China is not a democracy and this is bad news for global business community

China is not democratic.

China, which is ruled by the Communist Party, wants the whole world to know that it is in fact, a democracy and one which is better than the U.S.  Ahead of the Summit for Democracy hosted by the U.S. from December 9 to 10, China has executed a series of propaganda campaigns claiming, however improbable, that its one-party system is a democracy too and one that works better than the U.S.

Be that as it may, it does not matter what the Communist Party says but it is what they do that matter.  The fact remains that the Communist Party under the leadership of Xi Jinping has increasingly turn to Maoism and rule the country with a totalitarian bend.  There is no tolerance for dissent, no room for opposition parties, no popular elections to give a ruling mandate to Xi, and any call for democracy, public or otherwise, is punishable with jail sentences.

The Communist Party controls the judiciary and media, and does not recognize universal values like human rights, freedom of speech and freedom of the press, among others.  It has repeatedly oppressed the people of Tibet, Xinjiang, Hong Kong, Inner Mongolia and elsewhere in China.  

No capitalism in communist China

Importantly too, the private sector is subjugated to the political will of the Communist Party.  For example, under pressure from the Communist Party, Didi announced on Friday December 3 that it has begun the process of delisting its shares from the New York Stock Exchange, just listed six months earlier, and preparing for a Hong Kong listing.  After Didi’s IPO on June 30, the party responded with harsh measures against the company, including banning it from signing up new customers and forcing it out of local app stores.

Institutional shareholders like Softbank, Uber, Apple, Morgan Stanley, Tencent, Alibaba and Singapore’s Temasek, and retail investors alike are left in the lurch after seeing the shares fallen steeply from the IPO price of US$14 a piece to US$6.07 on December 3.

Being a totalitarian regime, the party does not want to give access of Didi’s customer data to the U.S.  Also, the Communist Party would rather keep tight control of its companies than open them up to foreign investors on the U.S. markets.  The officials want to ensure that power, wealth and capital are not concentrated in the hands of a few industry leaders like Jack Ma or Pony Ma.  Therefore, the delisting was a political decision, not a business one.  And this is not democratic.

The delisting raises investor concerns and alarm bells are reverberating in the global business community because of a growing official clamp down on Chinese tech companies that list shares on foreign exchanges.  This Didi delisting is likely to keep foreign investors away from Chinese tech stocks.

Clash of ideologies: Communism vs democracy

The Communist Party is sending a clear signal that China no longer needs Wall Street.  In the long term, it is speculated that there is going to be an economic and financial decoupling between the U.S. and China because of the fundamental ideological difference and the fact that China wants to overtake the U.S. to be the number one global superpower.  

Meanwhile, U.S. officials, clear-eyed about what the Communist Party is up to, have stepped up efforts to push Chinese companies off the New York exchanges. On December 2, the Securities and Exchange Commission published new rules that will allow it to demand extra disclosures by Chinese companies.

It is undemocratic to crack down, based on political reasons, on the video game industry, education industry and entertainment industry.  Another example of an undemocratic action by the Communist Party.  Last year, in a warning to toe the party line, the Communist Party yanked back a mega-IPO of Jack Ma’s Ant Group after he criticized the country’s regulators, even though the listing is supposed to debut in Shanghai and Hong Kong.

And it is definitely undemocratic to ignore the plead of a sexual assault victim.  The Communist Party took just 20 minutes to censor tennis star Peng Shuai after she went online and accused Zhang Gaoli, a former vice premier, of raping her.  Silencing Peng is the top priority and there is no investigation into her case.

It is indeed strange that China is engaging in an ideological competition with the U. S. to see who is more democratic. However, this Chinese propaganda has the unintended effect of showing the regime’s insecurity and lack of confidence in communism. The CCP can, for all intent and purpose, highlight whatever it thinks are the advantages of communism and Maoism over democracy. But the CCP chooses not to and this omission, in fact, sounds louder that what was being said. 

If the Communist Party really thinks its political model is better, there is no need to justify it in terms of and reference to democracy.  The fact that it does is a powerful testament to the legitimacy and advantage of democracy.  Democracy aims to root out corruption and defend human rights while a totalitarian regime fosters corruption and human rights abuses.

Therefore, despite what the Chinese propaganda says, China is not a democracy and businesses are at risk and at the mercy of the Communist Party.  In China, it is hard to understand what the rules are because politics and business are intertwined tightly, and the lines between private and state control are blurred.  Investors and CEOs are better off putting their money where they understand the rules of the game.

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