A Category-5 Typhoon in China Again

by Kumar David

Every decade or two something happens in China that shakes the world; Napoleon little knew that he was making the biggest understatement in modern history when he said of China:”There lies a sleeping giant. Let him sleep! For when he wakes, he will shake the world.” The Chinese Revolution crafted the PRC in 1949 and woke up the sleeping giant. In 1956 Mao suffered an un-Marxist lapse into utopia and launched the Great Leap Forward envisioning the country leap over centuries of history to industrial muscle and technical eminence in two decades. Instead economic collapse and famine belied these illusions with 20 to 30 million deaths; a great leap backwards.

He retreated for a decade but came storming back in the mid-1960s, red-book, dunce caps, Red Guards and Cultural Revolution, shredding the country, destroying education and universities, driving the Party to its wits end, imprisoning and all but murdering President Liu Shao Chi – “renegade, traitor, and scab” who was rehabilitated in 1980 as a “great Marxist and proletarian revolutionary”. Deng Zhio Ping was purged twice by the Gang of Four which included Mao protégés and his wife. The Go4 attempted to bury even Chou En Lai. Then senile, Mao died. That was in September 1976. Deng had a second second-coming in 1977 (outdoing Jesus by one, whose next coming, in any case, is still eagerly awaited).

Deng set China on a path that has shaken the world; “Socialism with Chinese Characteristics”; “Socialist Market Economy”, what’s in a name. It’s a state led, party-hegemonic, non-capitalist society that has made dramatic use of markets, given birth to a wealthy capitalist class, created unimaginable wealth within four decades and all but abolished poverty. Non-capitalist China is on track to become the world’s largest economy. On the darkest of nights, the monkey does not lose its grip is a Tamil saying. Likewise the grip of non-capitalism slumbered for four decades but is now storming back; the Communist Party never lost its authoritarian grip even as the market engine flew.

If by capitalism, you mean what chaps like Adam Smith, David Ricardo and Alfred Marshal described long ago, or what Keynes, Friedman et al fought about in the Twentieth Century, or the way in which American finance, investment and business function, then most certainly that model is NOT how the pieces fit together in China. I have an old friend, let’s call him Senarath who rejected my insistence that China was not capitalist. His Marxism was superficial: “If it waddles like a duck and quacks like a duck, then it must be a duck” he would say. Nope dear boy, its physiology functions like a duckbilled platypus, something of a different genre.

Is there a reason why I am making a fuss about these old political-taxonomic debates? Yes, China is once again at a watershed, it is transiting from a Deng-moment to a post-Deng moment. To personalise the tectonics, we had a Mao-phase then a Deng-phase and we are now opening the Xi-phase. The current convergence of a stream of factors is not coincidental, it is the return of a society with less-capitalist characteristics; a more managed system. The new Xi slogan is “Prosperity for all”; there is a crackdown on the freedom of the wild ass that Alibaba, Tencent, Ant Group and other tech-giants enjoyed for the decades when they flourished and accumulated tens of billions. Ant Group’s planned IPO in Hong Kong and New York last year would have been the largest IPO ever had it gone ahead, but it was pulled at the last minute on the orders of the government. The impish Jack Ma, Chairman of Alibaba disappeared from view, and other Chinese corporate bosses are lying low.

Just one example of China’s runaway capitalism is the property sector. There was an enormous boom fuelled by gigantic debts and the unquenchable thirst of the prospering middle classes for better accommodation. The bust has come! Evergrande, one of the largest is on the brink of bankruptcy; thousands are demonstrating across China demanding their money back; over one million prospective buyers who paid for flats in full in advance face ruin. The company’s gross debt is $300 billion (yes b for billion). The government will have to step in and carry the can like everywhere else where capitalism and markets thrive: ‘Privatise profits and socialise loses’.

These are not superficial changes, nor to do with personal tiffs. No, the Party is making it clear who is the boss and far more important Beijing is enacting a slew of new laws. They will include laws on personal data use, controlling overseas financing, corporate supervision of firms by state-agencies, and national security. Irrespective of whether the proposals are good or detrimental to business, one ambiguity is being unequivocally laid to rest, China is not a capitalist state in any ordinary sense of the term. There are, as is to be expected, red hotheads who have been heard to say that China is “returning to its revolutionary socialist roots”. This is ballyhoo! The state is simply asserting its position and making clear the primacy of the Party over society and the bourgeoisie.

There is admittedly a strong populist streak in all this in the context of rising anger among the majority. Despite improvement for all there is a widening wealth and income gap. And yes, Xi Jinping is playing a populist game ahead of next year’s Party Conference where he will try to secure a third term. Yes, corruption in state and Party have been reduced not wiped out. But these are side shows, the big drama centre stage is restructuring relations between state, society and new-rich capitalism. Regarding society there will be no let-up in authoritarianism, if anything the new control tools allow the state to more efficiently manage what it wants the people to hear, see and think.

The new control measures and crackdown on cultural content in the media and social-media, include:

* Schools will introduce Xi Jinping Thought in the curriculum

* ‘Vulgar influences’ in material offered by tech giants will be curtailed

* ‘Incorrect content’, ‘abnormal ethics’, ’chaotic cultures’ and ‘effeminate men’ will be excluded

* ‘Idol glorification” (megastars, rave pop idols) to be curbed for promoting low moral values

* Children’s access to video games will be limited to three hours per week

Liberals may approve of some of these measures though they would have preferred to see them introduced by suasion not state regulation. Other matters such as the first point will make liberals shudder and recall the previous version of thought indoctrination in the 1960s and 70s.

The crackdown on the $120 billion (yes billion) tutoring industry is illiberal. High quality tutoring is affordable only by well to do families and the highly motivated middle class. The attraction of academic elitism is centuries old, as old as Confucius himself and competition to enter the most prestigious universities is intense. House prices in the catchment vicinity of the best schools is way beyond the reach of 90 if not 95 percent.

But China appears to be throwing the baby out with the bathwater. There is a movement to discourage mass English teaching after decades of emphasis on English as a second language. One hears inane comments like “Learning English promotes cultural subordination to imperialism” and “What’s the use of English to China’s teeming millions?” Remember the bogus Sinhala-Buddhist nationalists of yore who deprived the millions of exposure to the world while dispatching their own progeny to universities in the West? Well the Chinese hot-heads are different, they are intellectually primitive ultra-radicals, not rich political opportunists. Nevertheless the grouse of the majority against the tuition industry has real roots and if the Party fails to manage it properly it will do harm to cultural modernisation and the advancement of the people.

About one trillion dollars in asset value of China’s tech giants has been wiped out in global stock markets since the crackdown on giant businesses started. Beijing is not playing a superficial game of tit-for-tat with disrespectful corporate bosses, nor indulging in old-fashioned cultural prudishness, nor merely indulging populist hypocrisy to build Xi Jinping’s image and prospects of a third term at November 2022 Party Conference. No, there is a more fundamental real-world process at play. It is about resolving tensions in the Party-State authoritarian social and economic structure, correcting the capitalist portion of economic activity, ordering market freedoms and disciplining the super-rich capitalist class.

The whip has been cracked and it has been made abundantly clear who is boss. This of course comes as a great surprise to Western ‘analysts’, businessmen and scholars who never understood that Chinese state was at root non-capitalist. (Only Lakshman Gunasekara understood at the time; he may not have agreed but he saw what I was getting at, when I developed this thesis in a 50 page – with discussions – paper at the Hector Abhayavardhana Felicitation Symposium 22 years ago in December 1999).

This is the point I am making again in this essay. We have entered a third period, after the Mao-phase and the Deng-phase, in the socio-economic evolution of the People’s Republic. It may go down as a Xi-phase, or if Xi is ousted from leadership the designation may be different, but a shift in the dynamic of the PRC has commenced not because anybody willed it, but because it was necessary. Why was it necessary? I see two reasons; first a course correction in the relationship between the Party-State and ‘capitalism with Chinese characteristics’ was overdue, and secondly the Sino-American Thucydides challenge required China to gird up its forces. I cannot touch on strategic aspects without straining my Editors patience; this piece is already longer than usual.

The whip has been cracked not only over China’s capitalists but Hong Kong’s moderately free electoral system. Independent HK trade unions which supported the so-called pan-democrats and student rioters in 2019 have also been brought to heel. The largest professional union, HK Professional Teachers Union, has been attacked as a “poisonous tumour”; it wound up. Medical staff and nurses who speak against Beijing are prosecuted on flimsy grounds and imprisoned. These changes are a reminder that authoritarianism is not what characterises Chinese polity but totalitarianism in the sense of unwillingness to share political space and power with others (Catholic Church, Fulan Gong, Uyghur Muslims, independent legislatures and trade unions). This makes the system total-litarian in the literal sense of this ugly verbal disjunction; no one will be allowed to threaten or dilute the Party’s monopoly of power. Hong Kong’s electoral laws have been amended make future legislatures appendages of Beijing. Blame for unfurling this backlash has of course to be squarely assigned to Hong Kong’s 2019 rioters whose arson and destruction of public property opened the door to intervention on this scale.

Chinese tech-giants though muscular in stock market and profit do not have the clout that establishing the global sting of outposts that the Belt and Road Initiative needs. That’s a task that is too big even for Chinese capitalist enterprises, it needs the direct leadership and muscle of the state. In the global contest with the Americans Chinese capitalism is no match for dominant American capitalism. The state entered the ring brushing aside relatively weak and unsophisticated Chinese capitalism and took control of the Belt & Road Megaproject. A rectification of state-class-Party relations was needed to underwrite this and is now in progress. Chinese courts are even asserting that disputes involving Chinese companies anywhere in the world shall be adjudicated in accordance with Chinese laws and the rulings of Chinese courts.