The American way of 'just do it' by acting ex-post is well-known, as too are the risks of such behavior. Europe, on the other hand, is an old and prudent dame, who prefers to proceeds ex-ante and still believes that slow and steady wins the race.Matteo Scotto is a current ZEI Fellow 'Class of 2015'. REWRITE the Racial Rules: Building an Inclusive American Economy 5 Executive Summary This report argues that, in order to understand racial and economic inequality among black Americans, we must acknowledge the racial rules that undergird our economy and society. Those rules—laws, policies, institutions, regulations. Rewriting the Rules of the American Economy - Free download as PDF File (.pdf), Text File (.txt) or read online for free. An Agenda for Growth and Shared Prosperity by Roosevelt Institute Chief Economist Joseph Stiglitz.
This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.
Ryan Knutson: Right now a major Chinese real estate company called Evergrande Group is on the brink of failure.
Speaker 2: Chinese real estate giant Evergrande is sinking under 300 billion of debt. If it's allowed to collapse, it could trigger a crash in China's property market that accounts for over a quarter of its GDP.
Ryan Knutson: The company's problems are in part because of a crackdown from China's government. Real estate prices have been rising rapidly for years and Chinese President Xi Jinping has imposed new regulations to try and slow that growth.
Lingling Wei: Xi Jinping has mentioned many times, housing is for living not for speculation.
Ryan Knutson: That's our colleague Lingling Wei. She says that, in the past, China's government would bail out a company like Evergrande, but that doesn't look likely this time. This morning, the Wall Street Journal reported that the Chinese government has been preparing for the company's collapse. And Evergrande is not the only company that the Chinese government is cracking down on. Right now, China is on a campaign to reign in its own private sector, imposing roughly 100 new regulations on some of its biggest companies since last year, and Lingling says this crackdown goes be beyond typical economic policy making.
Lingling Wei: The recent spate of policy actions is way bigger than just regulatory crackdown. It is reflective of the Chinese leader's effort to inject greater ideological purity into the Chinese system to make China's economic model look more like socialism, Mao Zedong's socialist vision as opposed to Western style capitalism.
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Ryan Knutson: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson. It's Thursday, September 23rd. Coming up on the show, how President Xi Jinping is rewriting the rules of China's economy. To understand what's happening to the Evergrande Group and other Chinese companies, we have to go back a few decades before President Xi came to power. Back in the late 1970s, China was still following Mao Zedong's blueprint for economic socialism, but when Deng Xiaoping became China's leader in 1978, he decided to open China to the rest of the world, and that meant embracing Western style capitalism.
Lingling Wei: The former Chinese leader that heralded this era of reform and opening up when China started to embrace the outside world, embrace market forces. He famously said, 'Let a few people get rich first,' or this famous cat quote, he said, 'No matter you're a white cat or a black cat, as long as you can catch mice, you're a good cat.' So what he was trying to convey back then was, 'Let's cast aside all that ideological labeling. Let's focus on developing the economy. Let's focus on development.'
Ryan Knutson: So by the time Xi Jinping came to power in 2012, capitalism already had a good foothold in China. Global investors were pouring in and Chinese startups were turning into global powerhouses. But Lingling says Xi Jinping started to become distrustful of capitalism. China's economic growth was slowing and he wasn't always able to control the free market.
Lingling Wei: One event that really spooked him was 2015 when China's stock market crashed after a significant run up in stock prices, and that experience really made him very weary of market forces. And in the end, it was state funds that came to the rescue and propped up the market again. Western capitalism, in his view, just focuses too heavily on the single minded pursuit of profit and individual wealth while letting big companies, big conglomerate grow too powerful. And that has led to inequality, social injustice, and other threats to social stability.
Ryan Knutson: On top of that, Xi Jinping saw how much power big companies were amassing in the U.S., and he was not a fan.
Lingling Wei: When Facebook and Twitter took down President Trump's accounts, Xi Jinping, he took that as yet another sign American style capitalism was flawed, it was broken because it let big business dictate what a political leader should do or say, and that must not happen in China.
Ryan Knutson: So his concern was that companies were getting so big and so powerful in China that it threatened his power and the power of the Communist Party?
Lingling Wei: Exactly.
Ryan Knutson: So Xi Jinping started cracking down on the private sector, including on some of the country's most celebrated businesses. Last year, the Chinese government blocked a hotly anticipated IPO for one of its biggest tech startups.
Lingling Wei: In November of last year, Xi Jinping personally intervened to stop Jack Ma's Ant Group, which is a financial technology company, from launching a world beating IPO. That was just such a seminal moment in China's economic history. It marked the first time that the government would have stopped one of their basically star companies from carrying out a significant fundraising plan for future growth. So ever since then, you just have seen one action after another.
Ryan Knutson: One area the government has been cracking down on recently is real estate. Housing prices have been rising rapidly, putting a strain on the middle class. So to try and bring down prices, China is limiting the amount of money that real estate developers can borrow. And that's part of the reason Evergrande, a major real estate developer, has found itself in so much trouble.
Lingling Wei: So for companies like Evergrande, they just have binged on debt for years and all of a sudden cashflow is becoming a problem. So the default risk is rising by the day. That really has become a huge destabilizing factor in global markets today.
Ryan Knutson: And it's not just real estate and FinTech companies. Xi Jinping is taking aim at a wide range of businesses, blocking IPOs, adding new regulations, and even pushing some companies to donate billions of dollars to social causes. And there's seemingly no company too successful to avoid it. For example, in April, Alibaba, China's version of Amazon, saw regulatory action against it.
Speaker 4: Chinese regulators hit Alibaba with a record fine accusing, the world's largest online retailer of abusing its strong position.
Ryan Knutson: And a few months later, a ride sharing company called DiDi also got hit.
Speaker 5: The Communist government sending regulators, including security and police officials, right to the headquarters of the ride hailing giant today.
Ryan Knutson: And even after school tutoring. One company run by a man named (Yuman Hong) was told it was no longer allowed to be a for-profit business. It had to become a nonprofit.
Lingling Wei: Yuman Hong is one of the typical rags to rich stories in China. He really came with nothing but over the years has built a very successful business.
Ryan Knutson: And after this new rule, the company's stock plunged 90% overnight.
Lingling Wei: Yuman Hong, whose nickname is 'Godfather of English training' in China recently broke into tears at one of those internal company meetings because overnight this one government directive just wiped out the entire business for him.
Ryan Knutson: For people in China, these changes were surprising. Xi's crackdowns were unprecedented and no one really knew what to make of it.
Lingling Wei: There has been a lot of debate and confusion within China too. If you ask investors, private business owners, they're very confused and they are very worried. One of the entrepreneurs recently told us, 'If you want us to share the fruits of our success, then what's the point of trying so hard to build a business.' But if you ask some other people like maybe parents of student and felt really overburdened by arising housing prices, by ever rising education costs, they may tell you a different story. They may say, 'This is the right thing to do.'
Ryan Knutson: Amid this confusion, Lingling decided to closely study Xi's writings and speeches to try and make sense of what he is hoping to accomplish.
Lingling Wei: Because the scale, the breadth of the crackdown, it's just so broad. In years past, China definitely had launched similar campaigns before, but none so sweeping. Basically, you've got so many sectors affect by the crackdown and so many entrepreneurs affected, and even industries like entertainment and digital gaming, just a very broad campaign against the private sector. So we are really trying to figure out what exactly Xi Jinping's up to where exactly he's taking China.
Ryan Knutson: After the break, Lingling's analysis tells us what President Xi's been up to. July 1st is a public holiday in China. It's the day people celebrate the founding of China's Communist Party. There are about 90 million members at the CCP and some of them traveled to Beijing to cheer on party leaders during a massive celebration.
Speaker 6: President Xi Jinping vows China will never be bullied again as the ruling Communist Party celebrates its 100th anniversary.
Ryan Knutson: This year was the100th anniversary of that founding so the celebrations were even bigger than usual. It was held at Tiananmen Square, the same place Mao Zedong declared the founding of the People's Republic of China. And when Xi Jinping took the stage this year, he was wearing the iconic gray suit that Mao made famous.
Lingling Wei: So then Xi Jinping delivered a very rousing and aggressive speech. Basically, he talked about how the Party really saved China and we needed to continue to follow our own path and we need to stand up for the people. So it's a very confident and aggressive speech, and immediately after the speech, The Internationale, this song that traditionally is a song of celebrating the socialist movement in China, was played. The big significance of that song is that it represents a declaration war by the working class on capitalism.
Ryan Knutson: And Xi Jinping sang along to the song.
Lingling Wei: The sight was pretty amazing. He was wearing this Mao suit and speaking from a podium adorned by the symbol of China's Communist Party.
Ryan Knutson: Inside China, a lot of people loved it.
Lingling Wei: The speech fed into this already rising nationalist sentiment in China. Over the past couple years, especially after the trade war with the U.S. and the pandemic, the Chinese public really felt very proud of what China has done. They felt like China kept the economy going despite Trump's very aggressive actions against China and also they felt like China had done a much better job than the rest of world in terms of fighting pandemic.
Ryan Knutson: It's speeches like these that Lingling has been paying close attention to. She says that this speech in particular from July was a signal of the deeper ideological shifts that Xi Jinping is implementing. Tell me what your revelation was? After you finished that review, was it an aha moment for you?
Lingling Wei: I would say it was both an aha moment and a not so aha moment for me, because the signs have been there for a long time, but obviously before this recent crack down, people thought, 'All those Communist Party leaders say that. They all talk about the belief in Marxism, in communism, in socialism.' Few people have taken that too seriously. But with Xi Jinping it's different. As evidenced by the crackdown, here really means what he says now. He really wants to show that he's doing something more drastic, big.
Ryan Knutson: Lingling says that Xi Jinping's writings show he's more ideologically driven than any of his recent predecessors.
Lingling Wei: Under previous leaders before Xi, the overarching agenda priority really was economic development. Economy trumped ideology. But under Xi Jinping, it's politics, ideology trump everything else. So where he's moving China is to a state where it's more socialist as evidenced by the tighter restrictions on private entrepreneurs, the tighter restrictions on foreign businesses operating in China, and the burden that's on them these days.
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Ryan Knutson: Mm-hmm (affirmative). So is Xi Jinping trying to return to a Mao style of communism?
Lingling Wei: So Xi Jinping is a very passionate follower of Mao's. Really, his ideological preference is deep rooted in Mao Zedong's theories, which really see capitalism as a transitory phase towards socialism.
Ryan Knutson: Hm.
Lingling Wei: But I don't think Xi Jinping is trying to move China back into the famines and cruel years of culture revolution. That is different, but he does share the visions Mao has for China's future. It's not Western style capitalism, but it's more socialist. The state has a much bigger role in every aspect of Chinese life. The party controls everything, be it military, be it foreign policy, be it education, be it economy.
Ryan Knutson: Mm-hmm (affirmative).
Lingling Wei: So that's the vision Xi has for China.
Ryan Knutson: When asked for comment, the Information Office of the State Council, which this China's top government body, didn't respond to Lingling's questions. Part of the reason Xi Jinping might be pushing for this ideological shift is because of his own interest in staying in power. He's led China for nearly a decade, and he's supposed to step down by 2023, but there are strong signals he's trying to hold on to power.
Lingling Wei: So under the established system of succession, he should step down by the end of next year. The Party will have another big convention of sorts. A new slate of leaders should be announced. However, Xi Jinping's very much expected to break this established system of succession to stay at least for another term. But you still need to justify longer rule, longer than expected rule. So what he's doing now is basically a way of conveying to the Chinese public, 'Look, you really need a strong leader like me to be in place, to be in office for longer to address all the problems you're facing.'
Ryan Knutson: Mm-hmm (affirmative). 'Because we've got something big going on right now, we shouldn't have a transition in leadership.'
Lingling Wei: Exactly. And only he can fix things, only he can carry out the reforms defined by him.
Ryan Knutson: So if Xi Jinping's vision does get fully enacted, what do you think China's economy will look like?
Lingling Wei: His vision, money and other resources would flow to areas that he thinks are key to China's future like high end manufacturing, semiconductors, AI, new energy vehicles, et cetera. And not too much money just going to speculative areas like stock markets and housing market or internet platform companies like Alibaba. But there's a reason why market forces work in countries like the U.S. and other democratic countries that is good for competition, and competition is good for innovation. But in China, private competition, private business is being clamped down so much. What is the incentive for innovation? That's a huge question.
Ryan Knutson: That's all for today, Thursday, September 23rd, The Journal is a co-production of Gimlet and the Wall Street Journal. This episode has been updated to correct the pronunciation of Evergrande Group. Apologies for the mistake. Thanks for listening. See you tomorrow.