A Warning from Xi Jinping

President Xi Jinping opened the 40th Anniversary of China’s reform by warning of “unimaginable” perils that only his leadership of the Communist Party can control.

When Communist Party General Secretary Deng Xiaoping announced on December 18, 1978 that China would take steps to open engagement and welcome some capitalism, he told China leaders to: “Hide your strength, bide your time, never take the lead.”

But confronted by President Donald Trump’s multifaceted macroeconomic and geopolitical efforts to use trade, diplomacy, and military muscle to counter “Made in China 2025” ambitions to achieve world technological and supply chain dominance, Xi is moving to bifurcate the world into competing American and Chinese spheres of influence.

Speaking to 10,000 state officials at the Great Hall of the People to mark the 1978-2018 period of economic opening reforms, Xi spent an hour-and-a-half emphasizing: “The practices of reform and opening up in the past 40 years have shown us that the Chinese Communist Party leadership is the fundamental character of socialism with Chinese characteristics… east, west, south, north, and the middle, the party leads everything.”

Since taking power in 2012, General Secretary and President Xi has disciplined 18 full members and 17 alternative members of the 35 members of the Chinese Communist Party. According to official data, another 1.34 million high to low level officials -- referred to as "tigers and flies" -- have been purged under disciplinary and corruption charges.

In recognition for his contributions to socialism’s advancement during his 6-year term, the Chinese constitution was amended in March to eliminate its one-term limit by a National People’s Congress vote of 2,958 in favor, two opposed and three abstentions.

Xi began his anniversary speech by assailing the 1966 to 1976 Cultural Revolution under Chairman Mao Zedong that sent 20 million city dwellers to the country for re-education, caused 200 million farmers to suffer from chronic malnutrition, and drove another 1.5 million executions and suicides.

The period is known to be especially personal to Xi, because his father Xi Zhongxun was dragged by Red Guards in front in front of a mob and disgraced for gazing through binoculars at West Berlin during a visit to communist East Germany.

It was expected that Xi’s speech would celebrate economic accomplishments, but Xi sounded more like Chairman Mao when he warned: “Every step in reform and opening up will not be easy, and we will face all kinds of risks and challenges in the future and we may even encounter unimaginable terrifying tidal waves and horrifying storms.”

President Xi then asserted a deeper primacy of the Chinese Communist Party’s rule by purging the term “private sector” when he stated: “We must, unswervingly, reinforce the development of the state economy while, unswervingly, encouraging, supporting and guiding the development of the non-state economy.” Bloomberg reported that Asian composite stock index fell during the Xi’s speech.

Diana Choyleva of Enodo Economics, who grew up in communist Bulgaria and is recognized by many on Wall Street as the best economist analyzing China, believes that a new multi-polar world is emerging within the “framework of de-globalization.”

Choyleva acknowledges that the U.S./China “Trade War” may calm down in the next few months, but she forecasts a growing U.S./China “Tech War” that will result in a “breaking up and re-routing existing supply chains.” Such action should cause a return of cost-push inflation, which she perceives as “bad news” for global stocks and bonds.

She points out that as Presidents Trump and Xi were enjoying a “wonderful dinner” in Buenos Aries during the G-20 Meeting that led to a 90-day Trade War Truce, CFO Meng Wanzhou of Huawei, the world’s largest maker of telecommunications equipment make, was being arrested in Vancouver on a U.S. warrant for violating Iran sanctions.

China’s Communist Party-controlled news services hailed the Trade War Truce dinner the next morning as a tremendous negotiating accomplishment. But the People’s Daily the next day called Meng’s arrest a violation of human rights and said detention and threats to extradite her to the U.S. were political moves calling for stern consequences.    

Choyleva expects that even if the Trade War calms, Washington will likely intensify efforts to contain China’s tech firms by recruiting Asian and European partners with similar concerns. She expects that as the global economy weakens in 2019, China will align with Russia to move across the Eurasian plain and seek to break up Europe.

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