There have been a number of key political events in China that will have significant impact on the economy, the financial system, and the international investment environment. These include:
1) The rise of the Party in the economy;
2) The postponement of the Ant Group IPO and the subsequent investigation of Jack Ma and Ant;
3) The arrest of 51 members of the opposition in Hong Kong potentially for subversion; and
4) Chinese nationalism and support for American Trumpism.
These events, although widely disparate, suggest that politics will dictate domestic and foreign policy in many spheres but that economic and financial activity, including US-Chinese economic relations, will remain intact.
1) The rising Party
There has been much talk since Xi Jinping took power in 2012 about the insertion of the Communist Party in all facets of the Chinese economy. Central to this has been the anti-corruption campaign. A three-part anti-corruption system that was created in the mid-1980s, which included an internal party commission, a government group to investigate civil servants, and a legal procurate for all others, was gradually dismantled over time, particularly after Tiananmen in 1989. This led to a two-part system between the procurate and the Party. Finally, Xi consolidated anti-corruption under a single institution, the National State Security Commission (NSC), which is a Party organization with virtually no oversight or a “kingdom unto itself,” according to legal scholar Fu Hualing at the University of Hong Kong. He notes: “The anti-corruption campaign and the creation of the NSC in particular legitimize and institutionalize the Party’s control over the state, in a cascading manner reaching the fabric of the society and the economy.”
This removed any anti-corruption actions independent of the Party.
2) The Ant Group takedown is primarily economic
The takedown of large companies previously, such as Anbang and HNA, was political, involving the arrest and detention of senior leaders, and accusations of corruption. Anbang’s chairman, Wu Xiaohui, was married to Zhuo Ran, the granddaughter of Deng Xiaoping. Chen Xiaolu, the son of a famous army marshal who helped to establish communist rule, was one of Anbang’s early directors. Chen is married to the daughter of another prominent Communist military leader, Su Yu, who served under Mao Zedong. Although the outcome of the dismantling of these two companies is not completely clear, the secrecy and use of the police suggests the Party was directly involved their destruction.
In contrast, the cancellation of the Ant Group IPO is a surprising crackdown on private activity that occurred without use of the anti-corruption campaign.
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