and tremendously locally self-serving.
• Their centrally managed open and official economy is still burdened by the ongoing presence of a vast black market and related underground economy, and a gray market economy that connect it to their open and official one.
• The most powerful people in China: their top 1% and top 1% of 1% benefit from and even actively support their black and gray economies and to their own personal benefit and even as they run their country. As just one indicator of this, wealth inequality and the flight of privately held wealth out of China and into foreign investments and savings, and into stronger and more stable currencies continues. And China continues to try to control the recognized value of its own currency to reduce the incentive driving this wealth flight, among other problems faced.

And for once this effort has started to actually work for them, at least according to early indicators. See, for example:

Trump Isn’t Wrong on China Currency Manipulation, Just Late.

China has been spending down their foreign currency reserves at a furious and I add completely unsustainable rate to visibly prop up its currency, the Renminbi and its economy as whole. But since the Trump election, they have actually started to build up their foreign currency reserves again. Uncertainty coming from the United States and its leadership can have a positive effect as well as a negative one depending on where you look for impact. See:

China Stanches Flow of Money Out of the Country, Data Suggests.

I have written a number of times in this series of China’ efforts to take hegemonic control over the East and South China Seas and simply note that this effort continues unabated. In fact it is likely that a weak and uncertain Trump presidency, with a disorganized foreign policy that is more ad hoc than anything else, will strengthen China’s hand there. But my intent here is not to focus on China’s foreign policy as it plays out in this one more local region. It is to at least briefly consider China’s growing opportunity for global reach and strength, that this new power vacuum has created. And I cite a recent as of this writing, news stories that both verifies what I am stating here, and shows that Xi is very intentionally, very consciously seeking to fill that gap: that power vacuum with a China alternative:

Behind China’s $1 Trillion Plan to Shake Up the Economic Order and
Xi Jinping Positions China at Center of New Economic Order.

China’s fundamental inefficiencies have not gone away and have not even changed and certainly not in any fundamental sense. But a Trump presidency and the seismic shifting in the world order that this has created, has given China and their system of government and their economy a whole new lease on life where they had been unsustainably propping up their economy and their system as a whole and with limits as to how long they could sustain that. A Trump presidency, to be more specific here, has given Xi Jinping a whole new springboard for both maintaining and even elevating his power and authority and both within China and on a world stage. And he is already actively capitalizing on that. What I am writing of here, is a fundamental turning point for China and for Xi as their leader.

Donald Trump may or may not remain in office, with the possibilities of impeachment dogging his every step even if he does manage to avoid its actual realization. But Xi is now much more likely to stay in power and for longer than anyone would have expected, and certainly when I first began writing about him in this blog.

I will follow up on this with a next installment, in approximately two weeks. And in anticipation of that, I expect to focus on infrastructure development in that posting. 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 May 14, 2017.)

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