By Jon Dougherty
As POTUS Donald Trump prepares to meet with Chinese President Xi Jinping to discuss a deal to end the current trade war between the world’s two biggest economies, the American political commentariat has panned it as another opportunity for China to ‘pull one over’ on this ‘hapless, bumbling president.’
Citing Trump’s ‘inability’ to come to terms with North Korean leader Kim Jong-un over denuclearization, they have left Americans who still listen to them with the impression that now it’s China’s turn to embarrass him and the United States — and at the president’s own resort at Mar-a-Lago.
But the reality of the current state of the Chinese economy has been hidden from most Americans. Many of the country’s super-rich are leaving; sensing that the Communist party leadership is badly mishandling economic affairs, they see Beijing more focused on solidifying control over the country than shoring up the economy, which would include a deal to end U.S. tariffs.
The New American noted:
A popular online meme perfectly expresses where China’s economy is headed: “The year 2019 may be the worst year in this decade, but it will be the best year in the next decade.”
China’s economy is decelerating so rapidly that the super-rich are getting out while the getting is good. One of them is Chen Tianyong, a real estate developer in Shanghai, who posted this on the Internet: “China’s economy is like a giant ship heading to the precipice. Without fundamental changes, it’s inevitable that the ship will be wrecked and the passengers will die. My friends, if you can leave, please make arrangements as early as possible.”
And The New York Times added:
It is unclear how many people saw the article before it disappeared from China’s heavily censored internet. But Mr. Chen said publicly what many businesspeople in China are saying privately: China’s leadership has mismanaged the world’s second-largest economy, and China’s entrepreneur class is losing confidence in the country’s future.
As the Chinese economy continues to slow along with overall growth, rather than liberalize policies Xi, who took over as president in 2012 and after being reelected in 2017 led a change in the law that lifted China’s two-term limit, making him president for life, potentially, has instead cracked down on every aspect of Chinese society.
And while most are not yet predicting economic collapse, many are beginning to make comparisons between China’s leadership and that of Venezuela, where socialists gained control over the economy and drove it into the ground.
Only one-third of China’s rich people say they are very confident in the country’s economic prospects, according to a recent survey of 465 wealthy individuals by Hurun, a Shanghai-based research firm. Two years ago, nearly two-thirds said they were very confident. Those who have no confidence at all rose to 14 percent, more than double the level of 2018. Nearly half said they were considering migrating to a foreign country or had already started the process.
“China is facing a lot of internal and external challenges now,” Fred Hu, founder of the investment firm Primavera Capital Group and former head of Goldman Sachs’s Greater China business, told the paper. “We need to realize that all of our achievements in the past 40 years were the results of opening up and economic reform, not because of any unique China development model.”
In private, however, most Chinese entrepreneurs speak in much angrier tones, the Times said. They can’t even talk about the economy publicly anymore — which used to be a safe subject — over fears of government reprisal and a further crackdown.
Even publicly, there are clear signs China’s ship of state is taking on water. During a speech to the country’s parliament on Tuesday, Li Kegiang, an economist by education and current Premier of the State Council of the People’s Republic of China, the Communist party’s No. 2: “In pursuing development this year we will face a graver and more complicated environment as well as risks and challenges … that are greater in number and size. We must be fully prepared for a tough struggle.”
As CNBC noted, clearly the U.S. tariffs were taking their toll, as evidenced by Li’s dire warning:
This year’s meeting comes amid tariff tensions with the U.S. — China’s largest trading partner — which have placed immense pressure on China’s economy and financial markets.
“A full analysis of developments in and outside China shows that in pursuing development this year, we will face a graver and more complicated environment as well as risks and challenges, foreseeable and otherwise, that are greater in number and size,” Li told the 3,000 assembled delegates.
Li said that the economic growth target for China this year is 6-6.5 percent; last year, China’s economy grew by 6.6 percent, the slowest pace since 1990.
Long-time China watchers and analysts like Gordon Chang see trouble on Beijing’s horizon. The author of “The Coming Collapse of China” said that POTUS Trump’s decision to walk away from Kim in Vietnam last week is going to put even more pressure on Beijing, to the United States’ advantage.
“Right now, I think the Chinese are saying to themselves, ‘look, we’re probably going to have to give up more than we had anticipated,'” he told TheHillTV on Friday.
“These are really tough negotiations. I’m not so sure you can get the Chinese to agree to change the entire nature of their economy and even their society, but nonetheless, they have a lot [less] leverage today after President Trump walked out of Hanoi.”
For his part, Xi is at least aware of growing anxiety and angst. He has “postponed new rules that would raise business taxes to pay for social benefits and has eased its monetary and fiscal policies,” the Times reported.
But the Chinese power structure, with the Communist party fully in control and the country’s parliament being more ceremonial than real, isn’t built to accommodate societal liberalization of the kind necessary to free up the economy. Last month in a major policy speech, he “identified seven major risks for national security, with politics and ideology topping the list, and he called for tighter control of young people and the internet,” the Times reported.
That said, some younger entrepreneurs see the U.S.-China trade war as a blessing in disguise. The Times noted that some of them only half-jokingly remark in private that ‘only Trump can save China.’
“The trade war is a bad thing, to begin with,” Hu of Primavera Capital said. “But if the final resolutions lead to renewed efforts by China to undertake broad structural reforms, it will be a win-win situation for the U.S., China, and the world.”
- Follow Jon Dougherty on Twitter at @JonDougherty10
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