Home' Trinidad and Tobago Guardian : September 25th 2014 Contents SEPTEMBER 2014 • WEEK FOUR www.guardian.co.tt BUSINESS GUARDIAN
THE ECONOMIST | BG27
The madness unleashed by the rule of a
charismatic despot, Mao Zedong, left
China so traumatised that the late chair-
man s successors vowed never again to
let a single person hold such sway. Deng
Xiaoping, who rose to power in the late
1970s, extolled the notion of "collective
leadership": Responsibilities would be
shared out among leaders by the Communist Party s general
secretary, and big decisions would be made by consensus.
This has sometimes been ignored, and Deng himself acted
the despot in times of crisis. Nonetheless, the collective
approach helped restore stability to China after Mao s turbulent
Now President Xi Jinping is dismantling it. He has become
the most powerful Chinese ruler at least since Deng, and
possibly since Mao. Whether this is good or bad for China
depends on how Xi uses his power.
Mao pushed China to the brink of social and economic col-
lapse, and Deng steered it onto the right economic path but
squandered a chance to reform it politically. If Xi used his
power to reform the way power works in China, he could do
his country great good. So far, though, the signs are mixed.
It may well be that the decision to promote Xi as a single
personality at the expense of the group was itself a collective
one. Some in China have been hankering for a strongman, a
politician who would stamp out corruption, reverse growing
inequalities and make the country stand tall abroad, a task Xi
has been taking up with relish. So have many foreign busi-
nesspeople, who want a leader who would smash the monop-
olies of a bloated state sector and end years of dithering over
However the decision came about, Xi has grabbed it and
run with it. He has taken charge of secretive committees
responsible for reforming government, overhauling the armed
forces, finance and cyber-security. His campaign against cor-
ruption is the most sweeping in decades. It has snared the
former second-in-command of the People s Liberation Army
and targeted the retired chief of China s massive security appa-
ratus, the highest-ranking official to be investigated for cor-
ruption since Mao came to power. The generals, wisely, bow
to him: Earlier this year state newspapers published pages of
expressions of loyalty to him by military commanders.
He is the first leader to employ a big team to build his public
profile, but he also has a flair for it, thanks to his stature---
in a height-obsessed country, he would tower over all his
predecessors except Mao---his toughness and his common
touch. One moment he is dumpling-eating with the masses,
the next riding in a minibus instead of the presidential limousine.
He is more popular than any leader since Mao.
All of this helps Xi in his twofold mission.
His first aim is to keep the economy growing fast enough
to stave off unrest, while weaning it off the overdependence
on investment in property and infrastructure that threatens
to mire it in debt. Xi made a promising start last November,
when he declared that market forces would play a decisive
role. Not even Deng had the courage to say that.
Since then there have been encouraging moves, such as
giving private companies bigger stakes in sectors that once
were the exclusive preserve of state-owned enterprises, and
selling shares in firms owned by local governments to private
investors. Xi also has started to overhaul the household-reg-
istration system, a legacy of the Mao era that makes it difficult
for migrants from the countryside to settle permanently in
cities. He has relaxed the one-child-per-couple policy, a Deng-
era legacy that has led to widespread abuses.
It is still far from clear whether Xi s economic policies will
succeed in preventing a sharp slowdown in growth. The latest
data suggest that the economy is cooling more rapidly than
the government had hoped.
Much will depend on how far he gets with the second,
harder, part of his mission: establishing the rule of law.
This will be a central theme of the next annual meeting of
the Communist Party s Central Committee, to be held next
month. The question is whether Xi is prepared for the law
to apply to everyone, without fear or favour.
His drive against corruption suggests that the answer is a
qualified no. The campaign is characterised by a Maoist neglect
of institutions. It has succeeded in instilling fear among officials,
but has done little to deal with the causes of graft: an inves-
tigative mechanism that is controlled entirely by the party
itself, a secret system of appointments to official positions,
in which loyalty often trumps honesty, and controls on free
speech that allow the crooked to silence their critics.
Xi needs to set up an independent body to fight corruption,
instead of leaving the job to party investigators and the feuding
factions they serve. He also should require officials to declare
all sources of income, property and other assets. Instead he
has been rounding up activists calling for such changes almost
as vigorously as he has been confronting corruption.
In the absence of legal reform, he risks becoming a leader
of the old stripe, one who pursues vendettas in the name of
fighting wrongdoers. That will have two consequences: There
will be a new wave of corruption and resentments among the
party elite will, at some point, erupt.
Xi is making some of the right noises. He says that he wants
courts to help him "lock power in a cage." Reforms are being
tinkered with to make local courts less beholden to local gov-
He needs to go further, however, by abolishing the party s
shadowy "political-legal committees," which decide sensitive
cases. The party should stop meddling in the appointment of
judges and, indeed, of legislators.
The effect of such reforms would be huge. They would
signal a willingness by the party to begin loosening its monopoly
of power and accepting checks and balances. Deng once said
that economic reform would fail without political reform. Last
month Xi urged foot-dragging officials to "dare to break
through and try" reform.
China s leader should heed his own words and those of
Deng. He should use his enormous power for the greatest
good, and change the system.
@2014 The Economist Newspaper Ltd. Distributed by the New
York Times Syndicate
When Prime Minister Li Keqiang of China spoke at a big
business meeting earlier this month, he trumpeted two
achievements. Not only had the government overseen steady
economic growth, he said, but it had done so without
resorting to a big stimulus.
Both assertions now are looking rather doubtful.
A barrage of data for August pointed to a sudden weakening
in growth, catching many analysts and investors by surprise.
Although it is unwise to read too much into one month s
numbers, the figures had a distressingly uniform downward
tilt. Investment, retail sales and credit issuance all slowed.
Industrial output, which is closely correlated with GDP,
given the size of China s manufacturing sector, grew at its
weakest pace since late 2008, when the global financial crisis
was battering the economy.
Housing sales, already struggling, contracted further, and
have fallen 8.0 per cent so far this year. That has started
to eat into the revenues of local governments, since property
developers are holding back on land purchases. Yao Wei of
Société Générale, a French bank, called it a "shockingly
Until the gloomy data started to pile up, China s economy
had seemed to be following an established pattern. A wobbly
start to 2014 had prompted the government to come up
with a series of policies to revive growth. It sped up spending
on infrastructure and cheap housing, while the central bank
administered a small dose of monetary easing.
In 2012 and again in 2013, measures of more-or-less the
same design had been enough to keep the economy going.
This year, though, the jolt lasted for little more than a month
before petering out.
Trouble in the property sector, which directly accounts
for about 15 per cent of China s GDP, is the biggest single
factor. A glut of unsold homes has started to weigh on the
market. Inventories at listed developers rose by a quarter in
the first half, reaching 65 per cent of their assets, an all-
time high, according to CICC, a Chinese investment bank.
The pain is spreading even to the biggest cities, especially
in suburbs where building has been most frenetic. In Jiading,
a northern district of Shanghai, the streets are lined with
ads for new homes, yet the showrooms of its sprawling
developments receive few visitors.
The good news is that property is getting more affordable.
The average home costs about 8.8 times the annual income
of the average Chinese household, down from nearly 12 times
in 2010, according to an index calculated by the Economist
Intelligence Unit, a sister company of The Economist. The
bad news is that the market may yet be far from bottoming
Another reason for the economy s weakness is Li s desire
to wean the economy off its rising dependence on debt,
which has soared to more than 200 percent of G.D.P. China
has not yet started deleveraging, but credit is at least growing
more slowly as regulators force banks to hold more capital
to cover loans they have kept off their balance sheets.
When the prime minister spoke at a World Economic
Forum event in Tianjin on September 10, he surely had been
briefed in advance about the poor August data. He still per-
sisted in ruling out a "strong economic stimulus," however,
and instead emphasized the importance of reforms -- an
indication that the government will tolerate the current
Li is not willing to let the slowdown turn into a rout,
though. On September 16 local media reported that the
central bank had injected $81 billion into the financial system
via loans to big banks. It is customary for the central bank
to pump out cash before China s two annual weeklong hol-
idays, one of which begins in early October, as demand for
money spikes. However, the special loan was far bigger than
anything of its kind in the past.
The central bank did not actually announce the loan,
doubtless because it did not want to look like it was going
back on Li s pledge to refrain from stimulus. Instead, word
of it spread on Sina.com, a Web portal.
"Because it is so low profile, a large part of the effectiveness
is wasted," Larry Hu of Macquarie Securities said.
Evidence from earlier this year is that stealthy forms of
monetary easing do not have a lasting impact, since businesses
are uncertain about what the government actually intends.
Li himself appears uncertain. Refraining from large-scale
stimulus is the right medicine for the economy in the longer
term, but there is no sense in pretending that fast growth
can be sustained this year without it.
@2014 The Economist Newspaper Ltd. Distributed by the
New York Times Syndicate
The rise and rise of Xi Jinping
China's economy: A test of will
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