Trade War
Newsletter 83 - September 11, 2021
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.”
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.”
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.
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.”
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.
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.”
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.”
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.
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.
“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.
“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.
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.
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.
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.
“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.”
Montana fall with smoky skies
Even as we move into fall, Montana is still suffering under some wildfire-caused smokey skies.
