Monday, January 4, 2021

Xi Jinping's Dual Circulation’s Implementation Necessitates A Crackdown on Fintech

ZeroHedge is relaying that Jack Ma has not been seen in two months. Here's a twofer. First up, background from Noema, December 10:

China’s Radical New Vision Of Globalization
President Xi’s vision of “dual circulation” is a darkly pessimistic economic strategy, fit for a new Cold War.

SINGAPORE — Back in August, Chinese President Xi Jinping met with a group of economists in Beijing. “In the coming period, we will face more and more headwinds,” he explained, using unusually blunt language. Without naming names, Xi talked about China’s worsening trade and technology war with the United States under President Donald Trump, set against a backdrop of growing certainty in Beijing that America is bent on containing his nation’s geopolitical rise.

But then came the interesting part. “Since the beginning of this year, I have said on many occasions that we must promote the formation of a new development pattern, in which domestic and international cycles are the mainstay, and the domestic and international dual cycles promote each other,” Xi said. To an outsider, this might seem unremarkable, cloaked as it is in the elliptical phraseology that often marks Chinese economic ideas. But the “dual circulation” strategy Xi outlined actually represents a radical new understanding of globalization and of China’s place within it.

More than just a buzzword, dual circulation describes the deeply pessimistic worldview that has settled over Beijing. Once China’s leaders saw opportunity in globalization. Now, they expect the U.S. and its allies to deny China the technology it needs to build “a modern socialist country” by mid-century, meaning a wealthy superpower fit to rival the U.S. Although likely to be less pugilistic, Beijing rightly believes an incoming Biden administration will also press forward with policies designed to stop advanced technologies finding their way into Beijing’s hands. Chinese thinking has long valorized self-reliance, dating back to ideas developed by former Chinese leader Mao Zedong during the country’s civil war, which ended with the foundation of the People’s Republic of China in 1949. Now, Trump’s tariffs, as well as his campaigns against companies like Huawei and TikTok, have given new impetus to the modern form of self-reliance Xi dubs “internal” development.

Many experts have noted a changing Western consensus on China, as leaders in Washington abandoned the idea that economic modernization would inevitably lead to political liberalization in Beijing. But there has been a comparable shift in China’s internal conversation on the West too. Beginning with semiconductors but potentially expanding to all manner of other areas, China now expects it will have to develop technologically on its own. Xi’s new theory now sits at the heart of the country’s 14th five-year plan, which covers development from 2021 to 2025, and was unveiled in draft form in October. The result will accelerate China’s decoupling from the West, while also increasing the importance of trading links forged with other parts of the world — for instance, via Xi’s signature Belt and Road Initiative. Put more bluntly, while the world was distracted by the drama of the U.S. presidential election, Xi quietly unveiled an economic strategy fit for a new Cold War. Both for China and for globalization itself, the results are likely to be profound....


 And from the Jamestown Foundation's China Brief, the headline story:


Rumors swirled about a crackdown on the Chinese e-commerce giant Alibaba following an incendiary speech given by its founder Jack Ma in late October, which criticized global banking standards and the Chinese regulatory system (TechNode, November 9). The suspension on November 3 of the IPO for Alibaba’s financial technology (fintech) arm Ant Group—valued at an estimated record-breaking $34.5 billion—was consequently shocking, but not entirely unexpected (Asia Times, November 4). Financial regulators had been working on a regulatory framework for fintech for some time, and had already submitted policy proposals to the government, one unnamed source told the economic paper Caixin: “It was only a matter of timing (for them to) make up their minds” (Caixin, November 9).

The Ant IPO suspension represents a culmination of the Chinese government’s efforts to crack down on digital financial services providers, once seen as filling an important gap in China’s financial system because they underwrote consumer loans to small businesses and individuals that were often overlooked by traditional banks. Since the 2015 stock-market crash, the Chinese government has sought to exert more control over financial technology platforms such as Ant, which are now viewed as a destabilizing liability amid fears of rising default risks and weak banks amid a heavily debt-laden post-pandemic economy.

Xi Jinping’s Theory of Dual Circulation

As leaders of the People’s Republic of China (PRC) sought to guide the economy’s recovery from COVID-19, high level messaging focused on a new dual circulation strategy (DCS) (双循环, shuangxunhuan), seen by analysts as an articulation of China’s strategic approach towards adapting to an increasingly hostile international environment. In short, the DCS represents a two-pronged development strategy which focuses on shoring up the strengths and weaknesses of the domestic market’s “internal circulation” (国内循环) while also balancing against structural shocks in the “international circulation”(国际循环) of the global economy.

The clearest articulation of the DCS comes from a speech given by PRC President and CCP General Secretary Xi Jinping at a meeting of the Central Financial and Economic Affairs Commission in April, which was published in the CCP’s leading political theory journal Qiushi (求是) on October 31. It encompasses a focus on shoring up domestic consumption (especially of China’s growing middle class) as a means of driving overall economic growth; stabilizing key production and supply chains; continuing the urbanization of rural areas; developing the science and technology community in a manner “consistent with China’s national conditions;” and “raising the banner of ecological civilization” through sustainable and environmentally conscious development (Qiushi, October 31).

Some observers have viewed DCS as a defensive response to the U.S.’s decoupling strategy, but it is also an outgrowth of China’s increased emphasis on self-sufficiency (自主能力, zizhu nengli) that motivated policies such as “Made in China 2025” and “China Standards 2035” and predates the U.S.-China trade war by several years (SCMP, November 19). China analysts Jude Blanchette and Andrew Polk have characterized dual circulation as fundamentally being “a strategy to fortify China’s economic resilience in the face of global economic undulations and a general retreat from globalization among Western democracies.” It has been framed as a logical extension of the 2015 “supply side structural reform” (供给侧结构性改革, gongjice jiegouxing gaige) framework that is now enshrined in China’s constitution, and which motivated a financial de-risking campaign that has dominated the economic policy agenda since 2018.[1]

DCS was first unveiled to the public at a May 14 meeting of China’s 25-member Politburo (Xinhua, May 14) The theory was given a prominent role at the May meetings of the “Two Sessions”—annual parliamentary meetings of the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), which typically take place in March but were postponed due to the coronavirus pandemic, and the October Fifth Plenum meeting which set the policy guidelines for China’s 14th Five Year Plan (CGTN: May 29, October 30). Xi doubled down on the policy in a July 21 symposium with Chinese entrepreneurs, saying, “…we must gradually form a new development pattern with the domestic cycle as the main body and the domestic and international dual cycles mutually promoting each other” (Xinhua, July 21). At the same meeting, Xi also emphasized the role of China’s “patriotic entrepreneurs” (爱国企业家, aiguo qiyejia) in driving the nation’s economic recovery, and held up the example of past businessmen such as Zhang Jian (张謇), Lu Zuofu (卢作孚), and Rong Yiren (荣毅仁) as model entrepreneurs who served the state well (Xinhua, July 21).[2]

Further signs that the party was tightening its control over the private sector were given in September, when the CCP’s released its “Opinions Concerning Strengthening New Era United Front Work In the Private Economy” (关于加强新时代民营经济统战工作的意见, Guanyu Jiaqiang Xinshidai Minying Jingji Tongzhan Gongzuo de Yijian). This document laid out directives for CCP organs to take on closer and more direct supervision of China’s private sector by bolstering the role of the party in private enterprise and recruiting private economic actors into the CCP. It reflected the CCP leadership’s prioritization of “harnessing the potential dynamism and innovative capabilities of private industry” to tackle economic issues laid bare by the pandemic (China Brief, September 28).

2020: New Laws Target An Underregulated Fintech Sector

P2P crackdown signals a changing regulatory environment....