As if it is not enough with all the current crises facing the Chinese economy, self-inflicted by Xi Jinping’s totalitarian rule, on October 23 during the last day of the 20th Party Congress, Xi secured an unprecedented third term in power, potentially paving the way for him to rule for life. Investors showed their fear as Xi made clear during his opening speech that politics and social stability, meaning totalitarian control over everything and everyone, are paramount.
On October 24, Chinese stocks listed in New York and Hong Kong crashed. On October 25, the yuan hit its lowest level against the US dollar in 15 years. In currency markets, the yuan traded at its weakest point since 2010.
Many rich Chinese are now selling off their properties with luxury homes in Shanghai plummeting by as much as 40 percent in value. Reportedly, they are fleeing with their money to Singapore and setting up family offices. Overseas investors like the Taiwanese are selling restaurants, hotels and other assets for cash.
With the fear of Xi’s anti-capitalism policies and the use of class struggles against the wealthy class hanging over their heads, Chinese and foreigners alike want to run away and fear it will be too late if they do not dispose of their assets now.
Break the rose-tinted glasses
Be that as it may, there are still CEOs and investors with their rose-tinted glasses, because of their greed or ignorance, are even now holding out a false hope that the Chinese economy is still a cash cow, there are still commercial opportunities and money to be made, and they can still conduct business as usual, an assumption that is an illusion and is the exact opposite of facts and the real situation on the ground.
The reality is there are widespread social and economic pains including lockdowns, high unemployment and low consumption, caused by zero-Covid policy, crackdowns on private sectors, property crisis, and banking crisis, among others. And then there is another of Xi’s flagship policies, an insistence on common prosperity to promote prosperity for the masses over financial gains for the rich.
The World Bank recently slashed forecast for China’s 2022 growth to 2.8 percent, the first time it projected the Chinese economy to fall behind the rest of Asia since 1990. Beijing’s official target is 5.5 percent growth for this year.
The new seven-man Politburo Standing Committee, top decision-making body in China, is filled with Xi’s loyalists, who show a total subservience to Xi’s wishes but are not known for their economic competence. They are firmly anti-U.S., hawkish on foreign relations and are prepared to use force to invade Taiwan. Xi clearly values personal loyalty over meritocracy and this does not bode well for the Chinese people, economy and the country.
Xi’s totalitarian regime and Maoist ideology is not market-friendly and is in fact hostile to free market forces. And with his insistence on a continuation of the zero-Covid policy and crackdowns on the private sector, which have already caused considerable damage to the world’s second-biggest economy, it is speculated that for the next five years, it will become clear politics triumphs over everything else, and this means global investors will shun China because there is a high level of uncertainty an instability.
Back to Mao Zedong’s era of Great Leap Forward, Cultural Revolution
Xi’s policies are reminiscent of Mao’s Great Leap Forward (1958 to 1962) and Cultural Revolution (1966 to 1976), which resulted in a devastating famine, economic disaster and tens of millions of deaths. Since declaring the creation of the People’s Republic of China (PRC) on October 1, 1949, Mao had provided a blueprint and shown that it is possible to subjugate a vast population under the rule of a dictator. 73 years later, Xi took a leaf out of Mao’s playbook.
Xi uses nationalism and a cult of personality to maintain his grip on power, and a total control over China and the Chinese people. He built a cult of personality and presented himself as a strong leader, the only one capable of leading China. He manipulated the people and united them against enemies and threats to his rules, and when it suited his agenda, he used nationalism to incite hatred for foreigners and foreign brands.
Although on one hand, Xi needs the Chinese people to be on his side, but on the other hand, he does not trust them. So, he used propaganda, censorship, mass surveillance, artificial intelligence, big data and other technologies to control and brainwash the population. He suppressed dissent, critics and minorities like the Uyghurs, Tibetans and Mongolians through the use of heavy-handed methods like brute force and long jail time. China is the only country to spend more on internal security than defense.
Xi’s zero-covid campaign, an insult to medicine, science and common sense, brings back memories of the Cultural Revolution where officials and the masses alike went to ridiculous lengths to execute Mao’s wishes. For example, entire regions with tens of millions of people were shut down over a small number of infections, and Covid testing were even conducted on fish, food products, cars and imported goods. In September when an earthquake struck Chengdu, a city of 21 million people under Covid lockdown, residents were prevented from escaping.
The future of the world is decided now
Many investors and CEOs are now clear-eyed that Xi and his new Politburo Standing Committee are further harming China’s economy in the next five years. They also realized the global economy is now at an inflection point as intense competition between the free world and authoritarianism is underway to decide the future of the world.
In the past, foreign engagement with the Chinese Communist Party (CCP) was driven by the pursuit of profit rather than values. Investors, CEOs and politicians turned a blind eye to serious human rights violations and continued to do business. But this situation has changed now, mainly because Xi has damaged the economy which is now much less attractive as an investment destination, and by mandating a strict subservient of business to politics, he ratcheted up the cost of doing business with the CCP.
Xi wants to upend the current rules-based world order, which has ensured prosperity and stability for decades, and which China has greatly benefited from, to one that favors dictators, because he sees the success of a free and open rules-based international order as a threat to his regime and ambition. He uses a whole-of-country approach with nationalism and economic, diplomatic, and military coercion to reshape the current international order.
However, Xi mistakenly believes democracy is weak and he does not see the fact that democracy consistently outperforms authoritarianism in economic growth. Just look at the economies of North Korea and Russia. And by repeatedly egging on nationalism, which has become increasingly volatile and disruptive to the economy, it only served to show to the world the ugliness of China.
It is never a good bet to bet against democracy. And no country, no matter how strong it appears, can truly prosper without freedom. Democracy, despite all its faults, leads to a prosperous society, sustainable economy and enables the people to continually progress, upgrade and reimagine themselves to better their socio-economic situation.
However, this opportunity is not found under the totalitarian regime of the CCP. When elites and the rich are getting a second passport and migrating to western countries and Singapore, when the masses lose hope in China’s future, when poor parents cannot feed and provide for their children, it is really time for investors and CEOs to look for greener pastures to invest their money.
Photo credit: iStock/ RyanKing999
