The biggest blind spot in the US’s evaluation of communist Chinese intentions has to do with the role of ideology in Chinese policy. Most of the elite analysts assumed that the Chinese were only paying lip service to Marxism and that they were eager to move on to a market-oriented playing field. They could be authoritarian, but that was different from being a hardcore Marxist.
Now, the whole world knows the experts were wrong. A new generation has taken the helm, but they are more Marxist than the preceding group. Far from discrediting Marxism, China’s market success has convinced them that Marxism works just fine and is the inevitable path of the entire world.
The grip of ideology in China has been given the title ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’. That’s a mouthful in English, but it fits neatly into just a few Mandarin ideograms. The title is meant to put Chairman Xi Jinping on par with Chairman Mao Zedong in the Chinese Communist Hall of Fame.
The emperor’s old clothes
This coronation of a new emperor (that’s what it is) will be formalised at the sixth plenary session of the 19th Communist Party Central Committee meeting in Beijing. Chairman Xi will emerge as a de facto ‘emperor for life’ with what Chinese culture calls the ‘Mandate of Heaven’. That’s the only true source of legitimacy in China — regardless of whether it is ruled by Mongols, Manchurians, or Communists.
The market implications of this are already playing out. Chairman Xi has crushed the equity valuation of DiDi, a popular ride-hailing service sometimes called the Chinese Uber. DiDi may have to delist from the New York Stock Exchange as a result, because it didn’t kowtow to Communist demands to change its app and other tech features before going public.
This approach is now being applied to a long list of Chinese success stories, including Ant Group, Tencent, Baidu, CITIC Group, China Life Insurance, and other tech, social media, and financial giants. Separately, China has banned Bitcoin [BTC] transactions and ended bitcoin mining operations there.
Western observers are mystified. Why would the Chinese government destroy the value of their most successful companies? That question reveals the ignorance of Western analysts. They’re approaching this through a market-oriented frame where governments regulate businesses, but don’t destroy them. The Chinese are not market-oriented, they are Marxists. They simply ask who gains and who loses, with the goal of making sure the Communist Party gains.
Since when do communists care if their own oligarchs lose money? That helps to reduce a rival power centre. Since when do communists care if US investors and funds lose money? That’s like weakening your enemy.
The Chinese Communist Party is glad that oligarchs and Western investors are getting crushed. All they care about is the power of the party. By that measure, their actions make perfect sense.
The threat of China’s ambitions
The Chinese Communist Party’s attacks on markets are playing out against a broader assault by China on countries in its region. China is making blatant threats to invade Taiwan, flying fighter jets and nuclear-capable bombers through Taiwanese airspace.
China is laying claim to the entire South China Sea (which should be shared among six surrounding nations) and dredging the sea floor to create artificial islands. China then constructs airfields and ports on those islands for military operations.
China also launched a trade war on Australia because of Australia’s insistence that independent investigators get to the bottom of the leak of COVID-19 from a laboratory in Wuhan. China also aimed vague threats at Japan when it voiced its support for Taiwanese defence efforts.
In short, China is moving aggressively in all directions to establish itself as the sole hegemonic power in the Western Pacific and South Asia. Of course, this kind of hegemony means ejecting the US from the area and turning Japan, Australia, and India into tributary States.
This aggressive posture has now triggered pushback rather than acquiescence. The US, Japan, Australia, and India have formed the Quad, a four-power soft alliance to contain Chinese ambitions in the region.
A quick glance at a map reveals that the Quad control all the sea lanes and choke points in the Western Pacific and Indian Oceans, which could be used to cut off energy imports and manufacturing exports by China. China could be choked into ruin by sea in the same way the Royal Navy choked Napoleon and continental Europe in the early 19th century.
Australia, the UK, and the US have also created the AUKUS alliance, which will provide Australia with nuclear-powered submarines. These submarines will give the Australian Navy greater range and longer deployment times without having to stop or surface for refuelling.
But does this mean we should expect war?
All the best,
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Jim Rickards,
Strategist, The Daily Reckoning Australia
