Chinese Revolution against Private Enterprise will Hasten Decoupling of Supply Chains

Made in China no more in face of a class struggle.

The CCP cannot be trusted to provide a safe and stable environment for businesses as Xi Jinping is taking China down a dangerous path with his revolutionary rhetoric and actions.  

Xi Jinping’s China is a Maoist, ultra-nationalistic, coercive, repressive and totalitarian state.  As general secretary of the Chinese Communist Party (CCP), he has whipped up a class struggle of poor against rich.  He has started a series of crackdowns on the private sector and ordered the rich to share their wealth with the rest of the country as he promised “common prosperity” to lift farmers and working families into the middle class.  

Xi has also unleased a new generation of ultra-nationalistic youths to attack businesses if they are perceived to be insufficiently loyal to the CCP.  Effectively, Xi is holding free enterprise and free trade hostage and if the private sector wants to continue to operate in China, they will have to be at the mercy of Xi.  He wants more influence and control over the management decisions of private companies to ensure that they adhere firmly to the CCP-determined red lines.  

Xi no longer hides his contempt for western concepts like democracy, rule of law, freedom of speech, freedom of press and human rights, nor does he conceal his intention to create a new world order based on totalitarian control.  Revolution is the primary tool that Xi uses to rally the people behind him to defeat capitalism, foreign influence and his political rivals as well.  On a deeper level, in Xi’s calculus, this Maoist-era revolution is also used to prop up the legitimacy of his rule.  

Xi is backtracking on the economic reforms started by Deng Xiaoping in 1979 when China opened up to the world and embraced capitalism.  Now, Xi is at war in China and with the world too and he is willing to sacrifice economic progress and the livelihoods of the people to achieve his agenda.  Importantly, the CCP’s powerful military and paramilitary forces are looming ominously in the background in support of Xi’s expanding domestic economic war.

Exodus of supply chains out of China

Xi’s revolution presents an existential threat to businesses operating in China as there are now more uncertainty and instability and less of the potential to earn a decent profit relative to the high risks.  In fact, Xi is compounding and accelerating the decoupling of supply chains, which was first initiated by the U.S. – China trade war in 2018 and the pandemic in 2020.  

After the trade war and pandemic highlighted the many risks and vulnerability associated with an overreliance on China, a significant number of Japanese, Taiwanese and South Korean corporations and including Apple and Foxconn, strengthened their supply chain resilience by moving their operations out of China and back into their home country or to India, Vietnam and other low-cost countries in Southeast Asia.  Looking ahead, it is speculated that more businesses will move their supply chains out for fear that Xi will intensify his revolution and target more sectors.

Harnessing the power of a mob

A clear and present danger to all supply chains is the rabid, ultra-nationalistic youths who have been brainwashed by CCP propaganda and are willingly being used by Xi.  On July 1 during a speech at the CCP centennial celebration, he further escalated anger and intensified his attacks towards “class enemies” by threatening to bash their heads.  Clad in a gray Mao suit, he said: “The Chinese people will never allow foreign forces to bully, oppress or enslave us.  Whoever nurses delusions of doing that will crack their heads and spill blood on the Great Wall of steel built from the flesh and blood of 1.4 billion Chinese people.”  

This kind of rhetoric might play well to the commoners but it compounds the fear of investors and CEOs that Xi will use the power of the mob to target their supply chains, and this fear will eventually lead to the exodus of supply chains.  The irony is that many Chinese people believe in Xi and celebrate his tough Maoist style as a symbol of national strength, without giving any thoughts to what his policies are doing to the economy.  Moreover, Xi’s draconian handling of the Covid-19 pandemic, in sharp contrast to that of many Western countries with higher death rates and less-stringent lockdowns, has reinforced the people’s confidence in Xi.

And with propaganda and losing the ability for critical thinking, some people believe too that the country’s past economic achievements have come about because of, not despite, the totalitarian government.  This is wrong and in reality, China’s economic progress since the 1979 opening up was the result of Economics 101: As the state gave way to the market, private enterprise and trade flourished, growth quickened, and incomes soared.

An example of how easily a mob of ultra-nationalistic youths can turn against a brand was highlighted on September 15 when famous Chinese-born actress Gong Li was seen to wear an Adidas white top in a photoshoot with the Chinese edition of Vogue magazine.  Adidas is one of the foreign brands that faced backlash after their refusal to use Xinjiang cotton because of concerns of forced labor involved in its production.  

Many netizens on social media accused Gong Li of insulting China and called for boycotts on all her works and a ban of her from doing business in China.  They also dismissed Gong, who became a Singapore citizen in 2008, as a “Singaporean banana”.

The harsh reality facing investors and CEOs

Besides the ongoing political risks, investors and CEOs are also beginning to be wary of the legal, economic and reputational risks of doing business with Chinese companies involved in human rights abuses.  The CCP’s human rights abuses in Xinjiang put businesses at risk of exposing their supply chains to forced labor and other abuses.  

The authority has also rounded up and detained about 1 million ethnic Muslim Uighurs at “re-education camps” for indoctrination to strip them of their ideas, belief, traditions, culture and language.  Additionally, Xi’s regime has built an increasingly oppressive surveillance system all across China, more so in Xinjiang, that employs the advanced AI-assisted face recognition technology to tighten control over every aspect of society. 

Although Mao Zedong was responsible for tens of millions of deaths during The Leap Forward and Cultural Revolution campaigns against the people of China, and critics called him a mass murderer, it is ironic that he was idolized by Xi and many citizens now.  The CCP has shown that they are incapable of acknowledging and atoning for this murderous reign in history.  With this red wave of Mao-inspired revolution sweeping across all of China, 

This is the harsh reality facing investors and CEOs.  Many in the past have wrongly assumed that political freedom would follow economic reforms and that change could be achieved through economic engagement. This is an outdated perception of Xi’s China.  

For China to get back on the track for economic progress, the CCP must renounce Maoism and lift controls on private investment, free trade and foreign businesses, and away from the overbearing state planners, China’s entrepreneurial spirit, mixed with imported capital and technology, will unleash another round of growth and prosperity.  However, with Xi firmly in-charge of the CCP, this scenario will not happen anything soon.

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