Moves (Page 57)

The Chinese Communist Party rules and holds power based on three legs. The first leg is, of course, self-interest, the preservation of its own naked power. 

The second leg is the ideal and ideological content of the period and of the party, that is, Marxism and its revision of Marxism. The third leg is critical and affects the other two legs: the practical-utilitarian leg moves the party in different directions at different times.

In 1942, Mao Zedong, at the famous Yan’an conference, managed to make it a pillar of party politics. Through this, he managed to sideline and eventually oust the pro-Soviet faction through which Moscow hoped to control the Chinese Communist Party fully.

The principle is exemplified in the four-character shishi qiushi, seeking truth from facts. This is an essential tenet of the party, so much so that the theoretical journal of the party is called Qiushi, “seeking truth.”

Of course, seeking the truth is not in isolation. It has to deal with two other elements: self-preservation and ideological principles. Mao himself put aside seeking truth in the late ’50s and ’60s when his officials blindsided him.

He didn’t believe his loyal lieutenants when he failed to acknowledge the failure of the Great Leap Forward and during the Cultural Revolution. Then, seeking the truth was, for all practical purposes, put out the window because purely ideological pulls and Mao’s self-preservation drove the country.

However, seeking the truth was the fundamental principle that moved the party to recognize the failures of the Cultural Revolution under Mao’s rule and try out the path of Reform and Opening Up.

Thus, this element has become the central pillar of the party in the past 40 years. One aspect of that pillar is that the party must seek the truth to make China powerful and strong; therefore we shouldn’t be blinded by ideology and self-interest.

In this sense, it is crucial how the party reflects and thinks about the world and the successes and failures of other countries, first and foremost, of course, the United States, the present “hegemon” and the standard bearer of modernization and progress.

It is the framework within which the present reflections on China’s national troubles and international situation move.

China is now mired in enormous economic problems. Real estate, the main driver of growth over the past 25 years, is stuck. Banks are loaded with immense defaulting loans by real estate developers, some of which will never be repaid. The rest of the loans are mostly bound to infrastructure, with a meager and very long-term yield.

The Chinese banking system could be on the verge of virtual bankruptcy if it were not shielded by a not fully convertible currency, making capital flight impossible with massive foreign reserves to withstand possible financial turbulence.

Moreover, there are other long- and short-term concerns. Ten years of anti-corruption policies have sapped enthusiasm and activities from entrepreneurs who drove most of the growth. 

Now, they don’t know what to do – they don’t feel their assets are safe. They used to live and act in symbiosis with their political mentors but now this mentorship is gone. But there is also no new way of development, so they are dragging their feet.

The middle class also sees that real estate is sagging. They have cold feet because most of their savings are stuck in purchasing their apartments. And real estate is not appreciating but depreciating. 

Therefore, they don’t consume or spend, making the economic situation worse. Young people don’t know what to do; they are hoping for futures in the cities, but the big cities are too big and cannot grow any bigger. 

Still, these young people don’t want to go to the provinces, to the countryside – so what can they do? During most of Deng Xiaoping’s reforms, the officials were entrepreneurs in their own right, making money for themselves and the country. Now, they are confined to rigidly sanctioned roles and are not highly active.

The real estate sector should be reconsidered, and the whole growth model for China should be based on internal private consumption.

But once the process is started, it will take years to come to fruition. 

Many people will need to be convinced of the shift. The possible keystone in these reforms will be to ensure that the individual rights of entrepreneurs will be protected against infringements by the party and the state. 

China will also maybe need political reform. The crux would be to put the party under the law and the law above the party. That will be challenging: It would change the nature of China but it would boost credibility domestically and externally.

An old crisis

This crisis was long seen coming. A 2007 essay [1] detailed the necessity of expanding the social welfare system to free personal resources for consumption. 

This welfare should be funded by a new taxation system that entailed democratization. The failure to achieve it would bring a crisis around the year 2022, the essay argued. It was well before Xi Jinping came to power. The party didn’t act then, feeling smug and sure about the future, and now President Xi has to pick up the pieces.

The situation has degenerated, and intervening could be extraordinarily delicate and dangerous; thus the party may ask whether this change is worth the risk. That is, is it worth putting at stake the self-interest of the party?

This is not a selfish and narrow-minded question because the party does not see a brilliant picture of the United States. Democracy seems to be growingly tainted by elite groups who manage to drive the consensus of the people through social media and artificial intelligence. 

They see the United States as politically and socially highly divided, with a right wing that follows some meaningless slogans. Meanwhile, an awkward, extreme ideology besets the left wing.

While Chinese schools teach Latin and Greek classics and Western philosophy, American universities not only do not study Chinese philosophy or classics, they don’t even learn their Western classics. It is a deep, long-term issue that, if not addressed, will worsen things.

Moreover, they see in the short term a lack of American leadership. President Joe Biden appears physically unfit. On the one hand, there is Donald Trump, whose speeches are now becoming illogical. They are spouting insults at enemies, but they make little sense. 

Trump went as far as to openly call on the possibility of civil war, assassination attempts and vote-rigging for the next elections. He almost called on the American people to appoint him by acclamation, forfeiting altogether the theater of the vote.

On the other hand, it seems unlikely that Biden will manage to pull off a second presidential campaign, let alone a second term. The possibility of Trump becoming president and reshaping the whole set of presidential powers is also a sign of a deep crisis. And there is no third party.

In this situation, why would practical, pragmatic China change? What example should it follow? America doesn’t look like the knight in shining armor.

The American example, which at the beginning of the period of reforms and opening up was extremely important in leading the country in its changes, has become now almost impossible to follow. Many people are growing skeptical about the feasibility of America itself and the applicability of the American system to China.

Europe is not faring any better; it is extremely divided, and no country shows clear leadership. Germany is in crisis while France is moving back and forth, with Emmanuel Macron possibly being ousted at the next presidential election. Nobody knows who will be the next president, maybe Marine Le Pen. But what kind of leadership will she exercise over Europe?

Japan and South Korea are interesting but certainly not an example China feels it can follow for many complicated reasons.

Taking time

In this situation, facing these tough and challenging choices, China may choose to kick the can down the road for at least a few months, hoping for some stop-gap measures that could revive the economy and keep it afloat for the time being—at least until the US presidential elections next year.

It is unclear, however, whether China has enough time to afford putting off essential reforms. The depth of the crisis of the internal consumption of real estate could create a landslide, driving international investors out of the Chinese market.

China does not have a fully convertible currency, therefore there cannot be enough capital flight that could crash the market, society and thus politics. It also has vast reserves of over US$3 trillion that could withstand assaults on its financial system.

Still, the situation could get wobbly because there is no clear indication of new massive moves in the economy, and as with Covid, panic could start to spread all of a sudden without warning.

Beijing is walking a tightrope, uncertain about what to do, but not for ideological problems alone. It would like to be cautious and decide what to do only after the United States decides on its next president when it becomes clear who to talk to.

Another element would be that, in the meantime, because American divisions are so profound, nobody rules out the possibility of uprisings and domestic fights that could flare up during the elections, maybe challenging the results, as Trump himself has indicated.

America already had a civil war and now the differences are not as dramatic as 160 years ago. Still, divisions are not to be trifled with because the US has never been so crucial for the international balance of power.

That said, US divisions could create an opening for China. If the United States were to fall apart and somehow derail from its political path, then Chinese priorities would immediately change because there would no longer be a necessity to move ahead fast with the dramatic reforms it needs.

It would be a convenient and economical solution, shishi qiushi. This could be the reasoning in Beijing.

China could pace itself and wait out the American crisis. A third possibility is that the combination of tensions between the United States and China could bring the world to the brink of war or actually lead countries to war. This is a remote possibility so far, but it is real.

In the meantime, Beijing is pacing itself. It has started a debt restructuring process, converting local short-term liabilities into long-term bonds to sell to depositors. That will not solve the problem entirely, but it could bring oxygen back to the country. It is pushing prominent entrepreneurs to be more proactive – we shall see if these measures are effective in a few months.

Beijing is also on the diplomatic offensive, talking to everybody. It brokered peace between Iran and Saudi Arabia and offered a new framework to Central Asia Republics. It is pushing BRICS to become a political alliance and dump the dollar in exchange for something else. Many of these actions may be hard to implement.

Despite all the hype, replacing the US dollar and the present financial system is hard to do because it would exchange an existing faulty open market with putative arbitrary decisions by some governments. It’s all very uncertain.

Still, this flurry of actions could wade China through these difficult moments and get it to face the new US president at the end of next year. The problem is that it is not a long-term strategy; they are ideas to bide time. 

During the first Cold War, the USSR offered a complete counter system to oppose “evil” capitalism. Choosing the USSR was not choosing Moscow, but picking a possible ideal and systemic alternative to malfunctioning, unfixable capitalism.

Now, China isn’t offering a comprehensive alternative to capitalism; it proposes a geopolitical substitute to America’s malfunctioning leading role. It argues that China or Russia could be a better economic partner than the United States. 

Maybe so, but it’s not a paramount proposal like the Soviet one. And if China were to offer a comprehensive counterproposal, it would run into a whole array of new troubles.

Nevertheless, if practical party leaders don’t see a clear way forward if America is mired in unprecedented problems, they will likely stick to making day-to-day decisions. All of this and the ongoing war in Ukraine mean that the next year or so could become highly volatile.

[1] See “China’s Inevitables: Death, Taxes—and Democracy” in my China: In the Name of Law (2016).

This essay first appeared on Settimana News and is republished with permission. The original article can be read here.

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