Saturday, August 12, 2023

Party of One

We’ve heard for some time now that China’s rise as an economic superpower is inevitable, and that China will surely surpass the U.S.  Extrapolating from the past few decades, this appears certain.  However, changes made by China’s current leader, Xi Jinping, have cast doubt on China’s ascendancy.  Chun Han Wong has covered China for the Wall Street Journal since 2014 and has written the book Party of One: The Rise of Xi Jinping and China’s Superpower Future.  His descriptions of the massive changes Xi is making lead me to believe that China’s growth will at least slow, if not falter altogether.

My take on China is hardly original, and does not come from a deep understanding of China.  It comes down to the simple observation that for a society to become wealthier over the long term, its most brilliant and driven citizens must have the freedom to innovate.  We can’t know in advance which citizens will make a big impact, so this freedom must be available to most citizens to get the benefits from the few who will do big things.

Until recently, China’s rise has been impressive.  “Deng-era decentralization had unleashed dynamism that helped China boost its gross domestic product by more than fiftyfold from less than $150 billion in 1978 to $8.2 trillion by 2012, and bring more than 600 million people out of poverty.”  After decades of increasing freedoms under previous leaders, Xi has reversed course.  “Where pragmatic innovation once flourished, Xi imposed ‘top-level design.’”

Bureaucracy “has grown even more pervasive under Xi, whose top-down governance has driven officials toward foot-dragging, fraud, and other unproductive practices—so as to satisfy their leaders’ demands and avoid his wrath.”

Xi is using technology to exert greater control.  Citizens were assigned green, yellow, or red codes based on “their potential Covid exposure.”  “What began as a disease-control mechanism became a handy tool for social control, as some security agencies started using health-code data to flush out fugitives and block dissidents from traveling.”

“Xi’s insistence that entrepreneurs serve the party fostered what critics call a ‘hyper-politicized’ business environment, dampening enthusiasm to invest and innovate.”

Under Mao Zedong’s “totalitarian control,” “productivity frequently suffered, as factories were often overstaffed and workers generally content to meet minimum output quotas without concern for the quality or marketability of what they made.”  Although things aren’t this bad in modern-day China, Xi is heading down the same path.

In one example, police detained an entrepreneur, and his daughter stepped in to run the business.  But after more than 18 months, the daughter “made a dramatic plea: inviting the government to run the company and take over its assets.  ‘It’s too bitter and too tough being a Chinese private entrepreneur.’”

Although it has little bearing on China’s future growth, Xi’s sensitivity about his schooling is interesting.  According to “Hu Dehua, a son of former party chief Hu Yaobang,” Xi “attended school only until the first year of junior high.”  According to “one princeling who has known Xi for decades,” “Xi is not cultured.  He was basically an elementary schooler.”  “He’s very sensitive about that.”  Apparently, to compensate, Xi “started raving about his passion for books,” claiming to have read the works of dozens of famous writers.

In an extreme example of the suppression of human rights, “The United Nations human rights agency spent years reviewing” allegations of Beijing “committing cultural genocide against Uyghurs” and concluded that “Chinese authorities there may have committed ‘crimes against humanity.’”

According to “Wang Huning, a party theorist who joined the Politburo Standing Committee in 2017,” “American individualism, hedonism, and democracy would eventually blunt the country’s competitive edge.”  “Rival nations powered by superior values of collectivism, selflessness, and authoritarianism would rise to challenge American Supremacy.”  I think the opposite is true.  Rival nations can only catch up to the U.S. by freeing its people as China did to some degree in the decades leading up to Xi’s control.  Xi’s “top-down control suppressed initiative and flexibility, while encouraging rote compliance and red tape.”

“A decade into the Xi era, the party appears more in control than ever.  It embraces digital authoritarianism and maintains a high-tech security state.  It coerces and surveils its citizens with internet controls, big data, facial recognition, social-credit systems, and other state-of-the-art tools.  Civil society has been all but neutered; activists get imprisoned, muzzled, forced into exile, or coopted by the state.  Dissenting voices face police harassment, jail time, and a ravenous online ‘cancel culture’ fueled by party-backed patriotism.”

I’m not suggesting that China will collapse or that Xi will lose control of China.  China’s impressive economic rise to date could sustain it for decades even if its citizens are tightly controlled.  In a sense, the economy China has built is available to be spent by Xi in whatever way he sees fit.  He could also reverse course again and let capitalism grow its economy further.  As ever, the future is unclear.  What is clear from the evidence presented in this book is that Xi has made a hard break from the policies that fueled China’s rise.


  1. So, if I hold emerging market funds, it is time to shop for a replacement of the one excluding China?

    1. Whatever the market believes about China is already reflected in prices. It's only if you have better foresight than the collective wisdom of the markets that it makes sense to jump in and out of investments in China.

    2. Very true. Thanks!

    3. "its most brilliant and driven citizens must have the freedom to innovate". You have no idea how much freedom Chinese citizens have especially come to innovations: 5G network; DNA mapping and synthesizing; satellite and space program; high speed train/undersea tunnels; etc. What innovation US/Canada have in modern years. Anyone who is associated with WSJ has none credibility in my book.

    4. Zero innovation in the US -- I'll give that due consideration.