Xi is taking a Great Leap Backward and it is Bad for Investors

Know what it means to be a communist and why Xi Jinping’s revival of Maoism is a danger to the economy.

Understanding Xi, Maoism and why investors are at risk in China.  

By Lee Kok Leong, executive editor, Maritime Fairtrade

Recently, with Xi Jinping, general secretary of the Chinese Communist Party (CCP), accelerating the transformation of China towards becoming a Maoist regime, the world has finally awoken to the threat his actions pose to investors doing business and investing in the country.  China has taken a beating to its reputation as one of the favored destinations of global investment as under Xi, there is a lack of rule of law and protection of property and private capital.  He is making the already-tense economic situation even worse.  

Xi is reviving Maoism to deal with both external and internal threats and to maintain the stability of his governance.  He is weaponizing a new generation of Red Guards to attack foreign interests and domestically, he uses Maoism to rally the people behind him to eradicate rivals and to consolidate his political power.  In Xi’s narrative, only another revolution can rescue China from “imperialists” and “domestic exploitation” by foreign businesses.  In this climate where business and politics are tightly wedded together, investors cannot afford not to understand the true nature of the CCP.

What Is communism?

Communism is a political and economic ideology that advocates for a classless society in which all means of production, property and wealth are communally-owned, instead of by individuals.  For the economy, the CCP makes decisions, instead of consumers and businesses.  Communism is the exact opposite to democracy and capitalism.  Maoism is a variant of communism that Mao Zedong developed for realizing a revolution in the agricultural, pre-industrial society of China.

Under communism, individuals and the private sector are merely a means to be used towards the achievement of the ends of the CCP.  Therefore, they do not have inherent value and can be easily sacrificed for the CCP’s goals.  They exist only to serve the party.  The party does not exist to serve them.  Xi, the chairman of everything, seeks total control over the management of companies in the private sector and over the people’s lives.  This means economic control, political control, physical control and mind control.  

Totalitarian control over everything

To indoctrinate loyalty and subservience to the party firmly into the minds of all citizens, there are mandatory study sessions on communist ideology for students and beginning in September, all schools are also required to teach “Xi Jinping Thought”, starting for children as young as seven years old.  Thus, colleagues are encouraged to spy on each other.  Neighbors are urged to report on one another. Children are taught to look for traitors.

To block out and counter all kinds of unwanted foreign news, ideas and influence, there is complete control of all media.  Foreign sources of information are banned, from newspapers to social media like Twitter, Facebook and WhatsApp.  In 2020, the CCP expelled at least 18 foreign journalists from the New York Times, Wall Street Journal and Washington Post.  And there is constant harassment and obstruction of journalists doing their job by state security and police.

All information and news in China are heavily censored.  There is zero tolerance for dissent and the CCP does not hesitate to jail anyone, from bloggers, reporters, lawyers, activists and religious believers, for expressing any views contrary to the party line.  In fact, since the outbreak of the pandemic, the authority has arrested and detained hundreds of people for merely speaking out about the virus.

In recent months, Xi has implemented a slew of draconian policies, reminiscent of those from the Mao era like the Great Leap Forward and Cultural Revolution, which had a disastrous impact on the economy and resulted in tens of millions of deaths.  Xi has initiated Cultural Revolution-styled crackdowns on the tech, education, media, games, and popular culture industries, among others, and has also unleased a new generation of Red Guards on businesses and celebrities if they do not sufficiently show loyalty and toe party lines.  With a broad stroke, Xi has singlehandedly wiped out at least US$1 trillion of market value from stock exchanges and caused massive job losses.

What is the Great Leap Forward?

The Great Leap Forward was an economic and social campaign started by Mao from 1958 to 1962 to rapidly transform China from an agrarian economy to a modern industrial society with the ability to compete with western industrialized nations.  However, the Great Leap Forward resulted in a sharp contraction in the economy and between 30 to 55 million deaths by starvation, execution, torture, forced labor, and suicide out of desperation.  

The Great Leap Forward was the largest episode of mass killing in human history, and a clear example of the failure of communism and a centrally-planned economy.  Its failure dented Mao’s status within the CCP and not one to reflect on his mistakes, he plotted his return to power by launching the Cultural Revolution.

What is the Cultural Revolution?

The Cultural Revolution was a violent sociopolitical movement from 1966 until Mao’s death in 1976 to preserve communism by purging remnants of capitalist and traditional elements from the Chinese society.  Be that as it may, this movement was fundamentally about power grab, as Mao tried to eliminate his rivals and regain control by setting radicalized youths, the Red Guards, against the CCP hierarchy.  

However, the movement had widespread consequences at all levels of society as well, as the Red Guards persecuted and killed other perceived class enemies like landowners, intellectuals and those with ties to foreign countries.  Additionally, as the Red Guards grew more extreme, they also destroyed historical sites and cultural relics.  In the end, the People’s Liberation Army was sent in to control them.

The death toll was estimated to be one million and the number of people persecuted was estimated in the tens of millions.  The chaos, social upheaval, mass relocation and closing of schools were believed to have sharply curtailed economic development and growth.

More risks facing investors

Investors and CEOs used to say that the massive 1.4 billion population is a lucrative consumer market.  However, this assumption is flawed.  In 2020, premier Li Keqiang said that there are still 600 million poor people, about 40 percent of the population, whose monthly income is 1,000 yuan (US$155).  He added that this income is not enough to rent a room in a city.  Even citizens living above the poverty line are struggling.

On top of this fact that there is a large portion of the population who do not have disposable income to spend, there are other factors at play too, including sluggish consumer spending, slow household income growth particularly for lower income group, high unemployment rate, university graduates struggling to find jobs, falling birthrates undermining growth, and an aging population.  All these economic and social challenges add up to debunk that China has a massive and lucrative consumer market hard for investors and CEOs to ignore.

There is a clash of ideologies confronting investors and CEOs who are used to operating in a democracy with a rules-based order and a free and transparent competitive environment.  In communism, there is an absence of incentives to produce for profit, lack of innovation and entrepreneurial spirit, and a concentration of power in the hands of a select few that provides them the opportunity to game the system for their own benefit and to retain their hold on power.

Communism disincentivizes hardworking, innovative, and industrious businesses and people.  Communism deters critical thinking and breeds inefficiency and corruption.  The end result is that the economy will suffer.  In reviving Maoism, Xi runs the risk of backfiring as his policies create resentment within the CCP and among citizens whose daily lives have been negatively impacted.

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