China: Mr. Xi's New Regime
Summary
- Mr. Xi Jinping, President of the People's Republic of China, has been given a life-time extension of his position.
- Many, including the Economist magazine, are seeing this as the end of the West's hope for a democratic, capitalistic China.
- Perhaps these analysts are reading too much of the "Western Model" into the current moves and need to reflect on exactly what has changed, if anything.
The Economist (March 3, 2018) has an important cover story and opinion piece this issue. The title, “How the West got China Wrong.”
The thrust of the opinion piece is “the West’s 25-year bet on China has failed.” The “bet”?
The bet was that if the West opened up itself and its markets to China, China would not only become more and more of a capitalist country and its government would move more and more toward becoming a democracy.
And for years, the opinion writers argue, the West believed that this was happening.
Now, however, “China stepped from autocracy into dictatorship.” The dream of the West ended.
In terms of economics and markets, how should we respond to this?
Well, 25 to 30 years ago, a friend of mine who had worked with the Chinese gave me three insights into the way the Chinese were working that have helped me over this time period to more fully understand Chinese behavior.
First, he said, the Chinese understand that they must become more capitalistic to function in the global economy. They had observed the Russian efforts to bring Russia’s concept of communism into the world and impose it upon others, and saw that the Russians and those that followed Russia failed.
To succeed in the twenty-first century, China must develop a more capitalistic economic outlook.
Second, events of the latter part of the twentieth century showed the Chinese that they must adhere to their own natural tendencies and focus their plans and policies on decades, not upon years.
To reinforce their basic instincts, they looked at the political situation in democracies where governmental plans and policies were based upon the next election. That is, the driving force in the political sphere was how to get re-elected. Therefore, most plans and policies were forced into short-horizon spaces in order to help politicians face the next election.
Thus, I was advised, look at everything the Chinese do in terms of what they are trying to accomplish over the longer run and don’t misinterpret them by putting them into my own shorter-run time horizon.
Third, the Chinese wanted stability and sustainability in their efforts to move into the modern world. The Russian model, again, convinced them that tight control was a necessary element of their hopes for success.
The Chinese saw the Russian economy and culture fall apart in the late 1980s and 1990s and interpreted the collapse as a result as Russian leaders shifting too quickly from being a “controlled” society under the Communist Party, to a more open and democratic attempt to become modern under Mikhail Gorbachev and those that followed him
Chinese leaders wanted no part in such turmoil and chaos. To me, the past twenty five years have fit this pattern pretty closely.
Now, let’s move ahead to the present situation. My feeling is that the present move by Mr. Xi Jinping and the Chinese fits into the strategies pictured above.
Let’s start with the third insight. I think that the Chinese are amazed at the disorder that exists within the world today. The growing populism in many countries, including the United States, scares them because it foreshadows disorder, instability, and loss of control. These are the very things that the Chinese leadership fears. They want control, order, and consistency.
The first move by the Chinese that reflects this concern was at the meeting in Davos, Switzerland in January 2017. The newly elected US president Donald Trump was sending signals that he was pulling the United States out of trade agreements, the Trans Pacific Partnership (TPP), and wanted to renegotiate NAFTA. He also pulled out of the Paris Climate Agreements. And, he wanted to raise tariffs and other trade restrictions.
Mr. Xi stepped right into the vacancy that Mr. Trump left. Mr. Xi said he and China would carry on the banner of globalization. China also moved into greater negotiations with other Asian nations to cement trade agreements with them, even though many Asian nations continued to build on the foundations of the TPP even without the United States.
And, China continues to pursue its quest to become an important reserve currency and is playing ball within the World Trade Organization and other international bodies.
The leadership in China wants to see continuity and stability and is consenting to Mr. Xi’s extension of power in order to sustain the current thrust of Chinese expansion. The Chinese are seeing the upheaval in the United States, the disorder in Italy, the threat that arose to Ms. Merkel forming another government, the Brexit in Great Britain, the upheaval in the Middle East, and other examples where populism is threatening leadership and stability.
In order for Chinese leaders to achieve their longer-term goal of becoming a major world power, insight number two mentioned above, they needed to gain sufficient control of their government so that “populist” tendencies - or other political dysfunctions - seen around the world, could not divert China from its current path.
I never expected China to move to a full democratic governing model. The “Chinese model” of government always contained much more control over a society than the “democratic model.” And, there is no reason why different models, with different governing balances cannot exist at the same time and still work together. Not to say that a lot of other things, like surveillance, freedom to express different opinions, and liberty to move and act need to be worked out between different parties.
In terms of the first point made above, about the move to a more capitalistic framework, I still believe that the Chinese realize that the better economic model of the world is one leaning more toward a capitalistic framework and less to the socialist model. In truth, Russia and Cuba and Venezuela just do not work for them.
China, still believes that they must become more competitive in world markets and are striving very hard to achieve this. They are making special efforts to encourage and support AI, aviation, technology, and other areas that are to be key in the future economy. Their efforts in FinTech are well known. Furthermore, they are still attempting to make Chinese higher education the best in the world.
The problem for the United States? As suggested by the Economist, the United States must, itself, remain competitive within the world community, building coalitions and partnerships, and other alliances that will continue to set the standards that China must conform to in order to become and stay competitive. Pulling back from this globalization will only provide the opening China craves.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (13)
