Commentary on Political Economy

Sunday 25 August 2019


Xi will press his ambitions by deceit, threat or blood

At midnight on July 1, 1997, after 156 years of British rule, Hong Kong reverted to China. Under the terms of the handover, for 50 years Hong Kong was to remain a special, semi-autonomous administrative region with a democratic government and an economic system separate from the mainland’s.
After 22 of them, Beijing has signalled enough is enough.
“One China-two systems” was a pragmatic concession at the time but the enshrined democratic processes are untidy for a communist regime. “One China one system” is more efficient.


In pursuit of this objective Beijing has ensured pro-democracy politicians be disqualified from the Legislative Council. In a crackdown on free speech it abducted to the mainland five Hong Kong booksellers and a tycoon for being critical of China’s leaders.
And, while ostensibly a Hong Kong initiative, the latest controversial extradition bill which effectively removes the legal firewall between Hong Kong and China, has Beijing’s fingerprints all over it. Hong Kongers see this as the last straw in their struggle to retain independence. In June, two million — about 30 per cent of the population — took to the streets in protest. Two weekends ago, in awful weather, 1.7 million came out. For three months now demonstrations have been unceasing and occasionally violent.
Chief executive Carrie Lam has declared the bill “dead” but she is too closely identified with Beijing to have credibility.
Indeed, confirming her puppet status, Chinese officials have warned Hong Kong not to mistake Beijing’s “restraint” for weakness. It has threatened to move “without leniency, without mercy”.
Louisa Lim, in The People’s Republic of Amnesia: Tiananmen Revisited, describes how “for a country that has long so valued its history and so often turned to it as a guide for the future, the Chinese Communist Party’s efforts to erase actual history and replace it with distorted narratives warped by nationalism has created a dangerous vacuum at the centre of modern-day China”.
Intended to unite the country behind common beliefs, this “official” history also justifies territorial claims over the entire South China Sea. Hong Kong and Taiwan are seen as glaring anomalies which should be remedied.
Indeed, China’s President Xi Jinping sees reunification of Taiwan as “the sacred duty for all Chinese” that “cannot be passed from generation to generation”.
When Xi took the helm in 2012 there were expectations he would continue China’s outward-facing economic miracle that president Deng Xiaoping began three decades earlier. But Xi’s innate suspicion of markets means China’s economic liberalisation has probably passed the high-water mark.
Indeed, rather than economic growth, Xi’s preoccupation has been to strengthen his grip on power. Through the Central Commission for Discipline Inspection, he has waged a relentless anti-corruption campaign against his political enemies. As a Leninist who believes in centrally imposed complexity, his China is much better suited to timid, politically astute managers than to entrepreneurs and innovators.
Xi’s presidential term is unlimited. He has taken control of the military, the government and the ruling party. He oversaw the systematic dismantling of law-and-order institutions and the end of an independent civil service. For the moment, Xi appears to be the “chairman of everything” and unassailable. Even the Chinese constitution includes a preamble that cements “Xi Thoughts on Socialism with Chinese Characteristics for a New Era”.
Arrayed against him is a slowing economy and increasingly unfavourable demographics. Making matters worse, China is no longer the low-cost manufacturing hub it was. As Donald Trump’s trade policies bite, many factories and entrepreneurs are relocating to Vietnam and Taiwan, where wage rates are lower and where nebulous social and political objectives are absent.
These plant closures have left growing numbers of Chinese workers jobless and unpaid. Last year, according to the China Labour Bulletin, thousands of collective labour protests occurred across the country. Workers are dissatisfied with low pay, underpayment of social security insurance and abusive management.
The social and economic issues now facing China’s leaders are structural and made more intractable by Xi’s leadership style.
Trump’s trade war and Hong Kong’s defiance are unwanted complexities but China is caught in a debt trap. It has to carry massive over-investment in property and infrastructure which, combined with a hugely inefficient state-owned sector, are a serious drag on growth. Efforts to stimulate the economy have largely failed, with industrial production at its weakest pace since 2002.
Indeed, China’s economy is an enormous challenge. Much of the low-hanging fruit has been harvested and, with per-capita income one fifth of Australia’s, lifting China to developed economy status will be difficult.
But Xi shows no sign of modifying his ideology or his core objectives. Nor his unwillingness to share power. He is paramount leader. As a good Leninist, he believes “you probe with bayonets: if you find mush, you push. If you find steel, you withdraw”. Until Trump he has found mainly mush. But he can wait Trump out in the expectation that in 2020 yet another “mushy” Democrat will occupy the White House.
But what about the Chinese people, who see growing inequality and the economic miracle fading before their eyes? Xi wants his success to be measured more by the satisfaction of the people than by economic growth rates. For that he must retain their trust and Hong Kong and Taiwan reunification may serve this purpose.

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