China's "Red" Revival: Implications for BusinessForbes
10/09/11
In the first three decades of the People’s Republic, Mao nationalized industry, collectivized agriculture, and imposed his atomized model, ripping apart China along the way with monstrous campaigns costing the lives of tens of millions. For three decades after that, Deng restored order, rationalized the economy, and opened the country to foreign investment.
Beijing tells us it is still reforming, but Hu Jintao, the current leader, is presiding over an era marked, on balance, by the reversal of reform. There have been three disturbing economic trends during his rule.
First, Hu has been blocking high-profile foreign acquisitions, especially beginning in 2007 with Microsoft’s attempt to take a stake in Sichuan Changhong Electric and Goldman Sachs’s moves on Midea Electric and Fuyao Group. Carlyle was frustrated in its multi-year pursuit of Xugong Group Construction Machinery late last decade, and the central government used its new anti-monopoly law against Coca-Cola when the American icon tried to buy Huiyuan Juice Group in 2009.
Second, Hu’s government has been renationalizing the economy for about a half decade. During his tenure, China Investment Corp., the sovereign wealth fund, and the National Social Security Fund went into the Chinese stock markets to buy up shares that were in private hands.
But at the end of 2008 the government’s renationalization program really got rolling. Then, Beijing, to avoid a slowing of growth, ramped up investment, now the most important of the three legs of the Chinese economy, with perhaps the largest program of stimulus spending in history. Beijing’s stimulative plan is resulting in a bigger state economy and a smaller private one: about 87% of recent growth is attributable to investment, almost all of it from the state. And state investment is going into the state sector, of course. The state’s stimulus plan is favoring large state enterprises over small and medium-sized private firms and state financial institutions are diverting credit to state-sponsored infrastructure. As they say, “the Communist Party is now the economy.â€
Third, Hu Jintao has been busy shutting out foreign competitors as he has embraced a new economic paradigm of closing the country down. The Chinese government has actively tried to cripple foreign competitors, for instance.
Beijing officials, we now know, targeted Google, stole its source code, and then undermined its ability to compete in order to help local search engine Baidu. The Communist Party is attempting to build “national champions†and wants 50 of the world’s 500 largest companies to be Chinese by the middle of this decade. And it is willing to use harsh tactics to achieve this goal, like the indigenous innovation product accreditation rules that force foreign companies to surrender technology.
And Hu’s designated successor is bound to continue regressive trends. Xi Jinping is a “princeling,†a descendent of one of the early leaders of the People’s Republic, communist royalty. In Beijing these days there is a sense he will bring in other princelings into positions of political power. The princeling faction will then use its new clout to consolidate its grip on the economy. Senior leaders with their patronage groups and circle of supporters will milk even more wealth from business.
http://www.forbes.com/sites/gordonchang/2011/10/09/chinas-red-revival-implications-for-business/Watch and learn DU misfits what happens when communism takes over -- China will soon be demonstrating the meaning of the term "better dead than red."
Those poor slobs in China.
