CHINA IS OPEN FOR BUSINESS, XI STYLE
Harry Truman spoke in unvarnished, crystal-clear sentences when saying what he was thinking and would do. Dwight Eisenhower’ famously garbled syntax was designed to make his thinking and plans unclear to friends and foes alike. Ronald Reagan used the sugar of soft language to make the hard, consistent foreign policy messages go down more easily. Presidents have their styles.
Biden Gets It
Which brings us to Joe Biden. He is neither precise nor deliberately garbled, and often contradicts himself. But when it comes to China he is clear: “If we don’t get moving they’re going to eat our lunch.” He has already signed into law a bill passed unanimously in the senate and 428-to-1 in the House. It would ban imports containing forced Uyghur labour. Whether or not that is enforceable remains to be seen.
Money Men Don’t Get It Or Don’t Care
In any case, he must decide what to do about an American financial sector that has decided to act as an enabler of Xi Jinping’s goal to replace America as the dominant power in global finance. Whether or not Lenin, the Soviet Union desperate for foreign investment in 1921, actually said that the capitalists would sell him the rope with which to hang them matters not: the tale captures Xi’s strategy.
Those titans seem unworried that China has purchased only 58 per cent of the $200 billion in goods it promised to buy as part of the phase-one trade deal negotiated by President Trump, one reason that our ports are unable to handle the inflow of their products while cargo containers are returning to China empty. The small matter of a broken promise made when President Clinton piloted China’s entry into the World Trade Organisation on the theory that a richer China would be a more liberal and peace-loving China cannot be allowed to slow the stampede of rope salesmen to China.
As for the promise made to preserve Hong Kong’s separate system of government, well, that is not a worry for influential Americans doing business in Hong Kong. Yes, the State Department has warned, “U.S. citizens traveling or residing in the PRC, including Hong Kong, may be detained without access to U.S. consular services or information about their alleged crime. U.S. citizens may be subjected to prolonged interrogations and extended detention without due process of law.” But Jamie Dimon’s departure from Hong Kong was unimpeded after his recent speech there (see below), so why worry?
Nor should it matter that Xi Jing’s “Made in China 2025” plan calls for massive subsidisation of his country’s exports, especially in products key to prosperity and security in the 21st Century. That will be an expensive proposition, to be financed in part by selling stuff to America and in part by accessing capital that obliging American financial institutions seem ready to provide in return for access to China’s mass market for financial products.
A Xi Promise Kept
Which is why China has kept one promise, at least for now: it has opened its economy to participation by American financial firms. This suits the regime, which needs access to foreign investment as its faltering economy slows under the weight of the restrictions placed on its entrepreneurs, its unsustainable debt burden, and the collapse of its overly indebted property sector. China-based American firms can provide that access while at the same time giving Xi control of their operations. All part of a long-term effort to replace the dollar as the currency in which most international trade is conducted with its own yuan.
China’s president-for-life knows that when he objected to several hotels and airlines listing Taiwan as a country in their travel ads, they issued grovelling apologies and re-did their maps. He knows that the disappearance of tennis star Peng Shuai has not prompted Coca-Cola, Intel, Visa, Airbnb or Procter & Gamble to cancel their sponsorship of the Beijing Olympics.
The Arrival of the Rope Salesmen
Citigroup, Goldman Sachs and JPMorgan Chase are among the investment banks setting up shop in the People’s Republic, bringing their intellectual capital with them to make its theft easier for China than it has been. Ray Dalio, billionaire founder of Bridgewater Associates, the world’s largest hedge fund, raised $1.25 billion for investment in China. Dalio argues that it is not for him to “be an expert” on government policy. “…Should I not invest in the United States because [of] our human rights issues?”
A mere $1.25 billion is chicken feed to BlackRock, the world’s largest asset manager. The WSJ reports that Chairman Larry Fink recommended that investors triple their allocations in Chinese assets, adopting Xi Jinping’s false representation that private companies are different from state-owned enterprises. In an op ed in that paper, George Soros writes “This will push billions of dollars into China … [and] will damage the security interests of the U.S. and other democracies because the money invested in China will help prop up President Xi’s regime, which is repressive at home and aggressive abroad.”
“Obviously, what we can do in China is largely dictated by how the Chinese government allows us to operate,” Goldman Sachs’ CEO David Solomon told an interviewer. Or, as George Magnus, a China researcher at Oxford University advised the NYT, “I don’t think we can use spreadsheet-type thinking to take a view of China in the 2020s and beyond.” He adds that in the conflict between the regime’s “craving for political control and the desire for good economic and innovation outcomes... the former is bound to win.” Once China has these companies by their investment, their hearts and minds will follow, to make a phrase attributed to Teddy Roosevelt suitable for a note that might attract the attention of fans not as crude as good old Teddy. Experience has taught Xi that American business, visions of huge profits dancing before their eyes, will dance to his tune rather than opt for mention in the next version of “Profiles in Courage.” Risk analysts at the big financial institutions, or at least many of them, are willing to bet their clients’ money that the Cassandras have it wrong.
Joke Followed by Apology
A choice made recently by Jamie Dimon, head of America’s largest and most powerful bank. Dimon joked in a speech in Hong Kong that both his firm and the Chinese communist party are 100 years old and “I’d make you a bet we last longer.” Xi took umbrage. Abject apology followed “because it’s never right to joke about or denigrate any group of people whether it’s a country, its leadership or any part of a society and culture.” If that rule were followed in the US there would have been no Will Rogers – “America has the best politicians money can buy”. Or no Charlie Chaplin to produce “The Great Dictator”, spoofing Hitler to the consternation of appeasers in Britain and non-interventionists in America.
The Ball Is In Biden’s Court
Biden now faces some difficult decisions. Should he remove tariffs on Chinese goods, as the business community is requesting and as treasury secretary Janet Yellen says would reduce inflation? Should he mount a serious subsidy programme to reduce American dependence on China for key raw materials, despite the messy environmental consequences of such mining? Should he tell American bankers what he is telling American manufacturers, “come home”, or allow them to strengthen China’s economy, its communist party and its military?
While pondering those questions he will face opposition from the new de facto pro-China lobby formed by many of the Wall Street bankers who supported his presidential campaign. A formidable group with lots of rope for sale.