Investors in China have been having a torrid time of late. It’s hard to sympathize. One way or another, they were Xi’s silent partners, or worse.
Tom Stevenson, writing in the Telegraph:
There’s nothing quite like a bear market for testing stock adages to destruction. This week’s piece of conventional wisdom under the spotlight was “don’t catch a falling knife”, as the Hang Seng index went into freefall at the close of China’s 20th Communist Party Congress.
The drop in Hong Kong’s benchmark equity index – nearly 10pc at one point on Monday, its worst one-day fall since the financial crisis in 2008 – reflected unease, in particular among overseas investors, about what President Xi Jinping’s consolidation of power would mean for the world’s second biggest economy and its financial markets.
The general consensus is that Xi’s dominance, underpinned by a uniformly loyal Politburo Standing Committee, means a continuation of the recent focus on social stability and so-called common prosperity at the expense of economic growth. . . .
This should be no great surprise. As I noted back in February, China under Xi has been moving fairly steadily towards a variant of the harnessed capitalism typical (to varying degrees) of mid-20th century fascist (or fascist-adjacent) economic theory and, again to a degree, practice. China’s ruling regime may call itself communist, but its governing ideology is better described as fascism with Chinese characteristics.
Meanwhile, China’s property market is, to put it mildly, a shambles. This will have consequences for its banking sector and much of its economy. But, looked at from the perspective of the Beijing regime, this matters less than it would in the West, unless it becomes a serious threat to the party’s control.
Also in the Telegraph, Matthew Lynn:
[China’s] currency has slumped to a 17-year low. The stock market has crashed to 2006 levels. Foreign money is fleeing the country and the financial system is wobbling amid fears of a full-scale collapse. . . .
The government will simply shrug it off. Neither Xi nor the rest of his cronies at the top of the Chinese Communist Party care what investors or currency traders in New York, Zurich or London think.
They have a clear strategy for turning China into a self-sufficient super-power reliant on no one but itself and dominating every region in the world that matters to it. The less foreign capital is involved, the better.
The idea of self-sufficiency was central to fascist economic thinking. There is nothing in the ideas set out in Lynn’s last two sentences that Mussolini would have found strange or ill-judged.
Anyone who imagines the markets are going to bring down President Xi, or make any kind of dent in China’s economic progress, is guilty of wishful thinking. It isn’t going to happen and in reality, it may just make him stronger.
While China’s economic data have never been entirely reliable (some recent analysis of satellite data suggests that economic growth has been significantly overstated for years), the decision by Beijing to make them even more opaque would suggest that the regime has something to hide. But that’s a matter of PR, and not particularly significant in itself.
Does the financial sell-off really make any difference? The answer is surely no. China is hardly reliant on foreign capital. The country runs the largest trade surplus the world has ever seen. So far this year, the surplus is up by almost 50pc, and it was already running at record levels.
President Biden has been tightening trade restrictions on China, not least in the chip sector. That’s to be welcomed. Ideally, more curbs will follow. Economic policy cannot operate in a geopolitical vacuum. The less of a trading relationship the U.S. has with China the better. Lynn frets that Biden’s ban might, to use soccer terminology, be an “own goal,” encouraging China to develop its own technology. I wouldn’t worry too much about that: Barn door, horse, and all that. That said, if Biden can make it more difficult for China to exploit Western technology: great.
[T]he Chinese leadership has set out a clear path to national self-sufficiency. It does not want to be dependent on foreign capital, foreign technology, foreign raw materials, or indeed foreign markets.
National self-sufficiency does not mean that everything has to be made, grown, or mined in China, but it does mean that China wants secure supply lines for the resources it needs. One giant step towards achieving this goal has been made possible by Russia’s increasing economic isolation since its invasion of Ukraine. This has forced it to turn to China for an outlet to its goods, a turn that China has exploited — at a favorable price, naturally.
Here’s a recent story, but there are plenty more like it.
China imported record quantities of Russian liquefied natural gas and steelmaking coal in September, as total purchases of energy products topped $50 billion since the invasion of Ukraine pushed Moscow to expand sales to its strategic ally.
Coking coal imports from Russia jumped to 2.5 million tons in September, from about 900,000 tons in the same month last year and 1.9 million tons in August, according to Chinese customs data. LNG sales rose by a third from a year ago to 819,000 tons, despite a 12% decline in China’s overall purchases of the super-chilled fuel. China hasn’t reported imports via pipelines, the main conduit for Russian gas, since the start of the year.
Russia (which shares a long border with China, something that fits in with Beijing’s focus on security of supply) is slowly turning into something akin to a Chinese vassal state, an ignominious transformation for a country busy pursuing imperialist dreams elsewhere, and a windfall for Xi.