The Hypocrites of Beijing

63 year old Xi Jinping Is the most powerful man in China. He is the General Secretary of the Communist Party, the Chairman of Chinas Central Military Commission and the President of the People’s Republic of China.

But the ‘Paramount Leader’ has another quality that is not yet really acknowledged by the public. Xi Jinping plays his role as a model for China’s Communist officials to lead clean lifestyles that discourage them from profiting from their ruling positions (as it’s officially stipulated in the party’s constitution), with a performance that would grant him an ‘Oscar’ in Hollywood.

To the chinese people, he portraits himself as a ‘purist in terms of morality and frugality’ and since coming to power in 2012, Xi Jinping banned pricey official dinners, unnecessary travel, red-carpet receptions, flashy floral arrangements and has unleashed an intense anti-corruption campaign. More than 300’000 officials were punished for violating the party’s anti-corruption laws in 2015 alone.

But behind closed doors, Xi Jinping and his family are piling up billions and hide this money abroad.

According to the ‘Panama-Papers’, at least 7 current and former leaders including Xi Jinping were found to have links to offshore companies set up by the Panamanian law firm, making China the firm’s biggest market. Deng Jiagui, Xi Jinping’s brother-in-law, created 3 offshore companies in the British Virgin Island.

Of course, the hypocrites of Beijing don’t have to worry too much from possible protests about this double standard. Ordinary chinese don’t know about ‘Panama’, because all chinese media received – and follow – this government-directive: ‘Find and delete reprinted reports on the Panama Papers. Do not follow up on related content, no exceptions. If material from foreign media attacking China is found on any website, it will be dealt with severely.’

‘What’s the big deal?’ you might ask. That we have to live with a corrupt and criminal ‘elite’ is nothing new, especially for the romanian society.

I agree, but I’d like to mention that in this case, size really matters. The millions stolen or embezzled by romanian officials and business-crooks are really just peanuts compared to China.

Around 1 trillion USD – or 3’000 million USD each day – left China last year, draining the country’s foreign reserves. Not by officials only, also business people and ordinary citizens (who are allowed to transfer max 50’000 USD a year outside the country) move their money at an unprecedented rate from the mainland through currency dealers in Hong Kong out of China.

Is this money entirely illegal? No, but it shows more than ever, there is something very fishy behind the clean facade of China, a country that is supposed to be the global number 1 economic powerhouse for this century.

In one sentence: Chinese people have no faith in the ability of the financial and economic policies of the decision-making communist party. The immense capital flight is a proper instrument to destabilize a currency and an economy, as demonstrated by the great depression in Argentina from 1998 to 2002.

The fatal habit of too powerful people like Vladimir Putin or Xi Jinping to deny any problems they are responsible for and get offended by the truth – thereby kill any messenger addressing their flaws in leadership – creates a climate in which necessary changes never take place until it’s too late. In today’s China, the 8 industries of steel and iron, coal, cement, glass, oil, petrochemicals, iron ore, and non-ferrous metals contribute about 75% of the fall in industrial output and 4 out of 5 companies in these sectors are losing money.

In this situation, more than ever, a modern leadership-approach (as introduced in yesterday’s article ‘Leadership: What Really Matters’) would be necessary to tackle the deep-rooted problems and create a broad based and sustainable solution.

But in China, the old ‘soviet-rank-system’ where officials one rank higher can crush their subordinates has lived on and is the biggest stumbling blocks towards further reforms.

This system has not only created lethargic government bureaucracy but has also permeated almost all levels of social and cultural institutions from state-owned companies to hospitals or from primary schools to universities.

China’s universities are an example. At a time when the county is crying loudly for more innovation to boost productivity and lamenting the fact that its best students are going overseas for higher education, the country’s leading universities are still hobbled by massive bureaucracy. Instead of focusing to recruit the best talent to improve the quality of teaching and bolster their science and research, for chinese education officials their own bureaucratic rank is more important than the future of the country, as the rank is coming with funding, resources and status.

You don’t need to be a fortune teller to predict, that China won’t reform the way it should any time soon. It probably needs a severe economic crash first, before these changes emerge – just like in the Soviet-Union in 1990. But because China now accounts for about 15% of global GDP, a China-crash will rock the world much more than the end of communism or the financial crisis of 2008 for instance.

But just like in 2008, when the collapse of an Investment bank in New York suddenly brought german municipalities or whole countries like Iceland to the edge, a China-crash would be felt everywhere and in unexpected sectors – as for instance in the romanian wine industry.

The black Feteasca or royal Feteasca have become increasingly popular in China, making the country the second largest export market for Romanian wine.

This would be just one of millions of businesses worldwide that will suffer, if China’s economy is finally brought down by the long outdated rank-system and the leading hypocrites of Beijing.

China’s capital flight as seen by ‘The Economist’

Chinese president Xi Jinping during the opening of the National People’s Congress in March 2016.