ALEX BRUMMER: By turning its back on political and economic freedoms, China risks cutting itself off from Western investment and trade
- The flaws in China’s approach to capitalism are there for everyone to see
- There is no more powerful symbol of the crumbling of Chinese capitalism than Evergrande
- China rejects “Too Big to Fail” position of democracies in financial crisis
Five years ago, Chinese President Xi Jinping was the star of the celebration of love for the world’s capitalist elites in Davos, delivering a striking speech praising globalization.
His speech extolling open trade was seen as distinguishing him from former Communist rulers and, favorably, contrasted with the stern nationalism and mercantilism of then-newly elected Donald Trump.
How the world turned. In early 2022, Davos, as a live event, bites the dust again, and the enthusiasm for President Xi’s leadership has dissipated.
Charting a Different Course: Chinese Leaders Reject Western Democracies’ ‘Too Big to Fail’ Position in Financial Crisis
On New Year’s Eve, the People’s Republic of China tightened its already firm grip on Hong Kong with an all-out attack on pro-democracy media Stand News. Police raided its offices, froze assets and arrested senior executives on suspicion of “seditious publication” offenses.
The crackdown on a free press is symbolic of how China has lost faith in Hong Kong’s free democracy and open and unfettered markets.
It is only by obediently accepting changes, like UK banks HSBC and Standard Chartered, that it is possible to continue to operate unhindered. At home, Xi consolidated his autocratic hold on power and was named a leader of “historic” proportions, alongside Mao Zedong as one of the greatest of all time.
His rise to the rank of supreme leader has taken a heavy toll on his people, the freedoms of Hong Kong and Macao, and relentless military pressure against Taiwan.
There is enormous attention to the fate of Chinese tennis champion Peng Shuai after her allegations of assault by a senior official. He almost forgot that Alibaba founder Jack Ma, the country’s most famous tech entrepreneur, also disappeared from public view last year.
His offense was to praise the private company on the eve of Alibaba’s £ 27bn float project, Ant Capital. Ma’s comments angered Communist Party leaders who responded by toughening regulations undermining Ant’s model.
A frequent public spokesperson for US technology and capitalism in media such as US financial channel CNBC has been silenced.
The world’s largest commercial banker, Jamie Dimon, was forced to issue a humiliating apology when he casually suggested that JP Morgan would outlive the Communists in China.
Far from the glory days of Davos, the cracks in China’s approach to capitalism are there for everyone to see.
The implosion of the real estate conglomerate Evergrande demonstrated the weakness of a model fueled by debt.
China (perhaps rightly so) has become the first country to curb cryptocurrency trading. He also cracked down on the hugely profitable Macau arms of the Las Vegas casino giants, causing their shares in Hong Kong and New York to skyrocket.
For several years, economists predicted that China’s meteoric economic expansion meant it would become the world’s largest economy in the early 2020s.
Covid is getting revenge in the form of greatly reduced growth rates. In the latest global rankings, the London forecaster projects the Center for Economics and Business Research, China will not catch up with the United States until at least 2030, a two-year delay.
Earlier this year, Chinese Vice Minister of Commerce Ren Hongbin warned that he was facing “unprecedented” difficulties in stabilizing trade due to Covid-induced shocks that hamper exports.
There is no more powerful symbol of the crumbling of Chinese capitalism than the fate of Evergrande. It is a victim of China’s efforts to deleverage and reduce burgeoning domestic credit markets by $ 12 trillion (£ 8.9 trillion).
Chinese debt defaults were estimated by investment bank Goldman Sachs at $ 23 billion (£ 17 billion) in mid-2021.
Evergrande has been embroiled in a frantic effort to sell assets to pay off debt, and it has been a race against time with some £ 14bn in default casting a veil of gloom over Pacific property markets.
The company has started to speed up house construction again. However, it operates in a financial vacuum as it continues to miss bond repayments and stocks slide.
Chinese leaders have rejected the “Too Big to Fail” position taken by Western democracies in the financial crisis.
By turning its back on political and economic freedoms, it risks cutting itself off from Western investments and trade which have contributed to a growth miracle.