Conventional wisdom will tell you that the Chinese Communist Party conference (which kicked off last night) is yet another milestone in China’s rise as a global leader, an orderly transition for an economic powerhouse…
…and it’s all wrong.
We’ll start with the economic problems – yes, that’s right, Communist China has economic problems. One of its biggest ailments is…debt. This may surprise the casual observer who hears “China” and “debt” in the same sentence and assumes the subject is the gigantic pile of U.S. T-bills in Zhongnanhai. Yet as Clarissa Tan of the Spectator notes, “the Middle Kingdom isn’t doing too shabbily at clocking up credit of is own.”
How bad are things in the People’s Middle Republic? Well, private household debt is fairly low, but “Before the New Year arrives, China’s public debt will stand at 58 per cent, consumer debt at 19 per cent and corporate debt at 128 percent.”
For the uninitiated, low consumer debt was supposed to protect Japan from its heavy corporate borrowing in the early 1990s…just before their economy entered their “lost decade.” Moreover, most of the “corporate” sector in Communist China is a slew of State Owned Enterprises. Assuming at least half of the corporate debt is SOEs (a fairly safe bet), then real government debt is likely over 120% of GDP – higher than the American government by comparison.
You read that right: the Chinese Communist Party is more deeply overleveraged than Washington.
Meanwhile, “outgoing” leader Hu Jintao (more on his real status later) has no intention of slowing down the growing state sector of the Chinese economy. Ambrose Evans-Pritchard (Telegraph) has the details:
President Hu Jintao opened the 10-year power handover with a clear warning to modernizers that Beijing will not give up control over the commanding heights of industry and commerce.
In a valedictory state of the nation address after a decade in power – called “Firmly march on the path of Socialism” and delivered beneath a huge hammer and sickle – he insisted that “public ownership is the mainstay of the economic system” and warned that the party must “resolutely not follow Western political systems”.
So much for economic or political reform, despite how badly it’s needed (Pritchard again):
His comments are sharply at odds with a report earlier this year by the World Bank and China’s Development Research Council (DRC) that has become the Bible for reformers.
It warned that China has exhausted the growth model of the last thirty years and risks stagnating in the “middle income trap” unless it breaks the suffocating control of the state.
“The forces supporting China’s continued rapid progress are gradually fading. The government’s dominance in key sectors, while earlier an advantage, is in the future likely to act as a constraint on creativity,” it said.
So much for the economic powerhouse.
Now, some may note that Hu is on his way out as CCP General Secretary in favor of Xi Jinping, and thus his commentary is no longer as important…except that the most powerful position in Communist China is the Chair of the Central Military Commission, and as Frank Fang of the Epoch Times notes, “Many sources say that Hu Jintao is very likely to serve two more years as chairman of the central military commission, after he steps down as general secretary of the Party at the congress.” In other words, Hu isn’t handing over real power any time soon.
So, we’re not seeing an actual transition, and the economic prowess of the regime is illusory, but things are still orderly, yes? Well, not according to Pritchard:
Mr Hu’s speech reflects a complex power-struggle behind the scenes as hardliners – some linked to former leader Jiang Zemin – reassert control, forcing the outgoing leader to change his message.
Pritchard’s account is confirmed by the AP’s Charles Hutzler:
On stage with Hu appeared one of his nemeses, his predecessor Jiang Zemin, who has supported Xi and is angling to fill many of the seats in the leadership with his allies.
Jiang himself let Hu take the General Secretary job in 2002, but hung on to the CMC Chair until 2004, after which it was presumed his faction and political power entered a steep decline. If he’s pushing Xi forward, the factional battles not only never really ended, but could be flaring up anew.
There goes “orderly.”
So, to sum up, the Chinese Communist regime is dealing with a debt-laden, government-burdened economy with the “outgoing” leader clinging to power in the midst of a factional battle royale. In other words, everything you’ve heard about Communist-controlled China recently is probably wrong.
Well, at least the American people rejected the presidential candidate who pledged to take on the CCP’s intellectual property theft, in favor of the incumbent who…was the first president in American history to publicly challenge the regime’s claim to the South China Sea.
So much for that silver lining.
Cross-posted to Bearing Drift