Category Archives: China

Xi Ping: “The Communist Party is the guarantor of the interests of the people”

The 19th Communist Party Plenary Conference has consolidated Xi Jinping as the Chinese leader for the next fifteen years. His speech points to plans that take him to 2035, when the next national milestone is to be reached on China’s path to becoming a global power by 2049, the centenary of the People’s Republic. So, the strong inference is that Xi is likely to remain in office through the 2030s.He is now China’s most powerful leader since Mao Zedong, evidenced by the fact that an entirely new body of “Xi Jinping thought” has been elaborated – and incorporated into the Party’s constitution.

Clearly, Xi’s anti-corruption campaign over the last five years helped him consolidate his position. Since the campaign began, some 278,000 officials have been punished, including 440 at ministerial rank and above – several of which were Xi’s politburo rivals. And, rather than loosening the screws, Xi’s report to the 19th National Congress suggested just the opposite: the Party should prepare for further tightening.

The new Politburo Standing Committee has been shaped by Xi. Li Zhanshu, who will chair the National People’s Congress, and Zhao Leji, who will chair the Party’s disciplinary authority, are both members of Xi’s inner circle. Han Zheng, the executive vice premier, and Wang Huning, who is in charge of all CPC affairs, are both protégés of former president Jiang Zemin. And Premier Li Keqiang and Wang Yang (likely to be Chair of the Chinese People’s Political Consultative Committee) are from the Tuanpai, the Communist Youth League faction. This political balance will likely favor Xi enough to allow him to secure a third term as president.

Xi’s speech sees China as remaining under the governance of the CPC- a Leninist party that monopolizes state power. Political transformation in the foreseeable future is highly unlikely. Xi states that China will never import a political system from anywhere else in the world. “China’s socialist democracy,” he argues, “is the broadest, most genuine, and most effective democracy to safeguard the fundamental interests of the people,” and it now represents an alternative model for the rest of the developing world. China’s official media have now moved beyond the conventional arguments that democratic decision-making has been ineffective in bringing about long-term economic development, a new set of arguments has been unveiled: Western democracy is corrupt, hypocritical, and fails to meet the needs of the poor.

The edited published version of Xi’s speech provides an invaluable glimpse of the contours of Xi’s strategic vision. It is a vision of a new type of great power relations, by which Xi means geopolitical parity between the US and China. China is to shape the rules governing a new international system that includes not only the United Nations and the Bretton Woods institutions, but also China’s own institutional innovations in the form of the Belt and Road Initiative, the New Development Bank, and the Asian Infrastructure Investment Bank. Xi’s thought stresses a ”global community of common destiny for all humankind,” as fundamental. This is a departure for China in the long historical scheme of things, since China has never taken on such a role.

The economy remains centre stage and China’s capacity to delivery on its ambitions shouldn’t be scoffed at. Since Den Xiaoping began to institute structural economic reforms in 1978, China has lifted some 650m people out of poverty. By contrast, middle class incomes in Western economies have stagnated. Whilst Western governments led by the US and UK have, in the 1980-2007 period, deregulated and allowed a major shift from the real to the financial economy, the only real growth that has been experienced by Western companies has been due to their ability to shift their cost base to China, and other developing economies partially dragged along in the wake of Chinese growth.

China may have (quite naturally) slowed, but will still add around $1 trillion or more to its nominal GDP, giving it a $12 trillion economy by the end of this year – thus doubling the economy since 2010. Although this is only two-thirds the size of the US economy, this amount is actually larger than the entire GDP of Indonesia or Turkey, and almost as large as the Mexican economy.

Furthermore, growth has shifted away from the previous export-led model. Official data shows private consumption in China accounting for just 39.2% of GDP, rising from 35.5% of GDP in 2010, an increase that amounts to an additional $2.58 trillion since 2010 – an increment actually larger than the entire Indian economy. The growth of Chinese consumption is easily the most important factor in global consumption growth today. If this trend continued up to 2020, the new number would be 41.5% of GDP, adding another $2 trillion. This will represent the most substantial injection of activity into the global economy in the next few years.

The China credit bubble

We discussed China’s credit bubble on February 7, 2015 in a piece called ‘Capitalism died a long time ago’ ( see:

It was pointed out just before the crisis in 2007, that China’s GDP has doubled, expanding by $5 trillion in 7 years, but that it took a $21 trillion expansion of debt to accomplish this. Thus China’s Ponzi scheme actually created $4 of debt for every $1 of additional GDP.

Now we begin to see some results. As Doug Noland points out (in: we have had a revelatory stock market melt-down in China, and goes on:

Never have so many Chinese owned (over-priced and poorly constructed) apartments. Never have Chinese citizens, governments, financial institutions and corporations accumulated so much debt. Never have the Chinese had so much invested in securities markets. China has zero experience with a multi-trillion (yuan or dollars) “shadow banking system.” Never have so many invested so much in “wealth management” vehicles and other sophisticated financial products, without a clue as to where their “money” was directed. And when it comes to corruption, I seriously doubt history offers a like comparison.

The Chinese – apartment owners, bankers, Internet financiers and policymakers – have never experienced the downside of a massive Credit Bubble. Never has China experienced Trillions of “money” that retains “moneyness” chiefly on the perception that the all-knowing central government will safeguard its value. Never have Chinese finance and spending had such major impacts around the world. China does, however, have a long history of financial panics.

A week after blaming short sellers and foreigners and employing unprecedented market intervention, officials this week espouse a preference for market forces to play a prominent role in setting the value of the Chinese currency. Credibility – so vital in markets and as the bedrock of money and Credit – can dissolve so quickly. Clearly, the Chinese will rely on market forces only so long as the markets are operating consistent with their policy aims.

Chinese officials hold grand ambitions for global economic, financial and military supremacy – a vision brought into keen focus during this protracted Bubble period. In the near-term, however, their fixation has shifted to ensuring that everything doesn’t come crashing down. Collapse would see the focus shift to villainizing foreigners, maintaining social order and retaining power.


Capitalism died a long time ago

We will all pay for this.

One could argue that capitalism died around 1913 when the US Fed was founded, but a more sober appraisal could be that the period 1913-1971 was a transition period towards the centralised state finance capitalism we have today.

China’s rise in the past 35 years has been a copy of the West’s state finance capitalism, and its  success to date is proof of the fact that you don’t need a free economy and society to build a Ponzi scheme such as ours.

Since just before the crisis in 2007, China’s GDP has doubled, expanding by $5 trillion in 7 years. A graph below shows that it took a $21 trillion expansion of debt to accomplish this: so China’s Ponzi created $4 of debt for every $1 of additional GDP.

China's debt

The orgy of construction fueled by that debt, much of which is in non-revenue public facilities  or straight-out owned by local government, now weighs heavily on the Chinese economy – the only economy that has been propping up world activity since 2007.

Capitalism in our great-grandfather’s day would have it that debt was managed by myriad businesses, enterprises and small banks that would fail if they made the wrong investment. Now we have situation where centralised state finance capitalism is, through ZIRP, completely distorting markets across the board. We will all pay for this.