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04/05/2021

Who wears the pants in China?

Who wears the pants in China?

The author of these lines has an important difference in understanding the developments in China correctly. I have been living in Shanghai since 2011. I am in Turkey for one year due to pandemic. Therefore, I have the opportunity to look at the latest developments from the west of Asia. Our company in China is open. We regularly continue our work through “remote work”.

What is it like to live in China? Of course, it’s primarily exciting. The effort to understand the extraordinarily rapid change gives people vitality. When I have been in China, I have traveled a lot for business purposes. I have visited and observed about thirty states. There are four states that I have not visited yet. Two states in the northeast, Inner Mongolia and Tibet.

I have a large number of good and right friends, reliable teachers as China’s former ambassador to Turkey and hundreds of colleagues from different business lines all across the China. It is a great advantage to understand the change in China by discussing it with the Chinese. There is an idiom that said drinking water from its source in order to describe this situation in Turkish.

IS THE CPC WORKING FOR THE “RICHEST
AND THE MOST POOR”?

I have a Chinese partner in our company in Shanghai. She is very well educated. A middle-class Shanghai native having a house, a car, and a second home in the village. Unlike her father, she is not a member of CCP. However, because of the education she received, she is a fair person taking side with the public. When I met her in 2012 and asked why he was not a member of CCP, she made a very catchy statement: “The CCP works only for the richest and the poorest people. It takes from middle class people like me and gives them.” This autogenous consideration accelerated my efforts to understand Chinese society.

Our partner stood idly by while Xi Jinping was becoming the General Secretary of the CCP in October 2012. Whereas, I observed that proletarians are the most happy for Xi to become the Secretary General. I was impressed from my direct contacts such as bus and taxi drivers, factory workers, shop assistants, and ordinary villagers who got a twinkle in their eyes and spoke enthusiastically as “Xi dada” (our ancestor Xi).

Contrary to my partner’s consideration, the owners and executives of private companies, who were classified as the wealthiest at the time, and the managers of China’s large state-owned enterprises, did not hide their discomfort from Xi. I was surprised that they reflected their discontent with their President Xi’s policies to a foreigner he was there for business.

Traditionally, the Chinese hide their negative views about their own state governors or China’s policies from non-Chinese people. The resistance of the wealthiest people, whose class interests were damaged by Xi Jinping’s populist practices, has been severely broken, but still some sabotages are occurred.

XI JINPING’S POLICIES CREATED
THE DESIRE OF BEING A MEMBER OF THE CPC

Over the past 8 years, with our Shanghai partner, we have met with many executives of the CCP, carried out joint projects, and participated in international meetings together. We met with members of the CCP Political Bureau Standing Committee, members of the Central Committee, ministers, deputy ministers, provincial heads, and local heads of government; were hosted by some of them. I have watched the positively change day by day in my partner’s attitude towards President Xi. After his respect and support for Xi Jinping have increased, her attitude towards the CCP has also changed. During my farewell dinner before leaving Shanghai in January 2020, she said, “I wish I could be a member of the CCP if there was an opportunity.”

THE GOAL OF DOUBLING THE MIDDLE SECTION IN CHINA

At the 19th General Assembly of the CCP, the statement made by Xi Jinping marking that “the new era of the socialism with Chinese character” has begun, is a guide to understanding the developments. China grew rapidly with its “Opening Out and Reform” policy adopted in 1978, but this caused great imbalance in the society. The “New Period” emphasized by Xi aims to eliminate these inequalities and imbalances.

China has placed its target of doubling the middle class welfare population at the center of its 14th Five-Year Plan and the economic policies dating up to 2035.

Increasing the number and economic power of the middle class is also the load-bearing column of the government’s new “double loop” economic strategy, which focuses on developing the domestic market in order to balance external uncertainty. (1)

In China, approximately 400 million people are officially defined as the middle class welfare. A family of three that earns between 100,000 yuan ($ 15,200) and 500,000 yuan ($ 76,000) per year is defined by the National Bureau of Statistics of China as the middle-income household. (2)

This 400-million-community corresponds to 28.5% of China’s total population. Now the target is to double that. If China increases its middle-income population to about 60%, the population living in European standards will reach 800 million people. This will create a larger internal market than the total population of the USA and the European Union. Having such a large purchasing power gives China a great economic leverage on the international arena.

IMPORTANT ARTICLE OF CHINESE VICE-PREMIER MINISTER LIU HE

Liu He, Vice Prime Minister of China and chief economic adviser to President Xi, wrote an important article on the People’s Daily explaining the economic policies of the new era on November 25. (3)

Liu He writes that “different phases of economic development correspond to different demand structures, industrial structures and technological systems.” “Following a long period of hard work, China’s per capita GDP has exceeded USD$10,000, and demand structures and production functions have undergone major change…development must shift towards greater reliance on innovation drivers, and continually raise the quality and level of supply.”

In his article, Liu He’s strong emphasis on improving income distribution when defining the “New Development Model” drew attention:

“Accelerating scientific and technological independence is key to smoothing out domestic circulation, and forging an active role for China in international circulation. Smoothing out circulation in the national economy requires vigorous optimization of supply structures, improvements to supply quality, and firmly and unwaveringly establishing a great manufacturing power, a great quality power, a great Internet power, and a digital China. Finance is the life blood of the real economy….[we] must make structural adjustments to the financial system, vigorously increase the share of direct financing, reform and optimize policy-based finance, improve policies for financial support for innovation, and employ the pivotal role of capital markets in driving the high-level circulation of tech and capital in the real economy. China is currently in the middle of a rapid urbanization development phase…this process will both generate huge demand as well as increase effective supply. [We] must employ the linked roles of central cities and urban clusters, implement regional strategies, establish modernized capital city conurbations, and form a raft of new growth points. The expansion of the middle-income demographic will play a fundamental role in forming a great power domestic market and driving structural upgrades. [We] must uphold common prosperity development, improve income allocation, expand the middle-income demographic and strive to make growth in household incomes outpace economic growth. China will “further expand market entry and attract foreign investment at a higher level,” as well as “drive the establishment of a common human collective and form a tighter and more stable global economic circulatory system.”

THE CPC PRIORITISING THE POOREST PEOPLE

Income inequality in China is characterized as a strategic weakness since it limits economic growth and keeps the dependency on foreign demand for economic growth as well as undermines the primary goal of socialism claims to improve the lives of workers.

Now, the Chinese government aims to turn this negativity into positivity. China’s crowded low-income community has great potential to increase the domestic consumption.

In order to describe economic policies, “demand-side reform” is used as a new term by Political Bureau of the Central Committee of the Chinese Communist Party in the last meeting of the. (4)

China’s “demand reform” is different from what John Maynard Keynes suggested in the 1930s to overcome the “Great Depression” since Xi Jinping is trying to find a way to overcome insufficient consumption within the working class and overcome “poverty in the middle of abundance”, which Karl Marx identified as one of the causes of the periodic crisis of capitalism.

In the statement published after the Political Bureau meeting, it drew attention to the promise to prevent “the irregular expansion of the capital”. This sentence is a sign that excessive earning of capital has disrupted income distribution and should be curtailed. (5)

There is a tax system in China whose rate increases according to income. The rate reaches up to 45 percent in personal income tax. However, high taxes alone with many exemptions and different incentive mechanisms do not solve the problem of income inequality. It is reported that China is preparing a comprehensive tax reform in addition to transferring resources to poor regions and communities in order to improve income distribution permanently in the upcoming period.

BILLIONAIRES GETTING IN LINE

China’s market regulator (SAMR) fined China’s largest company Alibaba and a subsidiary of the second-largest company Tencent for failing to make appropriate statements to authorities about past acquisitions. This was the announcement that the Xi Jinping administration would take a tougher stance against the country’s tech giants.

Each of Alibaba, Tencent-backed Chinese Literature, and Shenzhen Hive Box Technology companies were fined 500,000 yuan ($ 76,463) by the State Market Regulatory Authority (SAMR). (6)

Although the penalties are small with respect to the size of the companies, SAMR’s sanctions show the certainty of decisions to control technology companies, many of which have over-grown by benefitting from the potential of the state in the past 10 years and transformed themselves into key parts of daily life in China, and to divert their resources to the public rather than personal wealth is showing.

In early November, SAMR published a regulation draft aimed at preventing monopolistic practices by giant tech companies. It has been put on the record as one of the most comprehensive regulations ever undertaken in China to regulate giant tech companies.

More recently, the initial public offering arrangement of the Alibaba Group’s finance company Ant Group breaking world records in Shanghai and Hong Kong was suspended. Again, in early November, the Bank of China released new draft rules for online micro lending that could affect Ant Group. (7)

CONCLUSION: FOUR OUT OF 10 BILLIONAIRS IN THE WORLD ARE IN CHINA, BUT…

According to the latest billionaires report released by UBS investment bank and accounting firm PwC at the end of October, China hosts approximately four out of every 10 billionaires in the world. Although the growth rate of billionaires has declined compared to the previous period, growth in China created 36 new billionaires between January and July 2020.

The total wealth of China’s 415 billionaires is approximately $ 1.68 trillion. This corresponds to roughly the size of Russia’s total gross domestic product. It would be considered the 11th largest economy in the world if it were a single economic asset. (8)

Enrichment in China is not like in capitalist countries. On the one hand, the welfare of the people is increasing, on the other hand the size of the market and the crowd of the population leads to rapid shifts. Unlike capitalist countries, these billionaires do not determine the political power in China. Thanks to the Chinese Communist Party, whose membership is close to 100 million, China is gaining new achievements in development by protecting the interests of the vast majority of the people.

Xi Jinping is waging a tough war to restrain the widening inequality in a period of rapid growth in China, which has transformed from an extremely poor, predominantly rural country into the world’s second largest economy.

President Xi’s 7-year governance has shown that the rich people do not wear the pants, but the poor people do rightly. Wish the same for other countries.

  1. https://www.scmp.com/economy/china-economy/article/3111016/xi-jinping-has-pledged-double-size-chinas-economy-2035-can-he
  2. https://www.scmp.com/economy/china-economy/article/3111929/china-looks-boost-middle-class-it-wraps-xi-jinpings-anti
  3. https://www.chinabankingnews.com/2020/11/26/liu-he-sheds-light-on-chinas-dual-circulation-development-strategy/
  4. https://www.scmp.com/economy/china-economy/article/3113876/xi-jinpings-new-economic-focus-chinas-demand-reform-borrows
  5. https://www.scmp.com/economy/china-economy/article/3113876/xi-jinpings-new-economic-focus-chinas-demand-reform-borrows
  6. https://www.cnbc.com/2020/12/14/alibaba-and-two-other-firms-fined-for-not-reporting-deals-to-chinese-regulators-.html
  7. https://www.cnbc.com/2020/11/13/china-faces-the-challenge-of-keeping-big-tech-in-check.html
  8. https://www.scmp.com/economy/china-economy/article/3111016/xi-jinping-has-pledged-double-size-chinas-economy-2035-can-he
Adnan Akfırat
Adnan Akfirat is a Representative to China and Member of International Relations Bureau of Patriotic Party of Turkey; Chairman of Turkish-Chinese Business Development and Friendship Association (Turk-Cin Is Der); visitor researcher of Shanghai University Turkish Studies Center and Shihezi University Silk Road Research Center. Mr. Akfirat has been living in Shanghai since 2011.

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