Xi's Goal: Restore Mao's Economic Vision

 Americans are right. The French and German aspirations to trade with China as before and to avoid confrontation are short-sighted. The Chinese Communists are true Communists. They make a communist order in China, and when they finish there, they will come to make a communist order in our garden:
   

"Xi Jinping's campaign against private enterprise, it is increasingly clear, is far more ambitious than meets the eye.
The Chinese President is not just trying to rein in a few big tech and other companies and show who is boss in China.
He is trying to roll back China's decadeslong evolution toward Western-style capitalism and put the country on a different path entirely, a close examination of Mr. Xi's writings and his discussions with party officials, and interviews with people involved in policy making, show.
For most of the 40 years after Deng Xiaoping first unleashed economic reforms in China, Communist Party leaders gave market forces wider room to flourish. That opening helped lift hundreds of millions of people out of poverty and created trillions of dollars in wealth, but also led to rampant corruption and eroded the ideological basis for continued Communist rule.
In Mr. Xi's opinion, private capital now has been allowed to run amok, menacing the party's legitimacy, officials familiar with his priorities say. The Wall Street Journal examination shows he is trying forcefully to get China back to the vision of Mao Zedong, who saw capitalism as a transitory phase on the road to socialism.
Mr. Xi isn't planning to eradicate market forces, the Journal examination indicates. But he appears to want a state in which the party does more to steer flows of money, sets tighter parameters for entrepreneurs and investors and their ability to make profits, and exercises even more control over the economy than now. In essence, this suggests that he aims to rewrite the rules of business in what could someday be the world's biggest economy.
"China has entered a new stage of development," Mr. Xi declared in a speech in January. The goal, he said, is to build China into a "modern socialist power."
Mr. Xi's overhaul has generated more than 100 regulatory actions, government directives and policy changes since late last year, according to a Journal tally, including steps aimed at breaking the market dominance of companies such as e-commerce behemoth Alibaba Group Holding Ltd., conglomerate Tencent Holdings Ltd. and ride-sharing leader Didi Global Inc.
The government's recent measures to tame housing prices are worsening a cash crunch at China Evergrande Group, a heavily indebted real-estate developer, sending chills across global markets. Beijing is unlikely to bail out Evergrande the way it has rescued many state firms, analysts say, and could further tighten the regulatory screws on other private developers.
Mr. Xi has signaled plans to go much further. During a leadership meeting in August, he emphasized a goal of "common prosperity," which calls for a more equal distribution of wealth. This would be achieved in part through more government intervention in the economy and more steps to get the rich to share the fruits of their success.
An Aug. 29 online commentary circulated by state media called it a "profound revolution" for the country.
"Xi does think he's moving to a new kind of system that doesn't exist anywhere in the world," said Barry Naughton, a China economy expert at the University of California, San Diego. "I call it a government-steered economy."
A number of countries closely regulate industry, labor and markets, set monetary policy and provide subsidies to help boost their economies. In Mr. Xi's version, the government would have a level of control that would allow it to steer the economy and industry along a path of its choosing, and channel private resources into strengthening state power.
The big risk for China and Mr. Xi is that the push winds up suppressing much of the entrepreneurial energy that has powered China's boom and years of innovation.
For foreign businesses, the campaign likely means more turbulence ahead. Western companies have always had to toe the party line in China, but they are increasingly asked to do more, including sharing personal user data and accepting party members as employees. They could be pressed to sacrifice more profits to help Beijing achieve its goals.
The Information Office of the State Council, China's top government body, didn't respond to questions for this article.
Before this year, Mr. Xi was distrustful of capital, but he had other priorities. Now, having consolidated power, he is putting the whole government behind his plans to make private business serve the state.
A once-in-a-decade leadership transition due for late 2022, when Mr. Xi is expected to break the established system of succession to stay in power, provided an impetus to act and show he is doing something big for the people to justify longer rule, officials involved in policy making say.
At internal meetings, some of them say, Mr. Xi has talked about the need to differentiate China's economic system. Western capitalism, in his view, focuses too heavily on the single-minded pursuit of profit and individual wealth, while letting big companies grow too powerful, leading to inequality, social injustice and other threats to social stability.
Early this year, when Facebook Inc. and Twitter Inc. took down former U.S. President Donald Trump's accounts, Mr. Xi saw yet another sign America's economic system was flawed -- it let big business dictate what a political leader should do or say -- officials familiar with his views said.
A few months later, when the Chinese Communist party celebrated its centenary on July 1, Mr. Xi donned a Mao suit and stood behind a podium adorned with a hammer and sickle, pledging to stand for the people. After the speech, he sang along with "The Internationale" broadcast across Tiananmen Square. In China, the song, a feature of the socialist movement since the late 1800s, has long symbolized a declaration of war by the working class on capitalism.
Such gestures, once dismissed as political stagecraft, are being taken more seriously by China watchers as it becomes evident Mr. Xi is more ideologically driven than his immediate predecessors.
A policy aimed at turning private education companies into nonprofit entities all but killed New Oriental Education & Technology Group Inc., which has provided English lessons to generations of students studying abroad. Its shares have plunged about 90% this year.
Founder Yu Minhong, nicknamed "Godfather of English Training" in China, broke into tears during a recent company meeting, according to an employee. "It's devastating to him, and to all of us," the employee said.
Mr. Xi's policy changes have dashed more than $1 trillion in stock-market value and erased over $100 billion of wealth for entrepreneurs such as Alibaba founder Jack Ma and Tencent's Pony Ma. Private companies and their owners are being encouraged to donate profits and wealth to help with Mr. Xi's common-prosperity goals. Alibaba alone has pledged the equivalent of $15.5 billion.
State-owned companies, having already bulked up under Mr. Xi's rule, are marching into areas that were pioneered by private firms but are increasingly seen as crucial to national security, such as management of digital data.
A ministry supervising state companies, the State-owned Assets Supervision and Administration Commission, is mapping plans to set up more government-controlled providers of cloud services for data storage, people familiar with the agency's workings say. Such services have been dominated by private companies, including Alibaba and Tencent.
Government-controlled entities are acquiring stakes and filling board seats in more companies to make sure they fall in line with the state's goals. ByteDance Ltd., owner of the video-sharing app TikTok, and Weibo Corp., which runs Twitter-like microblogging platforms, recently have sold stakes to state-backed companies.
Mr. Xi is fully in charge of the campaign, instead of delegating details to Vice Premier Liu He, his chief economic adviser, as in the past.
Mr. Liu, known as a market-friendly reformer, spent the past few years representing China's top leader abroad in trying to avert a trade war with the U.S. At times, he sought to cast Mr. Xi's efforts to skeptical Americans as necessary for pushing through stalled market-oriented changes.
Mr. Liu, who faces retirement next year, had to offer a Mao-style self-criticism for not having stopped Didi from launching a $4.4 billion New York initial public offering in late June, according to people with knowledge of the matter. Self-criticism, traditionally used by the party to discipline members, is a practice Mao borrowed from Stalin and remains alive and well in Mr. Xi's China.
Mr. Xi blamed a lack of coordination among regulators for letting the IPO slip through. While China's cybersecurity regulator had sounded alarms to Didi about its network security before the stock listing, other regulators such as the transportation ministry, which reports to Mr. Liu, were largely supportive of the listing plan.
In the absence of being told explicitly to stop its stock sale, Didi proceeded. Mr. Xi has since ordered a multiagency investigation of the company.
Soon after the IPO incident, Mr. Liu said at a public forum: "In the new stage of development, we should coordinate the relationship between development and security."
Chinese regulators also recently reviewed a deal involving private-equity firm Blackstone Inc., co-founded by billionaire Stephen Schwarzman, another key figure in U.S.-China relations. Like some other financiers, he served as a go-between for China's leaders and the Trump administration.
In June, Blackstone agreed to acquire a majority stake in Soho China Ltd., a property developer, for about $3 billion. The price was about 40% of Soho China's book value as of the end of last year, leaving Blackstone significant room for gains.
China's social media quickly grew abuzz with posts describing the husband-and-wife team that runs Soho China, Pan Shiyi and Zhang Xin, as trying to cash out so they could leave China as sentiment turns against wealthy tycoons. Beijing's censors, who often delete posts in the name of fending off negative energy, left these alone. The couple couldn't be reached for comment.
The State Administration for Market Regulation in August started an antitrust review of the deal. A month later, Blackstone scrapped it as the review dragged on. In a joint statement Sept. 10, the firms said they wouldn't be able to "satisfy the pre-conditions" in time to complete the transaction.
Blackstone declined to comment further. Soho China didn't respond to requests for comment.
Mr. Xi's plan to reset the economic order came together at the Central Economic Work Conference last December, an annual agenda-setting event, say officials familiar with the process. At the meeting, at a heavily guarded government hotel in western Beijing, Mr. Xi highlighted some acute imbalances brought by "big capital," some of the officials say.
He singled out the internet-technology sector for having big companies that use capital markets and other resources to enrich their owners and investors -- widening income gaps and diverting funds from parts of the economy important to China's competitiveness such as high-end manufacturing.
His remarks came just a few weeks after Mr. Xi had personally intervened to stop Jack Ma's fintech firm Ant Group from launching what would have been the largest-ever initial public offering. One issue was the big payouts well-connected people stood to gain, the Journal reported earlier this year.
In January, at a meeting with senior officials from across the country, Mr. Xi stressed the importance of spreading wealth more evenly among China's 1.4 billion people, a socialist objective of early party leaders.
In Beijing, some officials have dubbed Mr. Xi's effort to smack down big capital boluan fanzheng, or bringing order out of chaos. It is the new catchword for macroeconomic policy, a government adviser said.
To accommodate the planned overhaul, the leadership set a growth target of 6% for 2021, relatively low given the strong rebound at the time.
Mr. Xi and his underlings still talk about the need to develop the private sector, which accounts for 80% of China's urban jobs. But officials say the focus now is on fostering small and midsize companies, in areas ranging from power equipment to sensors and semiconductors, that aren't likely to become alternative power bases.
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.
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."
On other occasions, Mr. Xi has been blunter. "Socialism with Chinese characteristics is socialism, not any other 'ism,'" he told senior party leaders in January 2013 -- a warning he has often given party members since then, according to officials." [1]

We will not do without trade restrictions and confrontation. Only for Lithuanian diplomacy would be a mistake to jump out first, earlier than the US, in that confrontation, as Gabrielius Landsbergis is doing now.

1. Xi's Goal: Restore Mao's Economic Vision
Wei, Lingling.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 21 Sep 2021: A.1.