Losses will be taken and sacrifices imposed on those who do not understand the Chinese state will no longer soak up the losses of speculative excess.
Let’s start by stating that no one outside President Xi’s inner circle really understands what’s going on in China, therefore my comments here are systemic observations, not claims of expert knowledge.
Many western observers have actually noted the centrality of Marxist-Leninist-Maoist doctrine in President Xi’s works. This is somewhat akin to invoking America’s Founding Fathers to support one’s current policies: if you’re trying to modify state policy in China, you need to describe it in the context of the Chinese Communist Party’s history and teachings. Never mind if the ideals were not satisfied; what is very important is establishing connection and resonance with the history of China, the core teachings of Chinese Communism and the CCP’s leadership based upon those teachings.
That stated, we need to take care not to check out too much into doctrinal evocations such as common success, which work conceptual anchors and slogans but not the complete story.
What’s really taking place in China isn’t Marxist or Capitalist– it’s plain old non-ideological human greed, hubris and magical thinking manifesting as moral danger running amok.. Moral risk— the separation of threat and effect, as speculators make significantly risky bets because they understand any losses will be covered by the state– is successfully the new State Religion in China: everybody is absolutely positive that every punter, specifically all the abundant, effective, well-connected speculators– will be bailed out by the central federal government.
Greed knows no bounds when a speculator is insulated from threat, for individuals have an insatiable appetite for risky bets when the gains will be theirs to keep but any losses will be covered by the government.
This is the basic story of Evergrande: the implicit backstop of the Chinese federal government enabled near-infinite moral danger which then sustained an explosion of debt-funded speculation with essentially absolutely no connection to real-world risks, sales, return on capital, and so on
. Both the U.S. and China have actually been a utopian Paradises of ethical danger for the previous thirty years. In the U.S., the Federal Reserve would bail out any losses/ decreases in the debt-asset bubble orgy.
In China, the implicit policy was that the structural losses in state-owned business (SOEs) and the speculative excesses of fast advancement would be tolerated as long as genuine development in work, wages, revenues and lifestyles was strong. Creating huge quantities of debt-money was necessary to support development, which it also supported speculative excesses was accepted as part of the price of explosive development, just like ecological damage.
After thirty years, the equation in China has actually altered: financial obligation in the official banking sector and in the casual shadow-banking sector has actually skyrocketed in addition to simply speculative excesses while “excellent development” has actually stagnated. That’s the problem with incentivizing ethical risk: the make money from speculation, corruption and fraud far surpass the puny revenues earned by genuine business. So where do you put the obtained billions? In Evergrande and other conglomerates of speculation.
Something else altered in 30 years of quick advancement: inequality increased, and given that inequality and corruption are mutually-reinforcing, corruption also reached brand-new heights as inequality escalated.
A third aspect emerged after 30 years of promoting technology and speculation: the power of Chinese Big Tech and financiers began intruding on the control of the Communist Celebration.
All three elements inflated a debt-asset-speculative bubble of extensive proportions, and President Xi comprehended what the clueless Federal Reserve and other western central banks have not: Either pop the bubble when you still have some control over it or let it expand and pop when you’ve lost all control.
In systems terms, when threat and fragility reach unsteady levels in tightly-bound systems, there’s no managing the supernova-like implosion of the system.
Xi observed the skyrocketing power of Big Tech, moral-hazard-incentivized investors and cryptocurrencies and concluded that the state should move decisively to squash these competitors, despite cost. This separates China from the American state, which is incapable of imposing any sacrifices, limitations or costs on the parasitic elite which controls its economy and political order.
Xi saw the danger of Huge Tech and investors having the ability to purchase whatever impact they needed from corrupt CCP and state officials, and he recognized that this is the turning point in history: either crush Huge Tech and the financiers/ speculators or risk losing control to their interests.
Control is something the CCP and Xi want to retain, despite the cost to the nouveaux riche, the parasitic elites, the aspirational middle class and even the Celebration regulars who have supped too often and too gloriously at the corruption/ ethical risk trough.
Losses will be taken and sacrifices implemented on those who don’t comprehend the Chinese state will no longer take in the losses of speculative excess. Those who don’t comprehend the reign of parasitic private-sector elites and exceedingly corrupt party officials in China is over may successfully contemplate this Chinese saying: “Whoever gets blended with garbage will be eaten by pigs.”
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