The Morning Dispatch: China vs. Chinese Business

Happy Thursday! Sometimes the news gets us down, but then we remember the five zebras that escaped from a Maryland farm last month are still on the lam. 

Quick Hits: Today’s Top Stories

• The Federal Open Market Committee indicated after its monthly meeting yesterday that although the Federal Reserve will for now maintain its current pace of asset purchases and hold interest rates near zero, the central bank could very well begin its taper in November and start raising interest rates in 2022 as inflationary concerns persist. “While no decisions were made, participants generally view that, so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate,” Federal Reserve Chairman Jerome Powell said.

• The Food and Drug Administration on Wednesday officially amended the emergency use authorization for Pfizer-BioNTech’s COVID-19 vaccine to allow certain populations—those over 65, at “high risk of severe COVID-19,” or who have “frequent institutional or occupational exposure” to COVID-19—to receive a booster shot six months after their second dose. Regulators are expected to consider authorizing Moderna and Johnson & Johnson booster shots as well in the coming weeks.

• Days after France recalled its ambassadors to the United States and Australia in retaliation for their nuclear submarine agreement, President Joe Biden and French President Emmanuel Macron had what the White House described as a “friendly” phone call in which the two leaders “agreed that the situation would have benefited from open consultations among allies on matters of strategic interest to France and our European partners.” They plan to meet in-person at the end of October, and France’s ambassador will return to the United States next week.

• After months of negotiations, Sen. Cory Booker told Sen. Tim Scott on Wednesday that Democrats were walking away from bipartisan police reform talks because the two sides remained too far apart on “transparency, professional standards, and accountability.” Scott expressed disappointment with the decision, saying “crime will continue to increase while safety decreases, and more officers are going to walk away from the force because my negotiating partners walked away from the table.” Efforts to reform qualified immunity were reportedly the biggest sticking point in negotiations.

• The Associated Press reported Wednesday that despite the Biden administration’s efforts to expel migrants congregating in Del Rio, Texas, many are being released into the United States, with the Department of Homeland Security busing certain migrants to El Paso and Laredo while others are flown back to Haiti.

• Existing-home sales fell 2 percent from July to August as the median sales price rose 14.9 percent year-over-year, the National Association of Realtors (NAR) said Wednesday. “Clearly the home sales are settling down,” NAR’s chief economist Lawrence Yun noted. “The high home prices are squeezing away the first-time buyers.”

CCP Cracks Down on Chinese Businesses

Four decades ago, former Chinese Communist Leader Deng Xiaoping famously—though perhaps apocryphally—declared that “to get rich is glorious,” ushering in a period of unprecedented economic growth and permanently altering Mao Zedong’s Marxist vision for China. In the wreckage of Mao and his predecessors’ efforts to institute a command economic system—best encapsulated by the failed Great Leap Forward—Deng’s market-economy reforms transformed China into the economic powerhouse it is today.

But after years of almost unfettered growth, General Secretary Xi Jinping is changing China’s course. Over the last several months, the chairman and his allies have determined that China’s business sector has grown too powerful—and have begun to curb its perceived threat to the Chinese Communist Party’s dominance through a combination of stunting economic reforms and targeted intimidation.

This thinly-veiled consolidation of state power, Xi says, is being undertaken in the name of “common prosperity,” an attempt to allay various societal and income inequalities through government intervention.

“We should consciously and actively solve problems such as regional gap, urban-rural gap, income gap, promote all-round social progress and all-round development of people, promote social fairness and justice,” Xi said in a recent speech, setting aside the fact that his government is currently perpetrating genocide against Uyghurs and other ethnic and religious minorities. Through these efforts, he continued, “the fruits of development can benefit the whole people more and more equitably, constantly enhance the people’s sense of gain, happiness and security, so that the people really feel that common prosperity is not only a slogan, but also a visible, touchable and real fact.”

China’s tech sector has thus far been the main target of the CCP’s crackdown, with a series of reforms reportedly wiping out up to $1 trillion in stock market value in recent months. The CCP fined e-commerce giant Alibaba $2.8 billion in April for antitrust violations and blocked a proposed merger from tech company Tencent that would have combined two of China’s top gaming platforms in July. 

Shares of Chinese property developer Evergrande also tumbled this week amid concerns over the company’s looming debt payments, prompting American investors to rethink their portfolios ahead of the company’s impending default. “Whether it is the collapse of Evergrande, Beijing’s DiDi intervention, or the temporary disappearance of Alibaba’s founder, no good can come from gambling Americans’ savings in risky foreign companies,” GOP Sen. Marco Rubio said in a statement Wednesday. “The Biden Administration needs to recognize that while Wall Street may want to make friends in Beijing, the Chinese Communist Party will gladly enrich itself by wiping out Americans’ savings.”

Xi has wielded the CCP’s tried-and-true coercion tactics as well, going after China and Hong Kong’s biggest economic players on an individual basis. Jack Ma—Alibaba’s co-founder and one of the richest people in China—disappeared for three months late last year after delivering a speech criticizing China’s financial system. He’s since re-emerged with a lower profile and, reportedly after pressure from Xi, is donating billions of dollars to charity. Jimmy Lai, a former textile tycoon and owner of a pro-democracy newspaper, was forced to shut down his media company, Next Digital, after he was jailed and his assets were frozen by the government. 

Xi’s quest for vice-like control isn’t limited to the business sector, as he’s recently pushed new diktats affecting behavior inside the home. This month, it was restricting children’s video game usage to three hours a week and prohibiting “effeminate” men from appearing on TV. Earlier in the summer it was clamping down on English tutoring services and raising the country’s child limit from two to three.

Taken all together, the moves constitute a major shift from how the CCP has operated in recent years. But it’s by no means a direct reversion to China’s pre-1980’s centrally planned economy. Xi is likely to maintain certain aspects of the capitalist model that best advantage the CCP while still pulling many of the levers himself.

That said, these reforms are likely to depress the astounding economic growth China has experienced in recent years, including a 12.7 percent year-over-year GDP surge in the first half of 2021. CSIS senior fellow Christopher Johnson, who previously served as a China analyst at the CIA, says that Xi sees the likelihood of waning economic growth as a short-term gamble worth taking if such reforms boost his popularity among party officials.

“I don’t think it’s inconceivable that they’re comfortable with a growth rate of about 4 percent, somewhere in there, for this five-year plan,” Johnson told The Dispatch. It’s also worth noting that Xi has the power to simply withhold economic data from the public if growth plummets. 

Johnson said that Xi is quite fond of Mao Zedong’s rhetorical style and often quotes the former CCP leader in speeches. At a celebration earlier this summer celebrating the 100th anniversary of the CCP, for example, Xi wore a Mao suit in front of a hammer and sickle and sang the Chinese socialist song “The Internationale.” 

And like his revolutionary predecessor, Xi has begun to adopt a top-down approach: leading the campaign himself rather than delegating to his chief economic adviser, Liu He, as he has in the past.

That’s not to say that Xi and Mao are one and the same. “I tend not to be fond of the Mao—or, depending on your flavor of the week, Stalin—comparisons,” Johnson said. “Both of those people proved themselves to be very whimsical people. [Xi] is not a whimsical guy. He’s very concerned and calculating.”

Unlike former General Secretaries Hu Jintao and Jiang Zemin, both of whom stepped down after two terms as head of the CCP, Xi Jinping has made clear that he aims to stay in office well beyond 2022, when his second five-year term is set to expire. Experts say that this crackdown on business is being wielded by Xi as an animating principle to justify his extension of power ahead of next year’s Party Congress, when the CCP chooses whether or not to boot him from office.

“There was always going to be a crackdown before the Party Congress, [but it] normally doesn’t happen so far in advance,” said Derek Scissors, an expert on the Chinese economy at the American Enterprise Institute. “It started early, I think, because of Jack Ma telling Chinese regulators they were wrong in a very public setting, and that means someone feels they can step up and defy Xi’s government.”

The CCP’s crackdown should not be viewed in isolation, either, as it comes amid a global populist moment in which big business finds itself on the defensive pretty much everywhere. Democrats in the United States are currently working through a package to raise taxes on corporations and the rich, and “cracking down” on Big Tech is one of the final remaining areas of bipartisan agreement in Washington. 

Worth Your Time

• For more on the Xi Jinping story, be sure to check out Lingling Wei’s deeply reported piece for The Wall Street Journal. “Un­der­pin­ning Mr. Xi’s ac­tions is an ide­o­log­i­cal pref­er­ence rooted in Mao’s de­vel­op­ment the­o­ries, which call state cap­i­tal­ism a tem­po­rary phase that can help Chi­na’s econ­omy catch up to the West be­fore be­ing re­placed by so­cial­ism,” the senior China correspondent writes. “An ar­dent fol­lower of Mao, Mr. Xi has preached to party mem­bers that the hy­brid model has passed its use-by date. A 2018 ar­ti­cle in the par­ty’s main the­o­ret­i­cal jour­nal, Qiushi, or Seek­ing Truth, laid bare his be­lief: ’Chi­na’s prac­tice shows that once the so­cial­ist trans­for­ma­tion is com­pleted, the ba­sic so­cial­ist sys­tem with pub­lic own­er­ship as the main body is es­tab­lished…[and] state cap­i­tal­ism, as a tran­si­tional eco­nomic form, will com­plete its his­tor­i­cal mis­sion and with­draw from the his­tor­i­cal stage.’”

• Back in June, 20-year-old George Mason University pitcher Sang Ho Baek died after undergoing Tommy John surgery to repair a torn ligament in his pitching elbow and experiencing a rare pulmonary embolism in the days afterward. Stephen Nesbitt took the time to learn his story, and the resulting piece in The Athletic is heart-wrenching. Sang’s family left Seoul for the United States in 2014, and one of the first things his father did upon landing a job at a poultry factory in Maryland was bike around looking for Little League baseball teams his son could join. “He spoke little English, but he had a map and purpose. Pedaling from stop sign to stop sign, he rehearsed a line: Can my son play on your team? His name is Sang. He is a pitcher,” Nesbitt writes. “Sang’s dream was to pitch in the major leagues and buy his parents a house. … In a video from his mother’s birthday in 2012, 11-year-old Sang is seen wearing his Little League uniform, singing and dancing in their Seoul kitchen. In his birthday letter, he writes that he’ll work and study hard and become a famous baseball player, then ends it by reminding his mother to wake him early for practice in the morning.”

• “There are no longer American troops in Afghanistan, but America’s wars go on,” Mark Mazzetti writes for The New York Times. President Biden’s claim earlier this week that the United States is not at war for the first time in 20 years “was just the latest attempt by an American president in the two decades since the Sept. 11 attacks to massage the language of warfare to mask a sometimes inconvenient reality: that America is still engaged in armed conflict throughout the world. In a letter to Congress in June, Mr. Biden listed all the countries where American troops are operating against various militant groups—from Iraq and Syria to Yemen to the Philippines to Niger.”

Something Positive

We’ll take the wins where we can get them: The number of people getting their news from social media actually declined somewhat this year, according to a recent Pew Research Center report.

Presented Without Comment

Toeing the Company Line

• On Wednesday’s Dispatch Podcast, Sarah, Steve, Jonah, and David discuss the Pentagon’s botched drone strike in Kabul, the AUKUS agreement and France’s apoplectic reaction, and the Biden administration’s approach to immigration in light of the latest migrant surge in Texas. It all leaves Jonah with one big question: Is Biden just bad at his job?

• Jonah builds on that question—and the sleight-of-hand many administration-friendly pundits are employing to evade it—in his midweek G-File (🔒). There has been “an enormous amount of chatter about how Biden had ‘a bad week’ or was ‘dealt setbacks’ or got ‘bad news,’” Jonah writes, noting the president’s own agency is typically stripped from the headlines. “It seems that Biden keeps ‘finding’ himself in unfortunate situations. On September 19, the AP reported that ‘over the past several months, Biden has found himself at odds with allies on a number of high-profile issues.’ … Biden hasn’t ‘found himself’ at odds with allies, he antagonized allies. The Brits, the French, and even the Canadians were pissed about how we withdrew from Afghanistan. Our allies are furious that Biden has doubled down on Trump’s protectionism. These are choices, not cold impersonal forces.”

• “One of the summer’s most widely covered financial phenomena is the global ‘shipping crisis’ and its harms to the U.S. and global economies,” Scott Lincicome writes in yesterday’s Capitolism (🔒). “Less-covered, however, (if at all) are the long-term, systemic problems—and bad U.S. policy—that have almost certainly made the situation far worse than it could or should have been by exacerbating delays at almost every major U.S. port.”

• On the site today: Oliver Wiseman examines how the AUKUS partnership has speedily healed U.S.-U.K. relations strained by the departure from Afghanistan, and Scott Winship offers a definitive look at how effective U.S. policy was in keeping poverty and hardship to a minimum in the early days of the pandemic.

Let Us Know

The shipping delays Scott examines are adding to the pressure on the U.S. economy from broader supply chain issues. AEI scholar Sean Trende reports seeing evidence of these challenges in everyday life. “Went to Macy’s to get shoes; the guy said he usually had 8,000 pairs but today only had 400. The brake rotors for my wife’s car were on backorder. The shelves at the paint store were half-empty.” 

What have you seen?

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), Charlotte Lawson (@lawsonreports), Audrey Fahlberg (@AudreyFahlberg), Ryan Brown (@RyanP_Brown), Harvest Prude (@HarvestPrude), and Steve Hayes (@stephenfhayes).