Five years ago, China’s President Xi Jinping was the star turn at the love fest for the capitalist global elites in Davos, making a striking address in praise of globalisation.
His speech extolling open trade was seen as setting him apart from previous Communist leaders and, favourably, was contrasted with the harsh nationalism and mercantilism of then newly elected Donald Trump.
How the world has turned. At the start of 2022, Davos, as a live event, again bites the dust and enthusiasm for President Xi’s leadership has dissipated.
Charting a different course: The Chinese leadership has rejected the ‘Too Big to Fail’ stand taken by the Western democracies in the financial crisis
On the eve of the New Year the People’s Republic of China tightened its already firm grip on Hong Kong with an all-out attack on pro-democracy media outlet Stand News. Police raided its offices, froze assets and arrested senior staff suspected of ‘seditious publication’ offences.
The clampdown on a free press is symbolic of how China has lost faith in Hong Kong’s freewheeling democracy and open, unimpeded markets.
Only by tamely accepting the changes, in the manner of UK-quoted banks HSBC and Standard Chartered, is it possible to continue in business unimpeded. At home Xi has cemented his autocratic hold on power and been designated a leader of ‘historic’ proportions, standing alongside Mao Zedong as one of the all-time greats.
His rise to supreme leader has come at an enormous cost to his people, the freedoms of Hong Kong and Macau and relentless military pressure against Taiwan.
There is an enormous amount of focus on the plight of China’s tennis champion Peng Shuai after her allegations of an assault by a senior official. It has almost forgotten that the founder of Alibaba, Jack Ma, the country’s most celebrated tech entrepreneur, also vanished from public view last year.
His offence was to fulsomely praise private enterprise on the eve of the proposed £27billion float of Alibaba’s financial offshoot Ant Capital. Ma’s comments angered Communist party chieftains who reacted by toughening regulation undermining Ant’s model.
A frequent public spokesman for US tech and capitalism on outlets such as the US finance channel CNBC was silenced.
The world’s top commercial banker Jamie Dimon was forced into a humiliating apology when he glibly suggested JP Morgan would outlast the Communists in China.
Far from the glory days of Davos, the fissures in China’s approach to capitalism are there for everyone to see.
The implosion at the Evergrande property conglomerate demonstrated the weakness of a debt-fuelled model.
China (perhaps correctly) became the first country to put the brakes on trading of crypto currencies. It also has cracked down on the hugely profitable Macau arms of the Las Vegas casino giants, sending their shares skidding in Hong Kong and New York.
For several years economists have predicted that China’s breakneck economic expansion meant it would become the world’s largest economy in the early 2020s.
Covid is exacting revenge in the shape of much diminished growth rates. In the latest global league tables London forecaster Centre for Economics and Business Research projects China will not catch up with the US until at least 2030, a delay of two years.
As the year turned, China’s vice-commerce minister Ren Hongbin warned that it faces ‘unprecedented’ difficulty in stabilising trade as a result of Covid-induced shocks which are compromising exports.
There is no more potent symbol of the unravelling of Chinese capitalism than the fate of Evergrande. It is a victim of China’s efforts to de-leverage and shrink the country’s ballooning $12trillion (£8.9trillion) domestic credit markets.
Defaults on Chinese debts were estimated by investment bank Goldman Sachs at $23billion (£17billion) mid-2021.
Evergrande has been involved in a frantic effort to sell assets to pay down debt, and it has been a race against the clock with some £14billion in default casting a pall of gloom over the Pacific real estate markets.
The company has again started to ramp up home building. However, it is operating in a financial vacuum as it continues to miss bond repayments and the shares slide.
The Chinese leadership has rejected the ‘Too Big to Fail’ stand taken by the Western democracies in the financial crisis.
By turning its back on political and economic freedoms it risks cutting itself off from Western investment and trade which have helped to drive a growth miracle.
