Xi's The One
Let’s turn our gaze away from the tawdry Trump circus and look at China, where a momentous change took place last week. President Xi Jinping has become the most powerful man in the world, as the Chinese Communist Party anointed him as the symbolic successor to Mao Zedong and Deng Xiaoping.
After Mao’s death, the Party wanted to avoid the cult of personality that led to horrible abuses and outright blunders during his reign. The Party designed a government by committee, and presidents were limited to two five-year terms, so that no ruler would be all-powerful. This system worked well for four decades, since it forced the leader to seek consensus among different factions and provided some checks on his power. This approach, with its long apprenticeships, also created a remarkably competent group of political leaders.
The Chinese have just thrown that system, and its constraints, out the window. Unlike his successors, Xi is not limited to another five-year term, so he will not have to step down in 2022. The Party also enshrined Xi’s political philosophy in its Constitution, along with that of Mao and Deng. Think of that as a secular version of the Holy Trinity.
XI treated the delegates to the Party’s Congress to a 201-minute speech, apparently inspired by Fidel Castro’s approach to public speaking. That was also a departure from previous practice. Xi’s speech had a triumphalist tone, too, as he described China as a new model for developing nations:
“The banner of socialism with Chinese characteristics in now flying high and proud for all to see...It offers a new option for other countries and nations who want to speed up their development while preserving their independence, and it offers Chinese wisdom and a Chinese approach to solving the problems of mankind”.
Xi also called for the state to play a bigger role in the Chinese economy. That was surprising. Why should the government reverse its policy of liberalizing the economy, which has led to robust growth? Well, for one thing, that approach would also increase Xi’s control over the country.
And In The Other Corner of the Ring…
Meanwhile, Trump may be the weakest American President in the modern era. He is certainly not competent. His approval ratings are abysmal, below 40%, and Trump is engaged in constant warfare with Senators from his own party. The Republicans have given up on looking to Trump for any leadership on policy issues. There are growing concerns about his mental stability. The Republicans, obsessed as ever with tax cuts, are not trying to restrain his behavior, nor are they tackling the long-term issues facing our country.
Although Trump is weak, he has inflicted major damage on our standing abroad. Trump has antagonized important trading parties and allies, such Canada, Mexico, South Korea, and Germany (that’s a partial list). The Chinese are playing a long game, setting up an Asian development bank and financing commercial and infrastructure projects in countries around the world. While we fight wars to save the Middle East from itself, expending vast sums and putting a huge strain on our military, the Chinese are modernizing their armed forces. They have avoided major military adventures abroad.
The Chinese are on the move, with their banners flying high. The United States, the oldest democracy in the world, is spinning its wheels, mired in short-sighted political fights at home and abroad. We can’t afford to keep doing that until 2022, when Xi starts his next term. Otherwise, Xi may have a lot more to crow about.
Bond Investors Cast A Vote
By the way, China sold $ 2 billion of five-year and 10-year dollar-denominated bonds last week. The Chinese government said that the issue was 11 times oversubscribed. The yield on the five-year bond was only 15 basis points (.0015%) higher than a comparable Treasury bond, and the 10-year bond yield was just 25 basis points (.0025%) higher. There were some “technical” issues at play, which may have reduced the yield somewhat. Certain investors may have bought the bonds to curry favor with the Chinese government. Some Hong-Kong based Chinese firms may have appreciated the chance to be patriotic and invest in dollars.
But for bond investors, it seems, China is almost as attractive as the United States.
The Wall Street Democrat