Xi Jiping: The Backlash – Review

Xi Jiping: The Backlash by Rory McGregor is the best (short) overview of the current geopolitical situation between China, the smaller powers (Canada, Singapore, Australia) and the larger powers (Germany, USA). He accurately diagnoses the challenges of smaller powers and China’s internal challenges. It seems Xi has a tight grip on power and the loyalty of the party, along with few rivals. The track China seems to be on is a return to authoritarian rule by party officials, with less respect of the rule of law. The use of trumped up charges to imprison Canadians, the picking and choosing of which imports they allow and other terribly mercantile behaviours does not bode well for China in the long-term.

A China that punishes those who defy it will likely contribute to an isolation and separation of China from many potentially friendly powers. Having spent two years of my life in China and having met many amazing Chinese people, I am concerned the country is headed back towards arbitrary rules that will create uncertainty for individuals, families and businesses. My Canadian friend who is based in Hong Kong, married to a Chinese woman with two children and speaks fluent Mandarin is quite skeptical on the stability of the communist party. Despite Xi’s efforts to avoid the collapse seen in the Soviet Union and the following appropriation of resources by the Oligarchs, it is unclear how China can simultaneously develop a thriving market economy and employ arbitrary rulings to cajole countries, people and businesses into compliance.

I love the Chinese people and the country, but there is a very dark trend emerging in China – whether it is the police state they have built with 24/7 global surveillance, the internment of Xinjiang Muslims, or the international actions they are taking to pressure smaller countries and dump product into foreign markets. The Chinese people are both nationalistic and revolutionary. If you put them into a corner, they fight. Just look at Hong Kong. With the economy still growing at 6% a year, it seems unlikely that the party will lose popular support in the short term. The longer term issues that will undermine the rule of the communist party can be summarized as demographic, liberty and rule of law.

The demographics in China are already negative and getting worse. They have very low birth rates and the working population is already decreasing in absolute and relative size. With less workers and less babies, housing values will decrease and a tremendous amount of the Chinese assets are built on property valuations. This carries from the individual families who feel they are wealthy due to owning apartments to the provincial and city governments who derive taxes from property values. Property value is fundamentally tied to demographics. If your population decreases, property values decrease. It can quickly turn into a chain reaction.

All people want freedom. They want freedom to choose their mates, their careers and their future. If Chine continues to restrict emigration and movement this will frustrate the people. It is unclear how much they will do this. Over 100 million Chinese already leave the mainland on trips and return every year. The question will be centred around the upper middle class Chinese and how they view the future of their own freedom. If they are concerned it will be heavily restricted, you will see an outflow of people and money to other countries and a potential large-scale rescinding of Chinese nationality. This is hard to predict and it remains a major threat to the stability of the party. Without the entrepreneurial middle class, the Chinese economy does not work (nor does any other for that matter).

Similarly, the steps backwards on the rule of law internationally will likely lead to similar issues internally. If China is willing to punish Canadian farmers and Swedish salmon farms because of international politics, it seems clear they will use arbitrary rulings to control their own people. No country can develop in the long-term without a reasonable rule of law. Without it, businesses leave, people leave, morale is killed and people will not invest.

Building an empire is all about faith. It requires the country’s leaders and its people to have faith that they are on a divine mission. They must believe that the future will be better if they are active and invest in the country. Empires collapse because people lose faith. It is fare more fragile than we might imaging. With their actions and their challenges, China is running a real risk of losing the faith of the international community, the business world and its own people. If two of these pillars tumble, China will not be able to achieve its dream of a becoming a regional (maybe global) power and welcoming Taiwan back into its fold. Only time will tell, but I highly recommend this book to understand some of the challenges China currently faces.

Published on August 10, 2019