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Thread: Xi Jinping's historic power grab in China

  1. #46
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    Quote Originally Posted by DOR View Post
    China has provinces much as America has states. And, like in the US, these sub-national bodies carry out much of the work of governing. But, unlike the US, provincial officials are appointed by the central government and – if they perform well – may be promoted to higher office. The prospect of promotion serves as an inducement to follow central guidelines. But, sometimes the leash has to be pulled a bit tighter, and this is one of those times.

    Periodically, the top leadership will allow provincial elites to experiment with new policy initiatives. Deng Xiaoping’s famous cat was allowed to catch mice regardless of color, so long as it accomplished that goal. Failing to take initiative can be seen as either resistance to the central leadership, or incompetence.

    The most notorious examples of radical decentralization were the Great Leap Forward of the late 1950s and Mao Zedong’s Great Proletarian Cultural Revolution a decade later. Both led to extreme excesses that had to be reined in from the top. This was only possible when those who initially supported the movements – including Mao himself – were weakened by failure.

    In the early reform era, provincial leaders such as Wan Li (Anhui) and Xi Zhongxun (Guangdong; the father of Xi Jinping) experimented with radical ideas such as family farms and businesses. Because they were protected by powerful allies at the highest levels, they were safe from attack on charges of reversing socialism and abandoning previous practices. Success provided the proof that the approach favored by Deng and his allies was the better choice.

    At some point, power shifts and someone on top decides it’s time to rein in the provinces and recentralize power. This most often happens when there is a change in power relationships at the top. The mechanics of recentralization are well known, and generally involve bureaucratic restructuring and personnel adjustments. Work teams may be sent down from on high to examine local conditions and directly interfere with provincial and even municipal operations.

    Reining in the lower levels is an opportunity to remove officials and replace them with people more in tune with the new thinking. This is an excellent time to purge one’s opponents’ loyal underlings and promote friends and close allies. Deng and Hu Yaobang used this technique to great effect in the late 1970s. At the time, provincial revolutionary committees had a dozen or more vice chairman, mainly incompetent radicals. By reorganizing the revolutionary committees into provincial People’s Governments, Deng and Hu were able to dismiss scores of radicals by reducing the number of Vice Governors, and filling those slots with their allies.

    The 21st Century version
    Under Xi Jinping, much of the work of reining in the provinces has been finished, and it is now time to turn to the central government and major economic sectors. The first major reshuffle was in the armed forces, where powerful regional commands were transformed into theatre commands. Other silos, such as the Second Artillery Force (rockets and nuclear weapons) were split in two. Purging top generals such as Xu Caihou and Guo Boxiong opened the path for promoting his own men. Zhang Youxia, a new Military Affairs Committee vice chair, was the big winner among the men in uniform.

    Next on the list is finance, and Xi is now completing his consolidation of the financial regulatory and anti-corruption regime. In the past, these functions have been managed by the Premier or Executive Vice Premier, but Premier Li Keqiang, the 7th man to hold the post, is the weakest since the founding of the People’s Republic of China nearly 70 years ago. The major reform program announced in late 2013 was, for example, designed by Central Party School President Liu Yunshan and [then] Executive Vice Premier Zhang Gaoli, without significant input from Premier Li.

    Xi’s point man on the economy is Liu He, and he is likely to be the most powerful economic czar since Zhu Rongji. Or, rather he will be that candidate until he surpasses Zhu’s power. With President Xi no longer bound by tenure traditions, it is likely that Liu will be free to remain on top of the economy for as long as he can do the job effectively.

    Liu He comes from a National Development and Reform Commission (NDRC) background, and prior to that, State Planning. He has a Masters of Public Administration from Harvard, an undergraduate degree in industrial economics, and has proven that he knows what he’s doing. First on the list of chores is gutting his old bureaucracy and redistributing parts of it to other organs. The NDRC will shed influence over healthcare, antitrust, agriculture, ‘key national projects’ and environmental matters. Portions of the Commerce Ministry will similarly be relocated to other bureaucracies. In particular, a national market supervision management bureau will be oversee price controls and anti-monopoly law enforcement.

    He Lifeng will take over the emasculated NDRC, and offer no challenge to Liu He’s authority. Similarly, Liu Kun, the new Finance Minister, is also a weak policy implementer. Liu Kun's background in Guangdong at a time when Xi Zhongxun (Jinping’s father) ran the province echoes He Lifeng’s experience in Fujian.

    The highly respected People’s Bank of China (PBoC) Governor, Zhou Xiaochuan, has been able to put his protégé, Yi Gang, into the top central bank position. This may be partly due to Zhou’s great competence running a part of the economy that is not well understood by generalists. Yi’s background as head of the State Administration of Foreign Exchange (SAFE) and the PBoC Monetary Policy Department shouldn’t cause too much investor concern. Another central banker to watch is Pan Gongsheng, the current SAFE chief. He spent time at Cambridge and Harvard, and is the closest thing China has to a crypto-currency specialist.

    Financial sector oversight will be consolidated under China Banking Regulatory Commission Chair Guo Shuqing. Guo is expected to pick up new responsibilities with the merger of other regulators into his balliwick, including insurance. He has a team of anti-corruption experts keeping an eye on things that includes Zhou Liang, Du Jinfu and Xu Jia’ai.

    Finally, there’s the new National Supervisory Commission which will be run by politburo member and former Discipline Inspection Commission Deputy Secretary, Yang Xiaodu. Yang is clearly Vice President Wang Qishan’s man, and as such will enjoy very strong political support for his work. His new body extends the party’s anti-corruption work into the non-party sector. Under China’s curious legal structure, party members cannot be tried in court until they have been stripped of party membership. Yang will be in charge of making that call.

    (Wang is the second consecutive Vice President to not be a member of the Politburo Standing Committee.)
    Wow, suddenly, I have more confidence that they know what they're doing.

  2. #47
    Senior Contributor DOR's Avatar
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    Quote Originally Posted by hboGYT View Post
    Wow, suddenly, I have more confidence that they know what they're doing.
    Regardless of what anyone (including me) thinks of the actual actions they take, the Chinese leadership has a very long track record of identifying problems early on, coming up with solutions and then implementing those solutions in a timely manner.
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  3. #48
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    Quote Originally Posted by DOR View Post
    Regardless of what anyone (including me) thinks of the actual actions they take, the Chinese leadership has a very long track record of identifying problems early on, coming up with solutions and then implementing those solutions in a timely manner.
    I respect you for your vast knowledge. So please, ELI5.

  4. #49
    Turbanator Senior Contributor Double Edge's Avatar
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    Quote Originally Posted by DOR View Post
    the Chinese leadership has a very long track record of identifying problems early on, coming up with solutions and then implementing those solutions in a timely manner.
    i agree with the above if one goes by the last three decades. There has been progress.

    But what are the current problems and proposed solutions ?

    My critique of this topic is so far the commentary is superficial. Second guessing without basis.

    Your last post reads like a who's who. I don't know these people well enough to appreciate why so and so is better at this post over another.

    Consolidation here and there. Re-centralisation or just a re-org
    Last edited by Double Edge; 21 Mar 18, at 19:07.

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    Quote Originally Posted by DOR View Post
    Regardless of what anyone (including me) thinks of the actual actions they take, the Chinese leadership has a very long track record of identifying problems early on, coming up with solutions and then implementing those solutions in a timely manner.
    Doesn't mean that they don't fuck up. Pollution controls. Building code enforcements. Ghost cities. Tianamen aftermath. Nuclear proliferation to Pakistan. North Korea.

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    There's that matter of bank loans.

    http://www.scmp.com/business/banking...verything-else

    Garcia Herrero said that Chinese banks’ problems with liquidity, solvency and profitability were all deteriorating.

    Liquidity – banks’ access to short term cash to meet their obligations – is particularly a problem for mid tier and smaller Chinese lenders that do not have access to the vast deposit bases of their larger competitors.

    These banks need easily accessible cash to fund their lending and investments, and are forced to look to increasingly unstable and costly sources to obtain it, such as borrowing directly from the interbank market, issuing further wealth management products, negotiable certificates of deposit and short term debt instruments.

    China bans new deposit certificates, tightening screws on interbank lending to curb risks

    The problem is that regulators, concerned about mismatches between banks lending or investing over long durations and borrowing over short, have looked to crack down on each source of funds in turn, in what Natixis analysts describe as a game of regulatory cat and mouse. This is driving the banks to look to newer, even less stable and more costly sources to fund their day to day activities.

  7. #52
    Turbanator Senior Contributor Double Edge's Avatar
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    Quote Originally Posted by Dazed View Post
    There's that matter of bank loans.
    Hot topic in India these bad loans.

    I have this theory. Shortly after the sub prime crisis G20 finance ministers got together and decided the best way to prevent that crisis from spreading further was to keep the taps flowing. That is allow credit with maybe not so tight restrictions as would normally be present. In a way overriding existing protections to avert any business confidence crisis

    So long as credit was available people would not be spooked. They'd build, orders would be made, the next six months would be predictable

    Some enterprising people figured this out and took advantage of the system. The results are coming out now.

    People speculate we're only seeing the tip of the iceberg, its actually a lot worse and all the usual hype bla bla
    Last edited by Double Edge; 21 Mar 18, at 19:18.

  8. #53
    Senior Contributor DOR's Avatar
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    The track record is four decades, not three. It started when Mao died, September 9, 1976.

    A short list of the current problems (a/k/a the Politburo agenda)
    1. Keeping the CCP in power (always top of the list). This includes maintaining national security; national sovereignty; and economic stability.
    2. Managing what people both inside and outside China think of China. Think of tools like Rmb0.5 per post and Confucian Institutes.
    3. Steadily building up national power vis-à-vis the United States, and slowly but surely limiting the US’ ability to project power into China regional spheres of influence. Asymmetrical warfare, area denial and a lot more that other folks around here can explain better than I.

    Yes, there are times when the leadership has to scramble to catch up.
    I never said they don’t fuck up.
    What I said was they have a long track record, etc., etc.

    As for bank loans, there’s a whole lot of smoke and no one’s quite sure how much fire.
    Consider that the overwhelmingly vast majority is domestically denominated, i.e., renminbi loans. That instantly eliminates the possibility of a Latin American or Asian Financial Crisis type problem. Next, cut out of your view any loan by a state-owned bank to a state-owned enterprise. That’s a simple accounting issue: who takes the loss is a policy decision, not a crisis.

    Now, having chopped the problem into pieces, let’s toss out the foreign-invested enterprises because that’s not China’s problem. Sure, if they all go bust at the same time a lot of people will be laid off, but foreign enterprises have assets that can be taken as collateral.

    What we’re left with is an unknown amount of debt. We then have to figure out how much of it is good, bad and awful. Since we don’t have the credit rating on that debt, the issue can’t be defined very precisely. So, we have to use proxies and unfortunately, the one journalists use are the worst ones of all: gross debt, gross debt-to-assets, gross debt-to-GDP and so forth.

    For those who believe the data,
    Percent change per annum (nominal)
    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 2002-11 _ _ 2012-16
    GDP _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 16.1% _ _ _ 9.2%
    Deposits of financial institutions _ 41.3 _ _ _ _ 13.2
    Loans of financial institutions _ _ _37.3 _ _ _ _ 14.2
    M-0 money supply _ _ _ _ _ _ _ _ 26.5 _ _ _ _ _6.1
    M-1 money supply _ _ _ _ _ _ _ _ 37.1 _ _ _ _ 10.9
    M-2 money supply _ _ _ _ _ _ _ _ 40.0 _ _ _ _ 12.7

    Source: data.stats.gov.cn

    The website hasn't updated with full-year 2017 data, but it won't change much from the above.
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  9. #54
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    Quote Originally Posted by DOR View Post
    The track record is four decades, not three. It started when Mao died, September 9, 1976.

    A short list of the current problems (a/k/a the Politburo agenda)
    1. Keeping the CCP in power (always top of the list). This includes maintaining national security; national sovereignty; and economic stability.
    2. Managing what people both inside and outside China think of China. Think of tools like Rmb0.5 per post and Confucian Institutes.
    3. Steadily building up national power vis-à-vis the United States, and slowly but surely limiting the US’ ability to project power into China regional spheres of influence. Asymmetrical warfare, area denial and a lot more that other folks around here can explain better than I.

    Yes, there are times when the leadership has to scramble to catch up.
    I never said they don’t fuck up.
    What I said was they have a long track record, etc., etc.

    As for bank loans, there’s a whole lot of smoke and no one’s quite sure how much fire.
    Consider that the overwhelmingly vast majority is domestically denominated, i.e., renminbi loans. That instantly eliminates the possibility of a Latin American or Asian Financial Crisis type problem. Next, cut out of your view any loan by a state-owned bank to a state-owned enterprise. That’s a simple accounting issue: who takes the loss is a policy decision, not a crisis.

    Now, having chopped the problem into pieces, let’s toss out the foreign-invested enterprises because that’s not China’s problem. Sure, if they all go bust at the same time a lot of people will be laid off, but foreign enterprises have assets that can be taken as collateral.

    What we’re left with is an unknown amount of debt. We then have to figure out how much of it is good, bad and awful. Since we don’t have the credit rating on that debt, the issue can’t be defined very precisely. So, we have to use proxies and unfortunately, the one journalists use are the worst ones of all: gross debt, gross debt-to-assets, gross debt-to-GDP and so forth.

    For those who believe the data,
    Percent change per annum (nominal)
    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 2002-11 _ _ 2012-16
    GDP _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 16.1% _ _ _ 9.2%
    Deposits of financial institutions _ 41.3 _ _ _ _ 13.2
    Loans of financial institutions _ _ _37.3 _ _ _ _ 14.2
    M-0 money supply _ _ _ _ _ _ _ _ 26.5 _ _ _ _ _6.1
    M-1 money supply _ _ _ _ _ _ _ _ 37.1 _ _ _ _ 10.9
    M-2 money supply _ _ _ _ _ _ _ _ 40.0 _ _ _ _ 12.7

    Source: data.stats.gov.cn

    The website hasn't updated with full-year 2017 data, but it won't change much from the above.
    I don't understand the data. Can you not be cryptic?

    Also, thinking about the bad debts owed by SOEs to SOBs in terms of real goods and services, isn't it a huge misallocation of resources that produces things people don't want thus reducing people's standards of living?
    Last edited by hboGYT; 22 Mar 18, at 11:17.

  10. #55
    Senior Contributor DOR's Avatar
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    Quote Originally Posted by hboGYT View Post
    I don't understand the data. Can you not be cryptic?

    Also, thinking about the bad debts owed by SOEs to SOBs in terms of real goods and services, isn't it a huge misallocation of resources that produces things people don't want thus reducing people's standards of living?

    How countries fail economically:

    Option 1. Too much foreign debt, fixed exchange rates, hot money flows, devaluation and as a result an inability to repay the foriegn debt.
    China can't have that problem, because the debt is in Renminbi.

    Option 2. Massive money supply increase to pay for peace-inducing consumption. Inflation and devaluation results. Alternatively, overly tight money growth leads to economic contaction and deflation.
    China has a money supply that is rising in line with nominal economic growth, so that isn't a problem.

    Option 3. Banks lend too much money on terms that are unsustainable. Something Goes Wrong and the borrowers can't repay the loans. The banks fail and the public loses their deposits.
    China's banks have a bucket load of bad loans, but they also have -- thus far -- comprehensive government support, both from a capitalization basis and from the fact that the SOEs can be instructed to pay back loans to any state bank at any time.

    Yes, it is a misallocation of resources. But, when standards of living skyrocket for decades on end, that misallocation doesn't seem quite so dangerous. Misallocations are expensive, but crises are far, far more expensive and generally result in angry mobs changing governments. China doesn't have that risk.
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    Quote Originally Posted by DOR View Post
    T
    As for bank loans, there’s a whole lot of smoke and no one’s quite sure how much fire.
    Consider that the overwhelmingly vast majority is domestically denominated, i.e., renminbi loans. That instantly eliminates the possibility of a Latin American or Asian Financial Crisis type problem. Next, cut out of your view any loan by a state-owned bank to a state-owned enterprise. That’s a simple accounting issue: who takes the loss is a policy decision, not a crisis.
    So there is a rash of defaults the CCP makes good all the losses? CCP sets the values based on the arbitrary power granted by the sovereignty of the PROC. You lose money you will carry on as usual. Has the CCP succeeded where Long-Term Capital Management failed. There will never be recision in China?

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    Senior Contributor DOR's Avatar
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    Quote Originally Posted by Dazed View Post
    So there is a rash of defaults the CCP makes good all the losses? CCP sets the values based on the arbitrary power granted by the sovereignty of the PROC. You lose money you will carry on as usual. Has the CCP succeeded where Long-Term Capital Management failed. There will never be recision in China?
    I don’t think I understood three-quarters of your post, but according to the OECD there have been nine recessions in China since 1978.
    https://fred.stlouisfed.org/series/CHNRECDM
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    Turbanator Senior Contributor Double Edge's Avatar
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    Quote Originally Posted by DOR View Post
    I don’t think I understood three-quarters of your post, but according to the OECD there have been nine recessions in China since 1978.
    https://fred.stlouisfed.org/series/CHNRECDM
    Interesting graph, but there are three ways to interpret the data. My first impression was to look at the area under the graphs as the extent or duration of the recession

    Using this interpretation, longest recession i see is Sept 1996 to May 1997

  14. #59
    Turbanator Senior Contributor Double Edge's Avatar
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    Quote Originally Posted by DOR View Post
    The track record is four decades, not three. It started when Mao died, September 9, 1976.

    A short list of the current problems (a/k/a the Politburo agenda)
    1. Keeping the CCP in power (always top of the list). This includes maintaining national security; national sovereignty; and economic stability.
    2. Managing what people both inside and outside China think of China. Think of tools like Rmb0.5 per post and Confucian Institutes.
    3. Steadily building up national power vis-à-vis the United States, and slowly but surely limiting the US’ ability to project power into China regional spheres of influence. Asymmetrical warfare, area denial and a lot more that other folks around here can explain better than I.
    Dodging the middle income trap ? this could be a powerful motivator to future economic policies.

    I hear this term supply side structural reform in the CSIS video that i don't quite understand as one way

    Problem is this is a Ten year project. Have to be really patient to assess progress

    It surprises me how much of a mess there was that Xi had to attempt to fix. Was apparent in Hu's time already but he lacked the power to do anything about it.

    Five years alone just to gain control of the military, security services, party bureaucracy and propaganda. Break the back of numerous opposition factions. Economy was on auto pilot. Just concentrated on the political.

    This is the real china, what is surprising is i'd have thought this was Deng's job. Right the ship and make this big shift in focus. It's not what i expected to hear thirty years later.

    Because i can't shake this perception that authoritarian regimes are supposed to be efficient and slick. Forced marches into various sectors ultimately making them leaders. Steel, shipbuilding, solar. How do pull that off if there is a weakness of direction. There can be no forced march in such a case.
    Last edited by Double Edge; 23 Mar 18, at 15:28.

  15. #60
    Senior Contributor DOR's Avatar
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    Quote Originally Posted by Double Edge View Post
    Dodging the middle income trap ? this could be a powerful motivator to future economic policies.

    I hear this term supply side structural reform in the CSIS video that i don't quite understand as one way

    Problem is this is a Ten year project. Have to be really patient to assess progress

    It surprises me how much of a mess there was that Xi had to attempt to fix. Was apparent in Hu's time already but he lacked the power to do anything about it.

    Five years alone just to gain control of the military, security services, party bureaucracy and propaganda. Break the back of numerous opposition factions. Economy was on auto pilot. Just concentrated on the political.

    This is the real china, what is surprising is i'd have thought this was Deng's job. Right the ship and make this big shift in focus. It's not what i expected to hear thirty years later.

    Because i can't shake this perception that authoritarian regimes are supposed to be efficient and slick. Forced marches into various sectors ultimately making them leaders. Steel, shipbuilding, solar. How do pull that off if there is a weakness of direction. There can be no forced march in such a case.
    The middle income gap mainly seems to apply to a couple of places where the rise in GDP per capita (which isn’t income) stalled out after hitting anything from $1,000 to $10,000. Countries with this problem are said to have poor investment and industrial diversification. Doesn’t sound like China to me: Household private consumption expenditure has grown 9.3% a year in the past decade, which doesn’t exactly sound like stagnation to me. Capital investment rose about 10% p.a.

    Deng Xiaoping dealt with the steaming pile Mao left behind, while battling his co-Elders over policy, ideology and succession. By the time Jiang Zemin accidentally came to power, the old guys were pretty well spent. Deng made sure the next generation -- Li Peng and Yang Shangkun, in particular -- didn't derail Jiang, but that's about it.

    Jiang didn't give Hu Jintao the support he needed to succeed, partly because Jiang's family was knee deep in corruption. By the time Xi Jinping got the nod, people at the top apparently were ready for a strong leader. Those who weren't, well they didn't last very long.
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