Party leaders have allowed a massive state and private sector borrowing binge that the IMF sees as a threat to China’s stability
T here is a steel toboggan run offering rides down the side of the Great Wall of China that would fail the UK’s most basic health and safety tests. It could be a metaphor for the Chinese economy if, as many people believe, Communist party leaders allow a credit bubble to run out of control in a desperate attempt to maintain an electrifying 7% growth rate.
The Chinese are not alone when they turn a blind eye to excessive borrowing. Most nations depend on large and growing amounts of borrowing to fund everything from investment to the most basic services. In China’s case much of the debt is being used to offset the transition from a state that manufactures iron, steel and cheap electronics, textiles and consumer goods to one that embraces hi-tech industries attuned to environmental concerns. This creates millions of losers in traditional smoke-stack industries, lots of them in the north and west of the country.
It’s a story that is familiar in Europe, where governments spent the 1980s racking up huge debts to support dying industries while the UK spent its oil revenues funding the unemployment benefits of steelworkers and miners. But the scale of China’s industries is such that when a transition is under way, the borrowing is colossal and the threat to the rest of the world is unnerving.
The International Monetary Fund warned last week that the debt building up in China’s state-owned industries was a threat to the country’s stability. Private debts are also stratospheric, mainly from a property boom that has left many people with sky-high monthly mortgage payments or dizzying rents. Erik Britton, director of Fathom Consulting, an economic consultancy, says he is concerned that China’s debt-fuelled growth is building towards a major crash some time in the next five years.
Diana Choyleva, a China expert who runs Enodo Economics, a consultancy, says that in answer to the growing crisis the Communist party is exerting greater influence over indebted state-owned industries, ending a long period when competition with foreign companies was considered a solution.
In August, Reuters reported that more than a dozen top European companies operating in China had met to discuss their concerns about the growing role of the party in joint ventures with state-owned enterprises. One executive told the news agency that party officials wanted state-owned enterprises to have the final say in joint decisions and allow the local party secretary to be the joint venture chairman.
Choyleva believes that Beijing’s challenge over the next couple of years is to exert more control to deal with bad debts built up by state-owned enterprises without scaring off foreign banks and joint venture partners, which could take on some of the debt themselves.
Keith Burnett, vice-chancellor of Sheffield University, is a regular visitor to China and a mainstay of UK delegations to Beijing. He says he is struggling to persuade UK businesses to enter joint ventures with Chinese partners, despite the obvious opportunities of selling to a country of 1.4 billion people.
“There is a real push at senior levels in Beijing to get manufacturing higher up the value chain. They know they need to expand in aerospace, electric cars, pharmaceuticals. This is coupled with a worry that many people are being left behind in steelworks and basic manufacturing plants.
“British companies are fearful they will lose their intellectual property. They are happy to sell their wares in China, but they say ‘we don’t want to share information with you if it means losing our crown jewels’,” he says.
Chinese officials argue that the 19th national congress of the Communist party on Wednesday, when President Xi Jinping is expected to be re-elected leader, will reinforce their anti-corruption drive and strengthen the independence of the judiciary, so foreign businesses can pursue intellectual-property disputes through the courts with more success.
However, a courts system that offers an independent arbitration service seems a distant prospect. Companies remain sceptical about their hopes of pursuing intellectual-property theft claims; foreign investors are wary of buying the shares and bonds of companies that might arbitrarily be declared bankrupt. It is the courts that hear bankruptcy petitions, and Choyleva says there is little consistency over why some are declared bankrupt and others not.
In 2013 the party’s third plenum reform statement said the market should play a “decisive” role in resource allocation, while reaffirming that the state must play a “leading role” in the economy. It seems clear that, as the population gets older and generating previous levels of growth gets harder, the state is grabbing back key levers of power. The market is still useful, but difficult times and competing aims call for more direction from the centre. Somehow Xi must keep raising 10 million people a year out of poverty, promote a green economy and open Chinese markets to foreign competition and collaboration. It appears that the first two are incompatible with the third.

© Source: https://www.theguardian.com/world/2017/oct/14/beijing-poverty-pollution-markets-competition
All rights are reserved and belongs to a source media.

The Communist party prepares to hail mid-point of Xi Jinping’s 10-year term. But what do people make of their leader?
Like most residents of the sun-kissed fishing village of Tanmen, Huang Jie will never forget the day China’s “chairman of everything” came to town. It was the afternoon of 8 April 2013 – just a few months after Xi Jinping had taken power – and he was using one of his first presidential trips to pay a morale-boosting visit to the sailors on the frontline of Beijing’s quest to control the South China Sea.
“He was just over there,” reminisced Huang, the 45-year-old owner of a harbour-side equipment shop, motioning excitedly into the street to where Xi’s motorcade passed by. “The window was half open and he looked out at us and smiled. When he waved, it was as if it was in slow motion – he didn’t say a single word, but I felt so excited.”
Almost five years after his tour of Tanmen, Xi is celebrating what should be the mid-point of a 10-year stint at the helm of the world’s second largest economy. China’s political elite will descend on Beijing on Wednesday to salute a 64-year-old strongman who is now so powerful that a new body of ideology may be written into the constitution, putting him in the same political league as the nation’s founder, Mao Zedong.
For critics, foremost among them liberal intellectuals and human rights activists, Xi’s first term has proved calamitous. Some had hoped he would prove a political reformer. Instead China’s authoritarian leader has waged war on dissent with unexpected ferocity, throwing some opponents in jail and forcing others overseas. Hardcore objectors call him “Xitler”.
Abroad, Xi has also accrued detractors, irking nations large and small for his assertive – some say domineering – foreign policy initiatives. Perhaps nowhere has that swagger manifested itself more clearly than in the politically charged waters around Tanmen, where Beijing is using “maritime militia” groups to push highly controversial sovereignty claims over about 90% of the South China Sea.
But as Xi completes his first term, experts say that many of China’s 1.4 billion citizens see him in a far more favourable light.
“Whatever people may have to say about Xi Jinping, he has actually been a popular leader,” said Steve Tsang, head of the China Institute at the School of Oriental and African Studies in London. “The economy remains strong… corruption has been contained… China is internationally much more accepted as being in the top league and is calling the shots… In Trumpian terms, he’s managed to make China look great again.”
Cheng Li, director of the Brookings Institution’s John L Thornton China Centre in Washington, said Xi’s popularity is stronger among poorer citizens. “Of course, there is a lot of criticism from intellectuals about the personality cult and the tight control,” he said. “But Xi Jinping’s popularity is solid among the laobaixing [common folk]. They see him as a strong leader… He gets things done. He makes Chinese people proud. There is a tendency to view him as the third great leader since Mao, Deng and then Xi.”
In Tanmen, on the eastern coast of Hainan – an eye-shaped tropical island some call China’s Hawaii – some go even further. “In 5,000 years of Chinese history not a single national leader has set foot in Tanmen. It’s something we could never have dreamed… We are grateful to Chairman Xi,” beamed Zhong Wenfeng, the owner of a waterfront souvenir shop that sells conches and starfish plucked from the South China Sea.
Part of the adulation expressed here seems drawn almost verbatim from the intense and inescapable propaganda with which China bombards its citizens. “Chairman Xi is a world leader. His book on governance has sold out in many countries across the world,” Zhong gushed, parroting the unashamedly hagiographic bulletins in which the party news agency Xinhua excels.
Outside his shop, a portrait of Xi – his hands clasped together – captured the image spin doctors have tried to curate of their commander-in-chief: a sagacious and omnipotent father figure leading his subjects towards “The China Dream”. An accompanying slogan stated: “The Dream of a Powerful Country. The Rejuvenation of China. The Happiness of the People. The Wealth of the Nation.”
Yet there seems to be heartfelt affection, too. Over and over Tanmen residents used the same adjectives to describe their most famous guest: ci xiang (kindly) and he ai ke qin (affable). “He treats people well… He seems like a good guy to us,” said Shi Jiquan, a 54-year-old fisherman. “He seems like a very easy-going and warm person,” said Zhong. “In our hearts and in our minds he is better than previous leaders,” agreed Huang.
Observers say that Xi’s domestic veneration is largely the result of his populist anti-corruption crusade. In January 2013, just a few weeks before visiting Tanmen, Xi declared war on thieving tigers and flies – top officials and low-rank bureaucrats – describing their crimes as an existential threat to the Communist party’s grip on power. Dozens of top officials – often Xi’s rivals – have since been felled, including the former security chief, Zhou Yongkang, the army’s second most senior officer, Xu Caihou, and Sun Zhengcai, who some tipped as a future president. “Xi might not have people’s admiration, but he has certainly got their respect,” said Kerry Brown, the head of the China Institute at King’s College London. “In a multiparty democracy, I think he would probably be in a good position to be re-elected.”
Orville Schell, a veteran China expert from New York’s Asia Society, said he sensed “a cauldron of disaffection” bubbling beneath the surface towards China’s political leaders. But many citizens applauded how Xi was strutting China’s stuff on the world stage. “I suspect that on a surface level – but an important level – many Chinese feel a certain amount of pride that their country is now able to speak, even throw its weight around a little, and be heeded in the world,” he said.
Tsang said there was particular delight at how Xi appeared to be winning the geopolitical arm-wrestle with Donald Trump, who swept to power vowing to challenge Beijing on everything from trade to Taiwan, North Korea and the South China Sea, but has so far failed to match those threats with actions.
Xi had ceded almost no ground to Trump on any of these issues, Tsang said. “And what have the Americans done? Nothing! So you can see why the average Chinese citizen might think Xi Jinping was doing really well.”
At Tanmen’s docks, Qin Huaishu, another of the president’s fans, was giving a new lick of paint to Qionghai 09045, a weathered fishing vessel that was turned into a permanent floating monument to Xi after he clambered on board during his 2013 visit.
“Xi chatted with the fishermen about their daily lives and went downstairs to check the engine,” recalled Qin, a 55-year-old workman. “Xi told the fishermen: ‘Go out and be bold. We support you all’.”
A few blocks away, at Tanmen’s fishermen association, there were further tributes. Just inside the door hung a framed photograph memorialising the day Xi visited. A copy of Xi’s tome, The Governance of China, sat in pride of place on the desk of the association’s president, Ding Zhile.
Speaking to a local Communist party newspaper at the time, Ding boasted that Xi had shaken his hand on two separate occasions. He described China’s leader as “happy”. Five years on, however, he refused to share his memories of the afternoon he spent with one of the most powerful men on earth. “We’re not talking to any foreign media, no matter who you are,” he snapped. “Please put yourself in my shoes. I have problems of my own.”
The “chairman of everything” looked down from the wall behind him in an immaculately ironed blue shirt.
Additional reporting by Wang Zhen RISE OF XI JINPING
15 June 1953 Born into well-connected political family. His father, Xi Zhongxun, fell out of favour in the Cultural Revolution but was later rehabilitated.
1987 Marries folk singer Peng Liyuan.
1999-2007 Becomes governor of Fujian province and later party secretary of neighbouring Zhejiang province.
November 2012 Appointed general secretary of Communist party and in 2013 president of China. Led aggressive campaigns over territorial claims on South China Sea.
October 2017 The Economist declares Xi the most powerful man in the world.

© Source: https://www.theguardian.com/world/2017/oct/14/xi-jinping-crushes-dissent-but-making-china-great-again
All rights are reserved and belongs to a source media.