Has Xi Jinping bankrupted China?
Determining when a dictatorial regime faces a crisis, such as the sudden failure of China's economic model, that is not specific to a particular issue but rather concerns the regime itself can be challenging. My personal experience in this matter has been quite disheartening. In 1984, my book titled "Grand Strategy of the Soviet Union" extensively discussed different nationalities that I believed were moving towards seeking independence. These included not only the widely recognized Baltics, Armenians, and Georgians who were still obedient to the regime, but also lesser-known groups occupying much larger territories such as the Kazakhs, Uzbeks, Kyrgyz, Tajik, and Turkmen (I must admit that I never considered the possibility of Ukrainians joining them).
Every experienced expert on the Western Soviet region scolded me for wrongly mixing up traditional categories with real nations that exist and thrive. According to them, these individuals were merely "Soviets" who sometimes wore amusing headgear, and it was absolute fiction to think they would ever desire independence. This occurred a mere seven years prior to the ultimate and officially recognized downfall of the Soviet Union.
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It is universally accepted that nations have long-standing existence while governments eventually disintegrate. However, none of the straightforward comparisons to the Soviet Union can be applied to China. Although Beijing officially recognizes 55 minority groups, these populations only make up a small portion, roughly around 9%, of the entire population. Moreover, some of these minority groups are purely based on folklore and hold no significant presence, unlike the Uyghur, Kazakhs, and Tibetans who are actively oppressed by the Chinese authorities.
Regarding the economy, the Soviet Communist Party's spirits were shattered after experiencing two decades of depressing stagnation which became evident by 1980, even to those who were not closely observing. These casual visitors noticed a distinct sense of hopelessness reflected on the faces of most people, giving them a unmistakable "Soviet" appearance. In contrast, the Chinese Communist Party rose from a visibly undernourished and unclean state. During my time living there in 1976, human waste was being carried through the streets. However, from the early 1980s, there was a slight growth that gradually accelerated in the 1990s, leading to China's splendid enrichment until very recently.
Even the current negative economic news does not indicate any fatal, necessarily government-ending issues, as was the case with the Soviet Union. Despite the fact that the Soviet Union was building more tractors for farmers than the US, it still had to import wheat every few years. However, in China, the only disease that has negatively impacted wealth is the impressive and extensive infrastructure development, which many tourists and experts have admired. This includes the highly efficient and well-designed high-speed train network that now extends even to Laos, connecting 550 cities across 33 provinces. China also has a comprehensive network of motorways that reach every part of the country, including mountains and deserts. Additionally, there are approximately 250 full-service airports in China, compared to only eight in 1976 that had sufficient runway length for small Trident jets. Furthermore, China has immense ports that imported 95 million metric tons of soybeans alone in 2021, while the Port of London handled 50 million tons of various goods.
How can magnificent structures lead to the loss of wealth? An illustration of this can be found in a personal experience I had in 2018, during a drive along the border of North Korea. I came across an immense and breathtaking suspension bridge, spanning six lanes and gleaming white, that crossed over the Yalu river. This bridge was constructed with the intention of linking the Chinese city of Dandong with North Korea, in anticipation of the economic growth that was expected from the North's promised opening of its economy. Naturally, accompanying this bridge were various necessary facilities such as a customs house, which was an impressive towering building, as well as warehouses and over 10 blocks of commercial offices. However, when I visited, the bridge abruptly ended in a field filled with North Korean potato crops. There was no traffic to be seen, the customs house stood empty, and the office blocks and warehouses were vacant. It was disheartening to learn that some private border merchants who invested in these facilities had gone bankrupt, openly expressing their frustration towards Xi and his alignment with the US-backed Security Council Embargo.
The money that could have improved the lives of many Chinese people, including those who are officially classified as "very poor" (about 180 million individuals) and the additional 300 million who are still in poverty, was instead squandered on the Yalu bridge complex. Countless resources were also wasted on infrastructure projects throughout China. This includes at least 100 airports that are significantly underused and numerous highways that have very little traffic despite China's dense population. One example is the impressive G-214, a multi-lane highway that stretches from the picturesque tourist destination of Dali in Yunnan province to the elevated region of Tibet.
The immediate concern at the moment is not the hypothetical outcome if the capital had been utilized to alleviate poverty, but rather the origin of the funds. Some of it was obtained through taxes, however, a significant portion was acquired by adding to the substantial debt burden that currently hinders the investments of private construction companies responsible for constructing skyscrapers and massive apartment complexes across China. Additionally, funds for the unique Chinese semi-private municipal and provincial joint ventures, which constructed factories and infrastructure projects, were sourced from loans provided by local branches of state banks. The managers of these banks could not simply refuse the requests of local party leaders, who held the power to reward them with lavish dinners accompanied by attractive companions or to imprison them for corruption investigations at their discretion. In Beijing, the senior managers at Bank of China headquarters, whose role models are not Mao, Lenin, or even Xi Jinping, but rather their counterparts at the Bank of England and the Federal Reserve, where many of them have studied in the United States and England, struggled to control the overwhelming flow of bank loans granted to the consistently ambitious joint-venture companies. However, they possessed no authority to deter the party leaders.
Pan Gongsheng, the present Bank chief, is undeniably the most autonomous official in Xi's highly authoritarian China, just like the head of the Russian central bank, Elvira Näbiullina, who is the most autonomous official in Moscow. However, Pan is aware that he cannot halt the ongoing infrastructure projects that contribute daily to China's mounting debt, as doing so would immediately replace a debt crisis with a crisis of widespread unemployment. Similarly, Näbiullina is unable to put a stop to the war in Ukraine, as the casualties and fatalities resulting from the conflict pose a lesser threat to her compared to the potential disaster of inflation caused by war expenditure, which could lead to severe deprivation for 44 million pensioners in Russia.
China's economy is currently facing a severe economic crisis, which cannot be overlooked as a mere "cyclical" issue. In order to overcome this crisis, Xi Jinping cannot simply wait it out. It is crucial to address the enormous debt burden and seek ways to reduce it, which will allow for profitable investments to resume. Comparing to the United States' response to the 2007-2009 debt crisis that affected Europe's economy, the solution came in the form of the 2008 bankruptcy of Lehman Brothers. This event, along with the collapse of numerous other large and small companies, served as a remedy. It is worth noting the unique communication method employed by Lehman Brothers during this time, as its employees sent notes to each other via Federal Express through Memphis, Tennessee. As for the millions of American homeowners burdened with unaffordable mortgages, they chose to walk away from their homes. This decision made them instantly homeless, but it also freed them from their debt obligations. Fortunately, due to the significant reduction in non-repayable loans, the US economy rebounded swiftly, preventing a large number of people from remaining homeless. However, it is important to highlight the contrasting situation in Japan, where the housing collapse resulted in a decade-long economic stagnation. In Japan, home loans were seen as personal obligations that couldn't simply be abandoned, leading to prolonged economic difficulties.
In China, the situation is completely different. There are countless millions of individuals who have invested their savings into empty apartments, resulting in additional expenses such as taxes, but no income. Sadly, these individuals cannot simply abandon their properties. They require tenants, preferably young couples who are starting their own families. This issue is particularly relevant today as many young and even mature Chinese individuals are forced to live with their parents. This economic problem has escalated into a political one, posing a significant threat to any government, including Xi Jinping's regime, which is known for its constant self-acclaim and seemingly powerful autocracy.
The initial political incident did not start in ancient China or even after 1949 in Communist China. Instead, it occurred in July 2023. During this time, the authorities ceased releasing the unemployment rate for individuals aged 16 to 24, which had reached 21.3% in June. This figure was not only extremely high but also considered a significant underestimation. What makes this unemployment situation potentially dangerous is not just the fact that the June rate was actually much higher than 21.3% (experts estimate it to be at least 30%), or that the July percentage was not disclosed due to it being even higher. The main concern lies in Xi Jinping's personal responsibility for a large portion of this unemployment crisis.
In a bold move aimed at achieving social fairness, Xi took the sole responsibility of shutting down China's extensive private tutoring sector in July 2021. This sudden action had a negative impact on new college graduates, as they were deprived of lucrative entry-level positions. The closure resulted in the termination of employment for around 250,000 graduates from the seven largest tutoring companies. Despite this setback, resourceful graduates attempted to provide private tutoring services. However, their endeavors were short-lived, as online tutoring was also suspended in October 2021. Moreover, even those who gathered a small group of students for lessons in parks or cafes were warned to cease their activities or risk getting arrested if spotted by the authorities.
Another significant factor contributing to the sudden decrease in job opportunities for recent graduates in the technology industry was the unexpected absence of Jack Ma, the prominent entrepreneur who founded Alibaba, due to Xi Jinping's personal involvement. It is common knowledge that dictators often display jealousy. Xi Jinping, who only receives obligatory applause from his controlled party members, could not handle the sight of Ma being celebrated by over 25,000 exceptionally jubilant Alibaba employees on his birthday as he sang and played the guitar.
In November 2020, Ma was asked to come to a Party office because he had the audacity to question a lower-ranking official's statements. A few days later, his new company, Ant Group, had planned to go public with a record-breaking $34 billion stock-market listing and hire a large number of employees. However, both the listing and Ma's presence were abruptly halted. He disappeared for three months and then reappeared in a humiliating manner. Furthermore, instead of hiring 20,000 recent graduates in 2021 like it did in the previous year, Alibaba had to lay off 20,000 employees. This trend was seen in other Chinese high-tech companies as well, as their leaders canceled new projects to avoid attracting attention.
In China, many people are aware that Xi is personally to blame for the increase in negative attitudes towards China worldwide. This has had a significant impact on investments, job opportunities, and the welcoming atmosphere for Chinese tourists and students in many countries. Furthermore, those who are knowledgeable understand that Xi himself promoted the aggressive "wolf warrior" diplomats who openly criticized and even insulted the governments of the countries they were assigned to. This behavior garnered attention in China but also earned contempt from local populations towards anything Chinese. Additionally, it is widely recognized that Xi has actively encouraged Chinese military personnel to act aggressively, leading to conflicts with various countries such as India, Indonesia, Japan, the Philippines, Vietnam, as well as incidents involving US ships and aircraft. It is worth noting that Xi appointed Colonel Qi Fabao, who played a role in inciting the 2020 Galwan incident resulting in the deaths of 30 Indian and four Chinese soldiers, as a delegate to the Party Congress, which is akin to China's House of Lords.
With China facing serious problems and Xi Jinping becoming a target for any party leader who wishes to avoid being caught by his "anti-corruption" investigators, is it possible that Xi would consider invading Taiwan in order to deflect attention? The notion that leaders start wars as a distraction is often believed by naive intellectuals and is commonly depicted in Hollywood, but in reality, it is very uncommon. Even the claim that General Leopoldo Galtieri invaded the Falkland Islands in 1982 to divert attention from Argentina's constantly weak economy and the Junta's use of torture is not very convincing. One significant factor is that Britain's Foreign Secretary, Lord Carrington, resigned to take responsibility for mixed messages that may have inadvertently encouraged the Argentines rather than deterring them.
Xi’s discussion of warfare, which centers around the revival of Chinese masculinity and the urgent need to overcome a string of historical losses (the most recent being in Vietnam in 1979), initially took place while China’s economy was thriving. However, the ongoing conflict in Ukraine could potentially encourage Xi to take action against Taiwan, as it demonstrates that wars can be fought without resulting in a nuclear catastrophe. Additionally, recent developments such as a Russian astronaut’s upcoming trip to the International Space Station from Cape Canaveral further support this notion. Even if Putin’s failed plan for a swift victory serves as a deterrent for some, Xi may still proceed with his plans, counting on betrayal from within Taiwan’s lackadaisical armed forces to secure a swift triumph. In response to heightened tensions, Taiwan opted to extend military service from an absurdly short four months to a mere one year last year. However, the implementation of this extension has been delayed until 2024.
Meanwhile, the global community will bear the consequences of China's economic decline as it holds a significant portion of the world economy. However, there is a silver lining as it opens up the possibility of envisioning a China beyond Communism, a prospect that hasn't been feasible since 1949.
In November 2022, a significant event took place at the Foxconn factory in Zhengzhou. Despite being instructed by the police to stay inside due to the Covid lockdown, thousands of factory workers chose to disregard these orders. In fact, they even went so far as to attack the policemen who attempted to intervene. Surprisingly, Xi did not respond with violence. Instead, he conceded unconditionally, abruptly lifting all Covid restrictions across the country. This decision left the authority of the ruling Party in ruins and has had a lasting impact on China. The nation now suffers from a state of post-traumatic stress, with growing resentment towards the loss of jobs for the younger generation and the diminishing savings for the elderly. Xi's actions have created a world full of upheaval and uncertainty, where the possibility of a conflict with Taiwan and the transition to a post-Communist China is no longer unimaginable.
