China: dangerous imperial unreliability

(To Gino Lanzara)
28/01/22

The Dragon always arouses interest; if it is true that its war enhancement has attracted more than one attention, it is equally true that the pandemic events have broadened the focus on a complex landscape. That the silhouette of an aircraft carrier is more seductive than macroeconomics is beyond doubt; that neglecting the economic aspect does not fully convey realism1 of international relations, however, is as inevitable as encountering little-analyzed aspects that lead back to a geopolitical framework which, if not understood, does not even allow us to imagine flight bridges and top gun.

According to Kissinger, planetary power changes with a secular cadence: the CCP, convinced of the western decline, works to impose a political-economic model capable of setting aside capitalism, democracy, Soviet communism.

China is a country with an imperial DNA that wants to demonstrate that it can erase a humiliating past. It's not so easy. Beijing is the last major Communist political entity, a stigma that does not prevent the coexistence of hammer and sickle and sartorial double-breasted the lair of the white rabbit, nothing is as it appears. Had the West been more circumspect it would have realized, since the 70s, that Deng Xiaoping was not a political bizarre, but the expression of the Party's Leninist will.

If it is true the color of the cat is not important as long as it takes the mouse, creation of private companies and silent Maoist revision were functional to the exercise and maintenance of power in the face of the failed Soviet economic model, for which even now it is difficult to imagine diversified economic policies open to investments. Deng therefore turns to external financial spaces necessary for the economic recovery that was first cut short by the bankruptcy Great Leap Forward2 (1958-1961), then by the violent Cultural Revolution (1966-1976).

Chinese economic rise and entry into the WTO become the sign of a globalization which, adapted to the anglosphere, fits perfectly on the zhongshang3 Maoist worn by red principles, and for which Tien an Men has its acceptable because, One because repeated in 2008 with the bloody Tibetan repression followed after about 10 years by the Uyghur one in Xinjiang. And after globalization its antithesis, supported by the restructuring of Xi Jinping with the reduction of economic interdependence facilitated by the election of Trump, opponent of a globalization that was favoring only the Dragon.

Under Xi's leadership, one-party China has moved from a closed and planned economy to a second largest open and decentralized economy. Of course, it is forbidden to speak to the Helmsman: in China, money opens every door except that of power; Jack Ma, founder of Alibaba, knows that he had to withdraw for daring to criticize the system pushed forward from public life.

È Chinese socialism, è state capitalism, it is transformation from low-cost producer to exporter and innovator in advanced technologies, it is investment in dual technologies: it is economic power aimed at obtaining international political influence; the problem will arise when, having reached the most advanced technological frontier, which must be able to feed the free market of ideas, the economy will begin to suffer the bite of bureaucracy. But China, an actor of the planetary economy, impermeable to infiltrations, maintaining control of the internal market, has placed itself in the position of being able to claim to be still developing, therefore immune to any external solicitation aimed at requesting reforms.

The political objective shifts to the integration between external and internal economic circulation, where the strategy supports the demand on its own market, considered capable of supporting the economy, increasing the average income level and reducing vulnerability to external crises; thus determines the relocation of strategic foreign companies outside the middle empire.

Despite the pandemic unknowns, it is reasonable to assume that China will continue to grow, but there remains the doubt about its ability to adapt to its own development; increase in debt, waning demographics, radical interventions, require a different welfare free from party rigidities. In short, all elements in conflict with Xi's ambition to lead the country by challenging democratic systems with universal suffrage. If you accept Chinese pragmatism, the oxymoron Communist capital it is free of contradictions, because according to Beijing, communism is a goal to be achieved in successive stages after capitalism and socialism, and with an equitable distribution of wealth.

The Chinese power projections underlying the Asymmetric Warfare4 they are therefore enveloped in the silk of a road that is impoverishing entire states, under the celestiality of very long marches. Hybrid capitalism allows public companies to have private investors, to be listed on the markets while maintaining a competitive regime and accessing, nebulously, subsidies that allow the Party to make strategic choices based both on the arbitrary application of the law and, awakened by Covid, on an autarchic Maoist sentiment, based on technological innovation decoupled from the American one, capable of setting international standards according to a rigid state model5.

While the economy also begins to slow down, Xi puts on the role of a good family man, and carefully avoiding tackling the mysteries of the pandemic, he invites ecumenically to abandon the confrontational cold war mentality that is not very compatible with the next Winter Olympics. Sara; the slowdown remains, and the real estate crisis triggered by Evergrande and the production crisis generated by the restrictions imposed by the strategy remain tied to it zero covid.

While the central bank cuts interest rates to encourage recovery, China must take note of the negative record of an ever so low birth rate. We have already seen the film: the cost of living increases, families are shrinking, pension spending triples, affecting GDP. Demography, touching the pockets, is like the heart: difficult to control, especially when it affects the Party strategies that with Xi and his lockdown of entire urban centers, it has already compromised global supply chains causing price increases and inflation.

In short, even the Helmsmen make mistakes by adopting counterproductive strategies, especially when diplomacy assumes aggressive postures, the economy is animated by the spirit of coercion, and social networks insinuate themselves into the mechanisms of public policies. China can therefore achieve good tactical but not strategic results, as highlighted by the BBC6, which has not hesitated to focus its light on Chinese funding intended to prostrate the most fragile economies.

So let's go back to the economy and less virtuous cycles, given that the Chinese are masters in setting up traps. Between that of the fingers and that of debt there are few differences: from the first, although it is difficult, you can try to free yourself, from the second you cannot. Chinese loans to third world countries, based on contracts with a political content, constitute a large financial reality7 which binds recipients with agreements that ensure Beijing the protection of public interests, a pre-eminent position, and minimize the risk of non-return.

The use of predatory and confidentiality clauses, combined with the prohibition to participate in restructuring agreements8, allows the Chinese to influence the political choices of debtor countries. The cash flows of the investments are paid into a current account in the name - with limited availability - of the debtor but at a bank trusted by the creditor.

Among other things, the clauses of cross-default they allow the loan to be easily terminated, granting the Chinese creditor strong contractual power which, in the event of even unilateral termination, requires immediate repayment of the loan.

At the base of everything, the Belt and Road Initiative, the geostrategic way destined to undermine US hegemony, which provides for the use of loans provided by special purpose banks9 who, according to the Party's geopolitical logic, lend money on the basis of arbitrary and rarely public criteria10, and that the EU would like to contain with the European Global Gateway, a late investment of 300 billion euros to be made by 2027 in developing countries.

This has generated debts of hundreds of billions of dollars borne by no less than 42 low-middle-income countries, with exposures exceeding 10% of GDP.

Everyone happy? Not so. The Balochistan Liberation Army blew up a bus with 9 Chinese workers; in Kazakhstan, where Pekingese neo-colonialism is feared, synophobia found ample space in last December's protests; in Sri Lanka the Port of Hambantota has effectively passed into Chinese hands (among the disputes), as happened in Laos for part of the energy network.

And now? As seen, Chinese foreign policy is slowly shifting its focus and, after devastating billionaire loans in Africa, Beijing focuses its traps only on strategic or resource-rich countries. On the Atlantic shore, China has bought non-easily expendable US debt-bearing securities: if it converted them into yuan it would appreciate its own exchange rate, depriving businesses of competitiveness; if he sold them, he would create instability, the consequences of which he would be the first to pay, limiting his own exports.

And Europe? Between the Chinese purchase of EU debt that denies the vaunted strategic autonomy of the Old Continent and more or less interested gazes towards the BIS, after Jp Morgan and Goldman Sachs, the German Deutsche Bank is also preparing to enter into agreements with Chinese banking institutions to aim to the enormous private savings, an operation facilitated by China itself that has attracted foreign financial participation in its market, however shaken by the billionaire default of Evergrande; already downgraded by S & P's and by Fitch, Evergrande cannot be compared to Lehman Brothers, given the Chinese state monetary capacities capable of cushioning the blow on international markets; not so on the more contagious internal one, an occurrence that has affected both other real estate groups such as Sinic, Kaisa or Fantasia, and several million Chinese creditors11. Certainly a panorama is looming that not even the most fervid imagination could have imagined when real estate, since the crisis of 2009, has functioned as a low-cost political economic prop and which Xi has now weakened12 planning a partial state-led restructuring, given both the bad loans left in the coffers of the banks, which continued to provide loans despite the drop in demand, and the damage to the Party's image.

How to get out? With the usual system: by unloading the responsibility on the guilty management, nationalizing but taking into account that the economy is going through a period of contraction in demand and supply shock, where Covid and the real estate domino effect are holding back activities, and where year-end productivity only offset the decline in retail sales.

As Evergrande collapses, the market realizes that large Chinese corporations and their debt cannot be trusted, which is pushing to cut back on stock and bond purchases for the current year; in short, according to Reuters, 2022 will not smile much at Beijing, which risks not finding international investors.

The abandonment of the objective of the annual increase in GDP, with the difficult achievement of the shared prosperity of Xi, is a sign of economic and political weakness.

Tricolor note: according to SACE13 in 2019 the value of Italian construction exports to China was close to 2 billion euros.

Do you need to worry? Nì; the sectors interested in exports are not limited to residential construction alone, but a long wave of crisis cannot be excluded a priori, even if both the Federal Reserve and the ECB throw water on the fire14. Sara. And with that we put an end to cheap stones, boring, complicated and too often misplaced; given that we are at it, let's pull the line of geopolitical imbalances.

There are two considerations; the first: some time ago a dissuasive advertisement, (un) qualifying an aspiring US president as an unreliable car salesman, challenged anyone to buy vehicles; the second: a brave gladiator remembered that what he did in life would echo for eternity. If one were to consider the tragic errors of Maoism, the repression of Tien an Men, in Tibet, Hong Kong and Xinjiang, the border clashes with India, the debt trap with land grabbing, together with an impetuous rearmament, some doubts arises on the artifact paternalism of the various leaders who succeeded each other in command of the celestial bridge.

But that is not enough: for a long time only the sound "Wuhan" cannot fail to arouse the memory of hundreds of thousands of victims erased with a stroke of the pen by an acclaimed Marxist president, yet another oxymoron, in the highest liberal forum.

The Chinese system, incompatible with the Western one, has produced GDP, but by minimizing the disastrous performances of the Cultural Revolution since 2012, it has rekindled strong doubts about the real ability to control progress spoiled by the bureaucratic influence of a party which, with low tactics of infoware , attempted to blame others for a devastating contagion.

Is it to be trusted? Would we really buy the car turnkey? It's the house? Would we buy it from someone who built lay concrete cathedrals in a desert? Are the war technology and the command and control system equal in terms of reliability to the security systems of the research laboratories?

The echo that will echo in an eternity, the result of such a manipulable present, may not be so heavenly or so pleasant for the next generations, forced to beware of trade routes that have nothing silky about them.

1 It is useful to remember how China, atheist and communist, within the BRI, has agreed with the Algerian government to build the largest African mosque.

2 Frank Dikötter, Mao's Great Famine, 2010; in the text, Chairman Mao is blamed for the deaths of at least 45 million people, from starvation, disease, or sentenced to death for not having achieved the set production targets or for having publicly declared that they were unattainable, or for having criticized government policy.

3 Jacket that Mao wore

4 War without limits. The art of asymmetrical warfare between terrorism and globalization, by Liang Qiao and Xiangsui Wang 

5 Just think of 5G

6China, big spender or loan shark?

7 According to Johns Hopkins University, between 2000 and 2019, loans to African countries amounted to approximately 153 billion dollars. The loans mainly concerned transport, energy, communications and water.

8 Like those provided by the Paris Club, knowingly excluded from the possibility of appeal

9 China Development Bank, CDB, Export-Import Bank of China, Agricultural Development Bank of China

10 We remember Pakistan, Djibouti, Sri lanka, Cambodia, Kazakhstan, Venezuela, Angola, Comoros, Congo, Maldives, Tonga, Montenegro, Zambia, Laos

11 To these are added UBS, Allianz, Blackrock

12 Xi introduced three limits for real estate companies: a 70% cap on liabilities for assets, a 100% limit on net debt for equity and cash to cover short-term debt.

13 Reference group for all Italian insurance and financial needs

14 Italian stakeholders: Fideuram and Mediobanca.

Photo: Ministry of National Defense of the People's Republic of China / Xinhua / Prime Minister's Office / China Daily

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