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China: Mr. Xi's New Regime

Mar. 05, 2018 8:44 AM ETiShares MSCI China ETF (MCHI), GXC13 Comments
John M. Mason profile picture
John M. Mason


  • 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

This article was written by

John M. Mason profile picture
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

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.

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Comments (13)

Good article but you did not even talk about Taiwan. I believe China will follow what happened to Taiwan. They went from a dictatorship to a democratic country. It took 50’years but it happened. China is moving to a dictatorship which always end in one way-crash. It might take 50’years but it will happen. The young smart Turks will see the only way to power is to destroy the model. Anyways great read
In China, these cycles tend to be longer than in the west. I dare say that few, if any, of us will be around if China ever does become something resembling a democracy, even eastern style like Japan.

About 6 months ago I got trough Hong Kong the written information, with photos, how the by far biggest catholic church for a few thousand persons was closed by the Chinese government authorities and later, so was said, destroyed. It was a shock for the people. As reason was said that they had to listen only to the Chinese government. This will answer your above questions. By the way when I was younger I had a lot to do in the former East European communist countries, but they never did something like this in this brutal way. Unfortunately our Managers staying in China have Tomatoes on their Eyes not seeing this. I always have been sceptic about China, I never bought any stocks, but after this I knew what is going on.
1) According to Chinese VCs, most Chinese companies try to delist from NYSE and NASDAQ and move back to Chinese market. They claim US market is less attractive than Chinese stock market. Is it true?

2) Xi's regime fully manipulates all the private data from Alibab, Tencent, Baidu and etc. How will it affect their performance?
A couple of points to amplify this generally informative article. Based on my observations have worked, lived and traveled in Southeast Asia for over twelve years, I can see on the surface, and probably much deeper later, that Xi's thrust will be both economic and military. Presently, despite the usual assurances of friendly relations, all of China's neighbors are more apprehensive than even they have been in the past. Vietnam still clearly remembers the 1979 boarder war with China. The Philippines is in the position of throwing people off the sled to keep the wolf away by doing nothing about Chinese seizure of islands the Philippines has claimed for decades. Onerous trade terms have resulted in even poorer quality Chinese product going to the region than what is sent to the US. Hong Kong and, to a lesser extent Macau, are resigned to the fact that they will be governed by satraps chosen by Beijing. The one thing that Xi has in common with the western social welfare types is that he, like they, firmly believe they can tweak the laws of classic economics to achieve their ends. We can look for interesting times (Chinese definition).
I understand The Donald thinks the US should have a similar system of life-time extension.
Ben Gee profile picture
The option is open to Xi whether he want to stay on the job or not.
Windsun33 profile picture
I think the biggest mistake the West (particularly the US) made in regard to China was assuming that capitalism equals democracy. But there are a long list of other mistakes you could add to that. Short term the new Xi dictatorship might good for China - but as with all dictatorships there are no checks or balances if things go bad.
The Economist magazine is right, seeing the end of the West's hope for a democratic, capitalist China, with the life time extension of Mr. Xi Jinping's position. It is a wondering fact that so many did believe in this in Europe and the US.
Windsun33 profile picture
The US and the West in general has gotten almost everything wrong on China for the past 30 years. If you look back you can see hundreds of examples of supposedly smart economists and politicians predicting the downfall or collapse of China - and every single one has been wrong.
Thank you again John for another thought provoking article. Stability (economically and socially) is a required success in every country. However, when one's power is misused (as in the culture revolution), it can lead to dire consequences of economic collapse and extreme poverty. Unfortunately, as Chinese history shows, when a leader gain unlimited power, it always lead to disasters (remember Mao and Chiang). I would not put confidence in the Chinese market in the long term. As chaotic as our democratic country, the brilliance of our founding fathers still stands. Our businesses will find a way to succeed because no president can come in and suddenly take away its asset in the USA. In chaos, we have stability.
Absolute power absolutely corrupts.
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