Thursday 21 October 2021
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China Approaches Titanic Moment

Gautam Mukherjee
Commentator on political and economic affairs

Cameron’s 1997 blockbuster remake of Titanic showed that it lacked an adequate supply of binoculars, let alone lifeboats. Not only was it going at full speed in Arctic waters when disaster struck, but the Crow’s Nest was relying on naked eyesight in the dark. Icebergs are white. Otherwise, the Titanic may not have even got a couple of hours of evacuation time it did. First Class was sumptuous on its maiden voyage. It had a number of ‘name’ American millionaires and heirs to substantial fortunes making the Atlantic crossing back to New York. In 1912, people did not speak of billions and trillions in Washington and Beijing alike. It had the film’s heroine Rose and her mother on the secret brink of poverty. Rose had to make up to her rich and arrogant beau, also on board because her mother reminded her, it was their last hope to stay amongst the privileged. Of course, Rose fell in love, despite her parlous circumstances, with a heroic and talented painter from Steerage Class. But that, for today, is another story. Is not China meeting the same fate as Titanic — the real or the cinematic version?

President Xi Jinping and the CCP are approaching their Titanic moment. Overconfidence in Communist social engineering is provoking a course correction that is as doomed as not doing anything. Xi says he is fed up of -fuelled capitalist style prosperity. It has created vast inequalities and deviated from the path of the founding father of Red China, the always serviceable Chairman Mao.

That he has come to this personal eureka moment coincidentally when the dragon’s ecosystem is sputtering into stoppage and decline is perhaps not good news. His room to manoeuvre is severely limited. Thinking of Moral Hazard and catching hold of scapegoats after the excesses (and received benefits) of rapid GDP growth, is fraught with danger. When America let 1,000 banks fail in 1929, it led to a decade-long Great Depression. Barack Obama paid his way out of a similar crisis in 2008.

The Chinese may not have had political freedom from the establishment of Mao, and the expulsion of Chiang Kai Shek, but they have grown very prosperous, albeit in certain pockets, over the years since 1980. Can Xi Jinping snatch this away without grave political consequences? Is he, on the other hand, just trying to make a virtue of necessity like Rose’s mother?

President-for-life Xi is trying to deflect the blame away from himself and the CCP towards the actual hands-on engine drivers. The Engine Drivers – Evergrande’s owners, who owe $ 300 billion they can’t pay, Jack Ma of the ANT Group who has been forced to lose $ 100 billion, Local Government Mayors who have accumulated over $ 8 trillion in debt, other tech biggies, manufacturers, exporters, conspicuous consumers, and their Rolls Royces. These ‘deviants’ from Mao’s path – and not the Railways themselves. These people, and not Xi and the CCP, must be held responsible for derailments, goes the logic. The owners of the Titanic who were not on board, in order to go down with it, advanced a similar argument in the subsequent enquiries.

In recent speeches, Xi Jinping said he wants to steer the ship of state towards more equitable waters where disparities between rich and poor are lessened. He wants to go back to Chinese Communist first principles. However, is the iceberg too close to dodge? And are those yet more and more, ice mountains, behind and besides that first one?

It’s not the fudged statistics in the recent World Bank Report on China to show its economic prowess. Not the insatiable cement consumption figures that fuelled the construction boom. In 2004, at a seminar in swish Hong Kong, the Chinese economics professors who spoke said the Chinese banking system was ‘unreal’. Nobody would be able to find it on Judgement Day. That was 17 years ago. Judgement Day, aka the iceberg, still hasn’t loomed into sight less than a mile away, but it could be hidden in yonder mist.

The story is coming apart at the seams now. It’s not only the unused infrastructure at home and abroad. In places like Hambantota, Sri Lanka, or Venezuela, far away. Neither can pay the bill, to paraphrase an old Cole Porter song that might have been played in the nightclubs of sophisticated colonial Shanghai. And seizing subprime property in Pakistan and around the belt and road/ new silk route globe will not pay the bill in a hurry either.

Nevertheless, there is a headlong rush, a full speed ahead in the night at work. A French think-tank, its Military School Strategic Research Institute, alludes to Nicolo Machiavelli’s The Prince in its characterisation. It says China once preferred to be loved rather than feared, but this has changed. Now it wishes to coerce.

It has invested billions in international media to finesse its image. It tries to influence foreign elections Moscow style. It liberally uses embargoes, sanctions, tariffs, and controls access to its markets, in an effort to bring other nations to heel commercially.

This report does not refer to the years of espionage responsible for some of China’s biggest technological advances. It has been a master of copyright infringements, theft, retrofitting, rather than greenfield R&D most successful in the West and the US in particular. That is why its equipment often does not work, and nobody, not in dire straits, wants to buy Chinese fighter jets.

Nor does it refer to the massive Chinese government subsidies used to grab export market share in the early days. Later, China did make money, and its costs rose and rose. This proved a boon for Vietnam and Bangladesh if not for slow, ponderous India.

When the borrow and spend Western bubble burst in 2008, the beginning of China’s export decline was scripted. There was no market like in the old days.

The Chinese economic myth-making was becoming visible. The woods of apartments in ghost cities in the Chinese hinterland just to boost the GDP. More dams built and being built than a school of beavers could justify. Highways to nowhere.

The myth-making was also an international propaganda machine that captured the UN. UNESCO, WHO, The Human Rights Commission, the UNSC. The lack of progress on the WHO investigation on the origin of the Wuhan Virus is a sell-out to Xi Jinping. The ineffective vaccine Sinovac. The casualty figures suppressed in Wuhan had the crematoriums working 24×7 for more than six months. Was it a man-made virus? Was it deliberately spread by the Chinese, killing nearly 7 million people worldwide so far?

Europe, certainly EU leader Germany, and also France, are beholden to Chinese commerce. So is America. Only Australia has had the courage to break free despite massive economic losses. India has reacted too, in its quiet muted fashion. Chinese 5G is out. Many other opportunities have also been denied.

It is hard to determine Chinese statistics from the outside. Is the currency overvalued given its massive external and internal debt?  The local government domestic debt being half (52%) of its current GDP at $ 8.2 trillion is an informed estimate from Goldman Sachs and the Rhodium Group. China itself does not release local government figures.

For as long as possible, Xi Jinping and the CCP will keep the veil drawn over its financial affairs. The electricity is failing. Factories cannot function. Orders are unfulfilled. Scams are being unearthed. The ports are in chaos. Homes are in the dark. Unemployment is getting out of hand. Shortages are mushrooming. The public is risking protests.  The military does not want to fight. Friends of China are leaving the table. The outside adverse comment is growing exponentially. The iceberg will not be denied.

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