Xi’s Changing Plan
“Common prosperity is a way for the Chinese government to highlight the differences between policymaking in China and in the West, not just to China’s citizens but also to citizens of the developing world in general. The not-so-subtle message is that while policymakers in the West allow big tech monopolies to fleece small and medium-sized companies, China protects its mom and pop corner stores, restaurants and other small businesses from the predatory behavior of tech platforms.
While private education companies in the West are free to gorge themselves on the insecurities of parents, in China that behavior will no longer be accepted. While in the West, gains are privatized but losses are socialized, China aims to privatize the losses (as with Evergrande) and socialize more of the gains (as with the pressure on tech platforms to raise wages, hire more young graduates, and make big donations from their profits to charitable causes).”
He then goes on to add his bit: “This isn’t entirely bad. Making businesses bear the cost of their mistakes is refreshingly capitalist. We should do more of that here. In the Chinese case, these mistakes were also the government’s. But because the government rules, it will decide who to protect. Chinese homebuyers who never got their homes will probably get bailouts. Property developer executives, shareholders, lenders, and suppliers probably won’t.
In fact, what is happening on the ground is that all of the cash from Evergrande and other equally distressed companies is being used to finish the projects for the homebuyers at the expense of the bondholders and of course the equity holders. The rule of law is the rule of Xi, and he is pragmatic. He deems the well-being and happiness of homebuyers more important than a few upset bondholders.”
Whilst that attempts to explain the motive, for those of us who would want to understand the ramifications:
“China is losing its role as the world’s lead manufacturing exporter. Government policies aren’t helping, but George Friedman notes this is actually a cyclical process. He wrote a thoughtful piece about the apparent 40–50 year pattern in which a nation takes on this role then loses it. The US did so in the 1890s, then it was Japan, and China since the 1980s.
This process seems to be built into modern capitalism. There is a hunger for low-price manufactured products by wealthy countries that can no longer afford to produce them. Why does the cycle take 40 years? I have no explanation. It could be coincidence if there were only three cases. Or there could be some structural cause. But it is there, and it seems to be reaching its terminal stage in China.
The end of this period is traumatic. The US marked it with the Great Depression, and Japan with its 1990s downturn, but both countries adapted and recovered. (You might even say they “muddled through.”) George expects the same for China.”