CHINAMacroReporter

'Does Xi Jinping Face a Coup Threat?'

In today’s issue: 1. Rest easy. Xi is Safe / 2. China a Career Killer? /3. Rethinking 2020: What’s Overlooked and What’s Overhyped / 4. China’s Financial Opening Accelerates
by

|

CHINADebate

January 23, 2021
'Does Xi Jinping Face a Coup Threat?'

In today’s issue:

1. Rest easy. Xi is Safe.

  • 'Does Xi Jinping Face a Coup Threat?'

2. China a Career Killer?

  • 'Why Chinese Companies are Having a Tough Time Recruiting in the U.S.'

3. Rethinking 2020: What’s Overlooked and What’s Overhyped

4. China’s Financial Opening Accelerates

  • ‘China’s Easing of Regulations Restricting Foreign Ownership of Financial Firms’
  • ‘Reasons for Increases In Cross-Border Capital Flows into China’

'Does Xi Jinping Face a Coup Threat?'

  • This is clickbait for China wonks.

And it led me to listen to the full and fascinating Pekingology podcast with CSIS’s Jude Blanchette interviewing Yale’s Dan Mattingly.

  • Here are some highlights:

‘In the popular imagination, what an autocrat has to fear unrest. He has to fear protestors in the street, storming the gates and taking him down.’

  • ‘Generally though, what has led to the unconstitutional exit of authoritarian leaders from office isn't mass protest, isn't mass uprising - instead it's coups; it's other elites taking down the leader. And that's really what autocrats have to worry about.’
  • ‘A study shows that almost 70% of leaders in the post-war period of autocratic leaders when they've exited office has been because of coups.’
  • ‘So it's this fear of other elites that's really important.

‘And who launches coups and what are coups successful nine and 10 times a successful coup is by the military.’

  • ‘So if you're an autocrat, you really have to be nervous about what's the military doing and is the military coming after me?’

‘If you take a kind of broad view of different types of authoritarian regimes, one-party regimes like China under the CCP are generally more stable, more resilient, less likely to experience a coup.’

  • ‘Military dictatorships - and China is by no means a military dictatorship - are more vulnerable to coups than one-party systems like China.’

Dr. Mattingly goes on to argue that Xi Jinping has sufficiently secured the support of the leadership of the People’s Liberation Army to keep himself safe from a military coup.

  • We can all rest easier.

My interview with Julian Ha, a partner in the global executive search firm, Heidrick & Struggles, highlighted issues about the U.S. executives who work or refuse to work for Chinese companies doing business in the U.S. that I had never considered. He told me:

  • ‘Just a few years ago, some of the very large Chinese conglomerates - the Anbangs, the HNAs, and the Wandas, and the Huaweis - were all expanding globally but in the U.S. in particular.’
  • ‘And they were all hiring folks at senior levels to help them run the factories, to run the corporate functions, marketing, and so on.’

But ‘because of the uncertainty created by the retraction from the U.S. market and the rise of anti-China sentiment, the Chinese companies that are still in the game in the U.S. are having a much harder time recruiting talent.’

  • ‘When a Chinese company is being threatened with or actually being put on the Entities List, senior talent think twice about joining.’
  • ‘Potential recruits ask themselves, “Is this something that would be a career-limiting move?” ’

‘And they may be right.’

  • ‘I have seen senior executives who took on very public roles within some of these Chinese companies finding that their life after those companies has been more limited.’
  • ‘I would even go so far as to say it has a bit of a taint. A bit like working for big tobacco.’

‘Rethinking 2020: What’s Overlooked and What’s Overhyped’ from MacroPolo provides a corrective to conventional wisdom.

What’s overlooked?

1. ‘Closing the Curtain on the GDP Obsession Era’

  • ‘Although some observers have noted this shift on GDP, its significance may be underappreciated.’
  • ‘It is tantamount to simultaneously reshaping political incentives, changing the investment-driven model, and redirecting focus toward de-risking and reforming the economy.’
  • ‘In short, the Xi administration has been unexpectedly tolerant of austerity—a precondition for ramming through very difficult structural reforms that are essentially growth negative in the near term.’

2. 'Decoupling Is Everywhere Except in Reality’

  • ‘If a single word were chosen to define US-China in 2020, “decoupling” would be a good candidate.’
  • ‘Bandied about with abandon, the term has created the perception that these highly complex supplier networks were being severed in real time.’
  • ‘What has been overlooked is just how little meaningful decoupling actually happened.’
  • ‘What has actually happened on the decoupling front appears disproportionately modest relative to the attention heaped on it.’

What’s overhyped?

1. ‘China Slams Door on The World'

  • ‘Yet when it comes to capital markets, China has gone in precisely the opposite direction, further linking itself to global capital.’
  • ‘Although market openings began around 2018 and capital inflows rose steadily since, it wasn’t until 2020 that foreign capital inflows saw a notable spike.’

2. ‘BRI Is Down but Not Out’

  • ‘China’s overseas lending plummeted in 2019, leading some to prognosticate the death knell of the “Belt and Road Initiative” (BRI).’
  • ‘Yet China’s overseas lending has risen in 2020, though it has not returned to the heights seen in 2017 and 2018.’

‘China’s Financial Opening Accelerates’ by Nick Lardy and Tianlei Huang of the Peterson Institute for International Economics goes in-depth on some of the points made by MacroPolo:

  • ‘Despite predictions by some observers that the United States and China are headed for a “decoupling,” China’s integration into global financial markets is accelerating.’

'The best example of China’s deepening integration into global financial markets is the substantial increase in the role of US and other foreign financial institutions in China.'

  • 'This was made possible when Chinese market regulators, starting in 2017, gradually eased long-standing restrictions on foreign ownership, most of which were incorporated into the US–China Phase One agreement signed in January 2020.'

'The attraction of the Chinese financial market for foreign firms is substantial and will only grow.'

  • 'The total assets of China’s financial sector at the end of the second quarter of 2020 stood at RMB340 trillion ($48 trillion).'
  • 'Because of previous restrictions, foreign firms have only a tiny slice of most segments of this market; they control less than 2 percent of banking assets, for example, and less than 6 percent of the insurance market.'

The analysis explains 'several factors have contributed to the rapid increase in foreign holdings of onshore renminbi-denominated Chinese securities.' They are:

  1. 'Chinese stock and bond markets have grown rapidly since 2014 and have become too big for global investors to ignore.'
  2. 'The number of channels that facilitate foreign portfolio investment has also grown.'  
  3. 'The inclusion of Chinese securities in global stock and bond indices, like the Bloomberg Barclays index, drew institutional investing.'  
  4. ‘Interest rates on Chinese government bonds are higher than the US interest rate, and a rate cut is unlikely.'
  5. 'The renminbi appreciated about 6 percent vis-à-vis the dollar between January and early December 2020; from its low point in late May, it appreciated 8 percent. Foreign investors can now both earn higher returns on Chinese bonds and convert their RMB earnings back into dollars at a more favorable rate.'
  6. ‘China's rapid economic recovery from the COVID-19 pandemic reflects the profitability of Chinese industry, which is driving its strong equity market performance.’

Here’s a trend that is likely to continue regardless of the state of U.S.-China relations.

  • That’s because China sees a benefit in bringing foreign expertise and capital.
  • And doesn’t fear competition because it closed those markets long enough for its own firms to attain overwhelming dominance.

One more thing.

In the last issue I referenced former National Security Advisor, Gen. H.R. McMaster’s 'Biden would do the world a favor by keeping Trump’s China policy.' About this I wrote:

  • ‘Gen. McMaster gets one big thing wrong when he writes: "U.S. policy between the end of the Cold War and 2017 was based on a flawed assumption: that China, having been welcomed into the international order, would play by the rules, and, as it prospered, would liberalize its economy and, ultimately, its form of governance." '

‘In fact,' I wrote, 'this was never the avowed aim of the administrations during the period he cites.’

  • ‘This would be a quibble except that it may well be that, based on his writings, the incoming Indo-Pacific Coordinator, Kurt Campbell, may hold the same incorrect view, and that is an issue for crafting policy – keep an eye out of this.’

From the reader response I received I realize I didn’t explain my objection well. The problem is this:

  • Past administrations pursued a policy of engagement with China but not with the primary aim of changing China to a democracy from an autocracy.
  • The aim was to encourage, among other things, trade and business and China’s joining the community of nation’s as what Robert Zoellick called a ‘responsible stakeholder.’

If viewed as a tool only to change China’s political order, ‘engagement’ failed.

  • And that is just what critics who favor all-confrontation/all-the-time contend.
  • By misreading history and discrediting engagement with China they aim to advance their policy prescription of confrontation.

A better solution is both confrontation and engagement.

  • This is, in part, how President Reagan ended the Cold War.

And that is why this misreading of history can lead to bad U.S policy toward China.

CHINADebate, the publisher of the China Macro Reporter, aims to present different views on a given issue. Including an article here does not imply agreement with or endorsement of its contents.

More

CHINAMacroReporter

February 4, 2021
Why Beijing Is Bringing Big Tech to Heel
‘Beijing’s recent antitrust efforts are motivated less by worries about the tyrannical nature of monopoly power than by the belief that China’s tech giants are insufficiently committed to promoting the goal advanced by the Chinese Communist Party (CCP) of transformative technological innovation—and thus may be undermining the effectiveness of Chinese industrial policy.’
keep reading
February 3, 2021
'Secretary of State Antony Blinken on U.S. Policy Toward China'
‘There’s no doubt that China poses the most significant challenge to us of any other country, but it’s a complicated one.’
keep reading
February 3, 2021
'Burma’s Coup and Biden’s Choice'
‘The top U.S. priority in Asia is limiting Beijing’s ability to control independent states like Burma, which is strategically situated in the Indo-Pacific. The U.S. response needs to take into account China’s regional designs.’
keep reading
June 24, 2021
'Hong Kong’s Apple Daily newspaper folds under government pressure'
Apple Daily was much more than a newspaper. To its fans, it was a defender of freedoms. To its foes, it was the defiler of national sovereignty.’
keep reading
June 24, 2021
The End of 'Apple Daily' - and Freedom of the Press in Hong Kong
Through arrests and freezing of assets, Beijing has forced the closing of Hong Kong’s last pro-democracy newspaper, the Apple Daily.
keep reading
June 20, 2021
‘Why do business and political leaders in the West persist in getting China so wrong?’
From that I suggested that to invest successfully in China, you have to understand – and be aware of - what those differences are.
keep reading
June 20, 2021
‘Why do business and political leaders in the West persist in getting China so wrong?
‘Why do business and political leaders in the West persist in getting China so wrong?’
keep reading
June 17, 2021
'Back-to-Back Rebukes of China Mark a Turning Point'
‘The one-two punch of public criticism smacks directly into Mr. Xi’s assertion that China won’t stand for lecturing by other nations, suggesting anxiety in key capitals is prompting governments to seek alignment with the U.S. over attempting to manage the relationship with Beijing on their own.’
keep reading
June 17, 2021
'Meet the New Chinese Economy, Same as the Old Chinese Economy'
If a recovery led by investment in real estate and industrial production, with consumption lagging behind, sounds familiar, it may be because the same could be said of the makeup of China’s growth before Covid-19.’
keep reading
June 17, 2021
Part 1 | 'Is China exporting inflation?'
‘Beijing is moving swiftly to protect its factories and workplaces from rising costs.’ ‘Still, rising prices in China, by far the world’s biggest manufacturer and exporter, could be felt around the world.’
keep reading
June 17, 2021
Bernie Sanders: 'Don’t Start a New Cold War With China'
‘The pendulum of conventional wisdom in Washington has now swung from being far too optimistic about the opportunities presented by unfettered trade with China to being far too hawkish about the threats posed by the richer, stronger, more authoritarian China that has been one result of that increased trade.’
keep reading
June 17, 2021
Part 2 | 'Is China exporting inflation?'
“Is China exporting inflation? In renminbi terms, it’s not so obvious. But in U.S. dollar terms, it starts to get more sizable.” ’
keep reading
June 13, 2021
'Forget about China': Clyde Prestowitz
Clyde Prestowitz has influenced U.S. foreign trade and investment policy for many decades, both inside and outside government.
keep reading
June 9, 2021
'Joe Biden Worries That China Might Win'
‘Biden worries that China is in competition for America, and not only that—they might win. This belief underpins the Biden doctrine.’
keep reading
June 9, 2021
'From the G7 to a D-10: Strengthening democratic cooperation for today's challenges'
‘A “Democratic-10” or “D-10” is aimed at rallying the world’s most powerful democracies around a common cause— advancing a rules-based democratic order based on shared values and common interests.’
keep reading
June 9, 2021
Biden Worries China Might Win
‘Biden has taken the vital first step of correctly diagnosing the strategic challenge facing the country.’ ‘Like Harry Truman at the start of the Cold War and George H. W. Bush at its end, the president now has an opportunity to create a framework for a new era.’
keep reading
June 9, 2021
Joe Biden: 'My trip to Europe is about America rallying the world’s democracies'
‘This is a defining question of our time: Can democracies come together to deliver real results for our people in a rapidly changing world?’
keep reading
June 9, 2021
'NATO & China's Challenges to Europe'
‘Even though China does not pose a direct military threat to NATO, contrary to Russia or terrorist groups, Beijing’s growing economic influence and diplomatic assertiveness in Europe coupled with its growing military relationship with Russia do have major implications for the transatlantic economy as well as its security.’
keep reading
June 3, 2021
5 | Two Caveats
‘Highlighting the strategic questionability of China’s policies doesn’t mean that Beijing’s fears of the outside world are completely unjustified.’
keep reading
June 3, 2021
1 | 'Wolf Warriors Killed China’s Grand Strategy—and We'll All Come to Miss It'
‘The predominant feature of Chinese conduct today is not grand strategy but a belligerent, defensive nationalism that lashes out without heed of consequences.’ Sometime in 2020, China came unmoored from its grand strategy.
keep reading
June 3, 2021
4 | Why China Abandoned Its Grand Strategy
‘The most persuasive explanation is that China has poisoned itself through its own rhetoric.’
keep reading
June 3, 2021
6 | The Risks & the Dangers
‘The real danger is that once toxin has spread through the system, there is no knowing where it will end.’
keep reading
June 3, 2021
2 | Blame It on Xi
‘In China’s case, the Xi era has seen the accumulation of somewhat counterproductive policies that catalyzed a breakdown.’
keep reading
June 3, 2021
3 | Enter the ‘Wolf Warriors’
‘What changed in 2020 was that nationalism for its own sake became the predominant motif of Chinese conduct.’
keep reading
June 3, 2021
Killing China's Grand Strategy
Trend: Under the Xi Jinping administration, China has amped up abrasive ‘Wolf Warrior’ diplomacy; cracked down within its borders, despite protests and criticisms from other countries; become increasing bellicose in responding to those protests and criticisms, and any other pushback it doesn’t like; and increased its aggressive rhetoric and actions against neighbors. Risks: If this sounds like a problem just for the world’s Ministries of Foreign Affairs, think again – the impact extends deep into business and finance.
keep reading
May 30, 2021
'Final Thoughts'
'Just as Brzezinski foresaw the two new contending blocs –– requiring greater “geostrategic skill” –– that are forming today, Kissinger has emphasized the unprecedented dangers that AI could introduce into a divided world.’
keep reading
May 30, 2021
China's ‘Anti-Hegemonist Bloc’
‘To counter U.S. coalition building, China has enhanced its diplomatic, economic, and military relationship with both Russia and Iran in recent months, resulting in the closest ties these countries have had in the post-Cold War era.’
keep reading
May 30, 2021
Postscript: China Doubts U.S. Allies Support
'Chinese leadership is also cynical about the effectiveness of a U.S.-led Cold War-style bloc.’
keep reading
May 30, 2021
Biden’s ‘Anti-China Bloc’
‘Throughout President Joe Biden’s first 100 days in office, his administration has largely continued the Trump administration’s hawkish approach toward China.’ ‘President Biden has also made international coalition building to confront the growing power and influence of China his primary foreign policy initiative.’ ‘Chinese leaders and the public are not convinced by the statements recently made by President Biden that these U.S.-led alliances are “not anti-Chinese” and that the United States is “not looking for confrontation” with China.’
keep reading
May 30, 2021
What China Thinks About Biden's China Policy
And that is what makes Cheng Li’s ‘Biden’s China strategy: Coalition-driven competition or Cold War-style confrontation?' so valuable. Cheng has decades of close relationships with China’s leaders and high officials. They trust him not to attribute their comments and so speak freely and honestly to him. Cheng is the person I rely on most to convey China’s positions.
keep reading
May 30, 2021
Worse for China than Trump
‘Many Chinese now believe that the Biden administration could be more detrimental to U.S.-China relations than the Trump administration.’
keep reading
May 30, 2021
'Biden’s China strategy: Coalition-driven competition or Cold War-style confrontation?'
‘Senior officials on the foreign policy team have frequently emphasized three “C” words: competition, cooperation, and confrontation.’
keep reading
May 30, 2021
The Trump Legacy
‘From Beijing’s perspective, the hawkish approach to China in the final year of the Trump administration revealed that the Trump team sought to defeat and destroy China in much the same way that the United States defeated the Soviet Union in the Cold War.’
keep reading
May 27, 2021
'China Bets on Productivity Over Population to Drive Its Economy'
‘Beijing has a two-pronged approach to maintaining economic growth as its population shrinks.’ ‘First, it intends to slow the decline of the urban workforce by raising the retirement age and encouraging migration of more of the country’s 510 million rural residents to cities.’ ‘Second, it plans to raise productivity -- a measure of economic output per worker -- with the latest five-year plan emphasizing better vocational education and more investment in scientific research, automation and digital infrastructure.’ [see second chart above]
keep reading
May 27, 2021
'Why Demographics is (Close to) Destiny'
‘Demographics may not be destiny, but for students of geopolitics, they come close.’
keep reading
May 27, 2021
'Lousy demographics will not stop China’s rise'
‘The old maxim ‘demography is destiny’ no longer holds in the same way that it used to.’ ‘A shrinking and ageing population may not have the same gloomy implications in the 21st century.’
keep reading
May 27, 2021
'Sex and the Chinese Economy'
‘A rise in China’s male-female ratio may have contributed to between one-third and one-half of the increase in its trade surplus with other countries.’ ‘The sex imbalance thus likely underpins an important source of tension between China and the US. Yet bilateral engagement has paid scant attention to this linkage.’
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.