President Xi's Chinese strategy to out-compete Western democracy

October 29, 2017

Think this is something the West needs to take very seriously. There are a range of strategy advantages that President Xi's "Socialism with Chinese characteristics" has over Western-style democracy including:

  • ability to pursue long-term strategic objectives ( vs managing from election to election eg 3 year strategy).

  • Corporations in China, working as a team to out-compete the West.

  • Not influenced by taxpayer-sense of entitlment, a phenomena that has gripped Western democracy, making elections an auction for votes, making it difficult to balance government budgets and making it difficult to pay down government debt.

  • Asymmetric rights. Most western countries allow fairly free access for foreigners to buy local assets - farm land, real estate, companies etc. But China does not allow entities in foreign countries such free access to buy Chinese assets. This asymmetry does give China some strategic advantages from a long-term perspective. Will Western countries need to reconsider such easy access by Chinese entities?

  • Takeovers by a Chinese company of a western company. We saw for example, during after the base metals crash earlier this decade, China buy a lot of Western resource companies at the bottom of the market - taking a longer term strategic perspective on the acquisition. But Chinese authorities would only allow one Chinese company to make a bid in such a takeover situation - potentially reducing price competition for the takeover target. By contrast, there is not such co-ordination of western companies for a takeover target - and were it to occur, it might be illegal under Western law.

  • China is also using the World Trade Organisation (WTO) in a manner for which it was not intended. China under President Xi, now operates as a capitalist state which is ultimately now controlled by President Xi. By contrast, in the developed world, corporations compete with each other in isolation/individually, thus giving China a huge advantage. The US (and potentially USA and Japan) are now contemplating how to best rebalance the playing field. See this article 11December 2017 https://www.puzzlefinancialadvice.com/single-post/2017/12/11/WTO-not-designed-to-state-capitalism-players-like-China

Xi's strategy does not seem to have the weaknesses that brought about the downfall of the USSR in that:

  • It utilises a very strong version capitalism (stronger than in USA and Australia) within its system to ensure that "private enterprise" remains very efficient.

  • And it has a sort of accountability to the people, that seems likely (at least under President Xi who might be there a long time) to keep China focused on goals and outcomes that are in the best interest of the general populace.

    • 'Recognising that sustainable development would be possible only within a context of social stability and credible, transparent governance, Xi devoted the last five years to an unprecedented anti-corruption campaign that has brought down 440 senior officials. He also implemented more than 1500 reform measures designed to rebalance the economy, thereby stabilising annual GDP growth at a "new normal" rate of 6.7 per cent, on average, during his first term.'

    • ' When Xi took over as leader of the CCP in 2012, deep cracks had appeared in both the development model bequeathed to him by Deng and the dominant Western neoliberal model, based on free and open markets. China's rapid industrial growth had brought rampant corruption, growing income inequality, and high levels of pollution. Western countries, too, were facing rising inequality, as they reeled from a global crisis of their own making – a crisis that, among other things, weakened their appetite for Chinese imports.'

    • 'When Xi took over as leader of the CCP in 2012, deep cracks had appeared in both the development model bequeathed to him by Deng and the dominant Western neoliberal model, based on free and open markets. China's rapid industrial growth had brought rampant corruption, growing income inequality, and high levels of pollution. Western countries, too, were facing rising inequality, as they reeled from a global crisis of their own making – a crisis that, among other things, weakened their appetite for Chinese imports.'

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