Trade War

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Trade War

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Trade War

Newsletter 83 - September 11, 2021

Dexter Roberts
Sep 12, 2021
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Welcome to the 83rd edition of Trade War.

An explosive book and the phone call it prompts reveals the age-old and murky nexus between the families of corrupt top leaders and private entrepreneurs. A rare debate over Common Prosperity emerges and Beijing tries to reassure its nervous entrepreneurs.

I predict more industries being targeted for controls as Beijing struggles to deal with an unequal and declining economy, in a commentary in Nikkei Asia. And Xi’s crackdown on companies and the wealthy may actually hurt China’s already constrained consumption.

Oppose the state and see no good ending

Desmond Shum, the author of new book Red Roulette: An Insider's Story of Wealth, Power, Corruption, and Vengeance in Today's China, explains how his ex-wife’s connection to China’s power elite made the couple very wealthy, then later led to her disappearance, and most recently sudden reappearance, in this interview with NPR’s Morning Edition.

“A Chinese businessperson who was missing for years has abruptly reappeared. Whitney Duan was connected to the wife of a powerful Chinese official [former premier Wen Jiabao],” reports NPR. “She and her husband, now ex-husband [Desmond Shum], involved themselves in numerous businesses using their connections. And they rose, as China did, until Whitney vanished in 2017. There was no word from any legal authority about an arrest.”

“She called my phone - and - early in the morning. And I heard her voice for the first time ever in - for the last four years,” Shum told NPR’s Steve Inskeep. “She said she's on temporary release and they can take her back any time. And she want me to cancel the book publication.”

“She gave me a second call after the first one, you know, come to no result. And then the last one was more threatening,” said Shum. “She asked me the question, what would happen to our son if something unfortunate happened to me? She asked the question (sighing), how would I feel if something happened to our son? And then she used sort of the code slogan - you know, in China they have this slogan, so the ones who opposes the state will see no good ending.”

Twitter avatar for @jruwitch
John Ruwitch @jruwitch
Whitney Duan has apparently been released temporarily. She called her ex, Desmond Shum, to have him stop publication of his tell-all book about doing business with the Wen family. Publication date is tomorrow. Despite threats Shum says can't/won't stop it.
npr.org‘Red Roulette’ Reveals The Inside Of China’s Wealth-Making MachineIn his new book <em>Red Roulette: An Insider’s Story of Wealth, Power, Corruption, and Vengeance in Today’s China</em>, Desmond Shum writes about the disappearance of his ex-wife in China.
8:36 PM ∙ Sep 6, 2021
9Likes4Retweets

The game has changed completely

The four-year disappearance of businesswoman Whitney Duan can be seen as an especially severe example of the treatment of China’s entrepreneurs today, reports Bloomberg News Blake Schmidt.

“[Shum’s] vanished ex-wife, one of China’s longest-missing deal makers, is an extreme case of the pressure now facing the country’s rich and powerful,” writes Schmidt. “Jack Ma hid away for months after after the government dismantled his planned IPO following his criticism of outdated regulatory practices. Meituan’s Wang Xing was recently warned to stay out of the spotlight after making a controversial post on social media.”

“At the moment, every private entrepreneur faces a huge question: where does Xi Jinping want to take China?” Shum said in a video call with Bloomberg. “If you’re investing in China right now, you’re not playing a game that you understand. The game has changed completely.”

Twitter avatar for @BlakeSchmidt
blake schmidt @BlakeSchmidt
On disappearing billionaires and China’s princelings
bloomberg.comBloomberg - Are you a robot?
5:35 PM ∙ Sep 11, 2021

Rare debate over Common Prosperity

Xi Jinping’s push for “Common Prosperity” has sparked an unusual public policy debate, reports Bloomberg News.

On one side are leftist supporters of blogger Li Guangman, who called Xi’s crackdown a “profound revolution” in a commentary that was published in the state media, and wrote “the capital market will no longer become a paradise for capitalists to get rich overnight” and “all those who block this people-centered change will be discarded.”

A surprising voice against that argument has come from nationalist Hu Xijin, editor-in-chief of the Global Times, reports Bloomberg. “The goal, [Hu Xijin] said, was gradual social progress rather than a sweeping campaign that amounted to some sort of second Cultural Revolution.”

Less surprisingly, market-oriented economist from Peking University Zhang Weiying has also written a strong warning about the risks of taking Xi’s policies too far.

While the debate has some wondering whether it reflects a power struggle amongst officials over the direction for China, “more fundamentally, it represents uncertainty over how China can balance two key goals: Creating more balanced growth to bolster the party’s support among the masses, and spurring the technological breakthroughs needed to outpace the U.S. as global tensions rise,” writes the financial news service. 

Twitter avatar for @Colum_M
Colum Murphy @Colum_M
In a country that regularly censors opposing viewpoints, Chinese President Xi Jinping’s push for “common prosperity” has triggered something unusual: A spirited public policy debate bloomberg.com/news/articles/… via @bpolitics
bloomberg.comBloomberg - Are you a robot?
12:44 PM ∙ Sep 7, 2021
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How far does all this go?

Xi’s Common Prosperity push has “thrown a bright light on the ideological tensions and unease building as Mr. Xi’s assembles his agenda for a likely third term,” reports the New York Times Chris Buckley.

After the “profound revolution” commentary helped spark the debate over Xi’s policies, party officials “have tried to calm the waters without explicitly disavowing Mr. Li or removing his essay, and that has let confusion linger,” writes Buckley. “On Wednesday, People’s Daily — one of the party news sites that shared Mr. Li’s essay — published a front-page editorial that said the government remained committed to market forces.”

“Underlying this Li Guangman episode is deep anxiety and uncertainty about where Xi is taking politics and policy,” CSIS China politics expert Jude Blanchette told the paper. “It’s an anxiety based on uncertainty about this question: How far does all this go?”

Equality push “a major political matter”

The new emphasis on creating a more equal society is about politics and not just economics, report New York Times reporters Chris Buckley, Alexandra Stevenson, and Cao Li.

“Achieving common prosperity is not just an economic issue; it’s a major political matter bearing on the party’s foundation for rule,” Mr. Xi told officials in January. “We cannot let an unbridgeable gulf appear between the rich and the poor.”

“Xi sees doing something on income inequality and the wealth gap in China as vital in this struggle of global narratives with the U.S. and the West in general,” Christopher K. Johnson, a former United States government analyst of Chinese politics​​, told the Times.

“Mao Zedong used the phrase ‘common prosperity’ in the 1950s, in the early stages of pushing China toward socialist collectivization that culminated in a disastrous Great Leap into communism,” reports the paper. “In the 1980s, Mr. Deng said that China should let some get rich first to lift the economy, but that ‘common prosperity’ was the distant ultimate goal.”

Twitter avatar for @jotted
Alexandra Stevenson @jotted
What's the big idea behind a sweeping crackdown across industries in China -- from entertainment to tech and education? Xi calls it "common prosperity" but it's probably not what you're thinking w/ @ChuBailiang @caocli @61LiuYi
nyti.msWarning of Income Gap, Xi Tells China’s Tycoons to Share WealthAs the country’s leader prepares for a likely third term, he is promising “common prosperity” to lift farmers and working families into the middle class.
10:00 AM ∙ Sep 7, 2021
12Likes3Retweets

Not a Maoist war on the private sector

Eurasia Group China analyst Neil Thomas takes a closer look at the People’s Daily commentary that tried to reassure the private sector.

“[The] commentary is trying to reassure business after recent anti-monopoly [and] unfair competition crackdowns,” writes Thomas in a tweet thread. “The message is debatable but it's a tacit acknowledgement policies were opaque [and] unpredictable.”

“The commentary also makes plain that tougher market regulation is not a Maoist war on the private sector Rather, it's "a strategic move to grasp the initiative for future development to enhance our ability to survive, compete, develop and persist in...perilous situations," writes Thomas quoting the commentary.

Twitter avatar for @neilthomas123
Neil Thomas 牛犇 @neilthomas123
Front page People's Daily commentary declares three "things that have not changed" 1. Status & role of private economy 2. Policy of encouraging, supporting & guiding private economy 3. Policy of favorable environment & more opportunities for development of private economy
Image
3:27 AM ∙ Sep 8, 2021
40Likes18Retweets

China will persist in economic opening, says Liu He

China’s vice premier and Xi advisor Liu He has made a speech supporting a strong role for the private sector, reports Bloomberg News.

“The principles and policies for supporting the development of the private economy have not changed,” Liu said in a video speech to a digital economy expo in Hebei province. “They don’t change now, and will not change in the future.”

“China must stick to socialist market economy reforms and persist in opening up the economy, Liu said, vowing the country will protect property rights and intellectual property rights,” reports Bloomberg. “[Liu] reiterated that the private economy has contributed to over half of China’s tax revenue, more than 60% of economic growth and 80% of urban jobs.”

“China must heavily support the development of private industry to make it play a bigger role in stabilizing the economy and employment as well as enhancing the structure of economy and promoting innovation, Liu said.”

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
"Liu said, vowing the country will protect property rights and intellectual property rights. He reiterated that the private economy has contributed to over half of China’s tax revenue, more than 60% of economic growth and 80% of urban jobs." bloomberg.com/news/articles/… via @bpolitics
bloomberg.comBloomberg - Are you a robot?
4:45 AM ∙ Sep 7, 2021

But Beijing likely to target more companies

With growth slowing amidst a persistent wealth gap and no clear exit from covid containment, expect Beijing to keep clamping down on private industries, writes this author of Trade War in Nikkei Asia.

"People are still not spending, even more than a year after they suppressed the significant spread of COVID-19," Louis Kuijs, Chief Asia Economist At Oxford Economics, said to Nikkei Asia. "So the question is, what is China's end game and how can they transition from the current path to a new one?"

“The answer remains unclear. Without a strategy to move to a more sustainable economic model and with the wealth gap becoming ever more apparent, the Communist party is left vulnerable,” writes Dexter Roberts.

“This will reinforce the authorities' inclination to identify ever more companies as suspect and then crack down on perceived misbehavior in the name of advancing the interests of the Chinese people.”

Twitter avatar for @ZColemanHK
Zach Coleman @ZColemanHK
With growth slowing, no COVID exit strategy & a glaring wealth gap, count on Beijing to target more private industries for 'misbehavior,' says @dtiffroberts
asia.nikkei.comLacking a better game plan, Beijing will pick off more industriesNeed for action on wealth gap underlies squeeze on internet platforms
1:53 PM ∙ Sep 10, 2021
8Likes4Retweets

Chinese won’t become like free-spending Americans

Xi’s top-down state policies and regulatory crackdowns are hurting China’s already constrained consumption which is bad news for the global economy, writes Reuters Breaking Views’ Pete Sweeney.

“Companies who had bet that Chinese shoppers would evolve into free-spending Americans will be worried; trade partners should be alarmed,” he writes.

While China is still a key contributor to global growth, the reality at home is a country with an excessively national high savings rate - at 44 percent of national income one of the world’s highest - and very low household consumption, almost twenty percentage points below the world average, according to the World Bank.

“For decades its state-driven investment model captured earnings from Chinese workers and lent them to strategic industries at low rates via government-owned banks. Useful in earlier phases of development, the approach has engendered vast industrial and financial overcapacity, which the economy must shovel into overseas markets somehow,” writes Sweeney.

While Beijing talks regularly about its aim of growing consumption, music to the ears of foreign brands and governments, many of its recent policies run counterproductive to that goal, and “austerity remains a bureaucratic reflex.”

“Rising household debt, for example, may have caused officials to turn against spending on condos, pricey booze, video games and more, plus harshly pull back fintech giants like Ant for issuing easy consumer loans,” writes Sweeney. And the decision to ban for-profit tutoring cut off one very popular source of household spending and has led to major job losses.

Twitter avatar for @ChinaBeigeBook
China Beige Book @ChinaBeigeBook
The new policies sure aren't helping, but the long-promised consumer boom has always been marketing more than reality.
reuters.comXi muffles Chinese consumer boomPresident Xi Jinping is muffling China’s consumer boom. Policies targeting spending excesses are hammering listed companies from e-commerce giant Alibaba <a href=“https://www.reuters.com/companies/9988.HK” target=“_blank”>(9988.HK)</a> to liquor specialist Kweichow Moutai <a href=“https://www.reuters.com/companies/600519.SS…
1:49 PM ∙ Sep 7, 2021
19Likes6Retweets

Notable/In Depth

On this twentieth anniversary of the 911 attacks I recall the experience of getting a haircut from a barber in Beijing, who was wearing an Osama bin Laden t-shirt.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
I was in Beijing on 911 and saw similar sentiments. Shortly afterwards went to get a haircut and discovered the barber was wearing a t-shirt featuring a silkscreened image of Osama bin Laden.
Twitter avatar for @tengbiao
滕彪 @tengbiao
Twenty years ago today, I was writing my doctoral dissertation in Beijing. I was extremely shocked when seeing the images of #911attacks. Then I was even more shocked to see that many Chinese people were applauding this. #911Anniversary 1/3
9:53 PM ∙ Sep 11, 2021
44Likes23Retweets

“Xi has been applying Mao’s strategy at a smaller scale. He selectively targets some officials, businesspeople, opinion leaders, stars … to please the impulse of some Chinese who are less successful [and] harbor hatred toward the rich.” writes the Financial Times’ Tom Mitchell.

Twitter avatar for @JChengWSJ
Jonathan Cheng @JChengWSJ
“Xi has been applying Mao’s strategy at a smaller scale. He selectively targets some officials, businesspeople, opinion leaders, stars…to please the impulse of some Chinese who are less successful [and] harbour hatred toward the rich.” @tmitchpk
on.ft.comBecome an FT subscriber to read | Financial TimesNews, analysis and comment from the Financial Times, the worldʼs leading global business publication
4:31 AM ∙ Sep 7, 2021
25Likes11Retweets

“Beijing's [messages] to tech companies: 1. no IPOs in foreign exchanges; 2. no money into VIEs; 3. welcome to Beijing Stock Exchange! All in line with "Data Regulation with Chinese Characteristics"!” tweets Henry Gao, a law professor who specializes in China trade.

Twitter avatar for @henrysgao
Henry Gao @henrysgao
Beijing's msgs to tech companies: 1. no IPOs in foreign exchanges; 2. no money into VIEs; 3. welcome to Beijing Stock Exchange! All in line with "Data Regulation with Chinese Characteristics"! Shanghai suspends key approval on route to offshore listings bt.sg/okdC
Image
3:18 AM ∙ Sep 5, 2021
89Likes42Retweets

China’s cities are undergoing a demographic divergence, with some growing while others shrink, writes MacroPolo’s Houze Song.

“More than 60% of China’s total urban population lives in shrinking cities. A decade from now, even assuming that some people will leave for growth cities, more than 600 million Chinese citizens will still live in shrinking cities," writes Song.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
"..more than 60% of China’s total urban population lives in shrinking cities. A decade from now, even assuming that some people will leave for growth cities, more than 600 million Chinese citizens will still live in shrinking cities."
Twitter avatar for @damienics
Damien Ma @damienics
"...growth cities overall saw net inflows of more than 40 million workers, despite the national working-age population dropping by more than 40 million." The divergent fate of urban China from @hzsong @MacroPoloChina https://t.co/qp0Vmpg6Hz
6:35 PM ∙ Sep 7, 2021
14Likes3Retweets

Here’s a bizarre Fox News video of Tucker Carlson showing his affection for authoritarian governments while arguing why the U.S. should learn from China.

“The Secret Chinese United Front Influence Operation is far more powerful than I thought: Listen to Tucker Carlson on why America’s government should learn from China’s and control our lives more,” tweets University of San Francisco economist Peter Lorentzen.

Twitter avatar for @peterlorentzen
Peter Lorentzen @peterlorentzen
The Secret Chinese United Front Influence Operation is far more powerful than I thought: Listen to Tucker Carlson on why America’s government should learn from China’s and control our lives more. https://t.co/QUvbKK7Bax
Twitter avatar for @DanielDumbrill
Daniel Dumbrill @DanielDumbrill
Tucker Carlson on the recent legislation coming out of China. https://t.co/SY33TEo0i7
6:25 AM ∙ Sep 5, 2021

Xi Jinping has leveled his sights on cleaning up China’s statistics system in recent weeks. Is that a reason to hope China’s notoriously massaged numbers will be cleaned up? Not necessarily.

“It's unclear whether China's new, improved statistics will be released to the public before they have been massaged and manipulated. Xi Jiping's (sic) other priorities include doing a good job on shaping public opinion and telling China's story (not necessarily non-fiction).” says a piece in the Dim Sums blog.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
“It's unclear whether China's new, improved statistics will be released to the public before they have been massaged and manipulated. Xi Jiping's other priorities include doing a good job on shaping public opinion and telling China's story (not necessarily non-fiction).”
Twitter avatar for @gaodawei
高大伟 David Cowhig @gaodawei
Hah! My favorite Great Leap Forward quote from a PRC statistical official who said "Never forget the principle of partisanship in the statistical services!" Other distortions too.. local govs inflate dissident number to get social stability subsidies etc https://t.co/1jj5xD1zb5
2:12 AM ∙ Sep 8, 2021
7Likes3Retweets

“In light of the recent unionization announcement from Didi, it's worth considering why earlier efforts to make taxi driving a decent job failed,” writes Cornell University’s Eli Friedman in a tweet referencing the recent article he coauthored with Renmin University’s Hao Zhang in the International Labour Review.

“I remain skeptical that a union can do much when the state views worker self-organization as an existential threat.”

Twitter avatar for @EliDFriedman
Eli Friedman @EliDFriedman
In light of the recent unionization announcement from Didi, it's worth considering why earlier efforts to make taxi driving a decent job failed. I remain skeptical that a union can do much when the state views worker self-organization as an existential threat.
5:33 PM ∙ Sep 7, 2021

Montana fall with smoky skies

Even as we move into fall, Montana is still suffering under some wildfire-caused smokey skies.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
Smoky skies
Image
1:50 AM ∙ Sep 11, 2021
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