The New Ruler of
All Under Heaven
Xi Jinping propels his China Dream, a vision for China and for the world
By Jean-Luc Burlone
The 19th Chinese Congress has enthroned Xi Jinping as the sole leader of China. Similar to “Mao Zedong thought,” “Xi Jinping thought” has been written down in the Chinese Communist Party (CCP) Charter as the operative guideline to all CCP activities. Chairman Xi has a strategic vision for the next 30 years – he intends to restore China to its former glory and to make his country the world superpower by 2049.
The political situation
When elected General Secretary in 2012, Xi Jinping triggered an anti-corruption campaign to cleanse the CCP from the corruption that was weakening China. In the past five years, 1.5 million members of the CPP were disciplined, 270,000 were prosecuted and 11% of the members of the Central Committee were equally prosecuted for corruption and other crimes. The army, cleansed as well when 13,000 officers were dismissed and 50 generals were replaced, now pledges its obedience to the chairman rather than to the party.
Chairman Xi has a strategic vision for the next 30 years – he intends to restore China to its former glory and to make his country the world superpower by 2049.
The anti-corruption drive also led to the downfall of prominent incumbents and Mr. Xi filled the vacuum by his own trusted people. Through them, he controls the provinces and the major cities. In the end result, 17 out of 25 members of the Politburo and four out of seven members of the powerful Standing Committee are his devotees.
China however, is a complex country to be governed by one individual, powerful as he may be. The anti-corruption policy has created new enemies for Xi Jinping, and stamping out dissidence by cracking down on civil society and the press have spurred resentment against his leadership. In addition, the new and very wealthy middle class is determined to protect its privileges while poverty feeds frequent rural unrest across the country.
The CCP has to tackle the extreme inequality and environmental damages the economic growth has caused. If it fails, the people will loose its trust in the party and could challenge its program, if not its survival.
In spite of these latent troubles, Xi Jinping’s flawless trajectory secured him an extraordinary concentration of power for the next five years and likely longer as there is no successor in sight to take over at the next party congress in 2022. The similarity with Mao’s 30-year chairmanship is striking and worrying.
The remembrance of Mao’s lunacy: the Great Leap Forward failure and the following Cultural Revolution rage (with a death toll between 40 and 70 million), remain vivid among old leaders like Jiang Zemin and Hu Jintao, who were present at Mr. Xi’s enthronement and whose families have suffered much during Mao’s dictatorship.
‘Xi Jinping’s flawless trajectory secured him an extraordinary concentration of power for the next five years and likely longer… The similarity with Mao’s 30-year chairmanship is striking and worrying.’
As a safeguard against such madness, all past Chinese leaders have built and maintained a collective leadership system to ward off damaging consequences of a dictator’s insanity. They are evidently concerned by Mr. Xi new dictatorial power. They represent political fractions that may dent the current cohesion behind their chairman if events allow it.
For now however, any notion that relates to political plurality or to separation of power between the legislature, the executive and the judiciary is dead on arrival. Most Chinese believe that only a strong patriotism and a strong central leadership can bring about China’s new era.
Mr. Xi takes every occasion to present himself as an apostle of peace, a champion of free trade and a protector of the environment. He stated that China will never impose its will on another country (considering Taiwan not as country but as a province of China) and promotes China’s efficient system as a model for a world in search of new approaches.
The surrounding countries are alarmed. South Korea, Vietnam, India, Japan and Taiwan collude to protect themselves and to contain China’s expansionist tendency. Territorial disputes about atolls with Malaysia, Indonesia, the Philippines and some others listed above have no solution in sight.
These Asian countries are not reassured by China’s claim that its system is beneficial for most nations. They are concerned about the United States’ relative decline and they are organising themselves to face and appease China. The possibility of nuclear arms proliferating in the region is real, not mentioning the North Korean threat as an additional cause for alarm.
‘The surrounding countries are alarmed. South Korea, Vietnam, India, Japan and Taiwan collude to protect themselves and to contain China’s expansionist tendency.’
The timing is good for Mr. Xi’s prospective. The West lacks a clear direction: Great Britain’s divided government is without a plan for Brexit, European countries are caught in the resurgence of nationalism and the United Stares are enmeshed in acrimony and political paralysis. After the 2008 crisis, the world started to question America’s economic and financial system; after the 2016 election, it questions its political system.
Decrying western democracies as systems that have gone astray (with some help from Russia), Mr. Xi promotes China’s political system to the world as the efficient system for political control that allows the planning and fulfilment of a vision. An autocratic political model to which Mohamed Bin Salman, the leader of Saudi Arabia (a US ally), already subscribes to push his own Vision 2030 plan.
Human Rights abuses have worsened under Xi. The issue is seen as raising people out of poverty and educating them to enlarge the country’s middle class. Education is highly praised in China but freedom of speech, of association and other rights, cherished by the West, are perceived as threats to be curbed. The rising middle class, although an aging population, is for the present a demographic asset to China’s service economy.
The economic dimension
Since 2014, China has become the largest economy in the world with $23.2tn GDP on Purchasing Power Parity basis. China also became the largest trading partner for nearly 100 countries, almost twice the number of countries (57) that have the US as their major partner. Sustained by a 500 million and growing middle class, China’s service economy now represents 70% of the country’s GDP.
‘Education is highly praised in China but freedom of speech, of association and other rights, cherished by the West, are perceived as threats to be curbed.’
The renminbi, China’s currency, is reaching international recognition as the IMF has inserted China’s currency in the Special Drawing Rights on October 1, 2016. In spite of China’s standing in international trade, its currency represents but a small fraction of total settlements. Nonetheless, the government expects a shift from a US dollar-based system toward a multi-currency one and is laying the groundwork to secure a top position in the upcoming system.
Integrating China to the global financial system is not without risk. Though China’s savings represent 45% of its nominal GDP ($11.8tn), its debt level reaches over 250% and the corporate debt stands at 156% of GDB and is rising rapidly. Potential defaults from the corporate sector may well derail the Chinese financial system. If so, the downward pressure on the renminbi could spill over to the global financial sector and revive the deflationary threat.
Chinese firms have increased global competition and successfully dented the market share of incumbents. However, some important sectors face an undue concentration in the hands of Chinese state-owned enterprises (SOEs). SOEs dominate large sectors that include real estate, natural resources, mining and agriculture. Their dominance raises concerns over the global economy efficiency.
China’s competitors fret at those SOEs that have the financial support of their government and act in line with political objectives. Inefficient with a low level of productivity, Chinese SOEs are a drag to the national economy as well because they use a substantial amount of capital that crowds out investment for more productive private Chinese enterprises.
‘… the government expects a shift from a US dollar-based system toward a multi-currency one and is laying the groundwork to secure a top position in the upcoming system.’
When China accessed the World Trade Organisation (WTO) in 2001, it agreed to open, within fifteen years, its market to global trade and investments. In return, China was promised the free-market oriented economy status, which would protect its exporters from facing a special type of restriction. By December 2016 however, China had yet to become a truly transparent free-market economy.
Earlier this November however, China announced new rules that will allow foreign investors to own 51% of shares in a join venture. The opening of its financial market is a step toward fulfilling the required criteria for a free-market status. Negotiations over whether the United States (and other countries) will grant the free-market economy status to China are ongoing since December 2016. Political and economical considerations are entangled in the issue.
Donald Trump’s appreciation of Mr. Xi and his conviction that bilateral trade deals are more advantageous than multilateral ones may favour China’s access to the sought after status. Both leaders seek an understanding where each superpower will act to serve its respective needs and objectives – a laissez-faire attitude as long as one’s interests are not threatened.
In time, this bilateral approach, where different rules apply in different time and place, complicates trade negotiations and prevents a level playfield for all trade partners. On the other hand, Mr. Xi’s global trade vision, carried by the Belt and Road Initiative, proposes a well-defined project with common standards and rules for all participants.
The Belt and Road Initiative is Xi Jinping’s major economic proposal to propel China in world affairs. The one trillion dollar investment per year is an infrastructure project that will link over 60 countries to China through six land corridors (the Belt), and a waterway (the Road). But countries like India are reluctant to participate, considering that the inherent financial implications may turn into a debt trap.
‘The opening of its financial market is a step toward fulfilling the required criteria for a free-market status.’
Others welcome China’s financial initiatives. African countries, that have recognized mainland China dominion over Taiwan (only Burkina Faso and Swaziland have not), have enjoyed Chinese loans and investments to exploit their resources or to develop their infrastructure in the transportation, power, mining and communication fields. Djibouti houses the first Chinese foreign military post and is, with Kenya and Egypt, on the Chinese maritime Road.
China needs natural resources and commodities. In compliance with its strict foreign policy of non-interference in other countries’ internal affairs, China’s sole and self allowed intervention in foreign countries is through its prolific generosity. China is rich and eager to invest in other countries to build trade ties and to shape the world on its own terms.
Whether fuelled through trade or investment, continued economic growth is essential to enable Mr. Xi to thrust his China Dream. The Chinese people must be kept prosperous and satisfied with their system and Chinese political fractions must be kept in check by a flourishing economy. But economic growth follows economic principles rather than political will, even more so in a world where technology interconnects all economic agents and where all financial networks are highly interdependent.
The power of technology
For over three decades, China has emphasized science and technology as fundamental to economic development. Since 2015, China has become the world leader in super-computers and second to none in AI, renewable technologies, robotics, 3D printing and so forth. Its business plan, Made in China 2025, aims to lead the world in cutting-edge technologies. Chinese airports are examples of technology applied to state-of-the-art facilities, built with regard to passengers’ wellbeing, efficiency and sustainability.
The Chinese are eager consumers of technology. Over 750 million people are online and most are on mobile Internet. In 2017, an estimated 664 million Chinese are using smart phones to communicate and to execute financial transactions. The sheer number of connected Chinese feeds mega data to AI machines, where it is analyzed and used to monitor behavioural patterns and to reveal public consumption and political trends.
‘Since 2015, China has become the world leader in super-computers and second to none in AI, renewable technologies, robotics, 3D printing and so forth.’
Under Xi Jinping’s leadership, a CCP representative will take a seat on the board of every large private company, including technology giants like Alibaba, Wahway and Tencent. The CCP expects each enterprise to act and grow in concert with the party’s objectives. The privacy of consumers is not an issue under Mr. Xi and the CCP will remained informed and well equipped to handle popular tendencies.
Chinese technology furthers the country’s economic prowess. China is investing hundreds of billions in research, acquisitions of innovative technology and, if need be, in stealing intellectual property. America has filed hundreds of legal actions to bind China to follow common trade rules but to no avail as China follows its own rules or those that serve its objectives.
China has flexed its military muscle in 2017: it has opened its first foreign military base in Djibouti and sent its navy manoeuvring with the Russian fleet in the Baltic Sea. China downplays its military activities as purely defensive or in support of peacekeeping and humanitarian missions. Interestingly, a rumour circulating implies that China sees no need to match the United States’ military might.
Ultimately, the word is that China’s system and technology will take down its rival. If technology is to be China’s strongest asset to reach the world superpower status, the country must be the first to master quantum technology. Though not a weapon, quantum technology will give an advantage to its master comparable to the advantage the US gained in mastering the atom in 1945.
‘China has flexed its military muscle in 2017: it has opened its first foreign military base in Djibouti and sent its navy manoeuvring with the Russian fleet in the Baltic Sea.’
China currently leads the global race to master quantum technology. The country has demonstrated its prowess last summer by teleporting information from earth to space and launching the world’s largest quantum communications network that spans 2,000 km, from Beijing to Shanghai.
After loosing its leadership in global trade and climate change, America is loosing its lead in technology. China has already used quantum satellites to build an unhackable internet in space. Since quantum computing can, in an instant, break all existing encrypted codes, the technology is of supreme importance for the military and China’s stated objective is to master it by 2020 or sooner.
What will determine the world’s response to Mr. Xi’s China Dream? “Events, dear boy, events will decide”, would be the answer. (Attributed to British Prime Minister Harold Macmillan.)
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Jean-Luc Burlone, Ms. Sc. Economy, FCSI (1996)
Economic Analysis – Financial Strategies
The text above is my personal view, based on a review of the economic and financial press. November 20, 2017. JLB
Fellow of the Canadian Securities Institute (FCSI), Jean-Luc Burlone has an excellent knowledge of financial product management and holds a Master’s degree in economics from the Université de Montréal with a dual specialization in development economics and International economy – finance and trade.