Economists and Danger: Welcome to Modern China

I do not typically write about individual news articles but I saw an article by the always excellent Lingling Wei (who in case you forgot also broke that the IMF was pushing the PBOC for more information about its derivatives portfolio) about Chinese authorities warning economists.  There are a couple of points worth mentioning and some of them are, warning you in advance are politically incorrect.

  1. Any China bull or anyone who still has any remote belief that Chinese data is anything other than art: you’re just embarrassing yourself. Assume the Chinese economy really is in good shape and economists are just misinterpreting data, why do you need to go around threatening people?  One thing that I get from certain non-Chinese economists (with one senior person at well known institution telling me “we have no reason to believe Chinese data is systematically manipulated”) is that I just don’t understand China or Chinese data.  It is widely accepted in China that Chinese data is heavily manipulated.  This is not some dastardly foreign plot but accepted wisdom in China.  I learned about this, as I have said many times, not from academic work but from my students who thought I was moron for believing it in the first place. If China known to censor the news do you really think they are choir boys on economic data and that the economy is humming along at 6.7%?
  2. Self censoring of economic and financial reporting in business community is wide spread. I was told point blank by a senior executive from a major financial institution that they no longer publish any report that is remotely critical of the Chinese economy or markets.  Of course this is not put in the employee handbook but that is unofficial policy.  We already know this is happening to Chinese reporters but his is increasingly happening to economists. To argue that Chinese doesn’t censor economic data is simply delusional.
  3. Politically incorrect warning (but something that should come as no surprise): I am personally only able to say what I say because I am white and American. Consider the race card played. If you have been following China at all, this should come as absolutely no revelation even if it is maybe somewhat politically incorrect to say straight up. Most all Chinese economists do not want to talk publicly about the economy, even those that are pro-Beijing for fear of saying something that will get them into trouble. In today’s China I cannot tell you how much respect I have for a Chinese economist who says anything publicly and even more so for those who do not perfectly conform to what Beijing says.  I know an economist, decidedly pro-Beijing, who gave an interview to local media but laughed when his comments aired as he mentioned they removed his suggestions and comments about how to reform. Mind you this was not a critical voice. This was in fact a very pro-Beijing voice but even he saw the irony.  I have never been approached to stop writing or saying what I am seeing in the Chinese economy, but if I was Chinese by passport or ethnically, I believe there is no chance I would be allowed to write what I write.
  4. The change in China has honestly given me pause to reconsider my own position for fear I might face retaliation in China. Despite my critiques of the Chinese economy and data on largely technical issues, I can say with hesitation I enjoy what I do, my job at Peking University, and the city of Shenzhen. My family enjoys living in Shenzhen, a very comfortable and pleasant city except for the stifling humidity, and my incredibly white kids speak native quality Chinese which has won me many a bet.  However, the entire environment in China is changing and changing rapidly and not just the economy.
  5. Some absolutely great comments by economists who realize how absurd the system is internally. Some of my favorites:
    1. “You can see they’re not happy when you tried to tell them foreign speculators are not your biggest problem,” said one of the officials who attended the meetings.
    2. “As a Chinese reporter, you can do anything but journalism these days,” said a senior editor at a state-owned media outlet.
    3. “I was told by regulators not to recommend shorting the renminbi,” Ms. Lin told the gathering, “so I’m just going to recommend buying the dollar.”
    4. the city’s propaganda department recently instructed a local think tank to stop researching a planned debt-for-equity swap program aimed at helping big state companies reduce debt, according to economists familiar with the matter. The reason, these economists said, is that officials don’t want the research to turn up unfavorable evidence after Premier Li Keqiang and others have endorsed the swaps.
    5. Despite recent signs of a rebound, Gao Shanwen, chief economist at brokerage Essence Securities Co., told investors that “a lot of the official data aren’t reliable” and the economy still faces “big problems,” according to people who attended the closed-door event. Words of those remarks crackled across social media. Two days later, Mr. Gao issued a clarification on his public account in the popular Chinese messaging app, WeChat, saying those remarks were “made up.” He then released a report on the economy shorn of critical commentary. Mr. Gao and representatives at his firm didn’t return requests for comment.

Hong Kong: The Game Behind the Game

Lost in all the hand wringing about Hong Kong is a larger more important issue: Chinese GDP is in all likelihood zero. China is not just on track to miss, though officially meet, its growth target but miss badly.

Steel and electricity consumption are falling.  Real estate prices have begun falling causing riots among consumers who feel defrauded or that apartments selling at almost $1,000 a square foot were a one-way bet.  Despite these falling indicators the People’s Bank of China continues to pump money into an already saturated market.  In the middle of September, the PBOC injected 500 billion rmb into major state owned Chinese banks.  All the while, Beijing continues to release additional stimulus measures while continuing to insist it will not release a major stimulus package as it did in 2008-2009.

Nothing here bears the hallmark of a healthy economy much less one growing at 7.5%. One source indicated that 7.5% was internally believed to be the number which would maintain enough cash flow to keep the Chinese economy from tipping into a crisis given the poor state of finances.

This matters for one very simple reason.  The implicit agreement between the Chinese populace and the government has always been an acceptance of political repression if the economy was growing rapidly.  If you want to see protests on the streets of every major city in China announce that housing prices have fallen by 50%.  Riots break out over smaller changes to prices and a significant slow down in Chinese growth would break the acceptance of political repression.

Beiing views taking a hard line with Hong Kong as a dress rehearsal for the serious economic problems festering just beneath the surface inside China.  Breaking their part of the agreement of rapid economic growth means needing to enforce the other side of the agreement, even if the Chinese population decides they want to opt out.

Standing up to the student protesters organizing recycling has always had nothing to do with Hong Kong and everything to do with the Mainland.  The self admitted fall in steel, electricity, and real estate prices, are prompting Beijing to see Hong Kong as nothing but the opening act.

Revisiting Hong Kong

I visited Hong Kong two days ago primarily because I had a previously scheduled business meeting but also to walk the streets to witness history first hand. Here are some more thoughts on both details and bigger picture items.

  1. If Beijing isn’t already scared, they should be. The protesters are motivated, organized, and have little to lose by continuing their protests. This is just the type of group that can take on and embarrass the Beijing goliath.

  2. Beijing and Hong Kong seem to be adopting the wait them out strategy and hope they melt back into society never to be heard from again. I am very doubtful this is going to happen. The protesters are motivated and organized. Walk around the streets and everywhere are people helping people. Trash brigades patrol the crowds to pick up trash and place it into the proper recycling bags. First aid is widely available at marked stands and food is distributed by volunteers walking around as well as at marked stations. This is done to keep protesters spirits high but also gain the support of the Hong Kong community. Non-luxury businesses I saw near the protest sights were doing a brisk business from all the foot traffic. The people I talked to away from the protests largely went about their daily business and ranged from tacit understanding to strong agreement with the protesters. The students and organizers seem to understand that this is not going to be a short term battle and that there would be no point in starting the mass protest unless they were in for the long term.

  3. Time is on the side of the protesters not Beijing. The longer this plays out the more pressure Beijing is going to face, both domestically and internationally, to resolve this situation. The more information that gets through, the more Chinese citizens learn about the protests, and the more foreign governments continue to speak out, the greater pressure facing Beijing. The biggest time pressure the protesters face is that their enthusiasm will wane and crowds will fail to materialize. I see mounting domestic and international pressure on Beijng as a bigger long term risk than a decline in crowds to Occupy Hong Kong.

  4. I would love to be inside Beijing and Hong Kong government offices right now to hear the strategy debates. I am beginning to have serious doubts about how unified Beijing and Hong Kong are about how to deal specifically with the Hong Kong protests and the bigger picture questions of potential democratic reforms. While the official Hong Kong government strategy appears to wait out the protesters, I think there is also reason to believe that internally there is some degree of support for the protesters. I believe even in internal discussion in Beijing, there is probably some support for the protesters. As one example, China routinely reduces internet speeds around major political events and national holidays to dial up speeds or attacks VPN services with such force that connections regularly drop. The Hong Kong protests however have seen virtually no change in speed or VPN reliability. I have actually been quite amazed at my ability to stream video of the protests and continue accessing Twitter and other sites. People in China, at all levels of society, know and believe that political change will happen someday in China. I think it is highly likely some of the ongoing strategy discussions are including people pushing for some degree of political liberalization.

  5. The Mainland response to the Hong Kong protests is mixed but most fail to understand what is causing this ambivalence. Read the comments in reported in the media and talk to Mainlanders in private about their aspirations and dreams and you will find they correlate quite closely with the Hong Kong protesters. The difference is this. The Mainland political thinking is pervaded with a sense of fatalism that nothing can ever change and I cannot make a difference so why even try. Working as a business school professor at one of the elite schools in China, I see all the time the extreme aversion to any type of risk students and business people have. No one ever wants to be first to do something and lower paying jobs in state owned enterprises or government with a promotion every two years are preferred for their stability over start ups or foreign enterprises. Talk in hushed tones to almost any Mainlander and they will all talk about China will change someday and become a democratic country that respects people and then qualify it by saying someday when the government tells us it is acceptable. In China people fear the government and do not believe they matter; in Hong Kong people do not fear the government and believe they matter.

  6. Strategically, Beijing is very limited in its options. Except for crossing their fingers and hoping this comes to an end, Beijing has few options. There would be significant back lash in Hong Kong, China, and internationally if significant force was used; however, if they back down in any significant way, they know very well they could be opening the door to greater problems. So far the Hong Kong and Beijing response seems to depend on repeating that the protests are illegal and everyone should go home. I doubt this will succeed in dispersing protests.

I believe this will be a much longer process and protest than is currently expected. As Beijing always wants to talk about democratic development according to the realistic situation, it will be interesting to see if they believe the words they publicly declare or if they are empty mantras.

Anti-Trust Policy in China Needs Some Economics

There has been a lot of interest recently in whether Chinese authorities are unfairly using anti-trust regulation against foreign companies favoring domestic firms.  This is an interesting question but the data is to sparse to really know whether the authorities are using it to favor domestic companies.  What has been almost entirely neglected is whether the Chinese authorities have good economic arguments that foreign firms are monopolists in the Chinese market and if they are, whether they are abusing their dominant market position to extract economic rents.   Let’s try to examine the economic argument closely.

The absolute pre-requisite for an anti-trust case is that a company have either a dominant position in a market or be a part of a group which dominates a market.  Anti-trust law was originally designed to target companies with a monopoly position in a specific industry but has also been expanded to examine industries with high concentrations of firms.  This means that anti-trust cases should be where individual companies or a small collection of firms have a dominant market position.

However, in no instance could any foreign firm that has been charged with anti-trust violations be found to have a dominant market position.  Let’s take two recent examples.  In the summer of 2013, China issued fines against six baby formula manufacturers for price fixing while three other firms were charged but not fined.  Now before even analyzing the meat of the charges, it is important to emphasize that there are at least nine major manufacturers of baby milk powder.  That would meet any definition of a competitive market place as no individual firm has a dominant position and there is no charge or evidence that the firms were colluding to set prices.

The Chinese government instead charged them with “disrupting market order” and fixing their own prices, at a price which the Chinese government unilaterally deemed too high.  It is important however to note why foreign firms charge “…more than double…” domestic brands.  Put bluntly, Chinese do not trust domestic brands of milk powder due to numerous scandals and are willing to pay significantly more for foreign milk powder.   Standing in a customs line returning from Hong Kong into China, the Chinese return with armfuls of two products: luxury goods and milk powder which in a way are the same thing.  Foreign producers saw the increased demand and raised their prices to maximize profit.  It is worth emphasizing that no foreign firm had a dominant position in the baby powder milk market or even among foreign manufacturers.  Returning to economics 101, foreign producers enjoyed a surge in demand and prices increased.  That is very different than an anti-trust violation.

More recently Mercedes was charged with antitrust violation due to what Chinese authorities said was high prices for car parts and services for existing vehicles.  In other words, Mercedes was charging too much to repair its own cars at its own dealerships.  This specific case is a bit more complicated than the milk case because this case does not involve Mercedes dominance in the overall car market but in Mercedes dominance in the pricing of its own car parts.  Let’s examine the this case closer.

Mercedes has a dominant market position in the sales of its own products.  Mercedes sets the prices for the products it sells.  The question should not however be whether the price of a Mercedes car part is too high but whether Mercedes is engaging in anticompetitive behavior in the secondary market of car parts to extract higher prices.  In every car market, China included, consumers have the choice of purchasing replacement parts and services from the manufacturer of the car or going to other mechanics and purchasing non-dealer replacement parts.  The primary argument cited by Chinese authorities is that if you were to build a Mercedes from spare parts it would cost 12 times the cost of the Mercedes rather than 3 times in other markets.  This indicates that Mercedes is charging significantly more than other markets but says nothing about anti-trust or anti-competitive abuses.

The question then becomes whether Mercedes was trying to keep other companies from selling replacement parts for Mercedes.  With the exception of a small number of parts, most car parts have off-brand manufacturers that will make replacement parts for Mercedes cars.  These are not branded as Mercedes but they are acceptable as replacement parts.  Similar to the milk case, Mercedes is not even charged with trying to prevent third party manufacturers from selling replacement parts to Mercedes owners.  In other words, consumers are perfectly free to buy cheaper replacement parts for their Mercedes in a competitive market, place given concerns over quality, they prefer to purchase branded Mercedes replacement parts.

The baby powder milk formula and the replacement Mercedes car parts have two interesting and common threads.  First, Chinese consumers are highly skeptical of the quality of Chinese products.  No amount of Beijing led witch hunts on foreign companies is going to change that.  Chinese consumers paid more for foreign baby formula because the chances it is laced with melamine is much lower than its domestically purchased equivalent.  Chinese consumers willing to pay more for a branded product they trust is not anticompetitive behavior by the foreign firm selling them the product but rather charging a premium price for a premium product.  That is simply good business sense.  Second, these “anti-trust” cases are not about market dominance or anti-competitive behavior  by firms but rather selling a product at a price that Beijing does not approve.  Just because a product prices are different either between competing companies or between countries is no surprise to any economist.  Firms have a variety of pricing strategies and sell their goods for different prices to different customers at different places.  There is no evidence that any of these firms either enjoy a dominant market position or engage in anticompetitive behavior.

There are two final notes worth mentioning.  First, Microsoft has recently come under anti-trust scrutiny in China for its supposed dominant position in operating systems and office software programs and how this impacts pricing.  What is so puzzling is given that approximately 90% of Microsoft labeled software in China is pirated, how can Microsoft be assumed to have a dominant position?  It seems more reasonable to charge the pirates with anti-trust violations.  Second, this focus on the price of the good now armed with anti-trust regulation continues Beijing’s obsession with   demanding foreign firms lower their prices.  Previously CCTV, just as much an arm of the government as the anti-trust regulators, had targeted firms like Starbucks for the price of a cup of coffee.  Even though evidence indicates that Chinese Starbucks are not outside the normal pricing range, Beijing tried to make the cost of a latte an anti-foreign firm political issue.

Whether or not Beijing is deliberately targeting foreign firms and not domestic firms, is difficult to say given that lack comparison data.  However, it is easy to tell that these so called anti-trust violations are not based upon economics.

Investment Bank Chatter on China

Goldman Sachs: We revise our Q1 sequential Chinese growth forecast down to 5%.

 

JP Morgan on Chinese banks: the speed up of financial and capital account reforms (e.g., widening the Rmb trading band) induces higher volatility on system liquidity… We believe banks may continue to find ways of regulatory arbitrage even if policymakers announce regulations on shadow banking products; nonetheless, the announcement of regulation may be negative for sentiment. Following the first default on corporate bonds in China during the NPC period, we expect policy makers to “allow” the first default of trust/WMP products in coming months. This could reduce fund flows from retail investors into such products and induce liquidity risks on shadow banking if the defaults are not

handled well.

 

JP Morgan on Chinese economic growth: We forecast the authorities will respond to slowing growth with a mini-stimulus in 2Q (frontloading in fiscal expenditure, especially regarding infrastructure projects and affordable housing)… Our base case is a mini-stimulus in late 2Q14. The earliest date could be following the release of 1Q14 GDP (mid-April). Based on 2012 and 2013 stimulus, we advise investors to prepare for trading opportunities in the J.P. Morgan China Growth Floor Winners Basket.  The risk to this strategy is the diminishing returns of the stimulus with building investor skepticism.

 

Bank of America on the falling RMB: We believe these moves were engineered and coordinated by the PBoC to solve the dilemma (rising rates, rising hot money inflow and rising CNY) it was facing in 2013… Chinese exporters will overall benefit from the band widening which sends strong signal of the end of one-way appreciation of CNY/USD. Note last year CNY appreciated around 6% against its basket, putting big pressure on Chinese exporters.

 

Credit Suisse on surging foreign borrowing by Chinese firms: In recent years, the foreign currency borrowing by Chinese entities has risen significantly, probably as a “carry trade” to take advantage of the higher interest rates in China amid appreciating RMB. We believe that the recent volatility of RMB is a policy measure introduced by the Chinese government to create uncertainties in exchange rate movements among market participants, in order to avoid the continued sharp growth of such “carry trade” activities. We do not think RMB movements are a deliberate measure to boost exports, given the export structure of China. To achieve the purpose of boosting exports, RMB would need to be devalued very significantly, which is not in the government’s interests.

 

There is one major point: there is increasing concern about the Chinese economy by the people who are normally the biggest cheerleaders of the Chinese economy.  QOQ growth to 5%, advice to expect a mini-stimulus, and Chinese companies engaging in a carry trade to make some money?  None of this is a sign of a healthy economy.

 

Here are my comments in the South China Morning Post about the protests in Taiwan about the trade deal focusing on services and investment.  These protests aren’t about the economics of a trade deal but about what Taiwanese see as a quiet annexation by Beijing.  If you want to ask how rational their fears are, maybe you should ask the average Hong Konger their thoughts on the matter.

The Life of a Chinese Economist

The South China Morning Post has dropped a bombshell, which if you are an economist in China that does anything less that say how great and wonderful the Chinese economy is, comes as absolutely no shock.  According to the SCMP:

“Economic researchers and people working for state-owned media told the South China Morning Post that the central government’s propaganda department had instructed senior editors at major official media outlets to be cautious about whom they invite to talk about China’s economy and what they might say about the problems and challenges it faces after its long run of supercharged growth.  “There’s no black list or white list, but it’s clear we are now being encouraged to invite economists and analysts with domestic securities firms and banks to talk about China’s economy, especially on live broadcasts,” said one mainland media source who declined to be named given the sensitive nature of the matter.”

If you are shocked by this, you would probably be just as shocked to learn they speak Chinese in China or that there is gambling in Casablanca.  As an economist who has pointed out discrepancies in official data and problems in the banking industry, among other official sins, I can unequivocally state that all this is true and more.  Within the past year my office has been broken into, I strongly believe my home has been broken into, there is every indication my phone calls are all listened to, and my computer has been hacked or at the very least targeted.

It began when I wrote a blog post, which has since been taken down due to threats against my personal safety, in which I mentioned some of the activities of a large, powerful, and very influential Chinese company.  The information I linked to and wrote about this company was nothing more than public domain information that had already been published by global news organizations.  Though embarrassing, I wrote nothing new about this company that was not already in the public domain.

Shortly thereafter, I received word from a senior person at my school that three lawyers and a secretary from this company in Beijing had flown to Shenzhen and made numerous civil and criminal legal threats against me also urging that I be fired immediately.  School personnel told me they would do nothing to protect me, strongly advised me to take down the offending post, urged me to make a full apology to the company, but said that they did not see the need to fire me.  Though these actions may have been taken in solely by the Chinese firm, I was also told that the actions by this Chinese company were likely taken with the prior knowledge of powerful interests in Singapore.

Nearly immediately my computer was attacked, I believe for different reasons my phone was monitored from that day forward, my home internet has been cut off for extended periods of time despite my neighbors being perfectly fine, and my office was broken into among other intimidation tactics.  There have been other small incidents but I have every reason to believe that none of the basic tactics have ceased for nearly 1 year.

I have personally made my peace with what has happened and have chosen to continue to write about what I believe the data says and what companies are doing.  It is extremely intimidating to receive the threats, intimidation, and daily reminders that my activities are so closely monitored.  I personally know others who have left China because their “safety could not be guaranteed”.

For most academics not in China, it is difficult for them to understand the level of scrutiny and monitoring we face on regular basis.  Most professors have students assigned to monitor them and security officials approaching many people to report on our behavior.  Our email is widely acknowledged, even by students, as being read.  While there are some overt obvious forms of intimidation as I have detailed, much of it is also the “deal you can’t refuse” variety.  There are no overt threats but the message is clear.

More than being surprised at what the South China Morning Post is reporting, I am surprised that anyone is surprised by this news.  Yu Jie in his new book calls Xi Jinping the Godfather and this is a good model for much of the intimidation and threats.  While China has changed enormously in recent years and even in my nearly 5 years here, the repression and intimidation has only worsened.

Economists are targeted because some us choose not paint a rosy picture of the Chinese economy.  It should come as no surprise that the People’s Bank of China chose Deutsche Bank economist Ma Jun as its chief economist given he has a 2014 Chinese growth projection a full percentage point higher than the official target.

Like the fable of the emperor’s new clothes, economists who tell those in power what they want to hear are lauded while those of us in China who point out the obvious face threats.  Who knew being economist would bring such danger?

Chinese New Year News

Apparently, I am not the only one coming up with better estimates for the reality of Chinese data.  One Chinese academic says that if a more representative methodology is used to record home prices in China it may increase “housing market appreciation by more than 100%!”  It is also worth noting this is from the China Daily not a foreign publication.  These data discrepancies have caused one research firm to estimate Chinese GDP at 6.1% in the 4th quarter rather than the officially report 7.7%. More some other time on why China needs to maintain such rapid growth but it is interesting just how many people are pointing out the Dragon Emperor has no clothes.

From departing Fitch Chinese shadow banking expert Charlene Chu comes this beautiful tidbit regarding asset management and bad loans:

The fundamental question with these asset-management companies is where are they getting the money to do their business. We can see on the asset-management-company balance sheets that much of their funding is coming from banks, so they are borrowing from banks to buy bad debt from banks. In that scenario, there isn’t any true risk transfer the way there was in the previous bank bailout when the financing for the nonperforming loan carve-outs came from the government. Instead, what we have is bad loans moving from banks’ loan portfolios into their interbank portfolios as a claim on an asset-management company. Over the short term, this disguises the bad debt situation. But over the longer term, if asset-management companies can’t repay their borrowing from banks, then bank capital is still at risk of loss….Fundamentally there needs to be a deeper recognition that most of the challenges facing the financial sector, including the liquidity issues we see at the moment, are related to asset quality problems. That’s regardless of what the nonperforming loan data say. The market recognizes that; that’s why the banks are trading at such low valuations.”

While credit problems loom in China, there are also larger underlying pressures to the real economy.  One of the biggest is wage pressures.  According to this Financial Times article Chinese “factories made clothes at half the cost of its facilities in Malaysia and Thailand but that gap has since disappeared.”

China wants to start policy think tanks which invites the obvious question: don’t you need to be able to think to have a think tank?  Jailing professors for pushing the government to require officials to disclose their personal wealth isn’t radical stuff, unless you have something to hide.

Update:  According to Goldman Sachs the Chinese banking regulator has issued a warning on all loans made to coal miners.  Remember, it is a Shaanxi coal miner that triggered the first wealth management product that defaulted which is currently under negotiations with investors.

 

How to Succeed in Business without Really Trying: Chinese Style

If the world learns nothing about modern day China it must know that the current incarnation of the so-called Communist Party are pure capitalists with authoritarian government power.  There is nothing Communist about the Chinese communist party today.  Lest anyone forget, this is the same group of communists that took the People’s Daily Online “the website of the flagship newspaper of the Communist Party of China” public in Shanghai.  Marx is still spinning in his grave after being asked for a quote on the Propaganda Department of China being listed.

After the flurry of activity from the Third Party Plenum, enterprising institutions, including my own Peking University, saw a market to make some money by selling classes (Chinese link) on how to interpret the reforms, policies, and communiqué released by Beijing.  In fact, according to news reports, Peking University classes started the day after the policy release.

Nor are the classes cheap.  One university was charging 8,800 RMB ($1,500 USD) for one day of classes.  Peking University was at least more reasonably priced at 3,200 rmb ($525 USD).  Zhejiang University was charging 6,800 rmb ($1,100) with no word on whether this class included more endless droning insightful lectures on how best to interpret the holy words of honey handed down from the Third Party Plenum.

There are two final points of interest.  First, the Party is desperately concerned that people follow the directions rather than think for themselves.  The snake oil information being peddled about the courses promise to help  “accurately grasp the policy”and “what is the overall program of comprehensive deepening the reform..”.  Second, the courses are exclusively for Party members and government employees.  These courses are not for private citizens, foreigners, or corporations.

All this taken together has two real implications.   First, when you hold monopoly power, the Party knows that you should never miss an opportunity to use it and extract a little more money from the consumer.  Second, Beijing is very worried that they won’t be able to control the message.  This is the tightrope they are walking: how do you encourage the free market while still controlling it?  Beijing is working really hard to make sure they still control the free market which is easier said than done.

In China, there is a generally accepted pattern of easing of economic and political freedoms for a number of years followed by a 3-6 month tightening or crackdown.  The idea being that people need to be reminded who is in charge and that the government still controls every aspect of your life if they need to.  Beijing never wants people to get comfortable.  With such an early declaration of reforms, Beijing is probably worried that this will embolden people at the beginning leading to problems later on.

This is how you succeed in business without really trying Chinese Communist Party style.

Happy Thanksgiving to my homeland and US readers.

The Quiet Crackdown

There is an ongoing officially sanctioned, crackdown on dissent in China.  It targets anyone who does not faithfully repeat party slogans or demands accountability and transparency.

The Beijing internet police are targeting opinion makers and passing regulations that “warn citizens not to harm the economy, the State, or individuals.”  This crack down stems directly from the top in Beijing and a memo referred to as Document No. 9 complaining that opponents of the Communist Party authoritarianism in Beijing have “stirred up trouble about disclosing officials’ assets, using the Internet to fight corruption, media controls and other sensitive topics, to provoke discontent with the party and government.”

What we are witnessing is nothing less than a crackdown trying to hide corruption and prevent any expansion of the limited freedom of speech enjoyed online in China.  Official channels have recently urged citizens to “be careful what information they convey….and use their right to expression responsibly.”

This has resulted in a variety of Chinese celebrities with massive online followings having their Weibo accounts or blogs deleted.

A popular blogger with 12 million follower in China, who is a naturalized American though ethnically Chinese, was detained supposedly for visiting a prostitute though his account has also been deleted.

Chinese human rights advocates are being arrested for seeking to peacefully assemble.

Professors in Hong Kong are being silenced for advocating democracy in Hong Kong.  It is worth emphasizing that this is not even a call for democracy in China but rather in Hong Kong.

A Peking University economics professor is facing a vote to be fired for signing Charter 08, among other affronts to Communist Party authoritarianism, which calls for Chinese democracy and guarantees of human rights.

A professor from the East China University of Political Science has been banned from teaching for calling for the Communist Party to operate within the Chinese constitution rather than be a law unto itself.

On Monday it was announced that a Briton and his Chinese wife were arrested for operating a company specializing in corporate security specifically background checks.  This is sensitive due to the information compiled by Bloomberg and the New York Times showing the family of current Chinese leader Xi Jinping had amassed a fortune of $376 million USD before even taking office.  Shortly thereafter, the New York Times released an investigative report showing quite conclusively that the family of outgoing leader Wen Jibao controlled at least $2.7 billion.

It is disheartening but not surprising that a Party seeking to maintain its crumbling grip on power would target citizens and professors willing to stand up to an oppressive and authoritarian state.  The official crack down on reports of corruption and calls for officials to list assets strike a nerve because Party sanctioned plunder of the government continues to this day.  In 2011, a report accidentally posted on the Peoples Bank of China website found that $125 billion had been stolen by 16,000 officials. That averages out to nearly $8 million per corrupt officials and it is worth noting that corruption prosecution has been declining in China. It is no wonder that the Communist Party is concerned about the Chinese citizenry knowing the sheer brazenness of their plunder.

If there is an encouraging aspect of this crackdown it is this: this is the sign of a weak and crumbling control apparatus.  The Chinese people are waking up and want to make their own decisions.  They want to express themselves.   These actions are not being taken because Beijing feels confident that the populace supports its policies and government.  The Party is cracking down because of popular discontent over fraudulent economic data, corruption, and the basic inability to say what they want.

I can say that I have received threats from influential Chinese entities about some of my writings and I am almost waiting to be picked up.  I have however made a conscious decision not to live in fear.  Authoritarian states like China and Singapore seek to instill fear in their people and I will not live in fear for what they may do.  I will be strong and courageous, speaking the truth, and living in peace.  Do not fear or be dismayed.