President Xi Jinping’s ‘China Dream’

Economic growth

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China dreamA new type of leader seem to be starting to emerge in China and India.  President Xi Jinping in China, and premier Narendra Modi in India, are not spending much time studying the output of focus groups or investment bank analysts.  Nor do they have ‘spin-doctors’ worrying about every phrase on the 24-hour news channels.

Instead, they have ideas about what they want to do, and clear implementation plans to achieve them.

It is easy, of course, to be cynical about their ambitions.  But let us suppose for a moment that:

  • They really do want to use their power for a purpose, as leaders such as Gandhi did in the past
  • They are serious about tackling the key issues – and the pervasive corruption that stops reform taking place

Companies and investors need to study this potential scenario very seriously, as it is a long way from the current ‘business as usual’ model.

We can see this by trying to understand what they might want to achieve with their power.  Today and tomorrow, the blog looks at Xi Jinping, and next week it will look at Narendra Modi.

Author Robert Lawrence Kuhn has helpfully spelt out Xi Jinping’s China Dream, which the blog has highlighted in the chart above.  Kuhn has long been a strategic advisor on China, and his summary has been endorsed by Xi himself.

In Xi’s dream there is nothing about creating a wealth effect via further stimulus of the property bubble.  This was a policy of the ‘lost decade’ under the previous regime.  It allowed corruption to flourish, as it was easy for officials to profit personally from land seizures, whilst building ‘ghost cities’ to meet their GDP targets and local tax income needs.

Xi’s position was made clear 3 months ago, when Cement Shen’s property business went bankrupt in Fenghua.  It is well worth re-reading the policy statement in state-owned China Daily at that time, which set out very clearly what would, and would not, be part of the government’s programme for the next few years.

The headline itself highlights the overall direction: ‘No pain, No gain, for China reformers’. 

“A thorough cure means it could take a long time for the patient to feel better. Judging from the immense task China faces, it’s going to be another two years, at least, before change can be quantified in the central government’s statistical reports.  Some assets, valuable just a few years ago, will become useless. The money that was spent on them, and their contribution to GDP, likewise will vanish.  Those assets will include costly building projects in cities that never find a niche and industrial facilities unable to compete in the world.” 

THE GOVERNMENT ROLE
Xi’s dream therefore has very practical elements, focused on the role of government:

  • It requires a Civilised society with equal opportunity and one law for all
  • In addition, it needs Stable government, with consistent policies
  • And it requires a Harmonious society with goodwill between different ethnic groups and classes

Will this be easy to achieve?  Of course not.  Will there be major challenges along the way?  Of course there will.  The China Daily article sets out several of the major ones,  such as:

“If, as some business commentators propose, the country is to eliminate up to half of its industrial base to make way for business based on the mobile Internet, it will have to keep the credit line really tight for local development projects.”

The key point is that Xi and premier Li have 4 years before the leadership is due to be reappointed for its second 5-year term in March 2018.   And thus it makes total sense for them to tackle the key issues now, over the next 2 years, so that by 2017/18 they can point to signs of progress

Tomorrow, the blog will look at the likely Winners and Losers from the end of China’s current growth model, as the property bubble is burst.

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