“No Choice But to Follow the Party”
The Wall Street Journal reports China’s Xi Ramps Up Control of Private Sector. ‘We Have No Choice but to Follow the Party.’
Xi Jinping, long distrustful of the private sector, is moving assertively to bring it to heel.
China’s most powerful leader in a generation wants even greater state control in the world’s second-largest economy, with private firms of all sizes expected to fall in line. The government is installing more Communist Party officials inside private firms, starving some of credit and demanding executives tailor their businesses to achieve state goals.
In some cases, it is taking charge entirely of companies it regards as undisciplined, absorbing them into state-owned enterprises.
The message isn’t lost on entrepreneurs, who are reorienting their businesses to appease the state or giving up on private enterprise altogether.
“For us small businesses, we have no choice but to follow the party,” says Li Jun, a 50-year-old owner of a fish-farming business in the eastern Jiangsu province. “Even so, we’re not benefiting at all from government policies.”
The article noted how Mr. Xi personally intervened to block the $34 billion initial public offering of one of China’s biggest private firms, Ant Group.
That led to the “no choice” observation by Li Jun, the owner of a fish-farming business.
Michael Pettis Comments
- Good article by @Lingling_Wei on how state control of the Chinese economy has increased in recent years in spite of assurances that Beijing wants to maintain the role of the private sector.
- While part of this trend may indeed be explained by a deepening conviction within the country’s leadership that markets and private entrepreneurs are unpredictable and not to be fully trusted, as Wei suggests, I would argue that it is also a necessary function of this stage of China’s growth model.
- This is something I’ve often argued would happen, and was the point I made in an article I wrote for the FT in April. As long as Beijing requires growth rates that are substantially higher than the economy’s real, underlying growth rate, …
- I said in the article, China has no choice but to expand the state’s presence in the economy. If the healthiest sources of demand – consumption, exports and private-sector investment – are together unable to generate the level of growth that Beijing considers to be politically necessary, …
- only an expansion of the public sector can achieve the GDP growth rate that Beijing has targeted. This is something we saw most obviously this year, when, thanks to the effects of the pandemic, private-sector demand actually contracted, leaving an expansion. …
- of the public sector to account for more than 100% of growth. Next year I expect we’ll see the private sector maintain its share of the economy as a partial rebound of private demand delivers all or most of the implicit GDP growth target, but thereafter I expect we will…
- revert to a rising state sector presence. Without a serious rebalancing of demand, in other words, as long as Beijing targets GDP growth of 3-4% or more, the state share of the economy, and of loans, must expand. There is no other way to achieve the growth target.
Translation Comments
On average, governments do not allocate resources as wisely as the private sector.
But when governments mandate growth targets, they will do whatever it takes (mountains of unproductive debt) to do so.
The payback will come in the forms of writeoffs and poor growth in the future.
Mish
Do you know why China able to print more than 3 trillion Yuan a year for the past 5 years, without much inflation ? China has been printing more than 1 trillion Yuan every year since 2005, to stimulate the economy.
China able to print such huge trillions of Yuan yearly, with minimum inflation, is because China have US$300-400 billion trade surplus with USA every year.
In addition from 2000-2014, China have accumulated more than US$3.5 trillion in forex holdings overseas. This included US$1.3 trillion in US Treasury bonds making China the largest owner.
Therefore trillions Yuan China printed yearly are actually supported by China trillions in forex holdings and billions in yearly trade surplus.
This trillion Yuan printed every year, allow China to pay for all the expensive infrastructure, such as high speed railway network system, big dams, huge wind turbine farms, country wide telecom infrastructure, vast road network, south to north water transfer canal project,etc.
Also China was using the trillion Yuan printed to subsidise exporters such as Huawei, ZTE, etc.
China able to invest and build such giant infrastructure projects WITH NO NEED to depend on IMF, World Bank and foreigners investment. Don’t you think this is very amazing ?
I have discuss this with very brilliant and knowledgeable economists in the internet forum, and they all did not believe my analysis and observation.
But these so called brilliant academic also unable to explain why and where China get all the billions of Yuan or USD to build such advanced infrastructure for the past 10-15 years.
So there are no secrets of China economic success. It is all due to trade surplus earned from USA, and printed trillions Yuan to invest in their huge infrastructure projects, and subsidise exporters, to ensure can continue to earn trade surplus with US.
Americans consumers are the real suckers all along. None of them benefit from trade with China.
Without help from people like the Kissinger, Clintons and Biden’s, China would be filthy backwater country.
From
http://www.zerohedge.com
LMAO!
We’ll see something similar in the US. The difference is it will be a marriage between corporations and the gov’t. Similar to the way unions work with the gov’t. If you help elect the democratic party, the gov’t will look the other way with regards to your business practices and help protect your business interests. It’s already begun with silicon valley firms and the democrats.
China has enormous problems in the allocation of capital. We also have issues in that our companies use their capital to do stock buybacks increasing the returns that corporate officers have in stock compensation rather than investing in improvements and innovation.
The western world has also seen a continued increase in government debt to gdp. Whereas China SOE and government debt add up to 150% of gdp roughly (70% + 80%) , we have government debt often over that 80% (or near 250 % for Japan) plus banking liabilities that cannot exactly be called free market (due to everything from QE to rate policy etc.) .
The point I am making is that there is “a lot of management” going on around the world, and that possibly the only distinction with China is one of “etiquette”. Government debt is often criticized, but “after all it goes to or for the public” … mostly…maybe ? There is no reason western government debt should be any less helpful or less destructive than Chinese ? Private sector debt in the west , a lot of that is pyramidal on government debt, as is private business often. The hierarchy of finance is also very likely biased.
So etiquette, as in voluntary contract (even if it is ultimately corrupted by wider influence) vs. directly openly allocating lending “and why not have some observers and a few laws to make sure it is used as described/directed” . I think these are the differences that set the opposition, however it would be foolish to not realise our own countries are also somewhere along the same path.
Too many independent ventures lead to divergence of the individual and state. This cannot be permitted in a place like China.
Alert. While we were busy securing elections, the GRU, Kremlin and Russia moved in for the kill.
By taking over the price sector China is jeopardizing their dominance in the 21st century. Central planing always fails, just look at Russia and France. Most people don’t think of France and just Russia but it was disastrous in both. There might be benefit when an economy is nascent or starting from scratch but that’s hardly the case today. China is almost certainly setting themselves up for more confrontations with other countries by not focusing on domestic consumption
In the meantime the utterly stupid EU monster is ever so happy doing business with China while taking a vengeful stance against a democratic UK….
China’s goal is to take over the world and they are working hard at this task from many different approaches. IMO, their most important work is in their space program. I will not be surprised if China has the first moon base and that will potentially give them control over Earth orbit as they would then have the ability to restrict who and what can be lifted into Earth orbit.
America Surrenders to China
COMMENTARY
By Brandon Weichert
December 09, 2020
The United States is mired in a succession crisis. There is much loose talk about another civil war erupting between supporters of President-elect Joe Biden and President Donald Trump. As this occurs, America’s enemies act boldly against U.S. interests. Each precious moment wasted on deciding which septuagenarian won the White House in November is another moment that the Chinese Communist Party continues its long march to global dominance.
China’s dominance will not come at first in the form of military conquest. Beijing is very much a 21st century power, and its program for displacing the United States will look far different from what the Soviet Union tried during the Cold War. Chinese dominance will be brought on by superior trade, industrial, and technological development practices.
….
If I wanted to bet on technological dominance, I would bet on the West. I project that Google will come up with better answers for artificial intelligence than any Chinese “Great Wall” project in quantum computing. Also from now on there is no more free tech university research looting by Chinese graduate students. Everyone is now aware of how Chinese intelligence theft works now. Trump did something right.
Trump’s Space Force and NASA’s return to the moon programs are realizations of China’s desire to establish a base on the moon. Obama really hurt space exploration progress when he cancelled the Shuttle program without having a US designed replacement.
Who believes the debt to GDP numbers published by the People’s Bank, anyway? Chinese debt/GDP is over 300%.
I remember you (Mish) said in an earlier article you thought the debt was still “quite manageable” when it hit 317% back in May.
My question would be……when does it get “not manageable”? In a command economy where the government can create as much debt as they need to keep hitting their growth targets….
And what happens if the private sector just doesn’t always keep bouncing back. Is it that different than the Fed stimulushere…..hat obviously gives us less and less growth per amount of printing…..as growth stalls out in a world with real limits to growth.
Pumping up the state owned enterprises means the consumer winds up subsidizing. Each time China has done this the consumer feels poorer and consumption as a percentage of GDP declines. If China was hoping to rebalance and move away from an export led economy this is not the way. China has a well educated workforce with a great deal of entrepreneurial spirit. This is the wrong path. They need to embrace the consumer and entrepreneur and move away from state control. Progress is less immediate but the results will be far better
China did have a great deal of entrepreneurial spirit from the era of Deng Xiaoping era of the late 1980s and forward, unbelievably hard working Hukou labor which worked in terrible sweat shop conditions making ladders and suitcases. That generation is retiring and the new generation want nice well paid positions in large corporations, and also there is a tremendous drop in the demographic age group coming forward from this point on.