Billionaire investor and founder of Mobius Capital Partners Mark Mobius said on March 2 he could not take his money out of China due to the country’s capital controls, and that the Chinese government has put in place “all kinds of barriers”, like demanding “records from 20 years of how you’ve made this money”.
Mobius, who has an account with HSBC in Shanghai, cautioned all foreign investors to be “very, very careful” about investing in an economy under tight government control. He recommended investors to consider India instead.
China’s economy is in trouble. No amount of charm offensive and communist propaganda can cover up this fact. Reportedly, the provincial government in Harbin was not able to pay wages for postal workers; in Guang Xi, the police could not afford to pay utility bills; and the local Jiangsu tax office did not pay salaries to workers. There were also reports of local government officials who were forced to take a pay cut, pensioners who had their benefits reduced, and bank customers not able to withdraw their deposits.
To put it simply, China is now in need of money because of a series of recent self-inflicted crises, including crackdowns on capitalism, failed zero-Covid policy and its abrupt and unplanned abandonment, which devasted the economy, leaving it with high unemployment, low consumption and an unprecedented rate of capital outflow.
Business confidence is now at an all-time low. It seems like on one hand, communist officials are going all out to attract foreign investment while on the other hand, preventing money from leaving China.
Xi Jinping, who secured a norm-breaking third term during the annual meetings of China’s parliament and top political advisory body, together known as Two Sessions, which concluded in early March, is now the undisputed supreme leader of a totalitarian regime. Xi has also built a cult of personality around himself as the core of the Communist Party and put his print on all aspects of everyday life.
For his new term, to manage the Chinese economy, Xi has put in place a team, headed by the premier, with little experience in economic policy or dealing with international financial organizations. His selection was based on personal loyalty rather than on competence and this put an added risk on the economy in that this team will always place the interests of Xi over those of the Chinese economy.
Xi has abandoned Deng Xiaoping’s policy of economic reforms and engagement with the U.S. Instead, modeling himself after Mao Zedong, the architect of the Great Leap Forward and Cultural Revolution, anti-capitalism campaigns which resulted in millions of deaths, Xi doubled down on an anti-capitalist stance.
On March 6, during a speech for business delegates at the Two Sessions, Xi wanted the country’s private companies to fight alongside the Chinese Communist Party against the U.S. and its allies. In this one broad stroke, he has officially removed any last remaining line separating business and politics, and effectively politicized the entire private sector.
What this implied is that all private businesses, including foreign-owned companies and investment, must henceforth, follow the wishes of the political masters and subjugate their business interest to the Communist Party’s interest.
Xi stressed the need for political and ideological control of the private industry, emphasizing that CEOs and investors must be patriotic and correctly understand the principles and policies of the Communist Party.
Xi also underlined his policy of “common prosperity”, in which he wanted rich businesspeople to share their wealth with the masses. In other words, he wanted to engineer a redistribution of wealth to take power away from the entrepreneurs, who have become influential, powerful, rich and high-profile, which he perceived to be a threat to his position.
In order to intimidate the rich and get them to fall in line, Xi uses the practice of forced detention. The latest to disappear from public view was prominent billionaire banker Bao Fan, who was not seen for two weeks and reported missing in the first week of March. His company said he was cooperating in an investigation being carried out by certain authorities.
Forced detention is also allegedly used on other famous entrepreneurs like Jack Ma and Guo Guangchang, China’s Warren Buffet and founder of Fosun Group. This tactic causes investors to lose confidence in China, where the government does not respect human rights and will not abide by international laws and standards. This trend of suppression will only intensify and become more brutal going forward into Xi’s third term in power.
China’s business and political environment is not what it used to be under previous leaders. Now, many foreign CEOs, investors and domestic entrepreneurs have lost confidence in China. Because of astute foresight and a correct understanding of the true nature of Xi and the Communist Party, a number of them were able to move their money and investment out of China previously.
With this warning from Mark Mobius, those foreign CEOs and investors that are still enamored of Communist China are finally getting a reality check, and more importantly, they will not be reuniting with their money and investment anytime soon.
Photo credit: iStock/ imtmphoto. An image of a stressed businessman.