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 11, 2021
'The Biden Team Wants to Transform the Economy. Really.'
‘Biden and his more activist advisers hope to modernize key industries and counter an economic threat from China, swiftly emerging as the world’s other superpower. “The package that they put together is the closest thing we’ve had to a broad industrial policy for generations, really,” says Scott Paul, the president of the Alliance for American Manufacturing.’
keep reading
February 10, 2021
‘What the ‘Hong Kong Narrative’ gets wrong'
‘For a significant cohort of the [“pro-democracy”] protesters, the more accurate label would be “anti-China activists.” The one thing that seems to unite them is not a love of democracy, but a hatred of China.'
keep reading
March 31, 2021
Chinese Boycotts are the Least of Your Worries
‘For chief executives [and boards] around the world, watching the Chinese government go after Swedish clothier Hennes & Mauritz AB is excruciating — facing the evaporation of your hard-won China business over political issues largely out of your control,’ writes Michael Schuman in Bloomberg.’ ‘But it could be the new normal.’ ‘As relations between China and the U.S. and its allies deteriorate, Western businesses could increasingly get dragged into the fray.’
keep reading
March 31, 2021
'The Threat the U.S. Isn't Answering'
‘If BRI meets little competition or resistance, Beijing could become the hub of global trade, set important technical standards that would disadvantage non-Chinese companies, lock countries into carbon-intensive power generation, have greater influence over countries’ political decisions, and acquire more power-projection capabilities for its military.’
keep reading
March 31, 2021
'China Is Missing from the Great Inflation Debate'
‘Once again, massive fiscal spending in the United States has invited warnings of inflation and triggered dark memories of the 1970s. But these fears are based on a model that has since been obliterated by economic realities – not least the rise of China, which has fundamentally reshaped the US and global economies.’
keep reading
March 31, 2021
'Dominating the Digital Silk Road'
‘China’s Belt and Road Portal reports the Digital Silk Road has enabled six thousand Chinese internet companies and more than ten thousand Chinese technology products to enter foreign markets.’
keep reading
March 31, 2021
'Biden administration maintains Trump policy on Hong Kong'
'State department concludes territory should not receive preferential treatment under US law.'
keep reading
March 31, 2021
'China Owns, Partially Owns, or Operates 93 Ports'
‘Chinese firms own, partially own, or operate at least ninety-three ports across the globe.’
keep reading
March 30, 2021
'Profit or principle is the hard choice for foreign companies in China' George Magnus
‘Business risks for foreign companies in China are increasing after the recent exchange of sanctions between Beijing and western governments.’‘For foreign companies in China, the options seem delicately balanced. If they stand up for principles, they may put revenues at risk and will incur extra costs as they develop new supply chains. Yet if they prioritise their China profits, they could do irretrievable damage to their brands at home and in other markets, falling foul of shareholders and changing governance requirements.’‘It is an invidious choice but the latter is likely to be far more damaging to longer term performance and earnings, and corrosive of trust in the brand.’
keep reading
March 30, 2021
'How China keeps stumbling on the global stage' John Pomfret
‘Across the globe, Xi’s diplomatic representatives in Europe, Beijing, Hong Kong, Canada, Australia and elsewhere, are lifting up rocks and smashing their own feet.’‘The moves are befuddling — with a buoyant economy and a practically covid-free country, China is poised to see its influence rise if it plays it smart. But it’s not; instead, it’s alienating individuals and nations across the world.’‘I’ve been studying China for my entire adult life and I have to admit to being bewildered by China’s performance.’‘But I’m in good company. Thirty-one years ago, the great political scientist Lucian Pye wrote, “Just when all appears to be going well, Chinese officials create problems for seemingly unaccountable reasons.” ’
keep reading
March 30, 2021
'An Alliance of Autocracies? China Wants to Lead a New World Order.'
‘The world is increasingly dividing into distinct if not purely ideological camps, with both China and the United States hoping to lure supporters.’
keep reading
March 29, 2021
'Global Cycle Notes: U-Turn': China
‘A U-shaped recovery in the services sector beckons, but it’s still difficult to describe just what it will look like. No event in economic history compares, and the range of outcomes for wages, prices, employment, and financial markets is large.’
keep reading
March 28, 2021
‘At a Crossroads: The Next Chapter for FinTech in China’
‘As financial innovation has gained traction and the firms driving it have grown into sizeable players, the dynamic between innovators and regulators has begun to shift. Regulatory agencies have started to be more proactive in supervising the activities of technology firms after realizing that the size of many technology firms and FinTechs means they could threaten financial stability and peace in society if their innovation efforts and business practices were overly aggressive.’
keep reading
March 28, 2021
'New Trade Representative Says U.S. Isn’t Ready to Lift China Tariffs'
'The U.S. isn’t ready to lift tariffs on Chinese imports in the near future, but might be open to trade negotiations with Beijing, according to U.S. Trade Representative Katherine Tai.'
keep reading
March 28, 2021
China is not just shackling Hong Kong, it is remaking it
After the National People’s Congress, ‘election reform’ in Hong Kong, the dustup between the U.S. and China in Anchorage, and China’s going all ‘Wolf Warrior’ on the EU, that’s not such a bad thing.
keep reading
March 26, 2021
Beijing Targets American Business-2
'American businessmen, wishing for simple, lucrative commercial ties, have long resisted viewing U.S.-China relations as an ideological struggle. But strategic guidance issued by the leaders of both countries make clear the matter is settled: The ideological dimension of the competition is inescapable, even central.'
keep reading
March 26, 2021
'H&M, Nike Pay With China Boycotts on Xinjiang Human Rights Stance'
‘While both Western and Asian companies have frequently been targets of Chinese nationalism over the years, the latest flurry signals a shift in strategy by President Xi Jinping’s government as it confronts a more unified approach from the U.S. and its allies.’
keep reading
March 26, 2021
'The Illiberal Tide'
But even more problematic is that the reporting on any given action by another country may look so benign to the non-Chinese reader that he or she dismisses it as something China, even when it reacts forcefully, couldn’t be serious about. That is a mistake. Too often what looks ‘benign’ to the rest of the world is as serious as a train wreck to Xi Jinping.
keep reading
March 26, 2021
Beijing Targets American Business-1
‘Beijing’s message is unmistakable: You must choose.’‘If you want to do business in China, it must be at the expense of American values. ‘‘You will meticulously ignore the genocide of ethnic and religious minorities inside China’s borders; you must disregard that Beijing has reneged on its major promises—including the international treaty guaranteeing a “high degree of autonomy” for Hong Kong; and you must stop engaging with security-minded officials in your own capital unless it’s to lobby them on Beijing’s behalf.’
keep reading
March 25, 2021
China Goes All 'Wolf Warrior' on the U.S. & the EU
Today is the Tracker’s first issue. Covered here are two events where China went all 'Wolf Warrior' first on the U.S. and then on the EU.
keep reading
March 25, 2021
3 | China explains why it is going all 'Wolf Warrior' on the EU
China has found that bullying works a lot of the time, Why is China engaging in "Wolf Warrior" diplomacy
keep reading
March 25, 2021
2 | In Anchorage, Yang Spoke for the Party Leadership
‘Yang's temper tantrum has been interpreted by some commentators as being all about Chinese domestic politics. But it would be a mistake to see Yang's performance as mere bluster designed for home consumption. In Anchorage, he was speaking for the top leadership of the Communist Party.’
keep reading
March 25, 2021
2 | More to come?
‘This isn't about siding with America, it's about defending European sovereignty against a bully.’
keep reading
March 25, 2021
1 | Bitter Alaska Meeting Complicates Already Shaky U.S.-China Ties
'Mr. Yang, also noted “important disagreements” remained, and in remarks to Chinese state media suggested Beijing wouldn’t back down.'
keep reading
March 25, 2021
1 | The first U.S.-EU alliance against China
"Europeans will have to step up their reaction against China after insults, intimidation and sanctions against scholars and MPs. This isn't about siding with America, it's about defending European sovereignty against a bully."
keep reading
March 24, 2021
'There Will Not Be a New Cold War' Thomas Christensen
‘China’s vital position in the global production chain and the lack of struggle for ideological supremacy between authoritarianism and liberal democracy mean that the rise of a new Cold War is unlikely.’
keep reading
March 21, 2021
Just About in Place
To help us understand the makeup of the team, The Wire China has put together a great chart with bios of each member.
keep reading
March 21, 2021
'A Taiwan Crisis May End the American Empire' Niall Ferguson
‘No matter what other issues Kissinger raised — Vietnam, Korea, the Soviets — Zhou steered the conversation back to Taiwan, “the only question between us two.” ’
keep reading
March 20, 2021
'After the protests - China is not just shackling Hong Kong, it is remaking it'
‘The old Hong Kong is gone. Judge Mr Xi’s China by what it builds in its place.’
keep reading
March 17, 2021
How to Meet the China Challenge
How the Biden administration characterizes the China – strategic competitor, rival, enemy, and the like – and how it develops strategies – containment, confrontation, competition, cooperation, or some combination of these - will have an impact, to a greater or lesser degree, on most every industry and every market.
keep reading
March 13, 2021
'China All but Ends Hong Kong Democracy With "Patriots Only" Rule'
‘The National People’s Congress on Thursday approved a drastic overhaul of election rules for Hong Kong that would most likely bar many pro-democracy politicians from competing in elections, cementing Beijing’s grip over the territory.'
keep reading
March 13, 2021
'Understanding China’s 2021 Defense Budget'
'Like previous years, the first day of the new National People’s Congress session was highlighted by the widely anticipated announcement of China’s 2021 defense budget. This year it is set at 1.36 trillion yuan ($209.16 billion), a 6.8 percent increase from the 1.27 trillion yuan budget set last year.’
keep reading
March 13, 2021
Xi’s Gambit: China Plans for a World Without American Technology
‘China’s new five-year plan, made public on Friday, at the National People’s Congress (NPC), called tech development a matter of national security, not just economic development, a break from the previous plan.’
keep reading
March 13, 2021
'The five-year plan's big target - A confident China seeks to insulate itself from the world'
The National People’s Congress concluded on Friday, March 11. As I’ve mentioned before, analyses of the impact of the plans and policies on China and the world will start to come out in a week or two. In the meantime and to keep you immediately informed, today’s issue covers the NPC’s outcomes more generally, beginning with a full summary from The Economist.
keep reading
March 12, 2021
‘Enter the Trump Buddha'
“Trump, the Buddha of Knowing of the Western Paradise.”
keep reading
March 11, 2021
Artificial Intelligence: How to Beat China
‘China is organized, resourced, and determined to win the technology competition. AI is central to China’s global expansion, economic and military power, and domestic stability.’
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.