Here’s something no one will tell you today.
Xi Jinping is in trouble.
There is an assumption in the West that, because China is run as an authoritarian state, and Xi Jinping is the President of that state, that he can do anything he wants.
I don’t buy it. The country is too big and too complicated for that to be the case.
Xi has been messing with China’s economy for a year now. Everything he does seems to make things worse. Going after the country’s Cloud Emperors – Alibaba, TenCent, and Baidu – made political sense. Most actions are in line with what western trustbusters would like to do with our Cloud Czars – Amazon, Apple, Facebook, Google, and Microsoft. But investors have been losing money.
Westerners don’t understand how much power the Cloud Emperors have. They dominate the entire economy, not just the cloud. Young Chinese are, if anything, more addicted to their phones than we are. They’re overworked, their homes are tiny, many are still living with their parents. The consumerism pushed by the economy, through the Cloud Emperors, has gotten pushback from millions who resent the “996” lifestyle pushed by Alibaba co-founder Jack Ma. The 996 lifestyle means working from 9 to 9, 6 days a week. This is a 72 hour workweek, not counting the time spent commuting or preparing for work. And for what, they ask?
Xi has reacted to this by attacking the phone-based playstyle that makes all this tolerable. Telling China’s kids that they can only be on their phones for an hour each day is what American parents were doing in the 1960s, attacking rock and roll. It’s out of touch.
All Xi’s moves meant to impose order are doing serious damage to the stock market, which is where the “winners” on the 996 train HAVE their money. The Shanghai market has taken three skids just this year, although overall it’s still up 3%. The third drop is happening now.
That drop is caused by the fall of Evergrande, a huge residential real estate company. To Chinese, it’s upsetting because millions of people buy their houses upfront, handing over cash before their homes are built. This is the payoff of the 996 lifestyle and, in a standard bankruptcy, Evergrande might renege on its commitments, leaving these people with nothing. Xi could order a bailout, and most on Wall Street expect that, but bondholders would be wiped out, and that includes a lot of westerners. Wall Street is falling.
The bottom line is that Xi Jinping is struggling to tame the world’s second-largest economy and folks there are unhappy. We like to pretend it doesn’t matter, that Xi Jinping can just send troops into the street, as he did in Hong Kong, and make everyone go back to work. It’s not that simple. The Mandarins and party functionaries under Xi are as tied to the economic tracks as everyone else.
When Americans think something is simple that isn’t, trouble follows.
