Chinese President Xi Jinping, chairman of the Chinese Communist Party, hears what he should hear and his subordinates tell him what they think he should hear.
China today wants radical economic reforms. Its economy is weighed down by a style that no longer works. The real estate bubble burst. The banking sector is probably bankrupt. Its demographic trajectory is disastrous and it is unlikely to be replaced. The other Chinese are not optimistic about their future. They save because there is no social safety net. Couples do not have children because the educational formula is expensive and manipulated compared to the typical family. The economy is in long-term decline because the CCP’s economic style has failed. In short, China will have to change course without delay and radically.
The PCC has just held its third plenum, a meeting of elites to talk about economic reforms. But this Third Plenum did not focus on reform, but on failure. Xi believes that Marxism is amazing for capitalism. He is wrong. But Xi is a dictator and an old man with absolute power. He believes himself to be omniscient.
The CCP will continue to promote the state-owned enterprise style of economic expansion. The knowledge is clear. State-owned enterprises generate particularly lower economic returns than the personal sector. Public corporations have more resources and grow while destroying capital. The personal sector is more efficient. The personal sector is doing more with less. But Xi demands absolute obedience. Xi distrusts the market-responsive personal sector, the CCP.
Xi believes China can grow through exports. He is wrong. The United States and the European Union are already protecting their domestic auto industries from Chinese imports. The United States and the EU will no longer tolerate the dumping of subsidized excess production. A global industrial war is looming. Former President Donald Trump is the overwhelming favorite to be elected president in November. Trump has pledged to increase tax gains by applying price lists to all imports. Such a tariff policy would hit China hard. China’s policy of generating expansion through exports will fail.
To escape the middle-income trap, China will have to reform its economy by focusing on domestic consumption, encouraging families to consume more and save less. But Chinese families do not cooperate. Consumption is stagnating. The other Chinese see great progress for themselves and for the economy. China’s efforts to increase consumption are failing. Conclusion: the other Chinese have no confidence in their future.
It is true that China rightly sees generation as a path to national prosperity. The problem? Xi’s paranoia about security is crippling the tech sector. Entrepreneurship is fading. Innovators fear that someone will knock on the door at midnight. The most productive and brilliant are fleeing China. After many years of strong foreign direct investment, foreign capital is moving away from China. Investing in China is a smart way to lose money.
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Artificial intelligence gives the option of reviving the moribund growth of productivity. At some point, the Biden or Trump administration would put the federal government’s strength into AI. In China, it’s different. China may simply be a leader in AI, but national security considerations are holding back its efforts to implement and promote AI innovation, which an open society demands. The all-powerful Xi rejects openness and artistic destruction. It prefers stability and a universal democracy. a forceful CCP over a developing economy with shared prosperity for all.
But his excessive authoritarianism is an end.
James Rogan is a former United States Foreign Service officer who worked in finance and law for 30 years. He writes a note about markets, politics and society.