Party On!
To take a glancing look at Vladimir Putin, even back in his KGB days, is to behold the face of a gangster. To look at his Washington counter-part is to think that someone needs a nap. To look upon the image of China’s once and future president Xi Jinping is to… well, you don’t want to play poker with a guy with a face like that. It’s the visage of stability, the mug of calm, it’s the face your father had when he’d already decided what to do with you.
It’s also arguably the face of the world’s most powerful man, and he looks set to stay that way. Like the National Conventions of America’s main parties, this 20th China Party Congress is a well-scripted affair with the rubber-stamped conclusion written ahead of showtime. And because there is only one party, it doesn’t need all the ridiculous pre-game buzz of an American spectacle.
The real question, then, is what is President Xi going to get up too in his third term? By the end of the week he’ll be in a position to rule from the throne, or behind it, for as long as he likes. And never in the 8,000-year history of anything that we’d call “government” did that sort of power make anyone more reasonable.
The first hint of China’s direction will be those five and 10 year plans Socialist Republics love to dictate. Having no practical grasp of economics, Xi’s current plan involves a 5% growth annually over the next five years. The main flaw is that not one non-Chinese economist sees this as even remotely possible. There is the slowing global economy, as well as the fact that China’s growth rate has fallen every year of Xi’s decade in office. Some things just stubbornly defy central planning. Just ask Jeremy Powell before he hikes rates again.
On paper, the government has overseen a somewhat orderly de-leveraging of China Evergrande, the behemoth property developer. Central planners still seem at a loss to predict or handle the ripple effect the restructuring had on other real estate developers, suppliers and average Chinese saver, who has 70% of their wealth tied up in the sector. In short, Chain has already had its hard landing, it just doesn’t know it yet.
On foreign policy, Xi has reportedly asked the country’s military to be able to take Taiwan by force by 2027, the end of his third term. A dedicated isolationist might not care if China takes back what even Washington grudgingly admits is its own territory, but there is the issue of all the island’s semiconductor technology: a $147bn industry in Taiwanese which they call huguo shenshan: “magic mountain that protects the nation.” Or more precisely, the US Navy.
The crimp investors are going to feel in 2023, though, is a little less grand: less magic mountain of semiconductors and a lot more simple logistical issues. The entirety of the liberal world order is reckoned, more or less, on the free movement of the sea-lanes underpinned — again — by the US Navy. Beijing has already formally contested that the “median line”, the maritime border between it and Taiwan, doesn’t exist, and therefore the strait itself is not in international waters. China doesn’t have to invade Taiwan in order to blockade the island (it has already proven that it can) and declare in an exclusive economic zone. Its navy doesn’t have to go much further to reek havoc in the rest of the South China Sea and beyond.
Expect China to make itself more obvious on the high seas next year, but it will be chest thumping that falls sort of war with America and its allies. In this sense, China is like any other bully: It doesn’t want to go to war, may very well be afraid to. Its allies are Russia, which just gelded itself for a generation; and Iran, a country with a navy that wouldn’t pass for the game and fisheries department in Wisconsin. This will cause logistic disruptions in the world markets, and diplomatic headaches as well. China wants, needs, the world to think it’s about to start something. Getting spooked is not the answer.
If American can stand firm with the status quo without over reacting, the logistics of the free market will do what they’ve always done, and simply recalibrate away from the bottleneck. China will isolate itself much more effectively that the West could ever hope too as sanctions bite, the demographics of its aging population inverts, and Xi’s “Mao Lite” economic theories beat the private sector to death like a baby seal. A few years of that foolishness, and China won’t be able to fight the war it is threatening.
Originally appeared in the 4717.com
