CHINAMacroReporter

The Chinese Communist Party Fears Ending Up Like the Soviet Union

‘The propaganda ministry - within four to six weeks - managed to turn China into a problem for Europeans. China’s standing in Europe is eroding by the day.'
by

|

CHINADebate

May 20, 2020
The Chinese Communist Party Fears Ending Up Like the Soviet Union

Part 1: The View from European Companies in China

Part 2: The Chinese Communist Party Fears Ending Up Like the Soviet Union

Part 1

The View from European Companies in China

‘The propaganda ministry - within four to six weeks - managed to turn China into a problem for Europeans. China’s standing in Europe is eroding by the day.'

Malcolm Riddell: ‘How are European businesses faring in China?’

Joerg Wuttke: ‘European companies in China were doing well until January this year.’

  • ‘Business was good for those that are permitted to operate here.’

‘But you have to keep in mind that there are lots of companies in Europe that have their nose against the China window and want to come in, but cannot. ‘

  • ‘We estimate that we lose about 30 billion Euros every year because of companies not being able to operate in China the way Chinese companies are able operate in the European Union.’

Malcolm: ‘How do you see the relations between China and Europe businesses in China?’

Joerg: ‘Well it's a very mixed picture.’

  • ‘We had, over the last year, a relatively smooth ride compared to the U.S.-China relationship.’

‘But at the same time, the U.S.-China trade battle sucked the oxygen out of our room for a long time.’

  • ‘In the later part of 2019, we wanted to have high level meetings, we wanted to engage.’
  • ‘But China simply wasn't able to focus. They were totally absorbed by the trouble Trump was causing them. So we had a real attention problem.’
  • ‘This is funny because Europe happens to be the largest market for China - way bigger than the U.S. market - and we are by far China’s biggest technology provider.’
  • ‘After 15th of January when the Phase One trade deal was signed in D.C., we got a bit of attention from the Chinese - then coronavirus happened.’

‘Europe is not the kind of world power the U.S. is.’

  • ‘For us, China is in an economic story.'
  • ‘The U.S.-China relations has the security story on top of the economic.’

Malcolm: ‘Relations between Europe and China seem strained lately. What’s behind that?'

Joerg: ‘Europe has always been sympathetic to China.’

  • ‘Europeans felt a lot of goodwill towards China, in January in particular, when China was struggling - Europeans were moved by the pictures of Wuhanese standing on balconies singing.’
  • ‘That goodwill turned around immediately when China was starting to donate equipment into Europe, particularly Italy, in the latter part of February and made a big fuss about it.’

‘What really annoyed us was when European people, as well as companies, donated money and equipment in January, the Chinese government asked us to lie low and not talk about it. So we didn't.’

  • ‘Then all of a sudden we see China celebrating any mask that they landed in Europe.’

‘And of course on top of it, we are now experiencing the rhetoric, the assertiveness, the bullying of the ‘Wolf Warrior’ diplomats you have written about.’

  • ‘We now enjoy Wolf Warriors in our capitals - in Stockholm and Paris and Prague and other places.’

‘It is a very sad story to see how the propaganda ministry - within four to six weeks - managed to turn China into a problem for Europeans, and how China’s standing in Europe is eroding by the day.’

Malcolm: ‘Is Europe feeling pressure from the U.S. and China to pick a side?’

Joerg: ‘Yes, the Chinese and the U.S. are putting pressure on us to make up our minds, "So who are you with? With us or with them?" ’

  • ‘In this binary system, that's certainly not very positive to make a choice.'
  • 'Besides, actually we don't want to make a choice.’

‘We are - if you include Britain - the largest economic block. We have a world currency. We don't have the army, and we look very messy, but as a matter of fact, we are an economic powerhouse.’

  • ‘So we don't want to make a choice.’

‘We lean towards the U.S. of course for the system that we have, the democratic values that we have.’

  • ‘And we certainly want to lean on China too because that means 30% of economic growth over the next 10 years coming out of China.’

‘So there’s a lot of soul searching have right now in Brussels, Berlin, and Paris, and other capitals.’

Part 2

The Chinese Communist Party Fears Ending Up Like the Soviet Union

‘The quality of administrative leadership in China is eroding.’

Malcolm: ‘Joerg, you have been in China for 30 years. Could you identify some of the biggest changes you’ve seen in the government?’

Joerg: ‘What I notice is that the quality of administrative leadership in China is eroding.’

  • ‘When I look back 30 years, I remember the times, particularly in the nineties, when the leadership was open-minded, engaging, and took on difficult tasks.’

‘Now that seems to be down to just one person, Liu He, who is willing to do the heavy lifting.’

  • ‘The rest of the gang I think is more aiming at sort of administering and just venturing on.’

‘There’s a complacency among the administrative leadership.’

  • ‘And complacency is bad for business because there have to be structural changes in this country, and they simply don't happen.’

‘Take state run enterprises, for example.’

  • ‘Everyone knows that they are bad for business. Everyone knows they're sucking money out of the system.’
  • ‘But the political leadership still rewards SOEs.’

‘On the other hand, Chinese private enterprise is incredibly innovative and unbelievably good. They create the jobs and value.’

  • ‘And they are being pushed in the corner in favor of SOEs.’

‘Just look at Nick Lardy’s two last books.’

  • ‘In the earlier book, he talks about how China is moving toward a market-oriented economy.’
  • ‘Then, three years later in his next book, this poor chap has to eat dirt and admit that Mao has taken over again.’

Malcolm: ‘Why do you think the administrative side is eroding?’

Joerg: ‘My company and I were - and I remain - very close to former Prime Minister Zhu Rongji - he's my hero, frankly. And one of his ministers is a bit of a political coach to me.’

  • ‘So when there was a major screw up in late 2016 - all of a sudden four provinces lacked gas for three months - I asked him, “Minister so-and-so, why did this happen?"

‘The Minister told me, “Well, it’s because of the corruption campaign.” ’

  • ‘ “The good people are leaving,” he said.'

“Why? Three reasons,”

  • “A) They don't have a side income.”
  • “B) They are held responsible for the rest of their life lives for any decisions they make, and”
  • “C) They now have to spend to a lot of hours a day in political studies.”

“And so they leave the ministries - the economic ministries in particular - and go into private business where they can make a decent living.”

  • ‘He concluded by saying, “A third-rate team doesn't make first-class policy. Just get used to it." ’

‘So, on the one hand, you have the best people leaving these decision-making bodies.’

  • ‘And, on the other, those who are still there are scared stiff.’

Malcolm: ‘What’s driving all this?’

Joerg: ‘The Chinese Communist Party – it’s a Leninist party after all – is driven by fear.’

  • ‘The Party has a lot of anxiety and wants to secure its position.’
  • ‘That anxiety comes from three traumatic experiences related to Russia.’

‘The Russian trauma starts with Khrushchev in '56 denouncing Stalin.’

  • ‘That really brought the Sino-Soviet relationship to a standstill.’

‘The second trauma was Gorbachev’s opening up Perestroika and Glasnost.’

  • ‘That showed the Chinese that if you make political changes, then four years later you could be heading for the exit door.’

‘The third trauma is the Yeltsin years.’

  • ‘This showed the Chinese that if you privatize SOEs, if you give this opportunity to businesspeople to buy them, then you end up with an oligarchy.’

‘So, this is the fear the Party has, of ending up like the collapsed  Soviet Union.’

  • ‘They look at this again and again - all the time - in order to avoid Soviet mistakes.’
  • ‘They're mesmerized by the Soviet and Russian story.’

‘Let's see the Chinese, with all this learning, can mastermind a different ending.’

  • ‘At this stage, though, mesmerized as the Party may be, it looks like they might end up where they don't want to be.’

More

CHINAMacroReporter

February 20, 2021
‘UNDERSTANDING DECOUPLING: Macro Trends and Industry Impacts’
‘Comprehensive decoupling is no longer viewed as impossible: if the current trajectory of U.S. decoupling policies continues, a complete rupture would in fact be the most likely outcome. This prospect remains entirely plausible under the Biden administration.’
keep reading
February 20, 2021
‘Europe can’t stay neutral in US-China standoff’
‘China aims to create a world that is not safe for Europe — strategically, economically or ideologically. Xi is actively striving to undermine the stature of democracies in the global order. The more power China amasses, the less tolerant it will become with any government that won’t toe its line. China also represents a long-term economic threat to Europe — not merely because it is an advancing competitor in a global market economy, but because Beijing’s policies are designed to use and abuse that open world economy to eventually dominate it.
keep reading
February 20, 2021
‘Beat China: Targeted Decoupling and the Economic Long War'
‘The economy is the primary theater of our conflict with China. It is now clear that the U.S. and Chinese economies are too entangled, particularly in critical sectors such as medicine, defense, and technology.'
keep reading
January 13, 2021
Kurt Campbell & Biden Asia Policy
In today’s issue: 1. Kurt Campbell: Biden's 'Indo-Pacific Coordinator' / 2. 'How America Can Shore Up Asian Order' by Kurt Campbell
keep reading
January 9, 2021
'Matt Pottinger resigns, but his China strategy is here to stay'
‘Even though Pottinger’s name was largely unknown to the public, his influence on U.S. foreign policy will be felt for years to come.’
keep reading
January 9, 2021
'The Relevant Organs' Pro Tip: 'You Definitely Need a Show Trial'
Spitballing here, GOP friends, but Josh Hawley, Ted Cruz, Ron Johnson and Marjorie Taylor-Greene would make an excellent Gang of Four, if you need a show trial.
keep reading
January 9, 2021
How the Chinese reacted to the incident at the Capitol
In this issue: 1. China Reacts / ‘On Double Standards’ - 'Chinese netizens jeer riot in US Capitol as "Karma," say bubbles of "democracy and freedom" have burst' - 'A Few Tweets from Hu Xijin 胡锡进, Editor of The Global Times' / 2. ‘Architect of Trump China Policy Resigns’ - 'Matt Pottinger resigns, but his China strategy is here to stay' / 3. A Pro Tip from 'The Relevant Organs' - 'Dealing with Insurrectionist Leaders the Chinese Way'
keep reading
January 9, 2021
'On Double Standards'
‘Besides, facts are there, beyond anyone's denial, regardless of whether they came up in the Chinese media reports or not.’
keep reading
January 6, 2021
'Mo money, Ma problems - Chinese trustbusters’ pursuit of Alibaba is only the start'
'Chinese trustbusters long resisted hobbling an industry seen as world-beating, and backed in Beijing. Now, as in the West, they fret that a few giants control indispensable services—e-commerce, logistics, payments, ride-hailing, food delivery, social media, messaging.’
keep reading
January 6, 2021
'Mo Money, Ma Problems'
In today’s issue: 1. Eurasia Group| ‘Top Risks of 2021’ / 2. Biden & the EU-China Investment Agreement / 3. The EU-China Investment Agreement: Pro & Con / 4. China's Antitrust Investigation into AliBaba
keep reading
January 6, 2021
PRO | 'The Importance of the EU, China Investment Deal'
‘But we should not have waited for the Biden administration to sort things out. Wait for what? We don't know if China will be more responsive if the three parties sit together. We don't have a timeline. Shall we wait another two or three years?’
keep reading
January 6, 2021
'China and E.U. Leaders Strike Investment Deal, but Political Hurdles Await'
‘China appeared eager to reach an agreement before Mr. Biden takes office in January, calculating that closer economic ties with the Europeans could forestall efforts by the new administration to come up with an allied strategy for challenging China’s trade practices and other policies.’
keep reading
January 6, 2021
'China’s Pro-Monopoly Antitrust Crusade'
‘But Chinese regulators are unlikely to stop at Alibaba; China’s entire private sector has a target on its back.’
keep reading
January 6, 2021
‘Top Risks of 2021’: CHINA
'Overall, this year will experience an expansion of a high level of US-China tensions.'
keep reading
January 6, 2021
CON | 'Europe has handed China a strategic victory'
“We’ve allowed China to drive a huge wedge between the US and Europe.”
keep reading
January 6, 2021
'With Concessions and Deals, China’s Leader Tries to Box Out Biden'
‘Mr. Biden has pledged to galvanize a coalition to confront the economic, diplomatic and military challenges that China poses. China clearly foresaw the potential threat.’
keep reading
January 5, 2021
'Sansha City in China's South China Sea Strategy: Building a System of Administrative Control'
‘Sansha City, headquartered on Woody Island in the Paracel Islands, has created a system of party-state institutions that have normalized administrative control in the South China Sea. This system ultimately allows China to govern contested areas of the South China Sea as if they were Chinese territory.’
keep reading
January 1, 2021
Competition With China Could Be Short and Sharp
‘The bad news is that over the next five to ten years, the pace of Sino-American rivalry will be torrid, and the prospect of war frighteningly real, as Beijing becomes tempted to lunge for geopolitical gain.’ / ‘Historically, the most desperate dashes have come from powers that had been on the ascent but grew worried that their time was running short.’
keep reading
October 7, 2020
'Rivers of Iron': Changing the Face of Asia
‘But what's happened now is that Southeast Asia is rich enough to contemplate such infrastructure and that the Chinese have the technology, money, and high-speed rail industry so that they can both finance or help finance and build it.’
keep reading
August 27, 2020
Why China's Economy is Growing Faster than Others
‘First is China's relatively aggressive and decisive measures on the COVID public health crisis itself that managed to get the pandemic under control much faster than the other large economies.’ ‘The relative success in controlling the pandemic translates into how much people are willing to go back to their normal lives, to their jobs, and the like.’
keep reading
May 20, 2020
The Chinese Communist Party Fears Ending Up Like the Soviet Union
‘The propaganda ministry - within four to six weeks - managed to turn China into a problem for Europeans. China’s standing in Europe is eroding by the day.'
keep reading
May 13, 2020
The Party is Infallible
'The Hong Kong demonstrations can never be because of policy mistakes by the Communist Party itself.’ During our interview, Tony Saich of the Harvard Kennedy School told me: ‘Hong Kong, with its responses to the demonstrations, and the Coronavirus are both illustrative examples of how the culture of the Communist Party and the traditions it's built up over almost a hundred years reflect the way it behaves when it's confronted by certain crises.’
keep reading
May 6, 2020
The Phase One Trade Deal
‘The good news is that 80% of our members said they thought the Phase One agreement was a good thing.' 'But only 19% said it was worth it.' 'What the 80% said they are happy about was that there no more new tariffs were coming immediately.’
keep reading
May 2, 2020
South China Sea & Taiwan
'It would not be accurate to say China claims the entire South China Sea as its sovereign territory because the Chinese are unclear about what exactly their claim is and what it is based on.'
keep reading
April 29, 2020
Why Inflation Should Not Be A Problem
‘This is a crisis where the first chair is held by the public health officials, and the second chair is held by the fiscal authorities. We at the Fed have the freedom to be able to move relatively quickly, but we're the third chair here, trying to help out where we can.’
keep reading
April 25, 2020
China, America, & the 'Jaws Syndrome'
‘Both Trump and Xi have a fundamental political divide problem that the COVID-19 epidemic has exposed and made more apparent – and made substantially worse.’
keep reading
April 22, 2020
Why We Need Stronger Global Institutions
‘The trade war was actually about the dissemination of knowledge, knowledge transfer, technological transfer.’ ‘A great irony. We need global institutions or arrangements to deal with trade, technology, and health because individuals, corporations, and national governments cannot.’
keep reading
April 18, 2020
The Pandemic's Impact on Trade
‘There are some people who would say that there was already a retreat from globalization underway.’ ‘The tools of globalization - enormous reductions in the cost of transportation and communication - remain.’ ‘But the marginal utility actually of further advances is declining – that would be one way to put it.’
keep reading
April 11, 2020
The Pandemic May Increase China's Economic Strength vis-à-vis the U.S.
‘Well, I think people around the world are rightly suspicious of the Chinese as they are probably equally suspicious of the Americans.'
keep reading
April 30, 2018
'Big lessons from the faulty analysis that spiked the Shanghai stock market'
ProTips from Andrew Polk, Trivium China On April 24, equity analysts interpreted a phrase used in a Politburo meeting readout to signal a new round of economic stimulus. And, the Shanghai stock market, one of the world's worst performers, spiked 2%. On April 25, having much earlier advised and protected clients, Andrew Polk of Trivium China published an analysis in Trivium's daily (and free) Later, Andrew and I talked about how he reached his conclusions. His explanation is a masterclass in how experience, discipline, and some tedious slogging, combined with a sound analytical framework, lead to good China analysis.
keep reading
April 18, 2018
New super-agency, National Supervision Commission—and China's massive government restructuring
'With government restructuring, the biggest thing is the creation of an entirely new branch of government: the National Supervisory Commission. Its entire job is to overlook every single public official in China. It is an institutionalization and deepening of the corruption crackdown that we've seen over the past few years.'In all, Andrew highlighted four major actions from the Two Sessions: 1.Chinese government restructuring 2.The policy roadmap 3.Personnel 4.The legislative agenda + the constitutional amendments
keep reading
April 16, 2018
The Chinese Government’s 9 Economic Policy Priorities in 2018 (and beyond)
[China Econ Observer] 1.Supply-side Structural Reform 2.Innovation 3.The “three critical battles” 4.Deepening reforms 5.Rural revitalization 6.The regional development strategy 7.Increasing consumption and improving investment 8.Opening up 9.People’s wellbeing
keep reading
April 10, 2018
U.S.-China trade dispute: Will China Weaponize the RMB and U.S. Treasury bonds?
U.S.-China trade war: collateral damageConsider the soy bean. 'China is threatened retaliatory tariffs on U.S. soybeans. The U.S. is one of the largest producers of soybeans. If China's not going to buy them, we're going to have an excess capacity.'' So, last week, we saw a soybean selloff.''But there was a complete dislocation in whole soybean supply chains. Downstream products, like soybean oil, didn't move at all in the same way.'
keep reading
April 5, 2018
Behind the U.S.-China trade dispute: 'The West's China gamble has failed.'
What's the root cause of the current friction between the U.S. and China? The West's disappointment that China did follow the western model but its own, argues Ed Tse, CEO of Gao Feng Advisory Company (a member of the China Analyst Network). [Ed's solution] look to the similarities between China and the West, especially in the tech sector, and be alert to China's evolution toward better IPR, market access, and other contentious issues, not just the remaining shortcomings. Below is a video of my discussion with Ed and excerpts from both the interview and his South China Morning Post op-ed, 'Chinese innovation with US characteristics? Maybe China and the West aren’t that far apart, in business at least.' Ed presents insights that differ greatly from the China Echo Chamber in the U.S. Let me know what you think.
keep reading
March 8, 2018
How Trump's tariffs impact China's trade/currency relations with Japan & Korea
[China markets update with TRACK's Bob Savage] 'The currency markets are embroiled in trying to figure out whether the Trump tariffs on steel and aluminum are good or bad for the U.S. economy and the U.S. stock market.'
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.