China’s economy at an ‘inflection point’ as Xi Jinping embarks on sweeping regulatory crack down

I remember very clearly Deng Xiaoping’s Southern Tour (南巡 nán xún ) to Shenzhen in 1992. Sitting next door here in Hong Kong, it struck me so strongly at the time that I had a vivid dream, so powerful that I remember it to this day. 

In my dream, I met the diminutive Deng in his tent, the square camouflage tent of a field commander on the high plateau of his native Sichuan province. I asked him about his vision for China, and he started to talk, all the time puffing on foul filterless roll-ups. I realised, in my dream, that I was getting a monster global scoop. Only problem: I was having trouble with his guttural Sichuan accent — trouble shared by his own Politburo, so spicy was his accent, so I forgave myself, in my dream — his speech, my scoop, peppered, as it were, with regular globules of phlegm aimed at the bronze spittoon, sitting in a corner of his tent, pinging as they hit the mark….

Waking up, I watched, the world watched, as Deng’s pro-market economy policy — branded “socialism with Chinese characteristics” but really just the Communist Party getting out of the way — unleashed a forty year growth frenzy. It was all about encouraging the private sector. Which boomed to become over 60% of output and 70% of employment.

And now, it seems, Xi Jinping wants to reverse that. Because he’s cranky at high tech. Including the owners of the SCMP, our local paper and the prime English language paper in Asia. 

As Xi cracks down on the private sector, he is supporting State Owned Enterprise dinosaurs. Let’s see how this shift pans out. An “inflection point” they’re saying. Maybe it will be the pothole that many in the west have been hoping will ruin China’s economic suspension. An own goal, maybe?

“We are witnessing an inflection point in Chinese economic life that could prove every bit as significant as Deng Xiaoping’s Southern Tour nearly 30 years ago,” said Larry Brainard, chief emerging markets economist at TS Lombard in a research note on Monday. In 1992, the former Communist Party leader toured key Special Economic Zones in the south to reinforce China’s reform and opening up. [Link]

ADDED: A prescient take from four years ago, Bloomberg's Tom Orlik noting that emphasis on the SOEs was being pushed at the 19th Party Congress: 

China's state planners appear to be in the ascendant. Industrial strategy loomed large in Mr Xi's speech. The call for a "stronger, better, bigger" state sector was echoed. If that's an indication of where policy-makers' priorities now lie, then it's a troubling one. Deng's clearest lesson for Mr Xi is that market reforms -- not state planners -- are the path to China's national renewal [in the Bangkok Post, 26 October 2017]

It's like I always say. There's nothing magic in what China has done in the last 40 years. It's the magic of market forces. When unleashed from Five Year and Ten Year Planning of the socialist economy