Tag: Corruption

Xi Jinping and a more active China

Posted on by Carlos Enrique
(Kimi Kyung-Hoon / Courtesy Reuters)

China’s current President, President Xi Jinxing, is promoting a much more robust, energetic Chinese government, both domestically and internationally. There is nothing wrong with a more active government, but Xi’s approach to China’s problems and his usage of Chinese institutions have caused much change and turmoil.

Xi is determined to steer China back towards its role as one of the world’s great powers (and arguably, it’s rapidly getting there), through a more muscular foreign and military policy. Whether it is Confucius Institutes around the world or expanding maritime borders, Xi is determined to translate China’s newfound economic strength into global Chinese influence while cementing the power and centrality of the Chinese Communist Party.

Surprisingly for China’s venerated mandarins, Xi’s efforts are heavy handed. His anti-corruption campaign is seen as a tool for party discipline, not a genuine, impartial uprooting of corrupt officials even as it does reduce corrupt practices. Regional multilateral political and financial cooperatives are undermined by a more aggressive military stance. Vast projects intended to physically connect China with other major countries and regions are met nervously by smaller countries with smaller economies who would be overwhelmed with Chinese economic largesse.

Xi saw his predecessor, Hu Jintao, as a do nothing President, and thus aims to form a dramatic contrast by taking untapped Chinese potential and pushing it to its limits. While some of Xi’s political and economic reforms will bear fruit, so long as there remains insecurity about the CCP’s legitimacy to govern the political, civil, and economic environment required to retain and recruit China’s best and brightest that will create will never be realized.

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China’s Imperial President

China’s Economic Growth – Water can float a boat, but also sink it.

Posted on by Carlos Enrique
Are sunny skies permanently in China's future, or are they merely a brief reprieve?
China’s investments are building out massive infrastructure, but to what end? Credit:ImagineChina/CORBIS

China’s debt and corruption are certainly going to be large drags on their economy, but the question both in China and in the China-watching community is if those two forces will eventually sink China’s economic miracle.

Massive ghost cities built at the periphery of China’s 2nd and 3rd tier cities threaten the economic health of China. With untold millions poured into construction and few tenants, the sustainability of China’s growth is in question as exports weaken and debt drives demand for real estate domestically. While millions of Chinese citizens are poised to move into metropolitan areas, there is no guarantee they will move to these ghost towns or that these ghost towns will be in habitable condition when that time comes.

The Chinese government now has the task of both slowing construction of these buildings and unravelling millions, if not billions, of bad debt. It faces numerous obstacles, first being the method used to rank local bureaucrats; GDP growth. Whether through useful infrastructure or useless buildings, construction work is a quick and easy way to boost economic growth and provide quick jobs for the uneducated. Local bureaucrats are loathe to renounce this method of goosing their numbers, and will require strict and frequent oversight if further needless buildout is to be prevented. The other solution would be to change the metrics upon which bureaucrats are judged, but that is unlikely in the short-term.

The second obstacle is related to the debt. Bad debt is often wound through the Chinese banking system in such a way as to make it exceedingly difficult to track. Shadow banking is quite common, and local bank branches are pressured into making bad loans in order to support the local economy. China’s banking system is surprisingly fragmented and would require a great, concerted effort to bring into line. This problem also plagues the Chinese solar energy industry.

While I am not as pessimistic as the author of the piece, I am wary of China’s future. It no doubt has a place amongst the major world powers, but the question is if China’s civil institutions are up to the task of getting China there.

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The End of China’s Economic Miracle?

But even powerful Chinese leaders have trouble enforcing their will. I reported earlier this year on the government’s plan to handle one straightforward problem: reducing excess steel production in Hebei, the province that surrounds Beijing. Hebei alone produces twice as much crude steel as the U.S., but China no longer needs so much steel, to say nothing of the emissions that darken the skies over Beijing. Mr. Xi weighed in by warning local officials that they would no longer be judged simply on increasing GDP; meeting environmental goals would count too.

In late 2013, Hebei staged an event called “Operation Sunday.” Officials sent demolition squads to destroy blast furnaces, and imploding mills made great TV on the 7 p.m. news. But it turned out that the destroyed mills had long been out of production, so blowing them up didn’t affect output. Indeed, China’s steel industry is on track for record production this year.