Posted by: Bixmoor

China: To leave or not to leave

Continuing reports indicate very wide concern among the domestic business community as well as academics about the direction of China.

Over the last six months there has been growing concern that Xi Jinping’s aggressiveness abroad is putting China into an uncomfortable position as a recipient of Washington’s retribution. The feeling has been that this was entirely unnecessary, particularly at this early point.

However gradually a separate concern has been growing that Beijing is not the cause of threats to China but is the threat. Businessmen have begun to feel that their assets, their families and their lives are in a sense at risk.

Social credit in China seeks to measure loyalty to the party and state and to devise scores which will control bank credit and even access to travel. Robin Li of Baidu has said that Chinese customers are happy to trade privacy of data for convenience. Chinese tech companies certainly give this impression. Data seems to be shared between tech companies and the authorities.  However the public seems increasingly interested in data protection. This may be related to fears about the use to which private data might be put.

Government policy seems to be to restrict private tech companies’ gathering of data as it makes them very powerful, but continually to increase the state gathering of data.

The development since at least 2014 in the use of cameras in university lecture halls and even sometimes in secondary schools is leading to lecturers being fired for questioning state-provided opinion. Academics are being disciplined, demoted to janitors or fired. Students are instructed and paid to spy on lecturers. Most recently, the use of cutting-edge facial recognition technology in universities seeks to measure loyalty from the audiences’ reactions in, for example, ideology lectures.

Education experts have occasionally spoken out against this smothering of debate and referred to the danger of stifling critical thinking. One overseas-based Chinese professor has said that China “has practically eliminated dissent or independent thinking on university campuses”.

Given China’s desperate need for – and simultaneous failure in huge areas of – potential innovation, critical thinking is something much to be desired. The driving imperative for imposing uniformity and orthodoxy in social and political thinking will limit the prospect of creating a generation of disruptors.

While fine sentiments are frequently expressed towards private firms, actions are rare. Party initiatives such as mixed ownership appear to be pushing successful private companies into investing in state enterprises (SOEs) which need money. Bank lending is disproportionately biassed towards SOEs. Private firms frequently have to resort to the penal rates of the shadow banking system.

However, in the name of deleveraging, Beijing is shrinking shadow banking rather than tackling directly the capital misallocation in the state banking system. Recent guidelines ostensibly encourage bank managers to lend more to the private sector. Unfortunately, junior managers would need to be very brave to give material loans to private companies.

Businessmen are being bullied to accept party committees which are expected to play a role in the strategy and decision-making of private firms. By the end of 2016, reportedly 68 per cent of private firms had accepted party committees, well up from 38 per cent in 2012. The pressure is now on to increase this proportion much further. Academic criticism suggests that it can increase costs and interfere with decision-making and implementation.

Didi Chuxing, China’s largest ride-hailing app, has recently called for 1,000 Party members to join the customer service team. This is to increase public confidence after two rapes and murders. The company says this action will “secure the party committee’s core role” in emergency management and assuring safety. Already 40 per cent of the company’s staff are Party members. When companies run into problems with the regulators, they can quickly fly the Party flag as protection.

Businessmen may have lawyers or Christians amongst their relatives. They will be aware of the arrest and torture of human rights lawyers and the destruction of churches and burning of bibles.

Bilingual and international schools which have become very popular with the urban rich are now finding themselves subject to textbook and curriculum controls by the authorities in an attempt to eradicate Western teaching materials and foreign political ideas. An enforced retreat by such schools would be a further prompt to domestic businessmen to consider sending their families overseas.

Businessmen will be aware of the involuntary rendition of businessmen from Hong Kong and Thailand. They will also be uncomfortably familiar with the death under interrogation last year of Liu Xiyong, the owner of Hong Kong’s Kimberley Hotel and reportedly a representative of JC Penney and Walmart for China.

If rules and regulations are designed for the convenience of the SOEs and thus owners of private firms have to skirt the law and progress through grey areas to fund and grow their businesses, it will be a continual worry for entrepreneurs that they may have broken rules or obtained funding in an irregular manner.

The steady spread of prime-time television game shows, rap songs and other media productions, such as Socialism is Kind of Trendy, to promote the personality cult around President Xi and his political thoughts are raising the question whether there is any space in China to be non-political.

There seems a calculus measuring the attractiveness of making money in China against the deteriorating living environment in terms of environmental health or personal security. Each year more businessmen decide that it no longer makes sense for them to stay. As Hamlet might have said, ‘To leave or not to leave. That is the question”.

Bixmoor is a primary bespoke research provider to business, governments and the financial community.