The Big Ideas

by Malcolm Riddell

Don't Say Xi Jinping Didn't Warn You

CHINADebate

Malcolm Riddell
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Founder of CHINADebate

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August 5, 2021
Don't Say Xi Jinping Didn't Warn You
Don't Say Xi Jinping Didn't Warn You
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‘Global investors are shocked to have discovered that China is run by Communists.’

  • Sounds like a line from New Yorker humorist Borowitz.

Go ahead MNC CEOs, make fun of those dumb investors who got tricked by China.

  • But be aware: Your turn on the hot seat is coming.

Why? Whether institutional investors or Fortune 500 CEOs: ‘For decades, foreign investors [and CEOs] have told themselves a comforting story,’ writes Matthew Brooker of Bloomberg [excerpts below].

  • ‘China was no longer truly Communist, after late paramount leader Deng Xiaoping embraced markets in the late 1970s and kicked off the country’s spectacular economic rise.’
  • ‘The wealth and growth generated by capitalist techniques had converted the government and people.’
  • ‘While the ruling party continued to wrap itself in the rhetoric of Communism, its members knew they were paying lip service to a bankrupt ideology, or so the thinking ran.’

‘The era of such creative ambiguity is over.’

  • ‘With a true believer holding the reins of power, there can be no doubt that China’s rulers mean what they say.’

The good news: Investors’ travails are flashing red lights for CEOs.

  • They have a bit of time to take a big step back to thoroughly reexamine their assumptions about China and China business.
  • And in so doing better prepare for the risks that lie ahead.

Again investors are showing the way to begin the reassessment. In what sounds like another Borowitz quote:

  • 'Shocked Investors Scour Xi’s Old Speeches to Find Next Target.'

And they are on the right track. ‘These sudden regulatory shifts have thrown asset managers across the world into a frenzy of effort to understand and explain how prospects for investors in the second-largest economy have changed.’

  • 'The most lucid and logically coherent explanation also happens to be the simplest: Take China’s Communist Party at its word.'

'Some investors realized they hadn’t paid enough attention to the country’s most important man: President Xi Jinping.’

  • Investors have - in record time - realized that ‘If you are more aware of what the Chinese have been communicating all along, you know what they will do,’ as Jason Hsu, founder and chief investment officer of Rayliant Global Advisors, says.

If you’ve been following the media reporting on investor reaction (read, shock) to recent events, this is the capital markets' equivalent of turning on a dime.

  • I truly admire institutional investors' capacity to readjust their perspectives so quickly.
  • Something I strive for but seldom succeed at.

A good example of how we should rethink our assessment of Mr. Xi’s intentions comes from ‘'China Wants Manufacturing—Not the Internet—to Lead the Economy,' by Greg Ip of The Wall Street Journal [excerpts below]:

  • ‘In Xi Jinping’s estimation, technology comes in two varieties: nice to have, and need to have.’

‘Social media, e-commerce and other consumer internet companies are nice to have. But in his view national greatness doesn’t depend on having the world’s finest group chats or ride-sharing.’

  • ‘By contrast, Xi thinks the country needs to have state-of-the-art semiconductors, electric-car batteries, commercial aircraft and telecommunications equipment to retain China’s manufacturing prowess, avoid deindustrialization and achieve autonomy from foreign suppliers.’

‘Mr. Xi described these differential priorities in a speech [there’s that speech thing again] published by the party journal Qiushi last year.’

  • ‘He acknowledged the online economy was flourishing, and said China “must accelerate construction of the digital economy, digital society and digital government.” ‘
  • ‘ “At the same time, it must be recognized that the real economy is the foundation, and the various manufacturing industries cannot be abandoned.” ’

Institutional investors are now paying attention to what Mr. Xi and his colleagues are saying because, as the rapid reforms in the consumer internet sector show: When they speak, they mean it.

  • Now it’s up to us to challenge our assumptions about the sectors that are nearest our interests.

All by saying, the blinders are off.

  • From here on, if we miss the signals right in front of us, it’s our fault.
  • We can’t say China didn’t warn us.

CHINADebate

Malcolm Riddell
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CHINADebate

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As I write this, Taliban forces have entered Kabul and are reportedly occupying the Presidential Palace.
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'China Signals More Regulation for Businesses in Coming Years'

‘The State Council’s statement provides a guiding context to interpret current regulatory thrusts. The blueprint as an attempt by Chinese authorities to help investors understand the motives behind the regulatory push.’
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The Wall Street Journal

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George Soros
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CHINADebate

Malcolm Riddell
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CHINADebate

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Don't Say Xi Jinping Didn't Warn You

‘Global investors are shocked to have discovered that China is run by Communists.’
8/5/2021

Bloomberg

CHINADebate

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Matthew Brooker | Bloomberg
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‘Global investors shocked to have discovered that China is run by Communists.’

‘Global investors are shocked to have discovered that China is run by Communists.’
8/5/2021

Bloomberg

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'Shocked Investors Scour Xi’s Old Speeches to Find Next Target'

‘While China’s policy moves can feel ad hoc particularly to foreign investors, the changes are quite targeted on certain sectors.’
8/5/2021

The Wall Street Journal

CHINADebate

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Greg Ip | The Wall Street Journal
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'China Wants Manufacturing—Not the Internet—to Lead the Economy'

‘Social media, e-commerce and other consumer internet companies are nice to have. But in his view national greatness doesn’t depend on having the world’s finest group chats or ride-sharing.’
8/5/2021

Bloomberg

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'China Plans to Exempt H.K. IPOs From Cybersecurity Reviews'

‘China plans to exempt companies going public in Hong Kong from first seeking the approval of the country’s cybersecurity regulator, removing one hurdle for businesses that list in the Asian financial hub instead of the U.S.’
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The Wall Street Journal

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The Editorial Board | The Wall Street Journal
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'Biden’s Warning on Hong Kong'

‘The pretense of Chinese and Hong Kong authorities is that their crackdown on the rule of law and dissent will have no effect on Hong Kong’s viability as an international center for trade and finance.’
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CHINADebate

CHINADebate

Malcolm Riddell
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During the celebration of the Chinese Communist Party’s Centennial celebration, Mr. Xi stood in the same place on the balcony facing Tiananmen Square where Mao Zedong stood when he announced the founding of the PRC; Mr. Xi wore a gray Mao suit, among a sea of blue western suits; and he centered himself right above the portrait of Mao, who is similarly attired.
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Foreign Affairs

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Kurt Tong | Asia Group
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Hong Kong and the Limits of Decoupling

‘The United States’ inability to make China regret—much less reverse—its transgressions in Hong Kong suggests that financial separation, sanctions, and economic barriers are less reliable tools than many in Washington believe.’
7/18/2021

Nikkei Asia

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'I will aim for Mao's Status.'

‘There on the gate was Xi Jinping, Chinese president and party general secretary, in a gray Mao suit. Just below his feet was the portrait of Mao Zedong, also dressed in a gray Mao suit.’
7/18/2021

Financial Times

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'US warns companies of risk of doing business in Hong Kong'

“In the face of Beijing’s decisions over the past year that have stifled the democratic aspirations of people in Hong Kong, we are taking action,” said Antony Blinken, US secretary of state. “Today we send a clear message that the US resolutely stands with Hong Kongers.”
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CHINADebate

CHINADebate

Malcolm Riddell
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CHINADebate

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Here are a few of my thoughts on the importance of Wang Jisi’s ‘The Plot Against China.’ Yuen Yuen Ang’s ‘The Evolution of Chinese Corruption’ speaks for itself - but note especially how Mr. Xi's anti-corruption campaign could hurt China's economy. I have now lived long enough that when a friend complains about his or her spouse, I say to myself, ‘There are no doubt two sides to this story.’
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Foreign Affairs

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Wang Jisi | President of the Institute of International and Strategic Studies at Peking University
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'How Beijing Sees U.S.-China Relations'

‘In Chinese eyes, the most significant threat to China’s sovereignty and national security has long been U.S. interference in its internal affairs aimed at changing the country’s political system and undermining the CCP.’
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Foreign Affairs

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Yuen Yuen Ang | University of Michigan
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'How Corruption Powers China's Economy'

‘China has managed to sustain four decades of economic growth despite levels of corruption that even Xi has described as “grave” and “shocking.” Why does it seem to have bucked the trend?’
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Harvard Magazine

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Ed Steinfeld | Brown University
Tony Saich
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Harvard Kennedy School of Government
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