Evergrande: What Happens Now?

For all their clever CCP-directed, "with-Chinese-characteristics" tweaks to classic western capitalism, somehow they couldn't avoid, errrr, a property bubble.  How demeaning for a communist country!  How ironic.

And how we'd all laugh, were it not for the plethora of predictions that the demise of Evergrande will send out shockwaves across the globe, at a time when we're all a bit fragile.

Really?  Well, perhaps.  I'm no authority on this kind of thing: and in my own sphere I already told you in February that gas prices in the far east were the start of serious energy-price inflation.  But my gut feeling is that if the west could ride the banking crisis of 2007-09, the CCP can engineer a soft landing for Evergrande.  The underlying issue, to my mind, is the impact it has on Chinese politics, both inward- and outward-looking.

On internal politics, I presume a serious property bubble - with the attendant political shame this represents for communists, as alluded to above - strengthens the hands of the socio-economic puritans of the CCP, led by this chap, Wang Huning, (whom I only became aware of recently).  2021 has already seen a striking social-media purge of individualistic content (and social media stars!) that follows hard on the humbling of tall poppies Jack Ma & co.  All this goes by the benign-sounding slogan of "Common Prosperity", but extends to a "clamp-down" on private tutoring (FFS), which must have a major impact down the road.  Does the middle-class man in the street care about Jack Ma?  Not really, I guess.  But his kid's education & perceived life-chances ..?

Then there's the long-awaited Chinese digital currency.  I have absolutely no idea how Evergrande impacts that project - does anyone here? - but it probably does.  Given that it's designed to strip the USD of its strategic role in world finance, it's kinda important for the long run.

It's the "physical" externals, though, that should surely trouble us most directly.  Last year we debated the possibility of "Peak China" having already passed.  The decades of extraordinary Chinese softly-softly patience and (rather successful) attempts to build a kind of soft power to rival that of the USA seem to have come to an end with Xi's assaults, physical and otherwise, on HK, India, the South China Sea etc etc etc.  These suggest that either (a) he doesn't care anymore about staying with the soft stuff; or (b) things weren't moving as fast as he wants.

And what's that?  Taiwan, of course - and in his time in the top slot.  By hook or by full-scale attack.

Old Man in a Hurry can be a comical phenomenon; but it can also be dangerous.  Very dangerous.  We have our own in the shape of Biden.  There's an awful lot that can go wrong here.  I've long suggested that Soviet caution in not invading western Europe when it was at its peak state of military advantage, speaks well for Politburo political maturity at that time.  But equally, they weren't in any kind of hurry - hey, they were real Marxist-Leninists; they thought it was going to fall in their laps eventually anyhow. 

But Xi, like Mao before him, is (mainly) a nationalist.  Evergrande?  Pff - a sideshow.  IMHO.

Thoughts?

ND

Looks Like China Has Blown It

In the long run, not much can stop China becoming thoroughly pre-eminent  - if not necessarily the unchallenged global hegemon with complete freedom of action it aspires to be.  But in the short- to medium-term its progress could become a lot bumpier than the exceptionally smooth and untroubled run it has managed over the past two decades: and things might even go binary on China in a way it won't much enjoy.  

The acid test for Xi in my mind, and probably in his too, is Taiwan.  It's abundantly clear Xi wants his crowning glory to include the "re-integration" of Taiwan during his own regime, and has probably vowed to do this by whatever means.  But he'd doubtless consider the need to resort to violent re-annexation as very much second prize.  There must be many more examples of things he'd much rather didn't go wrong, along the way to the Chinese Dream being fulfilled.

Up until very recently, from the outset of the Chinese march towards their Authoritarian Capitalist successes, the Chinese have proceded emolliently, if not actually by stealth.  If Hong Kong had remained placid, one might have imagined this course would have been continued - just look at the gains they've made!  By all accounts they've pretty much annexed New Zealand as a mere commercial dependency, with Australia firmly in their sights and already well under the thumb.  In lockstep with the commercial hooks, the political grappling irons have also been steadily applied, along with bribery, corruption, and flooding with fee-paying students - little trojan horses by the tens of thousands.  There are any number of chilling accounts to be found, not least the way in which Chinese citizens abroad are monitored (and indeed directed) for their every action.  China does what it fancies with the Uighurs and narry a Moslem leader mutters a word.  We haven't even mentioned espionage, massive attempts to corner markets in raw materials, building artificial islands in the South China Sea, and implanting high-tech trojan horses in the UK's telecomms and electricity infrastructure.  But, for the most part, this has been achieved with only modest push-back, resistance, or even friction; and mostly (to be honest) grovelling, money-grubbing acquiescence.  (What an epic shit Osborne is.)

The sheer power amassed by Xi in every dimension is formidable indeed.  And with it, inevitably, grows the temptation to call a halt to the disciplined habit of swallowing pride, and turning the other cheek, when setbacks and annoyances occur, as China has chosen to do many, many times in the past**.  (Cultural obsession with maintaining "face" doesn't help much, either.)  So now Athens can no longer forbear from lording it over Sparta, and from forcing every other nation choose between the two++.

And look what's happening today.  The kow-towing era of Osborne / Cameron / May has come and gone.  The fates of Hong Kong and the Uighurs are a now serious issues around the (western) world, largely impotent even as we are.  Australia - yes, Australia, dependent as it is on exporting raw materials, is stirring against recent developments.  And there's talk in the air of Japan joining the Five-Eyes community.  That's of gigantic significance - Japan is as good an "unsinkable aircraft carrier" as the UK was vis-à-vis Russia, with a very desirable set of special capabilities.  Altogether a rather different turn of events in that neck of the woods than one might have anticipated a year ago, when much more likely seemed the expulsion of NZ for having been thoroughly subborned by China and no longer trustworthy (with Australia very much on notice).

What does China have to fear?  In the grand scheme of things: not much.  Trump could press the Red Button tomorrow: but the man holding the briefcase would smile and say, sorry Mr President, it doesn't seem to be working today.  Ain't nobody going down that path unless Xi does something unimagineably crass.  A few minor economic hiccups arising from unforced errors, perhaps (as opposed to the ones they are inevitably going to suffer along the way in any case). 

Most importantly, if Trump thinks the power of US sanctions will hurt China as fundamentally as they've hurt Iran, to the point where maybe he might dream of precipitating domestic unrest; well, I'd guess the CCP's web-enabled 100% Big Brother regime is more than capable of 'defusing' the social consequences even of some otherwise serious short-term economic setbacks.  Not many nations spontaneously combust during recessions anyway; and few have the kind of omnipresent, omnipotent fire brigade that Xi has at his disposal.

No: mostly it'll be delays to Xi's grand plans; infuriation as Taiwan shrinks ever further from contemplating a voluntary reunion;  plus, of course, Loss of Face as some of the global prestige Xi fondly hoped to deliver over the coming years evaporates.

That could be pretty bad for Xi personally - if only for his private equanimity: but he's just one man among a billion.  Objectively, the worst case for China is that the world polarises into camps, Cold-War style, for 50 years - instead of more-or-less peacefully slipping into his Belt-and-Road vision of China as Top Nation with Xi beaming benignly as every nation hastens to do his bidding, and China resumes its destiny as Centre of the World, and undisputed Greatest Culture On The Planet. 

So: today, I'd say that particular rosy-for-Xi outcome looks rather less likely than it might have done just 12 months ago.  Polarisation it is.  Tough titty, Xi - but you had it coming. 

ND

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** I always think of Libya 2011 and the casual overthrow by the western powers of Gaddafi, essentially a Chinese client at that stage 
++ And we know what happened then ...

The Not Inconsiderable Clout of the USA

While everyone gawps at the apparent Boris Breakthrough (The Grauniad has no idea what to make of it) and spiking pound (well, a bit of an uptick), here's an interesting development from a different front:

"China's CNPC has pulled out from Iran's $4.8 billion South Pars gas project, Iran's oil minister said on Sunday, after France's Total abandoned the deal last year amid looming US sanctions on Tehran"

Yes, even China.  Last year we noted the impotent attempts of the EC to assist Total in evading US sanctions against Iran; and the position remains the same: in the world of commerce, only outright pirates choose to flout US sanctions.

All this at a time where China is attempting to have its writ run over anyone daring to criticise what they are up to in Hong Kong - see this piece.  But China may not be quite ready to ignore world opinion and simply crush HK dissent.  Finessing this - its timing, and its impact on Xi's ultimate determination to retake Taiwan during his own tenure - is evidently going to be tricky.  Perhaps he's waiting for a Democrat prez: though that might be a bit of an unknown quantity ...

The struggle for global hegemony between the two superpowers is going to be a helluva 50-year firework display. 

ND

Saudi: Feels Like a Classic Scenario

Did We Say 'Gas and Power Prices Up' ?  Oh yes we did.

But it looks as though we ain't seen nothing yet.  Live by the drone, die by the drone: and bombing Saudi oil facilities, whether by Yeminis or Iranian proxies, is the stuff of classic scenarios for it All Kicking Off.

Several major economies on the brink of recession ... China widely felt to be a lot less robust than they'd be keen to have you know ... Europe thoroughly distracted ... Hong Kong in turmoil ... wars and rumours of wars ...

Yes, a classic scenario.  Hold onto your hats. 

ND

Oil price:  instant reaction

China and Hong Kong: Awkward

It's hard not to take an interest in China, which may already be the world's largest economy - quite a bit ahead of schedule, it seems.  I am a sino-novice, but have had a very positive experience of Hong Kong, which is a start.  Things like the Chinese reaction to MH 370 I find puzzling:  and their foreign policy is clearly naive in many respects, endlessly tripping up over things it should take in its stride. But they'll get smarter.

In the meantime ... while I was in HK earlier in the year there was a big anniversary demo, but the recent protests hadn't started.  Although these seem to have peaked, there are still daily events in the series, faithfully chronicled by Wiki - at least for western audiences - so the embers are still glowing.  Where does all that lead ?

On the one hand, it seems China is steadily and unsurprisingly trying to nibble at the quite tangible freedoms granted to HK and Macau for 50 years under the 'one nation, two systems' set-up.   They are up against a young, dynamic, well-educated, quite stroppy population that enjoys those freedoms very much.  Can anyone imagine them signing up for old-style communist clap-trap ?  (For a glimpse of what old-school 'monolithic ideology' is all about, it's worth reading the 'Ten Principles' of China's old buddy, North Korea.  Who'd buy that without a gun in his temple?)

Strategically, I strongly incline to the idea that China - surely the country with the longest and most patient historical viewpoint - must have as one of its highest considerations the desire to re-integrate Taiwan, just as the old West Germany was fixated on reunification.  The odds of this must be many times better with a happy HK in the fold.  Another source of optimism must be that there are still some 33 years to run under the 50-year dispensation: surely over such a long period there is likely to be still further liberalisation in China, and softening of 'communist' doctrine.  The very existence of a state of affairs in HK that is broadly satisfactory to China might even act to deflect the compass systematically in that direction.

On the other hand, there is the observation that the 2008 Olympics didn't have the fundamental effect on China that many (including me) thought would happen.  And then there's the famous story about the Emperor's concubines.  One day, the Emperor decided his giggling concubines should be made to parade and march in orderly ranks, but early attempts to achieve this were like trying to herd cats, and greeted with gales of laughter.  

The Emperor called in one of his generals.  He, too, found chaos when he barked his orders to the assembled harem on the parade square.  So he had two of them beheaded on the spot. And the rest all immediately fell in line.

I have a feeling this story gets told around the CPC Politburo table from time to time.  Let's hope the 'Taiwan Strategy' faction predominates, and is not just a fiction of my optimistic imagination.

ND

Weekend Letter from Hong Kong

Buddha: he's Big

An excellent week's business in Hong Kong, not to mention the Dragon Boat racing, and the 25th anniversary of a Certain Event that is commemorated here but not over the border.  With everything wrapped up I've gone tourist:  been up the mountain to commune with the Big Buddha, payed my respects at the Po Lin monastery, and walked the Wisdom Path.  

Wisdom Path:  a bit spooky

So: time to review the week's (English language) papers for the insights they offer to a culture I know nothing about.   My pick of the Hong Kong headlines (South China Morning Post):

Jail terms delay Triad elections

The Triads, it seems, go to the polls to elect their leaders every two years - but it's been postponed.  "The delay is to avoid creating an unfair election for those who will run but are likely to be jailed for criminal charges they are involved in."  Good to know the Triads have such a flexible constitution.

Drop in retail sales biggest in 5 years

Rather scary this:  "Consumption fell 9.8% year-on-year ... some economists blamed the gloomy figures on the continuing effects of the anti-corruption drive Beijing launched in 2012."  That's how much HK's economy depends on mainland Chinese business.

Textbook asks: can you match the races?

Well fancy that: primary schools are using a textbook that asks pupils "to match jobs with nationalities - Filipinos as maids, a South Asian as a construction worker, a white guy in a suit as a teacher, Japanese for restaurant owner; and choose the physical characteristics of different races, such as curly hair, thick lips, very dark skin ..."   Who knew that racial stereotyping existed outside the UK ?

Arrested freedom / Facing the past

"Despite the changes made to China's human rights legislation after June 4 [1989], progress has been slow ... in recent years the situation for civil and political rights has significantly deteriorated."
"Reluctance of mainland Chinese to discuss the events of 1989 stems from both fear and shame, and open discussion would help foster trust in the government.  The Communist Party does not want to confront its mistakes because it is afraid."

Free speech still thriving hereabouts though, obviously.

Dragon Boats: they're fun

ND

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 pics © Nick Drew 2014