Trade War
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Welcome to newsletter 44. I’m a day late but I have an excuse: what a week it’s been...
As the U.S. waits for the official calling of the presidential election and is treated to the spectacle of the democracy-damaging lies and ravings of the apparent loser, the rest of the world not surprisingly is watching with some concern.
In China however the prevalent sentiment seems to be schadenfreude: now we can add democratic election chaos to shameful covid mismanagement as examples that show the superiority of the Chinese political system, many seem to be arguing.
Beijing regulators halt the massive $34 billion IPO of Ant Group, as good as any reminder that businesses and market-opening are often secondary to a “politics in command” mindset in today’s China. Meanwhile, the “dual circulation” strategy could be a growth killer for China and a recent speech by Xi Jinping shows his hostility to continuing to reform the productivity-killing hukou policy.
Chinese schadenfreude and pity
The steady erosion of once strong public admiration for the U.S. in China has suddenly intensified, with the chaotic events surrounding the presidential election and in particular the democracy-damaging lies and ravings of the apparent loser Trump.
“As the United States tallied votes in a presidential election that appears headed for a court battle and fractious final phase, Chinese commentators and state mouthpieces this week lined up to portray the cross-Pacific superpower — viewed with awe and envy by generations of Chinese — as a politically crumbling edifice in 2020,” writes the Washington Post’s Gerry Shih.
Probably the last time America’s reputation amongst Chinese took such a broad and damaging hit was during the global financial crisis more than a decade ago, with the collapse of Lehman Brothers and following financial failures.
The US is in degradation
“Chinese social media users watched election day in the United States with bemusement and mockery, as President Donald Trump complained of a “major fraud on our nation” and falsely claimed victory before millions of votes had been tallied,” reports Reuters.
“This kind of unrest is usually (a) complication of elections in poor countries, but people are worried it may appear in the US. The US is in degradation,” tweeted Hu Xijin, editor of the Party’s tabloid Global Times.
Multiple spots have fallen into chaos
China’s national broadcaster CCTV aired footage of Trump supporters besieging a polling station in Detroit with the caption on the screen reading: “Multiple spots in the US have fallen into chaos,” reports the South China Morning Post.
CCTV also reported that “there had been a surge on election day in the number of Americans searching the internet for information on how to emigrate to Canada,” the Hong Kong paper reported.
Politics in command: 政治挂帅
China has suspended online finance giant Ant Group’s $34 billion IPO after Jack Ma, the outspoken founder of its parent company Alibaba, ripped into China’s banks calling them similar to “pawnshops” in a high profile speech. The drastic action is another reminder that Beijing is more than willing to sacrifice even its most successful businesses when it deems politcal control more important.
“Welcome to the new China, where political control is far more important than business,” tweets New York Times’ reporter Paul Mozur. “Now the world’s largest IPO has stalled. As bad as US policy has been for China tech, Xi’s gov’t is also a huge risk.”
The treatment of Ma “illustrates not just the perils of appearing to cross Beijing, speaking one’s mind and challenging orthodoxy. It raises questions about the future of innovation at a critical moment, one where China is counting on internal dynamism rather than external demand to drive its economy,” writes Bloomberg’s Andrew Browne.
“hope for the future”
And perhaps ironically, the last tweet from Ant Group’s Twitter feed before the IPO was suspended mentioned “hope for the future.” (Apparently they had no idea what was about to hit them.)
Turn inward to guard against vulnerability…
The dimensions of China’s new “dual circulation” strategy is slowly starting to become more clear, according to a new report. “One way to interpret it: open economy to the outside world where that brings benefit; turn inward where that guards against vulnerability,” explains the Economist’s Simon Rabinovitch, citing the example of the push for China’s own semiconductor industry.
But shave 1.6 ppt off of growth
Still, don’t expect that to be easy. Indeed, if China leans too far inwards, that could reduce annual growth in the 2020s from 4.6% to 3%, Shaun Roache, an economist at S&P tells the British business publication.
“Turning inward could be costly. It may result in less foreign technology flowing into China, less of the competition that has spurred on Chinese firms, and more wasteful investment as the government throws money at favored industries.”
Xi: Any single city cannot expand indefinitely
A recent speech by Xi Jinping that shows his dislike of large cities suggests he is unlikely to pursue real hukou reform or allow Chinese people to settle down in China’s showcase cities. That is likely to be a drag on future economic growth as labor productivity continues to be hampered by the Mao-era hukou or household registration policy.
“It’s an economic law that industries and populations will concentrate in advantageous regions. But the size of any single city cannot expand indefinitely,” Xi said in the speech that was given earlier this year, reports the South China Morning Post.
The decades-old fear of uncontrolled migration
“The economy of scale shouldn’t be the only factor to consider in terms of urban development,” he said. “Instead, ecology and security must receive a higher priority. Economic, living, ecological and security demands must be well coordinated.” (Security here likely refers to the decades-old fear by Chinese officials that the unmanaged flow of people from China’s countryside (urbanization) could lead to social unrest in the cities.)
No idea how private economy will operate independently
"I have no idea how or if the private economy will be able to operate independently, nor how they expect to grow the domestic economy when people's pockets are empty," former top Chinese official Bao Tong tells Radio Free Asia in a fascinating interview following the Party’s Fifth Plenum that discussed China’s five-year plan.
“I am totally in favor of a role for the market in the allocation of resources; what eludes me is how this will be implemented in practice. And I am really struggling to understand how they hope to achieve total marketization with international recognition in the absence of the rule of law.”
Now for the bullish view: 8.2% growth next year…
“The Chinese economy continues its fast recovery from the pandemic, helped by a strong containment effort and swift policy actions early on to mitigate the crisis and support the recovery,” writes the IMF after the international lending agency’s latest mission to China.
The IMF is predicting that GDP growth will be at 1.9 percent this year, rising to 8.2 percent in 2021, with “moderately expansionary macroeconomic policies” and “supported by a shift from public to private demand.”
And one-half of Chinese in middle class by 2025
By 2025 nearly half of China’s people will join the middle class or above is the bold prediction made by MacroPolo’s Houze Song in a new report.
The report argues that China’s central authorities can help push reform on local governments by limiting the finances they have available, thus driving them to be more resourceful and competitive.
“As the size of China’s labor force continues to shrink, ever fiercer competition among cities and regions for human capital, particularly skilled labor, will lead to more relaxation of the hukou system,” writes Song.
And that will be win-win: “Being able to live more permanently in cities will improve the lifetime income of migrants because urban wages are higher and can alleviate some of China’s labor shortage pressures.”
But minting the middle class costs money
But isn’t there a dilemma here? One main reason that localities have refused to carry out hukou reform in the past is their fear that integrating migrants and their families into public schools and urban health facilities will be exorbitantly expensive. Might then a resource-constrained environment for local governments lead to more resistance to reform - not less?
Notable/In Depth
"He's now president for life. President for life," Trump said after Xi Jinping oversaw the constitution change ending term limits several years ago, his comment tweeted again this week, by Asia Society senior fellow Isaac Stone Fish. "And look, he was able to do that. I think it's great. Maybe we'll have to give that a shot some day.”
“Characterized by selective censorship without transparency and accountability, China’s content control has turned the Chinese internet into a hotbed of distorted information and ultra-nationalistic narratives,” writes Lotus Ruan in East Asia Forum.
“Corporate content moderation practices are in place primarily to protect the political interests of the CCP, while driving up their own revenue. Alternative narratives and critical analyses that challenge government authorities are the primary targets of oppression on social media platforms, leaving a vacuum for a highly singular set of conservative and often extreme ideologies to flourish.”
“Americans’ view of trade is more optimistic than ever and has only become more so under Trump. In February 2016 when Gallup asked Americans whether they saw foreign trade as more of a threat or opportunity, the optimistic view won 58-33. By February of this year, those seeing trade as opportunity had grown to 79% of those polled,” reports Bloomberg News’ Shawn Donnan.
“Lenin was referred to as the helmsman. Stalin too was the helmsman. And Mao was the helmsman. In all instances they were referred to as the duoshou (舵手),” writes China Media Project in an interesting piece that looks at the new honorific now given to Xi Jinping.
Earlier speaking engagement
Better treatment of China’s migrant workers is key to China’s successful economic transition; trying to please foreign business less important, I argued in a recent speech to the China-Britain Business Council. Watch the video here.
Imminent book talk!
Jiayang Fan of the New Yorker and I will be speaking at the Hong Kong International Literary Festival Saturday night EST (Sunday morning Hong Kong time). Tune in please!
