'This Time Feels Different'

'This Time Feels Different'
'This Time Feels Different'


Malcolm Riddell

Founder | CHINADebate

Malcolm Riddell

Founder | CHINADebate

Malcolm Riddell

Founder | CHINADebate

Malcolm Riddell

Founder | CHINADebate

Just when we thought we were getting used to Xi Jinping’s tech reforms and social-engineering regulations, the Evergrande crisis heats up.

  • ‘Heats up’ isn’t exactly right.

Anyone paying attention to Beijing’s ‘three red lines’ to curb Chinese property developers’ leverage and to ‘nine lives’ Evergrande’s financing methods knew this was coming.

  • But just with the tech ‘crackdown,’ we outside of China were late catching on.

I had planned to go over some of the issues surrounding Evergrande (Is it China’s ‘Lehman Moment? No; does an Evergrande default signal a coming collapse of China? Again, no.)

  • But having read a number of analyses that just seemed to miss how Evergrande fits into the big picture of what’s going in China – and so came to unhelpful conclusions - I thought today I would take a step back.
  • And like a good therapist, probe the origins of our current discontent about China in the midst of Mr. Xi’s rapid-fire reforms and regulations. Then any comments about Evergrande (and whatever is coming next) would make more sense.

So next issue: Evergrande.

1 | ‘Nobody Knows Anything’

‘NOBODY KNOWS ANYTHING,’ writes The Wall Street Journal’s Jason Zweig, ‘because Chinese corporations and their investors are hostage to the whims of Xi Jinping, who is effectively the country’s president for life.’

  • ‘Executives, companies and entire industries formerly favored by Xi and the ruling Communist Party have been stripped of power and value without warning, making foreign investors look like fools.’
  • Zwieg could have added Mr. Xi’s raft of regulations aimed at social engineering.

Mr. Xi clearly has a plan for remaking China in his vision, but he’s keeping that plan to himself.

  • Those of us outside China as well as those inside China (yes, the Chinese seem to be as perplexed as the rest of us) can begin to discern the direction, the outline, and a hazy glimmer of the goals, but the breadth and the depth – and ultimate motivations - of the plan remain opaque.
  • (I’m distinguishing here Xi’s own clear statements over the years about leading China toward becoming a socialist state and the like – as I’ve written before: he means it - with just how far he intends to go in this round.)
  • Because of this - even though we do, of course, know some things - we’re not wrong in feeling, along with Mr. Zweig, that ‘Nobody Knows Anything.’

And, as if all this wasn’t making analysis difficult enough, crises [for today read: Evergrande] are emerging beyond the rolling out of Mr. Xi’s master plan.

  • Yet Mr. Xi’s new policies - not the somewhat dependable, pragmatic precedents - will guide how Beijing will manage each new crisis [so will the government bailout Evergrande?], and we just don’t know how those new policies will be applied.

Finally and most disturbing is that Mr. Xi has suddenly begun taking China down a new and very different road.

  • And no one, most of all Mr. Xi, knows if the outcome will be success or failure.

In the meantime, governments have to make policies, CEOs have to plan strategies, and investors have to invest or not.

  • In each case, however, we have to recognize that we are making decisions based mainly on speculation about what Mr. Xi will do next and what the impact of each action will be.
  • Only later will we know if those guesses were right or wrong.

2 | ‘This Time Feels Different’

‘All eyes are fixed on the dark side of China [meaning the Evergrande crisis],’ writes Stephan Roach of Yale. ‘We have been here before.’

  • ‘Starting with the Asian financial crisis of the late 1990s and continuing through the dot-com recession of the early 2000s and the global financial crisis of 2008-09, China was invariably portrayed as the next to fall.’

‘Yet time and again, the Chinese economy defied gloomy predictions with a resilience that took most observers by surprise.’

  • ‘Count me among the few who were not surprised that past alarms turned out to be false.’

‘But count me in when it comes to sensing that this time feels different.’

  • Me too.

‘The new dual thrust of Chinese policy – redistribution plus re-regulation – strikes at the heart of the market-based “reform and opening up” that have underpinned China’s growth miracle since the days of Deng Xiaoping in the 1980s.’

  • ‘The problem for China is that its new approach runs counter to the thrust of many of its most powerful economic trends of the past four decades: entrepreneurial activity, a thriving start-up culture, private-sector dynamism, and innovation.’
  • ‘A regulatory clampdown, in conjunction with a push to redistribute income and wealth, rewinds the movie of the Chinese miracle.’

So why does ‘this time feel different’?

  • In the earlier cases Roach cites, we were waiting to see if China could work its way out of some calamity.
  • In this case, Xi is not so much rewinding the movie as he is filming just the first scene of an entirely new feature using a script only he can see – that’s what feels different. (Did we feel the same way when Deng started his reforms? Did we even pay much attention?)
  • Because only he knows (we hope) what happens next, we feel as though we are watching a highly suspenseful thriller - with all the attendant anxiety that comes from not knowing what comes in the next scene or how it will end.

3 | Xi Jinping and China’s 'New Stage of Development'

Another reason why ‘this time feels different’ is the impression that Mr. Xi is motivated more by Marxist ideology than Deng Xiaoping-style pragmatism.  

‘Xi Jinping’s campaign against private enterprise, it is increasingly clear, is far more ambitious than meets the eye.’

  • ‘The Chinese President is not just trying to rein in a few big tech and other companies and show who is boss in China.’
  • ‘He is trying to roll back China’s decades-long evolution toward Western-style capitalism and put the country on a different path entirely.’

‘ “China has entered a new stage of development,” Mr. Xi declared in a speech in January.’

  • ‘The goal, he said, is to build China into a “modern socialist power.”’

4 | We've Heard It All Before

Building China into a 'modern socialist power' has been the goal of every leader of the People’s Republic of China, from Mao to Deng to Jiang to Hu, and now to Xi.

  • And every one has affirmed this.

Deng himself made this clear many times. In 1984, he said:

  • ‘It is crucial for us to adhere to Marxism and socialism.’
  • ‘We have said that socialism is the primary stage of communism and that at the advanced stage the principle of from each according to his ability and to each according to his needs will be applied.’
  • ‘This calls for highly developed productive forces and an overwhelming abundance of material wealth.’
  • ‘Poverty is not socialism, still less communism.’
  • ‘We believe that the course we have chosen, which we call building “socialism with Chinese characteristics,” is the right one.’

To attain ‘an overwhelming abundance of material wealth,’ Deng’s ‘socialism with Chinese characteristics’ incorporated elements of capitalism.

  • To our eyes – and indeed to many Chinese eyes – this looked more pragmatic than ideological, no matter how theorists tried to shoehorn it into Marxist thought.

But, as I have written before, when Deng Xiaoping introduced capitalist elements into China’s economic model, he was not abandoning the goal of China’s moving along the Marxist path to socialism. Instead he saw himself as using these tools to advance toward that goal.

  • No matter how we have tried to convince ourselves since then that China’s leaders were capitalists at heart and were just mouthing communist slogans they didn’t believe, we were wrong.

5 | More Ideology Than Pragmatism

Why Mr. Xi’s recent policies and actions seem to be driven by ideology rather than pragmatism may well be that he believes that China has achieved an overwhelming abundance of material wealth,’ and it is now time to move on, as he said and Deng predicted, to a ‘new stage of development’ toward socialism.

  • And that means that the recent policies and actions we find perplexing make perfect sense to the Marxist Xi Jinping.
  • In other words, everything seems more ideologically driven than pragmatic because, well, it is.

As Ms. Wei writes:

  • ‘Xi is trying forcefully to get China back to the vision of Mao Zedong [and all Marxists], who saw capitalism as a transitory phase on the road to socialism.’
  • ‘Underpinning Mr. Xi’s actions is an ideological preference rooted in Mao’s development theories, which call state capitalism a temporary phase that can help China’s economy catch up to the West before being replaced by socialism.’
  • ‘An ardent follower of Mao, Xi has preached to party members that the hybrid model has passed its use-by date.’

‘A 2018 article in the party’s main theoretical journal, Qiushi, or Seeking Truth, laid bare his belief:

  • ‘ “China’s practice shows that once the socialist transformation is completed, the basic socialist system with public ownership as the main body is established...[and] state capitalism, as a transitional economic form, will complete its historical mission and withdraw from the historical stage.” ’

6 | Mao's Heir?

‘When the Chinese Communist party celebrated its centenary on July 1, Mr. Xi donned a Mao suit and stood behind a podium adorned with a hammer and sickle [right above the portrait of a similarly-attired Mao Zedong just in case anyone missed the reference], pledging to stand for the people.’

  • ‘After the speech, he sang along with “The Internationale” broadcast across Tiananmen Square.’
  • ‘In China, the song, a feature of the socialist movement since the late 1800s, has long symbolized a declaration of war by the working class on capitalism.’
  • ‘Such gestures, once dismissed as political stagecraft, are being taken more seriously by China watchers as it becomes evident Mr. Xi is more ideologically driven than his immediate predecessors.’

7 | The Big Question

The big question of course is just how far and how fast Mr. Xi can go in this Mao-inflected ‘new stage of development’ before the system might begin to crack.

  • Mao, also ideologically driven, tried to skip a few steps and take China immediately to socialism or, some might argue, communism with the Great Leap Forward.
  • He failed. Tens of millions died of starvation and the economy was left in shambles.

Picking up the pieces was Deng Xiaoping and his experimental ‘socialism with, um, Chinese characteristics.’

  • And that on the whole has worked out pretty well for China and the Chinese people.

But if Deng failed - and it certainly was not a foregone conclusion he wouldn’t - and China then sank deeper into poverty, we would have shrugged.

  • Sad for the Chinese people but, with China’s economy being then isolated and relatively small, not much of a big deal for the rest of us.

If Mr. Xi fails in his radical reshaping of the Chinese economy and society – and his success is certainly not a foregone conclusion - we will not shrug.

  • Sad for the Chinese people but also catastrophic for them and us.

8 | 'Socialism with Chinese Characteristics': Xi Jinping-style

We are at the very beginning of a brand new and very uncertain ‘socialism with Chinese characteristics: Xi Jinping-style.’

  • Little wonder we are left to feel ‘nobody knows anything.’

Because this time it really is different.

  • And whatever we have to say about Evergrande – or anything else about China for quite some time - has to have this as the context and be said with great humility.
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