CHINAMacroReporter

'Where in the World is Jack Ma?'

In today’s issue: 1. Where in the World is Jack Ma?'The CCP's Ambivalence about the Private Sector’‘Jack Ma Misreads Xi Jinping’ / 2. China’s Fintech Threat‘Financial Technology Is China’s Trojan Horse’ / 3. 2021 Economic Outlook: Sunrise in a Fractured World’ | CHINA
by

|

CHINADebate

January 16, 2021
'Where in the World is Jack Ma?'

In today’s issue:

1. Where in the World is Jack Ma?

  • 'The CCP's Ambivalence about the Private Sector’
  • ‘Jack Ma Misreads Xi Jinping’

2. China’s Fintech Threat

  • ‘Financial Technology Is China’s Trojan Horse’

3. 2021 Economic Outlook: Sunrise in a Fractured World’ | CHINA

  • ‘China: Taming the Overshoot’

For the past several months - since the much-criticized speech, the Ant Financial IPO debacle, the regulatory dressing down, and the anti-monopoly probe into Alibaba - Jack Ma has not been seen in public.

  • ‘Where in the world is Jack Ma?’ has become a question both in the international press as well as on Chinese social media.

Reports say he’s not under detention, and he’s not been ‘disappeared.’

  • Instead, it is said that, with shareholder, employees, regulators, and apparently even Xi Jinping all mad at him, he has made the decision to hunker down in Hangzhou and stay out of sight.
  • It’s hard to see how he could do himself any good saying anything right now.

Casting doubt on this explanation are the number of Chinese billionaires and well-known figures who have fallen afoul of Xi Jinping and the Chinese Communist Party and come to bad ends.

  • So even if Mr. Ma is out of official clutches for the moment, it doesn’t mean his time isn’t coming.

As newsworthy as Mr. Ma’s plight is, more important is its place in the context of Xi Jinping’s efforts to bring the private sector generally and the fintech industry more specifically under tighter Party control.

  • Weaving these together, along with the story of CITIC founder and stay-behind capitalist, Rong Yiren, Neil Thomas has produced a terrific essay, ‘The Red Capitalist,’ in The China Wire.  

He examines the changing fortunes of China’s private sector since the founding of the PRC.

  • And he contrasts the difference in the skills in navigating these changes between Mr. Rong (generally successfully) and Mr. Ma (to be determined).
  • [Note: I have omitted Mr. Rong’s story from the posts below because of length not interest – the entire essay is well-worth reading.]

Mr. Thomas says: ‘Beijing has grown increasingly suspicious of powerful business elites.’

  • ‘Under Xi Jinping, the Party has begun to exert greater control over the private sector, with plans announced last September to cultivate a “backbone team” of business executives who “unswervingly follow the Party” and cooperate in “major national strategies.”

'There’s little doubt that business elites who defy the Party will be dealt with harshly.'

  • 'In recent years, Beijing has hunted down entrepreneurs, seized their assets, and broken up and occasionally even nationalized firms deemed a systemic risk to the economy.'
  • ‘Perhaps no other nation has arrested more billionaires and brought them to heel.’

‘Even Jack Ma, the country’s best-known entrepreneur, seems to have fallen out of favor with the Party.’

  • ‘He’s been upbraided by Beijing and denounced in state media.’
  • ‘Xi is reported to have personally intervened to cancel the global stock offering of Ma’s Ant Group on the eve of what was expected to be the biggest IPO in history, following a strident speech Ma made in October.’
  • ‘In the aftermath, banking and antitrust regulators are threatening to carve up parts of Ma’s $400 billion empire amid reports the 56-year-old internet tycoon has gone missing.’

‘In addition to brazen contempt for Party officials [especially in that speech in October 2020], Ma’s transgression was made worse by his seeming obliviousness to the Party’s economic goals, which have shifted considerably in recent years.’

  • ‘De-risking China’s debt-laden financial system became one of Xi’s top priorities.’

‘ “The reason why Jack Ma and others could build enormous Internet companies is because the Party had no idea what they were doing,” says Jim McGregor of APCO China.'

  • ‘ “Things changed once the Party-State started to see them as a potential source of financial risk, and therefore as a potential source of risk to social stability.” ’ says Harvard’s Meg Rithimire.

‘Xi, of course, is not Mao.’

  • ‘He believes the private sector is an “intrinsic element” of China’s economy and refers to entrepreneurs as “our people.” ’
  • ‘Xi does not want to socialize business; he mostly wants private firms to support Party policies.’
  • ‘And if the decision to rein in Ma is any indication, he will likely succeed.’
  • Stay tuned.

Depending on how you look at it, the argument in 'Financial Technology Is China’s Trojan Horse' in Foreign Affairs by Nadia Schadlow and Richard Kang of Prism Global Management, either:

  • Contradicts the narrative outlined just now that the Party is out to control fintech regardless of the cost to industry, or
  • Presents a sort of flip side to that narrative, with the Party co-opting fintech in a plan for China’s geoeconomics dominance.

Either way the argument is provocative. Here goes:

First, ‘Chinese fintech firms function like a geoeconomic Trojan horse.’

  • ‘First, Alipay [one of Jack Ma’s companies] and WeChat Pay—companies that make up 95 percent of China’s mobile payments market—integrate themselves into daily economic life in another country.’
  • ‘Then, piggybacking off this financial infrastructure, they and other Chinese firms acquire digital banking licenses and rapidly expand into other sectors, including digital insurance, consumer credit, remittances, and lending.’
  • ‘These companies soon become too embedded in their host country to remove.’

Second, ‘China’s bid for fintech hegemony in Asia is a step toward an even bigger goal: achieving global reserve currency dominance.’

  • How? Expansion of the digital Yuan.

So third, ‘Beijing is challenging the sway of the U.S. dollar over Southeast Asia and parts of Africa as it prepares to launch, likely within the next year, a sovereign digital yuan, which would make transactions easier and also enable China to better track how its currency is used.’

  • ‘Consumers and merchants throughout Southeast Asia will soon be able to use the digital yuan on Alipay and WeChat Pay.’
  • ‘Later, the apps will serve as distributors of the digital yuan as local businesses find it more efficient to use the yuan than the dollar in transactions with Chinese companies.’
  • ‘The CCP could then push for the digital yuan to be used instead of the U.S. dollar by bigger institutions and businesses conducting large transactions, such as making interest payments and financing supply chains.’
  • ‘China’s digital yuan could also siphon transactions away from Western-dominated money exchange platforms such as SWIFT, the key mechanism that maintains U.S. dollar dominance in global trade.’

I don’t have the knowledge to judge how likely these scenarios are or to what extent they might succeed.

  • That said, from what little I do know, I can see Chinese fintech leading to at least a modest erosion of the dollar in Southeast Asian transactions.
  • But nothing in my studies show the Yuan as a serious threat to the dollar, from fintech or any other Chinese effort.
  • And while the Chinese government no doubt welcomes fintech’s expansion in Southeast Asia, I find it difficult to imagine that that would trump the Party’s aim of exerting more control over the industry and of lowing risks to China’s financial system.

More disturbing is the essay’s pointing out that U.S. firms have not been ‘serious about offering other countries alternatives to China’s fintech companies, tapping the strength of U.S. technology firms.’

  • ‘Either Alibaba or Tencent has invested in every single one of the 13 technology unicorns—startups valued at $1 billion or more—in Southeast Asia.’
  • ‘Facebook and PayPal, by contrast, invested in their first Southeast Asian fintech player, Gojek, just last March.’

The essay concludes: ‘U.S. companies such as Facebook, Google, and PayPal must not get boxed out of the world’s most significant growth markets, which are mostly in the Indo-Pacific region.’

  • Unlike the rest of the essay, that strikes me as unarguably true.

This issue concludes with another great analysis of the global economy from CreditSuisse, ‘2021 Economic Outlook: Sunrise in a Fractured World.’

  • As usual, I have just included the section on China, but the entire report is worth careful reading.

A few bottom lines:

  • Estimated 2021 GDP growth: 7.1%
  • ‘With the recovery already underway, a GDP growth overshoot in 2021 appears inevitable.'
  • ‘From a policy perspective, we expect that authorities will likely avoid a pro-cyclical policy stance and, to the extent possible, rein in the overshoot in 2021.’
  • ‘They would most likely prefer to avoid an aggressive overshoot in one particular year in exchange for a smoother and more sustainable growth profile over the next five years.’
  • Translation: Even if GDP is 7.1%, the number reported this year will be lower, with the difference carried over.
  • ‘We expect a moderation to M2 growth on the monetary front from 10.4% in 2020 to 9.3% in 2021.’
  • ‘On the fiscal front, we expect a tighter fiscal stance.’
  • ‘We revised our expectation for 2021 headline CPI downward, from 2.5% yoy to 1.1% yoy, mainly due to pork deflation.’
  • ‘As per the exchange rate, the CNY is expected to experience additional appreciation over the coming 12 months.’                                                
  • ‘We forecast USDCNY to reach around 6.3 by the end of 2021.’

You’ll find an analysis of each of these and more in the report.

CHINADebate, the publisher of the China Macro Reporter, aims to present different views on a given issue. Including an article here does 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.