Commentary on Political Economy

Monday 6 September 2021

PROPHECIES OF A FRANCISCAN FRIAR

This Bloomberg piece by Andrew Browne is quite accurate and insightful : 


Bloomberg

It’s no coincidence that an edict barring kids in China from playing online video games for most of the week came as the education ministry introduced a new subject to the national curriculum: Xi Jinping Thought.


As the academic year gets underway, students from primary schools through colleges and university are immersed in lessons from “Grandpa Xi.” The message could hardly be clearer: the Chinese Party-state wants to mold young minds with correct ideology, not distract them with online fantasies. To underscore that point, authorities are cracking down on “fan culture.”​ All mention of Zhao Wei, a billionaire actress, has been scrubbed from the internet.


Is this a new Cultural Revolution?



President Xi Jinping​ addresses party officials at​ the CPC Central Committee National Academy of Governance on Sept. 1. Photographer: Xinhua News Agency

This Week in the New Economy

Russia has a serious gas problem, and winter is coming.

Eskom’s CEO says carbon capture is being considered in South Africa.

India’s state oil company excluded by Norway’s wealth fund.

Fraying relations with China are hurting Australia’s economy.

Turkish inflation unexpectedly quickens on food prices.


What began as a regulatory takedown of Jack Ma, the flamboyant Alibaba co-founder, quickly grew to an assault​ on tech platforms–including those, like Tencent, that offer online gaming.


Now, as the campaign picks up speed, it’s adopting some of the iconography of the Maoist era. Along with​ the cult of personality, the effort is​ building a militant commitment to “struggle” against domestic and foreign enemies along with a “rectification” campaign to instill socialist values and combat decadence.


Authorities are also challenging the​ extravagant pay common in the entertainment world. And in a more sinister vein, they’ve called for a boycott of what the government has described as effeminate male celebrities.


What many foreign investors have yet to understand is that a regulatory crackdown that’s erased $1 trillion off Chinese equities goes well beyond reining in digital monopolies and forcing delivery companies to pay gig workers more. Xi is arguably unleashing political forces that haven’t seen the light of day for decades. In a widely published essay, a leftist blogger who goes by the name Li Guangman writes that China is in the throes of a “profound revolution.”



A video recording of Jack Ma, co-founder of Alibaba Group Holding, on Jan. 20. His takedown was just the beginning of Bejing’s wide-ranging campaign.

Just over half a century ago, Mao plunged China into a decade of chaos by launching an attack on “capitalist roaders” within the Party who he believed had hijacked his revolution to restore the old society.


Xi is assailing actual capitalists, some of them party members such as Ma, as symbols of yawning wealth disparity. Billionaires are being squeezed for charitable contributions to uplift the rural poor left behind by China’s fast-faced growth. Alibaba has pledged to donate $15.5 billion to charity through 2025.


Some of this is about raw power. Mao attempted to destroy his own Communist Party–“bombard the headquarters!” he instructed his young Red Guard zealots–to preserve his own legacy. Many China experts believe that Xi is laying the groundwork for a bid to remain in office indefinitely.


There is a crucial difference, though. The Cultural Revolution was a bottom-up movement that set loose popular fury against the establishment. In the end, rival Red Guard factions were blasting away at each other with machine guns, mortars and tanks, and Mao had to bring in the army to restore order.


Xi’s revolution is top-down: the last thing he wants is chaos on the streets.


What does he intend, then? As my Bloomberg colleague Malcolm Scott reports, the pilot project for the economic future Xi imagines is Zhejiang province, one of the wealthiest parts of China (incomes there are approaching levels in southern Europe) and a hotbed of private enterprise. Zhejiang is also Xi’s power base; he was party secretary there before ascending to higher office in Beijing.



The Ningbo-Zhoushan port in the Zhejiang Province of China. Photographer: VCG/Visual China Group

The evidence from Zhejiang suggests that on economic matters Xi is not Mao, in the sense that he wants to redirect the energies of entrepreneurs, not eliminate them as a class. The emphasis is on state control. Xi is focused on manufacturing over online services, and labor over capital. Expect the state to have a greater say in setting prices of goods and services–and how profits are distributed. The latest crop of corporate earnings reports are replete with references to Xi’s “common prosperity” slogan.


Nor does Xi fully embrace Mao’s egalitarianism. On welfare, his top lieutenants are closer to neo-liberals than socialists; in their view, handouts to the poor only promote​ indolence.


As for the cult of personality, Mao’s was of a different order altogether. At its height, writes the historian Frank Dikötter, demand for plastic to cover Mao’s Little Red Book forced toy factories to scale back output, and the production of billions of Mao badges exhausted the country’s aluminum supplies.


Still, as the Economist​ points out, the last time hundreds of millions of Chinese school kids clutched books devoted to one man was during the Mao era. In that sense, at least, the Cultural Revolution lives on.

The crucial thesis is in these two paragraphs : 

"The evidence from Zhejiang suggests that on economic matters Xi is not Mao, in the sense that he wants to redirect the energies of entrepreneurs, not eliminate them as a class. The emphasis is on state control. Xi is focused on manufacturing over online services, and labor over capital. Expect the state to have a greater say in setting prices of goods and services–and how profits are distributed. The latest crop of corporate earnings reports are replete with references to Xi’s “common prosperity” slogan.


Nor does Xi fully embrace Mao’s egalitarianism. On welfare, his top lieutenants are closer to neo-liberals than socialists; in their view, handouts to the poor only promote​ indolence."

THIS THESIS IS CRUCIAL to my own position on "Big Tech". ULTIMATELY the "knowledge economy" must lead to PRODUCTION !  Capitalism was ALWAYS AND EVERYWHERE about subordination knowledge to material production !  Capitalist enterprise - industry! - always and forever will be either about the manufacture of "things" OR ELSE IT WILL ABOLISH ITSELF, because "knowledge" is not "production". 

The emphasis on "the knowledge economy" serves only to disguise the transfer of social wealth from PRODUCERS to the holders of monopolistic "rights" to "intellectual property"! But sooner or later the "doers" (laboratores) will have to hold the "high priests" (oratores) to account !  The "metaverse" will not save Mark Zuckerberg from having his scalp razed by... the Taliban among others!

As Peggy Noonan argued today in the WSJ, there is "reality" (from the Latin res, "thing") and there is bullshit (she hides the last four letters ).

Dad had an anecdote about the father who asked his young son training for the priesthood to show him his new skills by giving a sermon in the house garden. The son obliged. The father was impressed. When the son later tried the same in church, he was tongue tied and the sermon a miserable failure.  The father then approached the son for an explanation.  And the trainee priest confessed : "Father, broccoli are broccoli, and human beings are human beings ! "

You can bullshit vegetables.  It's much harder with people...


Big Tech - "the knowledge economy" - relies on two parameters : symbolic manipulation (rearranging deckchairs on the Titanic) and data collection (how to manipulate people's behavior on the basis of what they do currently). Both "activities" are pure "directives" - essentially, giving orders or commands. The knowledge economy is the EXASPERATION of command over action: pure theft of living labour from "doers". What we are witnessing with asset inflation and swelling financial balloons or bubbles is the mounting UNTENABILITY of this late capitalist regime where the system no longer PRODUCES any... THING, or anything useful, but merely manages to shrink the human sphere of action to ... "cyberspace" or "the metaverse".

Yet, if Afghanistan proves anything, it is that no amount of "knowledge" or "technology" can change the "reality on the ground", short of erecting a dictatorship so "totalitarian" that it defeats and annihilates the very thing it was supposed to preserve: a viable society.


No need to read: just the titles will do. The first is the typical vigliaccheria italiana calling for (what else?)… “dialogue” … pace!pace! vogliamo pace!… as if peace was not something that from the dawn of civilisation has not been imposed “vi et armis”, by force of arms.

And the second title, on the same Corriere webpage, is the Taliban answer to the “Italian cry for peace”…. Bastonate alle donne

https://www.corriere.it/editoriali/21_settembre_04/mondo-infido-laceratol-unica-soluzione-dialogo-2d575d4c-0da4-11ec-94b3-ee97ec98a47b.shtm


https://www.corriere.it/esteri/21_settembre_04/kabul-bastonate-donne-che-protestano-ma-non-ci-chiuderanno-piu-casa-bee1d030-0db8-11ec-94b3-ee97ec98a47b.shtll…html

https://www.nytimes.com/2021/09/05/us/politics/cryptocurrency-banking-regulation.html

The absentee State strikes again!


This just in from the AFR Opinions:

"The VIE and ADR structures are now effectively dead


You also need to recognise that the standard Western model of privatisation and leveraging of public goods in order to provide a rentier class with annuity income is not going to happen in Chin


The Chinese authorities are for the 99 per cent, not the 1 per cent. Self-serving Wall Street-types and hedge-funders are declaring that this is terrible for the Chinese economy, but as a net exporter of capital, China doesn’t need Western savings to finance its capital investment


https://www.afr.com/markets/equity-markets/what-you-thought-you-knew-about-investing-in-china-is-wrong-20210905-p58o

But the Tinker guy, the writer, is otherwise "full of shit". He sounds like me when I've drunk too much coffee. It's true that Xi is at least trying to save both the Party and Chinese society. But that is not to say he will succeed! Western capitalism may be dying: that is far from saying that China will triumph, as this egregious sucker opines... The assertion that "Xi is for the 99 per cent" is simply laughable! The guy is out of his mind!

Mark Tinker is the founder of Market Thinking and blogs on behavioural finance and markets at Market-thinking.com.


Yep! That will be right. He's a blogger... Like me!

Mark Tinker is the founder of Market Thinking and blogs on behavioural finance and markets at Market-thinking.com.

Yep! That will be right. He's a blogger... Like me! China and India... Oh dear Lord...Gesù!... are building coal power stations at breakneck speed! And this halfwit wants OECD countries - NOT CHINA OR INDIA! - to halt coal by... Hahaha... 2030! 


Ambrose Evans-Pritchard is ... a different cattle of fish! This long article should be read... Carefully...


China is deliberately breaking the back of the world’s biggest financial bubble

By Ambrose Evans-Pritchard

September 3, 2021 — 7.30am

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The elephant in the global room is China’s ferocious property squeeze. Xi Jinping is deliberately breaking the back of the world’s biggest financial bubble.


The Chinese economy already has one foot in recession - by its own cyclical standards - and is heading for a hard-landing over the next few months as construction is starved of credit.


President Xi Jinping is shaking up the Chinese economy.

President Xi Jinping is shaking up the Chinese economy.CREDIT:GETTY IMAGES


“Markets should be prepared for what could be a much worse-than-expected growth slowdown, and potential stock market turmoil,” said Ting Lu, Nomura’s chief China economist. The scale of China’s cement addiction is eye-watering. “Half the world’s cranes are in China. We’re talking about 50 per cent of the global construction business,” he said.


Home building and property make up 17 per cent of Chinese GDP, including furniture and appliances. The sector also generates 44 per cent of local government revenues through land sales and fees, injecting $US1.3 trillion ($1.8 trillion) a year into the economy as quasi-fiscal spending. All told, property makes up a quarter of the Chinese economy, three times the relative weighting of America’s extreme bubble in 2007.


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Xi Jinping’s assault on property should not be confused with the stop-go cycles of the last quarter century, a form of Keynesian fine-tuning with “Chinese characteristics” that has each time prevented economic slowdowns from going too far - at the cost of worsening debt ratios.


“This time is different. It is China’s Volcker moment,” says Ting. The term refers to the drastic monetary tightening of the US Federal Reserve under Paul Volcker, who raised interest rates to 19 per cent in 1981 to halt the destructive wage-price spiral of the Great Inflation - setting off the Latin American debt crisis as collateral damage.


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Nomura says sales curbs already in place may push the property nexus into outright contraction before the end of the year. The crunch comes at a delicate juncture for the West, just as COVID stimulus fades and emergency support is yanked away. Goldman Sachs says the negative effects of “fiscal drag” in the US amount to 4 per cent of GDP (annualised) from now until the end of 2022.


Nomura describes the Volcker parallel as “positive praise for Beijing”, and in one sense it is. The Communist Party at last seems determined to lance the boil. But Xi’s petulant shake-up of the economy is also an ideological repudiation of the Deng Xiaoping formula credited with lifting the country out of poverty. His “common prosperity” campaign looks all too like a neo-Maoist purge.


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It amounts to a declaration of war on “disorderly capital” and swaths of the private sector - the only dynamic part of China’s economy. The regulatory mugging of internet platforms, fintech, video games, ride-hailing, after-school tutoring, food delivery, and e-cigarettes - with “rectifications” to match - has echoes of the Cultural Revolution.


Those who know how the world economy really works are trying to head off a debacle. “We must be vigilant against “common prosperity” becoming a Great Leap Forward or something that blights development,” said Li Daokui, a former rate-setter at the central bank and a Davos fixture.


The COVID boom has been perversely lucrative for the owners of capital in rich economies. But the easy money is exhausted and political risk is rising. We are moving into treacherous global waters.


But the revolutionary mood was made all clear this week in a WeChat blog known as the “Li Guangman Ice Point Commentary”. His diatribe was reprinted across the state-run media with the clear blessing of the regime.


“Everyone can feel that a profound change is taking place,” he stated, proclaiming an end to China’s love affair with Western culture and “return to the essence of socialism”. It was framed as a fight to the death with the West, the unvarnished Xi doctrine.


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The showdown has exposed China’s Achilles’ heel: its reliance on imported hi-tech components and chips, the fuel of the digital economy.


The other catalytic shock has been this year’s census, revealing that the country is ageing even faster than feared. The fertility has kept falling to 1.3 per cent despite the end of the one-child policy, now the three-child policy.


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The Party has concluded that the house price spiral is triply corrosive: it is a financial black hole; it is the chief cause of cancerous inequality; and it is a strategic threat through the demographic channel.


E-house China Research says the ratio of prices to average incomes in Shenzhen has reached 43.5. Top party officials have been sacked for allowing this to happen. Local government bosses everywhere now know that they will be punished for property booms and rewarded for austerity.


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The plan is to offset the attack on property and other sectors of capitalist sin with “universal easing” to bolster the rest of the economy. The State Council last month ordered the People’s Bank to cut the reserve requirement ratio for lenders in a pre-emptive move.


This cannot stop a slowdown. Construction is the chief instrument of cyclical management. No other sector is big enough to compensate, nor able to transmit the credit impulse.


The immediate danger is what happens to Chinese developers with $US5.1 trillion ($6.9 trillion) debt between them, many relying on sales of unbuilt property to roll over existing liabilities.


China’s developers have amassed $US5.1 trillion in debt between them, with many relying on sales of unbuilt property to roll over existing liabilities.

China’s developers have amassed $US5.1 trillion in debt between them, with many relying on sales of unbuilt property to roll over existing liabilities.CREDIT:BLOOMBERG


Hedge fund veteran George Soros this week floated the possibility of a systemic financial crash and an educational reckoning for tourist investors from the West. But I find it hard to imagine a Lehmanesque “Minsky” meltdown in a system where the state retains iron control over banks.


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The authorities are already orchestrating a disguised soft-landing for indebted developer Evergrande. “They cannot afford to let it go bust so they are kicking the can down the road,” said George Magnus from Oxford University’s China Centre.


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“The Party craves two things above all: control, and stability. If the property market falters, the consequences for the Chinese economy will be savage. They will not want to take that risk before next year’s Party Congress,” he said. The forum is supposed to be the ultimate coronation of “helmsman” Xi.


Yet that does not preclude a slow-motion deterioration that ends illusions of Chinese economic exceptionalism and that is large enough to throw the world’s post-pandemic recovery into doubt. The unfolding drama dwarfs the relatively trivial question of when the Fed will tweak its bond purchases, and by how much.


The COVID boom has been perversely lucrative for the owners of capital in rich economies. But the easy money is exhausted and political risk is rising. We are moving into treacherous global waters.

Telegraph, London

As you can see, unlike Tinker, the good Ambrose can see that Xi's desperate measures are just that - a sign of desperation to gather popular support before the imminent collapse of the Chinese economy. No "Tinker-tailor, soldier spy" confabulation here! Only cold-blooded analysis. The last three paragraphs:


"“The Party craves two things above all: control, and stability. If the property market falters, the consequences for the Chinese economy will be savage. They will not want to take that risk before next year’s Party Congress,” he said. The forum is supposed to be the ultimate coronation of “helmsman” Xi.


Yet that does not preclude a slow-motion deterioration that ends illusions of Chinese economic exceptionalism and that is large enough to throw the world’s post-pandemic recovery into doubt. The unfolding drama dwarfs the relatively trivial question of when the Fed will tweak its bond purchases, and by how much.


The COVID boom has been perversely lucrative for the owners of capital in rich economies. But the easy money is exhausted and political risk is rising. We are moving into treacherous global waters."


One of the many ways capitalism is dying.

"Chairman Peter Costello says the Future Fund is allocating more money to private equity and institutional investors are taking more sharemarket companies private to avoid costly disclosure regulations and to deliver higher returns.


The former federal treasurer says this trend will hurt the share portfolios of “mum and dad” retail investors."

"Mr Costello, treasurer for 11 years in the Howard government and the founder of the Future Fund in 2006, said the institutional investor shift to private markets was a problem for “shareholder democracy” and a public policy question for government."

The long term tendency is for capitalism to turn into a more auto centric system, what the French call “dirigiste” where State authorities will need to “direct” (dirigere, in Italian) both the economy and the society. At the moment, it seems to go the other way - loss of control by States. But the reversal in direction can and will be swift… because it must, if these societies are “to hang together”.

The long term tendency is for capitalism to turn into a more auto centric system, what the French call “dirigiste” where State authorities will need to “direct” (dirigere, in Italian) both the economy and the society. At the moment, it seems to go the other way - loss of control by States. But the reversal in direction can and will be swift… because it must, if these societies are “to hang together”.


Ross Douthat, in this absorbing overview in the NYT, draws some provocative parallels between the decline of the Pax Romana and that of the Pax Americana. Perhaps the most perceptive part of his comparison (necessarily schematic) is that both empires - one formal, the Roman, and the American “informal”, that is, with no direct military occupation and colonisation - were “nibbled at” at the borders (think of the Danube and Syria for Rome), but crucially this constant harassment in the far flung provinces were insignificant (they took place even as the Roman Republic was expanding) until the “core” of the Empire (Italia, principally) began to decline socially (Christianity against paganism) and economically (unproductive latifundism, concentration of wealth). 

Douthat’s contention, to which I associate myself, is that we are witnessing a similar process in what I call “late” capitalism.


https://www.nytimes.com/2021/09/04/opinion/afghanistan-withdrawal-america.html


As always, the socioeconomic “malaise” (that “dis-ease” so maligned by Clive James, who could still write formidable historical reviews!) can be redressed by thoroughgoing reforms of a society - beginning with the State! I am thinking of Diocletian and Constantine, and of Roosevelt more recently. Western nation-states need a “reset” if they are to stem their rapid decline. And always, it is “values” as championed by ruling elites that are symptomatic of either decline or renewal. More and better “statesmen” and “heroes”; fewer “pygmies” and social butterflies (“stars”) are what is needed.

An example (a symptom?): this quotation from a KPMG Report in the AFR:

“KPMG Australia’s geopolitics lead Merriden Varrall said corporates should be building capacity to cope with geopolitical turbulence on signs it would be more common amid tensions between China and the US and widening inequality on the back of the pandemic.

“Rather than openness, multilateralism, globalisation and free trade, the geopolitical context is characterised by rising strategic competition, inequality, lack of trust, protectionism, nationalism, disruption, and, importantly, consumer awareness and expectations of business,” she said.”


Instead of beginning with “rather”, the second paragraph should start with “because”! Each and every “evil” that is listed in that paragraph… IS A DIRECT RESULT of “openness” (the brutal, unconscionable capitalist exploitation of subordinate societies), of “globalisation” (the execrable abuse of hot money flows and sudden stops that destroy local economies)… and so forth.


Douthat:

“As someone swiftly pointed out on Twitter, the hangar scene had a strong end-of-the-Roman Empire vibe, with the Taliban fighters standing for the Visigoths or Vandals who adopted bits and pieces of Roman culture even as they overthrew the empire. For a moment it offered a glimpse of what a world after the American imperium might look like: Not the disappearance of all our pomps and works, any more than Roman culture suddenly disappeared in 476 A.D., but a world of people confusedly playacting American-ness in the ruins of our major exports, the military base and the shopping mall.


But the glimpse provided in the video isn’t necessarily a foretaste of true imperial collapse. In other ways, our failure in Afghanistan more closely resembles Roman failures that took place far from Rome itself — the defeats that Roman generals suffered in the Mesopotamian deserts or the German forests, when the empire’s reach outstripped its grasp.”


And then again:

“But so long as we have the other two empires to fall back on, from our cold-eyed Gibbonian perspective the situation still looks more like a scenario where Rome lost frontier wars to Parthia and Germanic tribes simultaneously — a bad but recoverable situation — than like outright imperial collapse.


That said, defeats on distant frontiers can also have consequences closer to the imperial core. The American imperium can’t be toppled by the Taliban. But in our outer empire, in Western Europe and East Asia, perceived U.S. weakness could accelerate developments that genuinely do threaten the American system as it has existed since 1945 — from German-Russian entente to Japanese rearmament to a Chinese invasion of Taiwan.


Inevitably those developments would affect the inner empire, too, where a sense of accelerating imperial decline would bleed into all our domestic arguments, widen our already yawning ideological divides, encourage the feeling of crackup and looming civil war.”


https://www.nytimes.com/2021/08/28/opinion/afghanistan-biden-evacuation.html









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