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Who Calls The Shots In China
As documented here and elsewhere, in addition to the Pope and Putin, the third world leader US president Obama is "historically" meeting this week is China's President, and General Secretary of the Chinese Communist party, Xi Jinping. But just like everywhere else, the president is mostly a figurehead for far greater political and primarily financial interests backing him.
So who calls the shots in China? The following infographc lays out the key power divisions of political, economic and financial power in China at this moment.
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Curious for more insights "from the ground"? Then read the following interview between Goldman's Allison Nathan and former PBOC monetary policy committee member and current professor at Tsinghua University, David Daokui Li.
David Daokui Li is the Mansfield Freeman Chair Professor at the Tsinghua University School of Economics and Management and Dean of the Schwarzman Scholars at Tsinghua University. He is a former member of the Monetary Policy Committee of the People’s Bank of China and currently serves as a member of the Chinese People’s Political Consultative Committee. His research on the Chinese economy has focused on areas including currency policy and structural change. Below, he discusses China’s recent market volatility and its implications for economic reforms
Allison Nathan: Who is driving the economic and market policymaking process in China?
David Li: The policy process is driven by a complex of government agencies led by the Ministry of Finance (MOF), the central bank (PBOC), and the National Development and Reform Commission (NDRC). That said, critical decisions about currency and monetary policy are heavily debated and deliberated and finally decided within the central government by a group called the Central Leading Group for Financial and Economic Affairs, which is physically situated next door to China’s White House, Zhongnanhai.
Allison Nathan: What are the Chinese leadership’s core goals? How are political and economic goals prioritized?
David Li: The leadership no longer has a single-item agenda like it did under Deng Xiaoping in the early 1980s, when economic development was the top priority. The Chinese expression was that economic growth is the bottom line. But today, widespread corruption and signs of decreasing effectiveness of the Chinese Communist Party (CCP) have raised concerns within the leadership, prompting them to treat the sustainability of CCP rule as the top priority. As a result, they have put heavy emphasis on anti-corruption and ensuring the decency of party officials’ behavior. But ensuring that the economy continues to grow at a moderately fast pace—say, 6-7%—remains a priority. Indeed, economic growth remains the foundation of the resolution of many issues, including the party’s sustainability.
Allison Nathan: How do policymakers view the potential tradeoff between economic modernization and relinquishing control of the markets/the economy?
David Li: Policymakers understand that in order to become more dynamic, the economy must become more efficient through reform. That tradeoff is very clear to them. But the bottom line is that they want to maintain macro-level control in order to defend the economy against systemic risk, and especially against financial crisis.
Allison Nathan: Central bankers around the world are trying to achieve this balance. Aren’t the priorities in China somewhat different?
David Li: The top leadership in China has many of the same objectives as policymakers elsewhere. But in addition to those objectives, they have a lower tolerance for things like widespread unemployment or large swings in the prices of food and gasoline, because they worry that such volatility could raise anxiety among the general public. The concern is that economic problems, combined with other social complaints, may provoke general political protests.
Allison Nathan: Why have some areas of economic reform moved so much faster than others?
David Li: Reforms that are highly technical in nature and difficult to understand by the general public, such as financial reforms, have tended to move faster than those that are more tangible and directly touch more people throughout the economy, like State-Owned Enterprises (SOEs) and property tax reforms. The reason is that we live in the internet era, so policies that impact people’s economic interests more readily arouse controversy and objections. Leaders in China do pay attention to opinions on the internet and are affected by them.
Allison Nathan: Will the recent equity and currency volatility slow reforms?
David Li: I don’t think the volatility will necessarily slow reforms. The response will be more nuanced. Certain areas of reform that are essential to controlling volatility and stabilizing the market will likely speed up, such as SOE reform, which will support valuation of many listed companies, and reforms to allow foreign companies to be listed on China’s stock markets. In contrast, reforms that might increase market volatility—like further currency reform—will be slowed.
Allison Nathan: What are your initial impressions of the just-announced details of SOE reform?
David Li: Given the wide range of stakeholders involved, some observers doubted whether the SOE reform announced two years ago—without a detailed plan—would ever be implemented. So the recent announcement that provided more details was a critical step forward. It confirmed a shift in the role of the government from managing the operation of SOEs to acting as fund managers, possibly holding shares of foreign enterprises, via Government Investment Corporations. It also announced the division of senior SOE executives into two categories: government officials who are appointed with salaries comparable to those of civil servants; and others who are recruited as professional managers, with salaries set by the market. This should help address public concerns about the status and compensation of public officials at the helm of these firms. During the past year, many SOEs have been responding to those concerns by cutting the salaries of their senior executives regardless of whether they were hired in the marketplace or appointed by the government, which in my view has been counterproductive. So this policy should provide some relief. But so far it is just an announcement; we need to see action.
Allison Nathan: How have recent events in the equity markets affected the thinking of policymakers?
David Li: The equity market volatility was a surprise to senior policymakers, frankly speaking. During the first few rounds of volatility in late June and July, they literally worked day and night to come up with measures to calm the markets. The key lesson learned—from both the market turbulence and the policy response—is that policymakers need to have a much more sophisticated toolkit to deal with equity markets. The longer-term implication is that policymakers will be much more cautious about how they regulate certain financial instruments and trading practices. Margin financing and short-selling are two examples.
In addition, the episode has impressed upon policymakers the importance of market fundamentals and the quality of listed corporations. If you compare China’s A-share market with the Hong Kong exchange and with Chinese firms listed in New York, it is fair to say that A-share companies are of lower quality in terms of governance, profitability, and so on. So I expect there will be discussions about how to invite some of the most exciting companies in the world to be listed in China to enhance the quality of Chinese stock indices. This will be akin to China’s basketball association inviting NBA stars to play in China—at the market price, of course.
Allison Nathan: What about the recent developments in the FX market around the renminbi (RMB) devaluation?
David Li: The currency market is an entirely different story from the equity market. In my opinion, policymakers implemented the August currency reform to allow the exchange rate to better reflect market forces. However, the market instead perceived that move as a sign of further weakness in the Chinese economy and an attempt to jumpstart exports with a cheaper RMB. This perception and the market volatility that followed came as a surprise to policymakers in China. In my view, the reaction has convinced them that the RMB is now too important to global markets—and too closely watched—to undertake major reform, at least in the next one to two years. So I expect that policymakers will aim to keep the currency fairly stable over this period.
Allison Nathan: Wasn’t it reasonable for markets to assume trade-related motivations for the devaluation?
David Li: Not really. Exports are no longer the engine that can carry the Chinese economy. China is already the largest exporter in the world; there is simply no room in the rest of the world to absorb a meaningful further increase of export volumes. So the hope to use trade to boost and even stabilize the economy is an illusion.
Allison Nathan: Some believe that another significant depreciation is inevitable. What is your response?
David Li: I don’t believe it is inevitable for two reasons: intentions and instruments. China’s intention is to stabilize the RMB so that other emerging market (EM) countries do not have reason to blame China for their economic troubles and then further depreciate their currencies. The aim is to stabilize
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Le Grande Fromage?
Or just a very stinky cheese?
PLATO calls the shotz!
He is everywhere!
...(Please dance around the totem pole.)
Xi appears to be a very weak president. I caught the press conference with Obama yesterday, and he just stood there smiling while Obama called him out for computer espionage.
No word on the irony of how the US records every electronic message IN THE WORLD, this weak coward just stood there and allowed himself to lose face. Putin and Obama will be meeting in a few days -- I find it hard to beleve he will allow himself to be lectured by a dumb nigger, who hardly holds the moral high ground on ANY ISSUE.
China should re-name the (MOF) ministry of finance -to- ministry of intimidation (MOI)
It has a a nice synergistic retro sound and feel to it...
Are you watching the The Totem Pole at MSG now?
Mesmerized fools.
Pope or MOF, no difference.
Authority commands your faith, not reason...
(Third Dark Ages on the way?)
sorry but that all smells like bullshit
lol.
I wonder what the highly skilled cats think about who and how China is run.
Replace 'cats' with 'skunks' and you have it.
Names will be tough to get, but survivors of the Long March were, ... errrrr ... determined to have their will enforced. Their families call the shots.
Watch for very cautious actions by the PRC "Expeditionary" forces going into Syria and playing in the Med. This is power projection on training wheels.
- Ned
China’s intention is to stabilize the RMB so that other emerging market (EM) countries do not have reason to blame China for their economic troubles and then further depreciate their currencies. The aim is to stabilize
This guy sounds like a lying bankster to me. As if anyone is going to believe that crock of crap.
Who does number two work for?
Number 1
In an authoritarian structure, whoever controls the mechanisms of physical force and coercion (military, police, judicial system) calls the shots. Everyone else operates at the discretion of those with control over force.
think of our Fed...only these guys were farming rice a generation ago
Well, good analysis here:
https://www.youtube.com/watch?v=yFQhVAwbB6o
Are the "authorities' in the country introducing counterfeit into the economy of productive workers?
Well then, yeah, the counterfeiters call the shots.
Oh well then, no, the productive workers seduced by the hoax will never ever call the shots.
Ceausescu, though, ultimately learned the meaning of shots...
bang bang shoot shoot peacemaker
In China, the overwhelming majority of citizens believe their leaders are making the right choices. The poor, the middle class, and the wealthy are all much better off now than ten or twenty years ago. Hard to argue with that.
In America, where the voters believe they choose their leaders, a minority of citizens would make those claims. And the middle class has been sliding backwards since the late Sixties. Why would anybody want that form of government?
To everyone, with genuine curiosity... just watch thoroughly this magnificent 20-minute presentation video by Eric X. Li: A tale of two political systems. It has embedded bilingual subtitles, and this video was presented before the American audience. Please watch from the outset till the very end, and please set aside your prejudice if any.
https://youtu.be/ebXA1lRqDfM
STRONGLY RECOMMENDED!
This is a reply to that presentation:
China Apologist Turns TED Talk Into Propaganda Tool | China Uncensored
"China apologist"?
Provided any one is not being so blinded by all the ideological bigots or being so ignorant, and do understand the elementary issue that China has over 1,400,000,000 mouths to take care, and just look at the pretty close #2, the so-called largest democratic nation on earth of about 1,200,000,000... what the mess they are with all the freedom, democracy and so on...
If the number of 1,400,000,000 head counts hardly rings any bell in one's thought, just think that today Europe has been plagued by severe crisis just to handle a couple of hundreds of thousand refugees from the Middle East.
NOW imagine what would the world be by having the sudden people migration in term of hundreds of million population.
Indeed, seeing the European refugee crisis today, one should really treasure the stability!
Sir, given thta you have not responded to any point raised in the video, while merely ended up bringing the state of affairs in India as a proof of some shinning success of what's happening in China, you instinctively make me wonder whether you are a member of the brigade:
China's Professional Trolls, the 50 Cent Brigade! | China Uncensored
Other than that, I shall remark for others benefit: it is not members of the CCP party that is doing any feeding, but rather human industry and ingenuity. The last time the CCP embarked on direct major changes, Chinese were dying in the 10's of millions.
I recently stumbled upon the China Uncensored youtube channel and have found it quite interesting. Among videos poking fun at various oddities, there are also some gems as to why foreign complanies are getting in trouble and how the show is run; check out this one for example.
"Who calls the shots in China?"
They are the Politburo Standing Committee, a committee consisting of the top leadership of the Communist Party of China.
At present this highest, collective leadership has seven members. The power holder of Modern China since Deng Xiaoping's era has been all about the collective leadership, to prevent the risks of one-man show akin to the dynastic disasters!
They had learned from the past mistakes and their extreme long history!
It's just amazing to hear Americans ramble on about Chinese politics. They talk about China like it was still 1966. They don't realize that Mao Zedong died in 1976, and in the next two years, most of his policies were cancelled or reversed. Since 1978, it has been a socialist country, not a communist one. When you have private property, private enterprise, private banking, freedom to travel, private ownership of farmlands, you do not have a communist country by anybody's definition.
In 1978 Deng Xiaoping said "To be rich is glorious". Any American politician would be crucified for that today, even though we supposedly live in a capitalist society. It is easier to start and run a business and get rich in China than America,
The name "Communist" lives on, but everybody knows that it means something vastly different than before. Sometimes I think there is more difference in politics inside the Party than between the Democrats and Republicans in America.
The "Communist" labeling gives a handy and convenient bogeyman against China any time the politicians in the West have such needs. The giant orchestra of the corporate mainstream media are just steadily selling out and amplifying this image to the sheeople in the West and around the globe from time to time. A critical thought of course will think over the facts you just mentioned above.
I watched Eric X Li's talk and thought it was fine. I believe some of his criticism of western democracy is valid, but of coarse the US was never really founded as a democracy. It was to be a republic. The founding fathers of the USA were well aware of the dangers of democracy, as they generally progress towards mob rule, the tyranny of the majority. Once the people realize they can vote themselves largesse from the public treasury, and their fellow citizens, a steady slide towards dystopia is sure to follow. This republic was not founded on the one man one vote democratic premise either, in fact originally only male land owners could vote. More importantly our government was meant to be small with limited powers. Standing armies were shunned, and multiple branches of government were created to decentralize power. Taxes were low, and direct taxation upon the people was forbidden. Economic growth in the US was led by strong incentives, namely private property rights, and protected economic and personal freedoms. US citizens were generally upright, god fearing folks who stuck to their word, and had a strong belief in upholding contracts. We became the wealthiest and strongest nation in the world. I don't think China would be enjoying some of the success they have today were it not for our example, and generous access to our technology, markets, and educational system. China has a lot to be proud of. They have made some key reforms that have helped them towards prosperity. We have some problems, but hopefully we can reform back to some of the principles that put us on top to begin with.
"The Chinese expression was that economic growth is the bottom line. But today, widespread corruption and signs of decreasing effectiveness of the Chinese Communist Party (CCP) have raised concerns within the leadership, prompting them to treat the sustainability of CCP rule as the top priority. As a result, they have put heavy emphasis on anti-corruption and ensuring the decency of party officials’ behavior."
Aw, bullshit!
"Anti-corruption" in China is always all about destroying the power base of the previous criminal in charge. Just check the political alliances of all those prosecuted. It will never be someone allied with the current criminal in charge.
Here's who is trying to feed you that BS with that comment:
David Daokui Li is the Mansfield Freeman Chair Professor at the Tsinghua University School of Economics and Management and Dean of the Schwarzman Scholars at Tsinghua University. He is a former member of the Monetary Policy Committee of the People’s Bank of China and currently serves as a member of the Chinese People’s Political Consultative Committee.
HOGWASH... everybody who is anybody in finance, Knows BLACK DRAGON calls all the shots in china. deal with it, bitches
HELP me hack the above chart to pieces, so i can call more shots.... and ill share the wealth with you.
we can call it project MAYHEM;)
HINT: china trying to come out with new pc OS soon. sounds like KILLIN.
https://en.wikipedia.org/wiki/Kylin_%28operating_system%29
http://www.kylinos.com.cn
YOU want to be in control of this happening OR not happening
It's Linux. I've been using Linux exclusively for over 5 years now. It's free. It's fast. A programmer can look at the open source code and see if there are back doors or viruses or malware. Did I mention free? You don't need to use the command line. Ever. Don't believe what you hear about needing to know more to use the OS. You download the iso and burn it to a DVD. You can use this to try it without installing. It makes older machines faster.. I use the variant called LinuxMint. Get it at LinuxMint.com.
Did I mention that it's free?