China (iii)

When Xi Jinping took on the mantle of Chinese leadership, China was in its fourth decade of extraordinary economic growth. In addition, Hong Kong, a center of entrepreneurial vitality, had reverted to Chinese ownership 15 years earlier, with a third of the 50-year transition period of Hong Kong’s self-rule as a Special Autonomous Region already gone.

There were still significant threats to the primacy of the Communist Party under Xi, although they were far different from the ones Deng faced. The top three:

–many Party officials had used their positions of authority to enrich themselves and their relatives (the princelings), becoming billionaires during the Deng years much in the fashion of the Russian oligarchs. This undermined the legitimacy of the Party in the minds of ordinary citizens

–the state created an immense real estate bubble through a combination of: GDP growth itself, savers’ distrust of commercial banks and their desire to hold physical assets, exchange controls that limited movement of wealth outside China, and the fact that their higher Party rank enabled local officials to coerce banks into making questionable loans for dubious construction projects that burnished the officials’ GDP growth credentials

–a set of entrepreneurs who were Party members more in name than anything else (e.g., Jack Ma?) became successful/powerful enough to begin to question the authority of Party bureaucrats.

Xi had success purging corrupt Party officials.

He also, belatedly, i.e., in 2020, began to rein in construction loans by requiring banks not to cross “three red lines” in property-secured lending: maximum loan amounts relative to assets, equity and cash. He now appears to be making those lines less restrictive as the property market begins to wobble.

In 2020, Jack Ma, the billionaire founder of Alibaba, arranged for a US stock offering of Alibaba subsidiary Ant Financial, a consumer lending company intended to compete with state-run commercial banks in this arena, without getting Beijing’s permission first. Then Ma publicly criticized the inefficiency of the banks and, apparently, said he would use Ant to radically reform the consumer finance market in China. Put another way, he vowed to destroy the most stable source of earnings for the already-shaky state-owned banks. Ma was not heard from again for the next six months, and has recently given up his ownership of Ant Financial. He also triggered a crackdown on Chinese tech entrepreneurs that is only starting to end now.

tomorrow, Hong Kong

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