Saturday, May 5, 2018

What reporters and you cannot learn from Twitter about the three redwoods or China's plans for their children's economic well-being in 2035 and 2049

Five posts here give the reader a peek into the reality of 21st Century China. The intent was to give the reader a start to catch up to Warren Buffet on the matter of China.

Just before the beginning of the new millennium, Warren Buffett was watching China. He also was buying suits from Li Guilian, chairwoman of Dayang Trands, the Dalian-based menswear manufacturer. And he persuaded his friend Bill Gates and others to do so.

In fact, in a February 1996 Harvard Business Review piece What I Learned from Warren Buffett, near the beginning Bill Gates notes: "We recently vacationed together in China with our wives."

But sadly over the next twenty years Buffett had the economic ideologues who make up the American press and much of the business community baffled about his investments in China.

In addition to investing in smaller companies that were opening operations in China, in 2003 there was this New York Times headline Investors Ponder Buffett's Move Into China Oil. And in September of 2008 MidAmerican Energy, 87.4 per cent owned by Mr. Buffett’s Berkshire Hathaway, acquired a 10 per cent stake in BYD, a Chinese electric carmaker and rechargeable battery producer which led to this story in the British publication The Telegraph a year later Warren Buffett's support helps make Wang Chuanfu China's richest man which notes "Mr Wang has been feted around the world after BYD beat major manufacturers, such as Toyota and General Motors, to build a new generation electric hybrid car."

In February this year a CNBC story noted that "the 87-year-old chairman and CEO of Berkshire Hathaway, dubbed gǔshén ("god of stocks") in Mandarin, permeates consumer, cultural, philanthropic and media domains" in China and:

    Some 3,000 Chinese descended on Omaha for last year's Berkshire Hathaway shareholder meeting, which was also live-streamed and rebroadcast on a loop in China. The festivities are translated into only one foreign language: Mandarin.
    The world has many rich people, and China alone has almost 600 billionaires. What differentiates Warren Buffett for the Chinese public, however, is how he accumulated his wealth: with intelligence, not inheritance.

This week from an interview Warren Buffett: China has ‘found a secret sauce for themselves’ we learned:

    Warren Buffett, known as the “god of stocks” in China, speaks highly of the country’s economic growth and is optimistic about its future.
    “What they’ve done in the last 50 or 60 years is a total economic miracle. I never would’ve thought it could’ve happened,” Buffett told Yahoo Finance’s Andy Serwer in Omaha earlier this year. “What I do know is they have found a secret sauce for themselves, just like we found the secret sauce a couple centuries ago.”
    Buffett says “countries will do it differently,” referring to the fundamental differences between China and the U.S. politically and economically. China’s state capitalism emphasizes economic growth and social stability, with tight control over domestic politics and information. Since the economic reform in 1978, China has grown at a staggering pace of 9.5% per year and has become the world’s second largest economy. In the past five years, China’s GDP growth has slowed down but still achieved an increase of 6.9% last year, dwarfing America’s 2.3% increase.
    And Buffett believes China’s growth story is far from over.

And, of course, online reader comments on the piece by Americans show just how little most know about 21st Century China. You might think that at least the American business press would provide China coverage. But in the U.S. there is a child-like focus on yesterday's profits, the shiny prize in the Happy Meal of the "me" culture. It is sad only because the adults in the room in China have been and are focused economically on assuring a future of economic well-being of people under the age of 30 in the years 2020, 2035, and 2049.

In October 2017 the 19th National Congress of the Communist Party of China (CPC) was held, a once-every-five-years gathering. In March 2018 the "Two Sessions", or lianghui, or simultaneous sessions was held which were the first session of five annual plenary sessions of the 13th National People's Congress (NPC), and the 13th National Committee of the Chinese People's Political Consultative Conference (CPPCC). In April 2018 The Boao Forum for Asia Annual Conference was held.

Together these events represented an important opportunity for the American press to inform Americans about what's going on in China's economic sphere. Much of what little coverage was offered was colored by bias and ignorance.

It will matter to your children and grandchildren if Americans remain closed to accepting China as a viable nation with a government dedicated to the well-being of its people. Right now, depending upon whose numbers you use, China is either the largest economy in the world or the second largest. But regardless of which statistical system you prefer, China is the most populous country and by 2049 China will be the largest economy in the world by a wide margin. That most certainly will affect your children and grandchildren.

This series of posts coincide with the third annual CHINAWEEK event in Los Angeles. On Thursday California Governor Jerry Brown again offered the keynote address.

Urging greater cooperation with China, Brown said: "We all learn from each other and globalization is here. We are not going to get rid of it. And a trade war is stupid. No tariff, no little trade dispute or big trade dispute is going to stop us. The stuff that's not working today, let's figure out how to make it work."

While California’s large and diverse economy (the world's 5th largest economy surpassed only by the total GDP of the United States without California, China, Japan and Germany) tends to insulate it from President Trump's trade war, nonetheless 287,000 jobs could be lost in businesses targeted by Chinese tariffs threatened in response to U.S. tariff increases — more than any other state.

Noting that the two countries have great potential as future trade partners, Brown said "all you need is a great leader." Brown assured the business leaders that "this too will pass. I'm not telling you what I'm referring to."

Still, Americans find it easy to dismiss Brown as he is a politician. Which brings us to the point of this series of posts.

Economics are complicated and what you don't know about your competitor is the surest way to lose. The Chinese are planning for economic success through 2049. Most American companies are arguing over yesterday's P&L results.

Not all American business leaders discount long-term thinking or share the common American ideological bias against China. Now would be a good time to use the links at the beginning of this post to catch up to Warren Buffett on the matter of China. Oh, and you also can learn about the three redwoods in the first of those posts.

  "Ignorance is bliss" was a warning to provide for
  the next generation, economic advice from a poem
  America has forgotten but China has embraced

Redwood trees.

On the American Continent two redwood species were well known to the Native American tribes living near the Pacific Ocean.

The Yurok people, who occupied what is now the Northern California coastline before the arrival of the Spanish, regularly burned off ground cover in coast redwood (Sequoia sempervirens) forests to bolster tanoak populations from which they harvested acorns and to boost populations of useful plant species such as those for medicine or basketmaking.

Inland in the Sierra Nevada mountains Native American names for the giant redwood (Sequoiadendron giganteum)  include wawona, toos-pung-ish and hea-mi-withic, the latter two in the language of the Tule River Tribe.

According to the National Park Service:

    The Spanish padres of Portola's Expedition probably first saw the redwoods in 1769 during their travels of exploration and colonization along the coast of what is now California. They called the trees "Palo Colorado," meaning red trees or redwood because of the bright red color of the heartwood.
    The discovery that the redwood was a new botanical species was made by Archibald Menzies, botanist with the Vancouver Expedition in 1794.  It was not until 1823, however, that A. B. Lambert, an English botanist, first gave it a scientific name by publishing a description that placed the tree in the same genus as bald cypress, Taxodium. Since he thought that it closely resembled that species, he called the new tree Taxodium sempervirens.
    Steven Endlicher, a German botanist, decided that specimens he had studied represented an entirely new genus and in 1847 renamed it Sequoia but retained the species name of sempervirens.
    The giant sequoia was not discovered until at least 64 years after the redwood. ...The Joseph R. Walker exploration party saw the giant sequoias in 1833 in either the Merced or the Tuolumne Grove of Yosemite National Park. The discovery was not publicized at first except in the journal of the expedition.... In 1852, when A. T. Dowd reported on his observations of the trees in what is now the Calaveras Grove, many fantastic stories quickly spread of the apparently impossible bulk of the trees. They were immediately called "Mammoth Trees" or "Big Trees" because of their immense size. All early tales of the great size of the trees were considered as exaggerations, and whenever scores of feet were discussed the listener thought that inches were meant.

One other species of redwood lives today, the dawn redwood (Metasequoia glyptostroboides), native to Lichuan, a county-level city of the Enshi Tujia and Miao Autonomous Prefecture, in southwestern Hubei province of China, an area which was home to sophisticated Neolithic cultures whose members were undoubtedly aware of their special forests.

Who "discovered" the Metasequoia glyptostroboides is a tale well told in a Landscape Architect Magazine story The Metasequoia Mystery. The modern discovery of the dawn redwood as a species occurred amidst China’s defensive war against Japan's brutal invasion which began in September 1931 and continued through World War II ending in 1945, followed by China's subsequent civil war and the Cultural Revolution. Truth has a way of getting lost in that kind of chaos.

Simply put, near the village of Modaoxi, locals revered one particular tall tree and used it for medicinal purposes calling it shuisha. They had built a small mud-and-tile temple at its base in deference to its height and perceived protective properties. On the morning of July 21, 1943, Prof. Zhan Wang, then forest administrator of the Central Forestry Experiment Institute’s new forestry survey department, gathered more than 10 tree specimens—needled branches and 10 stemmed cones, the latter collected from the temple’s tiled roof—and subsequently noted that it was "a new species.”

The coast redwoods and giant redwoods in California. The dawn redwoods in Hubei.

These three species are what's left of numerous species of Sequoioideae which the fossil record shows lived over a massive range in the Arctic Circle, Europe, North America, and Asia. As do humans today. Climate change reduced the range and the number of Sequoioideae species.

A map of Hubei was included above, but not one of California. Even though Hubei is larger in population than any U.S. state, larger in area than 33 of the U.S. states, and larger in GDP than 37 of the U.S. states, most Americans are unfamiliar with the name Hubei because they are unfamiliar with China.

This blog is titled "The Redwood Guardian" so redwood trees which survived naturally only in the United States and China seemed an appropriate subject to begin a discussion about American ignorance of China, the one some of the most ignorant of us have chosen to challenge in a trade war.

Before going any further we need to explore a commonly-held myth about "ignorance."

About 30 years before the Declaration of Independence was signed, an English poet, Thomas Gray penned "Ode on a Distant Prospect of Eton College" which ends with the following words: "...where ignorance is bliss, 'Tis folly to be wise."

It shouldn't be surprising that nearly three centuries after Gray put those words to paper, Americans have no idea, no context, regarding what he was writing about.

It can be certain that Gray was not asserting the idea that "what you don't know won't hurt you." For the ignorant (who were students he was observing at Eton, his alma mater), he warned in the poem:

While some on earnest business bent
    Their murmuring labours ply
'Gainst graver hours that bring constraint
    To sweet liberty:
Some bold adventurers disdain
The limits of their little reign
    And unknown regions dare descry:
Still as they run they look behind,
They hear a voice in every wind,
    And snatch a fearful joy.
No sense have they of ills to come,
    Nor care beyond to-day:
Yet see how all around 'em wait
The ministers of human fate,
    And black Misfortune's baleful train!
Thought would destroy their Paradise.
No more;—where ignorance is bliss,
    'Tis folly to be wise.

        —Thomas Gray, 1742

In this post, of course, we're speaking particularly about the denizens of Trumpworld disdaining "the limits of their little reign" as "black Misfortune's baleful train" moves inevitably towards "their Paradise." They particularly do not understand Asia, and significantly do not understand China, while initiating a trade war with China and virtually every important Pacific nation.

In a 2015 poll when asked if they think China will ultimately become the world’s top national power, 48% of Americans said this will never happen. On the other hand, only 16% of Chinese said it won’t happen and 67% of thought their country has supplanted the U.S. or will in the near future.1

The importance of understanding China just because it has the largest population in the world would seem like a "no-brainer."  And, by most other measures of what makes a world power, China ends up on top, including having the world's largest economy. As noted in a recent Bloomberg article:

    In other words, not only is China already the world’s largest economy, the gap between it and the U.S. can be expected to grow even wider. This continues to be borne out in the growth statistics -- though China has slowed in recent years, its economy continues to expand at a rate of more than 6 percent, while the U.S. is at just over 2 percent. If that disparity persists, China’s economy will be double that of the U.S. in less than two decades.

It is a fact that Americans really don't know much about modern China. It isn't surprising because of a significant language issue. While English isn't a "Romance language" derived mostly from Roman Empire latin, as are most Western European languages it is heavily influenced by the Romans despite its Germanic base.

Asian languages have no such latin influence.

Chinese is a group of related, but in many cases mutually unintelligible, language varieties forming a branch of the Sino-Tibetan language family. Chinese is spoken by the Han majority and many minority ethnic groups in China. About 1.2 billion people (around 16% of the world's population) speak some form of Chinese as their first language making it the most spoken native language in the world, followed by Spanish. (Yes, English is the most widely learned second language and more people have learned it as a second language than there are native speakers.)

Now that might not matter if American ignorance of China were limited to the language or, say, traditional Chinese art. But it does matter that Americans think Chinese government can be understood using the same paradigms that they apply to U.S. politics.

For far too many 21st Century Americans, their perception of government assumes that most often the political person is more important than the system and the policy that guides it. We seem to have conflated these three words:
  1. personage: a person of distinction or importance, such as a distinguished Nobel Prize winner;
  2. personality: based on media coverage of their day-to-day life, a well-known person in a certain field with a distinctive socially attractive character, such as a sports personality; and
  3. celebrity: a person who has a high degree of recognition by the general population, such as a movie star.
Unlike in the United States, the Chinese "system" does not pluck a "celebrity" out of the general population to become the head of the national government. In 21st Century China, the "personage" the Communist Party selects to become the head of the national government has, over decades of work in government, risen through the ranks. Perhaps after rising to the top, that person may become a "celebrity," but never a "personality."

In the United States today, one must above all else be a "personality" to become President or a Senator. Being a "personage" is of almost no import. In effect, because we worship the ideology of democracy and importance of celebrity, we literally have lowered our government effectiveness to that of Italy.

And that is why the Chinese people generally are comfortable with the following statement:

    "We must draw on the achievements of all cultures, but we will never simply copy the system of Western countries or introduce a system of multiple parties holding office in rotation. Although China's state organs have different responsibilities, they all adhere to the line, principles and policies of the Party." - Wu Bangguo,  Chairman and Party secretary of the Standing Committee of the National People's Congress from 2003 to 2013

With all of that said, it is true that the outward "face" of China is its President, Xi Jinping, who is currently standing tall in his efforts to provide a stable economic future for the Chinese people. So in the next post let's look at this "personage" who has become a bit of a "celebrity," who during the 20th Century overcame the hazards of a very dangerous changing political climate much as a dawn redwood survived natural climate change.

1Perhaps Americans see national power in terms of nuclear weapons. While the United States does have thousands of them, China has hundreds. The two countries are geographically nearly the same size. After the first 50 or so nuclear weapons hit your country, you've lost any bragging rights to being an important country. Military strength is not relevant when measuring a nation's future power in the world once a country can effectively defend itself.

  The story of China's new leadership generation
  as evinced by the life and words of its President

As noted at the end of the last post, Americans generally have no context for understanding what is going on in Chinese politics without having a celebrity to relate to. Knowing something about the person currently leading the policy changes, President Xi Jinping, might help as he the outward "face" of 21st Century China, a man who standing like a dawn redwood overcame the extreme hazards of the world's changing political climate.

Last year at the end of the 19th National Congress of the Communist Party of China (CPC), for the first time all seven Standing Committee members of the Political Bureau were born after the founding of the People's Republic of China in 1949, including President Xi Jinping.

All were born and raised in the People's Republic of China. That means that none of them were WWII veterans and none were part of the Revolution. Instead, all were impacted as children from 1958 to 1962 by Chairman Mao's Great Leap Forward and impacted as teens by Chairman Mao's Cultural Revolution from 1966 until 1976.

To understand the meaning of this history to these seven men, one only need to look at the experience of President Xi Jinping.

After the founding of the Communist state in 1949, though considered a political moderate Xi Jinping's father, Xi Zhongxun, held a series of government posts, including propaganda chief, vice-premier, and vice-chairman of the National People's Congress.

Xi Jinping was born June 15, 1953. Based on normal expectations, both Xi's futures looked bright.

But when Xi Jinping was age 10, his father was purged from the Party and sent to work in a factory in Luoyang, Henan. In May 1966, Xi Jinping's "high school years" were cut short by the Cultural Revolution, when all secondary classes were halted for students to criticize and fight their teachers. Xi Jinping was age 15 when his father was jailed in 1968.

In 1969, lacking the protection of his father, Xi Jinping was sent to work in Yanchuan County, Shaanxi, in Mao Zedong's Down to the Countryside Movement. After a few months, unable to stand rural life, he ran away to Beijing. He was arrested during a crackdown on deserters from the countryside and sent to a work camp to dig ditches

Mao Zedong died in September 1976. As with most purged leaders who were not executed, after Mao's death and the confusion that followed, Xi Zhongxun was "fully rehabilitated" at the Third Plenary Session of the 11th CPC Central Committee in December 1978.

From 1978 to 1981, he held leadership roles in Guangdong Province, successively as the second and then first provincial secretary, governor and political commissar of the Guangdong Military Region.

The island of Hainan was administered as part of Guangdong until 1988 which explains the picture to the left, at least in part.

When Xi Zhongxun first arrived in Guangdong, the provincial government was struggling to hold back the tide of Guangdong residents trying to flee to Hong Kong. At the time, daily wages in Guangdong averaged 0.70 yuan, about 1/100 of wages in Hong Kong. Xi understood the disparity in standards of living and called for economic liberalization in Guangdong. To do so, he needed to win over leaders in Beijing skeptical of the market economy.

In meetings in April 1979, Xi Zhongxun convinced Deng Xiaoping, the de facto leader of China, to permit Guangdong to make its own foreign trade policy decisions and to invite foreign investment to projects in experimental areas along the provincial border with Hong Kong and Macau and in Shantou, which has a large overseas diaspora. As for the name of the experimental areas, Deng said, "let's call them, 'special zones', [after all, your Sino-Japanese War] Shaanxi-Gansu Border Region began as a 'special zone'." Deng added, "The Central Government has no funds, but we can give you some favorable policies." Borrowing a phrase from their guerrilla war days, Deng told Xi, "You have to find a way, to fight a bloody path out."

With Deng's support, Xi Zhongxun submitted a formal proposal on the creation of special zones, later renamed special economic zones. In July 1979, despite opposition from Marxist ideologues, the party center and State Council approved the creation of the first four special economic zones.

In the context of his father's work, President Xi Jinping's efforts to open up China's economy are both understandable and believably sincere.

After Xi Jinping (who we will call Xi from this point on) was arrested and spent time digging ditches, he became the Party branch secretary of the production team, leaving that post in 1975, later describing that time of his life: "It was emotional. It was a mood. And when the ideals of the Cultural Revolution could not be realized, it proved an illusion."

From 1975 to 1979, Xi studied chemical engineering at Tsinghua University. As a "Worker-Peasant-Soldier student" under the direction of the People's Liberation Army he had to spend about 20% of his time studying Marxism–Leninism–Mao Zedong thought and doing farm work.

After 1979 Xi had a long career in Communist Party politics and local and provincial government slowly rising (overcoming his status as a "princeling" who could potentially benefit from nepotism and cronyism as a descendant of a prominent senior communist official).

One event of interest during this period was in 1985, as a mid-level county functionary in his early thirties, he led a small delegation from Hebei Province (the home of the dawn redwood!) on a two-week U.S. tour to learn about U.S. agriculture. As explained in a story worth reading in The Street President Xi Slept Here: How a Trip to Iowa in 1985 Changed U.S.- China Relations:

    My parents hosted Xi and his translator, Wenyi Xia, during their stay in Muscatine. Xi slept in my bedroom while my brother and I were away at university, which is why my mother had the empty rooms, and she was happy to offer her hospitality to these visitors from a far-off land. My sister was still in the house and met Xi long before his rise to the top.
    The conversations were not easy -- having to go through a translator -- but both parties learned a lot about each other, both personally and about their cultures and countries. The visit was a catalyst for my parents and sister to visit China the following year, their first sojourn to Asia.
    Life went on and the Muscatine folks involved with the visit lost touch, which is not surprising in a pre-Internet era with significant language barriers. Xi continued his rise to the pinnacle of Chinese politics, and in 2008 emerged as vice president and designated successor to lead the nation.
    As he planned his 2012 visit to the U.S., which introduced him to the world as the heir apparent to lead China, he directed his staff to track down those people he met in Muscatine all those years ago. The staff succeeded, of course, and his visit to Iowa and the reunion with old friends was an international highlight of that trip.

Though you can't tell it from this discussion so far, yes there are women in China in Xi's life. In 1986 a skinny 32-year-old vice-mayor who had been previously married and divorced went on a blind date with 24-year-old Peng Liyuan, a celebrated folk singer, who was far better known than him. The following year they married. Their daughter Xi Mingze, an only child, was born in 1992. She received her bachelor's degree from Harvard in 2014.

Peng, as a popular folk singer, graced dozens of magazine covers during her three decade career, and for two of those decades, she was a fixture on the annual CCTV New Year's Gala—a long-running television holiday ritual as familiar and iconic as the New Years Eve Ball Drop in Times Square. Now, unlike her predecessors who mostly kept a low profile, China’s first lady Peng Liyuan has been in the spotlight since her husband Xi Jinping became president as can be seen in the video below.

In addition, there are women who have significant positions in government in China. But that is not the focus of this story.

In 2000 Xi became Governor of Fujian Province where, consistent with his father's policies decades before in Guangdong, he made efforts to attract investment from Taiwan and to strengthen the private sector of the provincial economy. In 2002 he moved on to Zhejiang becoming a provincial party chief. That year he was elected a full member of the 16th Central Committee of the CPC.

While he was in Zhejiang the reported economic growth rates reached 14% despite his tough stance against corrupt officials.  And in 2005 Xi famously said in support of establishing environmental "green" goals: "Clear waters and green mountains are mountains of gold and silver." At that time Xi Jinping, as Zhejiang Province Communist Party Secretary, was not even on any pundits radar. His environmental statement was far from pandering to the popular thinking.  Zhejiang has pioneered an "eco-compensation" system, which enables regions to both preserve the environment and develop eco-friendly industries.

Following the dismissal of Shanghai Party Chief Chen Liangyu in September 2006 due to a social security fund scandal, Xi was transferred to Shanghai in March 2007 to become the provincial party chief.

In October 2007  the Communist Party of China prepared to convene its 17th National Congress in Beijing. Liaoning party chief Li Keqiang and Jiangsu party chief Li Yuanchao were the odds-on favourites to emerge from the small group of candidates to be anointed supreme leader-in-waiting of the party’s Fifth Generation.

As the newly appointed party chief of Shanghai, Xi Jinping, was not expected to contend for the post. He was expected to continue serving as Shanghai party chief. But at the party congress for the 25-member Politburo, in the ‘open audition’ selection process, for the first time all Central Committee members were allowed to vote from a wider pool of candidates drawn from provincial and ministerial-level cadres. Xi won the most support.

The day after the National Congress, at the First Plenum of the party’s 17th Central Committee, Xi was selected as the sixth-ranking member of the nine-member Politburo Standing Committee and executive secretary of the party’s Secretariat.

Later that December, he was appointed president of the Central Party School – mirroring the path that Hu Jintao, President from 2003 to 2013, had taken during his elevation to the supreme leader-in-waiting position in the late-1990s.

Xi was neither a protégé of Jiang Zemin, President from 1993 to 2003, nor belonged to Hu Jintao's group. His elevation was beholden to neither factional politics nor to the reigning supreme leader’s dictates. This may have been instrumental in his rapid rise to the top

Five months later, at the 11th National People's Congress in March 2008, Xi was elected as Vice-President of the People's Republic of China.

Less than a year later, on February 11, 2009, while visiting Mexico, then Vice-President Xi spoke in front of a group of overseas Chinese noting that "it was the greatest contribution towards the whole of the human race made by China to prevent its 1.3 billion people from hunger."

And regarding the 2008 financial crisis affecting the Atlantic oriented world filled with complaints about Chinese foreign trade: "There are some bored foreigners, with full stomachs, who have nothing better to do than point fingers at us. First, China doesn't export revolution; second, China doesn't export hunger and poverty; third, China doesn't come and cause you headaches. What more is there to be said?"

On 15 November 2012, Xi Jinping was elected to the post of General Secretary of the Communist Party and Chairman of the CPC Central Military Commission by the 18th Central Committee of the Communist Party of China.

On the following day, Xi led the new line-up of the Politburo Standing Committee onto the stage, decreased its number of seats from nine to seven, with only Xi himself and Li Keqiang (who became Premier beginning in 2013) retaining their seats from the previous Standing Committee; the remaining members were new.

Lest anyone think this happened easily, Xi disappeared mysteriously for two weeks in September unseen, unheard, and undiscussed by official Chinese media. The most believable or unbelievable story is that in a meeting of "the red second generation." (the Communist Party old guard's elite and now-adult children) which at the time involved old rivalries, petty squabbles, and apparently fights. When a fight broke out Xi tried to be peacemaker, putting himself physically into the path of a chair as it was thrown across the room.  It hit him in the back, injuring him.

If you think the Communist Party of China is a unified organization of one mind under an absolute dictator focused on evil, that story is unbelievable. If you think the Communist Party's 65 million members form factions and disagree vehemently on policy and that the shift to a new generation likely was rancorous, that story is believable.

In any event, in a marked departure from the common practice of Chinese leaders, Xi's first speech as general secretary was plainly worded and did not include any political slogans or mention of his predecessors. Xi mentioned the aspirations of the average person, remarking, "Our people ... expect better education, more stable jobs, better income, more reliable social security, medical care of a higher standard, more comfortable living conditions, and a more beautiful environment."

In December 2012 Xi made a trip to Shenzhen, a major city in Guangdong Province, the birthplace of China's market economy under his father Xi Zhongxun, and where in 1992 Deng Xiaoping, as part of his famous 1992 Southern Tour, rallied provincial support for pushing ahead with reforms as a means of balancing the power of hardliners in Beijing who had enjoyed a resurgence following Tiananmen Square.

On March 14, 2013, in a confirmation vote by the 12th National People's Congress in Beijing, on a vote of 2,952 for, one vote against, and three abstentions, Xi Jinping was elected President of the Peoples Republic of China.

In presenting this life for context, one caveat must be made. From an ideological view, Xi Jinping is a Marxist. He embraces Socialism with Chinese Characteristics, meaning Marxism adapted to Chinese conditions and contemporary considerations. While that is important to keep in mind, one also has to keep in mind the statements Xi has made outside the complexity of the "system" of Chinese government:
  • Clear waters and green mountains are mountains of gold and silver.
  • The greatest contribution towards the whole of the human race made by China was to prevent its 1.3 billion people from hunger.
  • Our people expect better education, more stable jobs, better income, more reliable social security, medical care of a higher standard, more comfortable living conditions, and a more beautiful environment.
  • First, China doesn't export revolution; second, China doesn't export hunger and poverty; third, China doesn't come and cause you headaches.
Regardless of how one interprets China's social, economic, and other policy goals set in place under Xi's leadership, Americans can consider it all in the context of his life history.

Perhaps that's good, even if we can't help but conflate the terms personage, personality, and celebrity. Certainly the next post in this series deals with really boring complex subjects like economics and the well-being of future generations, stuff that Xi cares about as a human.

  American voter ignorance of the fire sector
  puts the U.S. real economy constantly at risk
  as China acts to provide for its next generation

As we discussed in the first post of this series, ignorance of economics is not bliss but rather exposes the children and grandchildren of the ignorant to "black Misfortune's baleful train!"

Bill Clinton adviser James Carville famously coined as a campaign strategy for the 1992 Presidential Election “The economy, stupid,” a phrase that stuck in the minds of politicians since that time. Yet, despite its frequent repetition, it is an empty phrase that offers advice on how to get elected but no good advice for government action regarding the economy.

Since then regarding the economy, while corporate giants focus on yesterday's earnings American politicians and government have become even less effective at providing for your children and grandchildren.

In the case of 21st Century economics, meaningful new terminology has entered the discussion including:
  • Black Swans
  • Gray Rhinos
  • shadow banking
  • the real economy
  • the fire sector
In the 21st Century if you...
  1. believe in democracy, 
  2. live in a democratic nation and participate in elections, and 
  3. want your children and grandchildren to be able to live in at least a “moderately prosperous society,” 
...then you must know enough about these terms to determine if who you are voting for wants that for your children and grandchildren.

Let us begin with the Black Swan/Gray Rhino, terms which conceptually derive from the commonly used "elephant in the room."

The Baleful Spectres of The Black Swan and The Gray Rhino

Economic theory today has incorporated the concepts of Black Swan and Gray Rhino events. Using the black swan and gray rhino as metaphors for threats to the one's well being somehow seems Asian to an American. Indeed, the Chinese government embraced the terms Black Swan and Gray Rhino in a front-page editorial in the official newspaper, China Daily, on July 17, 2017, which said:

    Since the 18th National Congress of the Communist Party of China in late 2012, the top leadership has attached great importance to guarding against financial risks and taken a range of financial regulatory measures to bring financial risks under control in China.
    Given that the [financial] sector is susceptible to any uncertainties, acute risk awareness is needed. Precautionary measures should be taken to prevent not only "black swan" but also "gray rhino" events, and any measure introduced should achieve tangible effects.
    China should better control the "chief valve" of credit to defuse a financial risk at the source. At the same time, it should improve its emergency response mechanism and put in place a set of complete contingency measures to preempt and address liquidity risks, credit risks, the risk of shadow banking business, abnormal capital market fluctuations and real estate bubbles. It should also better supervise emerging online financial products and services, which have largely fallen outside the current supervisory system.

Black Swan events were discussed by Nassim Nicholas Taleb, a Lebanese–American essayist, scholar, statistician, former trader, and risk analyst, whose work and 2001 book Fooled By Randomness focus on problems of randomness, probability, and uncertainty.

Based on the Taleb's Black Swan event criteria:
  1. The event is a surprise (to the observer).
  2. The event has a major effect.
  3. After the first recorded instance of the event, it is rationalized by hindsight, as if it could have been expected; that is, the relevant data were available but unaccounted for in risk mitigation programs. The same is true for the personal perception by individuals.
Michele M. Wucker, an American author, commentator and policy analyst specializing in the world economy and crisis anticipation,  introduced the term "Gray Rhino" at the World Economic Forum Annual Meeting in Davos, Switzerland in January 2013. Unlike highly improbable "Black Swans", Gray Rhinos are highly probable, high impact yet neglected threats.

Recently in an interview Michele Wucker explained how the American government gets it wrong:

    In Wucker’s opinion, the expansionist monetary policy applied by central banks around the world is a “Gray Rhino”. The policy intends to “help economies come back to life, after the great crisis”.
    “Unfortunately most of that money has gone into financial markets, into circulation, into real estate. Actually, into rhino horns. The price of the rhino horns is a bubble,” she said.
    Only a small part of that money has gone into the real economy, “to help create jobs and to move things forward."

Economists refer to her rhino horns as the fire sector   which we will explore later. But first we need to understand "shadow banking."

Shadow banking is explained by The Economist as follows:

    Politicians and economists who often have little in common, unanimously agree that shadow banking, left to its own devices, has the potential to trigger another financial collapse. What are shadow banks?
    The term "shadow bank" was coined in 2007 by Paul McCulley of PIMCO, a big bond fund to describe risky off-balance-sheet vehicles hatched by banks to sell loans repackaged as bonds. Today, the term is used more loosely to cover all financial intermediaries that perform bank-like activity but are not regulated as one. These include mobile payment systems, pawnshops, peer-to-peer lending websites, hedge funds and bond-trading platforms set up by technology firms. Among the biggest are asset management companies. In 2013 investment funds that make such loans raised a whopping $97 billion worldwide. Companies looking for cash also lean on bond markets that offer extraordinarily low interest rates. Globally, between 2007 and 2012, firms thus raised $1.7 trillion by issuing corporate bonds. Money-market funds that invest in short term securities like US treasury bills have taken off too.

The phrase "shadow banking" contains the pejorative connotation of back alley loan sharks. Many in the financial services industry find this phrase offensive and prefer the term "market-based finance." The problem is shadow banking has many of the features of loan sharks. They tend to create an over-leveraged economy. But instead of breaking legs to collect, shadow banking breaks the economy as we saw in 2008 when high-risk real estate loans created an inflated market price for housing in the United States.

Unlike in the United States, China's leaders, and particularly President Xi, are focusing financial regulation on this segment of the economy as explained by the China Daily in Asset managers enter new era. While not yet as over-leveraged as the United States, China's shift to a market economy has created the potential for a crash, with impacts comparable to the 1930's Great Depression in the United States and Western Europe. It is clear that in Xi's mind if the leadership cannot minimize the risk in China, and mitigate any impact should an international debt-based crash occur, they have failed.

In January from the privately owned Hong Kong newspaper South China Morning Post reported China’s asset-management growth plummets after sweeping regulations rain down on shadow banking sector which seems to indicate that the new regulatory program is working. Of course, unlike in the "freedom-loving" United States where in the banking industry rich white executives received seven figure bonuses following the 2008 Great Recession, some corrupt finance executives have been prosecuted and jailed in China during the process of review.

The International Monetary Fund (IMF) April 18, 2018, Global Financial Stability Report Press Briefing advised:

    Vulnerabilities may make the road ahead bumpy and could put growth at risk....
    This all suggests that policy actions are needed in several spheres. Central banks should continue to normalize monetary policy gradually, and they should communicate their decisions clearly. Regulators should address financial vulnerabilities by deploying and developing prudential tools. Policymakers should ensure the post-crisis regulatory reform agenda is implemented, and they should resist calls for rolling back reforms.

The last sentence was really targeted at Americans, particularly the United States Congress and President. Although the Dodd-Frank Act (Wall Street Reform and Consumer Protection Act) is now seven years old, its requirements have yet to be finalized and take effect in all the ways that were originally intended. On Wednesday March 14, the Senate in a bipartisan vote quietly approved plans to roll back key banking rules in the Act. When the House also approves the bill, President Donald Trump is expected to sign it into law further setting the U.S. economy up for a "Great Depression" level failure.

The ascendance of a FIRE economy in the United States

A problematic difference within the structure of the American economy had become established at about the time of the beginning of the Reagan administration - the real economy versus the fire sector.

Simply put, as shown in the top graph by the beginning of Clinton's first term manufacturing output was valued lower than the fire sector  (Finance, Insurance, Real Estate which also includes shadow banking). In 1950 manufacturing is the largest component of the real economy. By 2015 it was less than 10% of the U.S. economy.

I don't have a PhD in economics, but I do understand the real economy concept, as opposed to the paper economy. Simply put,  the real economy is that part of the economy that is concerned with actually producing goods and services (which does include construction), as opposed to the part of the economy that is concerned with transactions in the fire sector  (which does not include construction).

In the second chart above, we have the economy broken down in sectors, the three of which not colored red are considered the real economy.

First we have the "Production Sector" which includes all activity related to producing things:
  • beginning with activities like farming, mining, ranching, logging, etc., that involves obtaining raw materials; and
  • then moving on to all manufacturing, construction, etc., that involve creating goods from raw materials to be utilized by folks.
Then we have the "Goods Handling Sector" which involves transporting and storing raw materials and goods plus wholesale and retail activities which ultimately get the goods to the general population.

Finally, the "Services Sector" reflects all activities of value in the form of services. Care needs to be taken when considering services. We hear about a "service economy" but we don't give it much thought. In economics, a "service" is a transaction in which no significant physical goods are transferred and for which:
  • services cannot be stockpiled or securely stored for later consumption;
  • it is not possible to objectively assess the value gained from a service activity as services are produced and consumed simultaneously;
  • the service provider must deliver the service at the time of service consumption;
  • the service consumer is inseparable from service delivery;
  • when the service has been completely rendered to the consumer, this particular service irreversibly vanishes; and,
  • the service can never be exactly repeated as the time, location, circumstances, conditions, current configurations and/or as signed resources are different for the next delivery.
This is not to say services have no value. But when you have your hair cut, you cannot resell the hair cut. Of course, the same can be said for goods that are consumed immediately which is why restaurants are the food service industry as they really cannot be said to sell goods. And there is what is being called the "virtual economy" which somehow seems exotic. In fact, it is social media, gaming, etc., simply an element of the "service economy" conducted on the internet.

The fire sector indicated in the red bar is not part of the real economy.

Economist Michael Hudson has for a number years been trying to communicate with Americans that this is a lurking disaster. As Hudson explained in 2016:

    FIRE is an acronym for Finance, Insurance and Real Estate. Basically that sector is about assets, not production and consumption. And most people think of the economy as being producers making goods and services and paying labor to produce them – and then, labor is going to buy these goods and services. But this production and consumption economy is surrounded by the asset economy: the web of Finance, Insurance, and Real Estate of who owns assets, and who owes the debts, and to whom.
    So a financialized economy is a debt-leveraged economy, whether it’s real estate or insurance, or buying an education, or just living. And debt leveraging means that a larger proportion of assets are represented by debt. So debt equity ratios rise. But financialization also means that more and more of people’s income and corporate and government tax revenue is paid to creditors. There’s a flow of revenue from the production-and-consumption economy to the financial sector.
    ...Wall Street is interjecting itself into the economy, so that instead of the circular flow between producers and consumers, you have more and more of the flow diverted to pay interest, insurance and rent. In other words, to pay the FIRE sector. It all ends up with the financial sector, most of which is owned by the 1%. So, their way of formulating it is to distract attention from today’s debt quandary by saying it’s just a cycle, or it’s “secular stagnation.” That removes the element of agency – active politicking by the financial interests and Wall Street lobbyists to obtain all the growth of income and wealth for themselves. That’s what happened in America and Canada since the late 1970s.

The difficulty in the United States is that people sense that something is wrong, but whether they are on the left or right or in the center of the political spectrum most Americans buy into some sort variation on the BS from folks representing  the fire sector advocating for "Free Market Capitalism". And if those people ask questions, they get a chart like the one on the right buttressing the idea that a services sector is picking up the slack.

But as can be seen in the bar chart above comparing 1950 to 2015 and the graph to the left, while the real economy has grown, unfortunately  the fire sector continues to grow faster and it is benefiting "the wealthy 1%" by expanding the debt and siphoning off revenue from the real economy which reduces the ability of the real economy to grow.

And while both political parties have embraced this trend, President Donald Trump's personal wealth derives from not only real estate but from incurring debt which he has a history of failing to repay.

The current reality is that within the United States no branch of the federal government would ever effectively address  the fire sector growth as a systemic problem.

China, however, has developed policy on this which the American press either doesn't understand or chooses to ignore in deference to the American fire sector.

In October of 2017 the Communist Party of China (CPC) held its 19th National Congress (they are held every five years) during which policy guidelines were outlined. The CPC expects the private sector as well as the government to implement those guidelines and expects the government to enforce those guidelines when privately owned or publicly owned businesses do not comply.

Most Americans confuse the government of China with the CPC because of their unfamiliarity with China.

In the last post, the personage holding the position that nominally heads the Chinese government, its President, was introduced. But it is important to understand that one man cannot govern 1.4 billion people. China has local, provincial, and national government, the latter of which has four separate branches. And China has politics which as mentioned in the last post can sometimes result in chairs being thrown.

The government system of China will be outlined in the next post.

  Governing 1.4+ billion people is a challenge that
  has no historical parallels; what Americans need
  to know about 21st Century China's government

For Americans in general, to understand a civics course about 21st Century Chinese government requires setting aside all those novels and movies about 20th Century East Germany, the Soviet Union of Stalin, and ...drumroll... the quarter century of China ruled by Chairman Mao.

Further it requires applying an equal amount of skepticism to the idea of a struggle between
  1. Socialism with Chinese Characteristics for a New Era and
  2. Capitalism with American Characteristics for the Technology Era
Socialism with Chinese Characteristics for a New Era represents an organized and centralized attempt in the 21st Century of one group to adapt a 19th Century economic ideology to benefit 1.4 billion people living on 3.6 million square miles of land area (390± people per square mile).

Capitalism with American Characteristics for the Technology Era represents the ongoing decentralized response in the 21st Century of many groups to an 18th Century ideology as impacted by intermittent corporate distortions affecting 0.3 billion people living on 3.5 million square miles of land area (85± people per square mile).

The "State" is, of course, government. In addition to a dominant political party, China has government in which the participants have jobs to do, though they are also involved in party politics just as American government participants are involved in party politics. Just as we are taught in school about our governments, we need a basic understanding of Chinese government.

Government in China

The following is a Chinese governmental organization chart:

If you find this confusing, it doesn't really get any better when you get into the "Local People's" level which is represented in the following organizational chart:

 As one stares at those charts, one knows that "politics" underlie all of those boxes. The "Local People's" level will not be discussed further except to offer these excerpts from a long entry in Wikipedia which is worth a look:

    Due to China's large population and area, the administrative divisions of China have consisted of several levels since ancient times. The constitution of China provides for three de jure levels of government. Currently, however, there are five practical (de facto) levels of local government: the provincial (province, autonomous region, municipality, and special administrative region), prefecture, county, township, and village.
    Since the 17th century, provincial boundaries in China have remained largely static. Major changes since then have been the reorganization of provinces in the northeast after the establishment of the People's Republic of China and the formation of autonomous regions, based on Soviet ethnic policies. The provinces serve an important cultural role in China, as people tend to identify with their native province.
    The village level serves as an organizational division (census, mail system) and does not have much importance in political representative power. Basic local divisions like neighborhoods and communities are not informal like in America, but have defined boundaries and designated heads (one per area).
    In urban areas, every subdistrict of a district of a city administers many communities or neighborhoods. Each of them have a neighborhood committee to administer the dwellers of that neighborhood or community. Rural areas are organized into village committees or villager groups. A "village" in this case can either be a natural village, one that spontaneously and naturally exists, or an administrative village, which is a bureaucratic entity.

Chinese politics is much more of an art form than the politics of the U.S. or Russia, requiring careful observation and interpretive skills. In China, the government structure is more complex, less obvious, and reflective of the fact that China has 1.379 billion people, over 4 times as many as the U.S. It also is consistent with the fact that China historically - meaning over millenniums, not years or centuries - has had an autocratic centralized government except for periods of disarray during invasions from outside the "empire."

Like Russia and the U.S. there is the big picture of the whole nation and "provincial" governments with localities such as cities. You need not consider further than looking at this map which includes Hong Kong, Inner Mongolia, and Tibet to realize that in this country the size in area of the United States "it's not simple":

Across this geography live people of 56 recognized ethnic groups speaking 292 living languages. Contrary to what most Americans believe, freedom of religion is guaranteed by China's constitution but religious issues in the country are overseen by the State Administration for Religious Affairs. The nature of that oversight has not always been supportive.

Religion is a good subject to use to see why government is complicated. While the table at the left indicates numbers, the reliability of that information makes it more indicative than statistically accurate. Nonetheless, it does indicate that their are minority religions.

And the indicative nature has to be considered with the size of the population. For instance there are 22+ million Muslim citizens, most located in the northwest as indicated in the map on the right below. These are not immigrants from the Middle East, but rather are descendants of people who have lived in the area for centuries.

The majority of Han Chinese have something in common with the many American Christians. They have a problem with how the government deals with Muslims. Consider how difficult it is for the Chinese government to deal with a relatively small group of religious militants within a much larger Islamic population of 22+ million, all of whom are from families that have considered the area home since the time of the Roman Empire or earlier.

You must understand that within China the interplay of competing interests of all types is an undercurrent that usually cannot be seen in the familiar American forum of overblown news stories describing near shooting wars in the U.S. between ideologues steeped in bigotry nor in critical news stories of ham-fisted suppression by the autocratic Russian government of Putin which includes killing potentially effective political opponents.

To even begin to fathom what's going on in China requires understanding the structure of Chinese government. Because Americans and the American press are so enamored with celebrities, they are hampered when trying to discern what is going on in China. Confusion starts with the legislative branch.
Legislative Branch

In terms of government in China you must be aware of the existence of both the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC or PPC) which meet annually for just two weeks. [And you must remember that they are not the National Congress of the Communist Party of China (NCCPC) which meets every five years, anymore than the Democratic National Convention or the Republican National Convention which meet every four years are houses of Congress.]

Much like the Continental Congress functioned as the provisional government of the United States from September 5, 1774, to March 1, 1781, the Chinese People's Political Consultative Conference (CPPCC or PPC) was the de facto legislature of the People's Republic of China (PRC) after China's revolution from 1949 to 1954. In 1954, the Constitution transferred this function to the National People's Congress (NPC).

Today the role that CPPCC plays in the Chinese government is stated only in the preamble of the PRC Constitution:

    The Chinese People’s Political Consultative Conference, a broadly based representative organization of the united front which has played a significant historical role, will play a still more important role in the country’s political and social life, in promoting friendship with other countries and in the struggle for socialist modernization and for the reunification and unity of the country. The system of the multi-party cooperation and political consultation led by the Communist Party of China will exist and develop for a long time to come.

The CPPCC has been described as somewhat analogous to an advisory legislative upper house such as the British House of Lords and there have been occasional proposals to formalize this role in the PRC Constitution. We will explore further the CPPCC's role after considering the  National People's Congress (NPC).

The National People's Congress (usually abbreviated NPC) is the national legislature of the People's Republic of China. With 2,980 members in 2018, it is the largest parliamentary body in the world.

Under China's Constitution, the NPC is structured as a unicameral legislature, with the power to legislate, the power to oversee the operations of the government, and the power to elect the major officers of state. It holds annual sessions every spring, usually lasting from 10 to 14 days.

The electoral system is pyramidal. Delegates to the National People's Congress are elected for five-year terms by the provincial people's assemblies, who in turn are elected by lower level assemblies, and so on through a series of tiers to the local people's assemblies which are directly elected by the electorate.

There is a limit on the number of candidates in proportion to the number of seats available. At the national level, for example, a maximum of 110 candidates are allowed per 100 seats; at the provincial level, this ratio is 120 candidates per 100 seats. This ratio increases for each lower level of people's assemblies, until the lowest level, the village level, has no limit on the number of candidates for each seat.

The NPC meets for about two weeks each year at the same time as the CPPCC, usually in the Spring, called the "National Lianghui" (The National Two Meetings), making important national level political decisions. It can
  • amend the Constitution and oversee its enforcement;
  • enact and amend basic law governing criminal offences, civil affairs, state organs and other matters;
  • elect and appoint members to the central state organs; and
  • determine major state issues.
Which brings us back to the CPPCC.

The CPPCC, as noted above, functions as political advisory body consisting of delegates from a range of political parties and organizations, as well as independent members. It is intended to be more representative and be composed of a broader range of people than is typical of government office in the People's Republic of China.

Previously dominated by senior figures in real-estate, state-owned companies and the children of revolutionaries who helped the Communist Party gain power in 1949, this year more than half of the 2,158 delegates to the Chinese People’s Political Consultative Conference attended the meeting at the Great Hall of the People for the first time.

The composition of the CPPCC changes according to national objectives and priorities. For instance, with traditional business sectors such as real estate and energy deemed to be too closely associated with corruption (more than 20 property tycoons "dropped out" in 2018), replacements this year came from technology companies.

Consider how the 2,200 positions on the CPPCC are currently allocated among source organizations and cultural/social/economic sectors:
Seats for Political Parties (536 in all)
  •      Communist Party of China (97)
  •      Revolutionary Committee of the Kuomintang (65)
  •      China Democratic League (65)
  •      China Democratic National Construction Association (64)
  •      China Association for Promoting Democracy (45)
  •      Chinese Peasants' and Workers' Democratic Party (45)
  •      China Party for Public Interest (29)
  •      September 3 Society (44)
  •      Taiwan Democratic Self-Government League (20)
  •      Independent (62)
Seats for People's organizations (307 in all)
  • Communist Youth League of China (9)
  • All-China Federation of Trade Unions (60)
  • All-China Women's Federation (64)
  • All-China Youth Federation (28)
  • All-China Federation of Industry and Commerce (61)
  • China Association for Science and Technology (43)
  • All-China Federation of Taiwan Compatriots(15)
  • All-China Federation of Returned Overseas (27)
Seats for Sectors (1357 in all)
  • Sector of Literary and Art (142)
  • Sector of Science and Technology (110)
  • Sector of Social Science (71)
  • Sector of Economics (149)
  • Sector of Agriculture (67)
  • Sector of Education (113)
  • Sector of Sports (21)
  • Sector of Press and Publication (44)
  • Sector of Medicine and Health (88)
  • Sector of International Friendship Activists (42)
  • Sector of Social Welfare and Social Security (37)
  • Sector of the Ethnic Minorities (101)
  • Sector of Religion (65)
  • Specially Invited Hong Kong Dignitaries (124)
    •     Democratic Alliance for the Betterment and Progress of Hong Kong (25)
    •     Business and Professionals Alliance for Hong Kong (4)
    •     Hong Kong Federation of Trade Unions (2)
    •     Liberal Party (Hong Kong) (4)
    •     New Century Forum (1)
    •     New Territories Association of Societies (2)
  • Specially Invited Macao Dignitaries (29)
    •     Macau United Citizens Association (1)
    •     Macau Business Interest Union (1)
    •     Macau Union of Professional Interests (2)
    •     Progress Promotion Union/General Union of the Macao Residents' Associations (1)
    •     Union for Development/The Women's General Association of Macau (1)
  • Other Specially Invited Dignitaries (Including members of People’s Liberation Army and People's Armed Police) (154)

Of course, a majority of members in the CPPCC are among the 89.45 million members of the Communist Party of China. But one should not entirely dismiss the outreach effort and the fact that non-governmental members of the Communist Party of China are part of a broad spectrum of interests from within the Chinese population.

One must not minimize the ongoing interactions between NPC and CPPCC members that occurs between annual sessions. Nor should one minimize the ongoing interactions between NPC members and members of the provincial people's assemblies and lower level assemblies.

Between these sessions, power is exercised by the Standing Committee of the National People's Congress (NPCSC) which contains about 150 members. It has the constitutional authority to modify legislation within limits set by the NPC, and thus acts as a de facto legislative body.  It also has the power to interpret the laws of the PRC, including its constitution, as constitutional and legal interpretation is considered to be a legislative activity rather than a judicial one. While the Supreme People's Court actually decides cases, an interpretation is of written laws and the Constitution is defined as legislative in nature and not judicial. It is led by a Chairman, currently Li Zhanshu, China's top legislator who is completely unknown to 99% of Americans.

In terms of officials in relation to the the legislative structure, the Presidium of the National People's Congress nominates the President and Vice President of China, the Chairman, Vice-Chairman, and Secretary-General of the Standing Committee of the NPC, the Chairman of the Central Military Commission, and the President of the Supreme People's Court for election by the NPC.

The functions of the Presidium are defined in the Organic Law of the NPC, but not how it is composed. In practice its name list is raised by the Standing Committee of the National People's Congress of last term, and then revised and passed by the preparatory meeting of NPC, which is presided over by the Standing Committee of the National People's Congress. After the Presidium elected, the Session of NPC is presided over by the Presidium.

The 178-member Presidium is composed of senior officials of the Communist Party of China, the state, non-Communist parties and All-China Federation of Industry and Commerce, those without party affiliation, heads of central government agencies and people's organizations, leading members of all the 35 delegations to the NPC session including those from Hong Kong and Macao and the People's Liberation Army.

The President conducts and hosts state visits on behalf of the People's Republic. Under the constitution the "state visit" clause is the only presidential power that does not stipulate any form of oversight from the National People's Congress.

Nonetheless, the President has the power to promulgate laws, select and dismiss the Premier (prime minister) as well as the ministers of the State Council, grant presidential pardons, declares a state of emergency, issue mass mobilization orders, and issue state honours. In addition, the President names and dismisses ambassadors to foreign countries, signs and annuls treaties with foreign entities. According to the Constitution, all of these powers require the approval or confirmation of the National People's Congress.

Executive Branch

The State Council, constitutionally synonymous with the Central People's Government (particularly in relation to local governments), is the chief administrative authority of the People's Republic of China. It is chaired by the Premier, currently economist Li Keqiang, and includes the heads of each governmental department and agency. (In the politics of the People's Republic of China, the Central People's Government forms one of three interlocking branches of power, the others being the Communist Party of China and the People's Liberation Army.)

As the chief administrative organ of government, the State Council's main functions are to formulate administrative measures, issue decisions and orders, and monitor their implementation; draft legislative bills for submission to the NPC or its Standing Committee; and prepare the economic plan and the state budget for deliberation and approval by the NPC. The State Council is the functional center of state power and clearinghouse for government initiatives at all levels. With the government's emphasis on economic modernization, the State Council clearly acquired additional importance and influence. (The State Council controls the Ministry for National Defense but does not control the People's Liberation Army, which is instead controlled by the Central Military Commission.)

The State Council meets every six months. Between meetings it is guided by a Standing Committee that meets weekly. The standing committee includes the premier, one executive vice premier, three vice premiers, and five other state councilors (one of whom serves as Secretary General of the State Council, and two of whom concurrently serve as ministers).

The Council has 35 members: the premier, one executive vice premier, three other vice premiers, five state councilors (of whom two are also ministers), and 25 additional ministers and chairs of major agencies. The State Council directly oversees the various subordinate People's Governments in the provinces, and in practice maintains membership with the top levels of the Communist Party of China.

The Premier of the State Council of the People's Republic of China, sometimes also referred to informally as the "Prime Minister", is the Leader of the State Council of China), the head of government and holds the highest rank (Level 1) in the Civil Service. The Premier is formally approved by the National People's Congress upon the nomination of the President. Both the President and the Premier are selected once every five years.

The vice-premiers and state councilors are nominated by the premier, and appointed by the president with National People's Congress' (NPC) approval. Each vice premier oversees certain areas of administration. Each State Councilor performs duties as designated by the Premier. The secretary-general heads the General Office which handles the day-to-day work of the State Council.

There are 25 ministries each of which supervises one sector. Also there are 38 centrally administered government organizations that report directly to the state council. The heads of these organizations attend full meetings of the state committee on an irregular basis.  There are commissions which outrank ministries and set policies for and coordinate the related activities of different administrative organs. Offices deal with matters of ongoing concern. Bureaus and administrations rank below ministries.

The Judicial Branch

The judicial branch includes the National Supervisory Commission, the Supreme People's Court and the Supreme People's Procuratorate. We must note here that the judicial branch is more complex than the U.S. federal justice system but less complex if one were to include the justice systems of the 50 states. If one were trying to compare it to another country, the French system might offer some parallels while the English/U.S. systems offer almost none. Use the links above to learn more

The Military Branch

Some might argue that the military is not a separate branch. But structurally within the government it has too many parallels to Judicial Branch to not treat it as such. The following is an organizational chart:

The military branch includes the People's Liberation Army, People's Armed Police and People's Liberation Army militia, all supervised by the Central Military Commission of the People's Republic of China, supervised by the Standing Committee of the National People's Congress.

The PLA consists of five professional service branches: the Ground Force, Navy, Air Force, Rocket Force, and the Strategic Support Force. It also has a militia service branch, the PLA Militia. The PLA is the world's largest military force, with a strength of approximately 2,285,000 personnel. It is the fastest modernizing military power in the world, with significant defense projection capabilities. Recently, it has been rapidly developing and commissioning new arsenals including stealth technology, directed energy weapons, hypersonic missiles, etc.

The Chinese People's Armed Police Force (PAP) is a Chinese paramilitary police force. It has statutory authority to:
  • respond to riots, terrorist attacks or other emergencies;
  • guard government buildings at all levels (including party and state organisations, foreign embassies and consulates);
  • provide security to public corporations and major public events; and 
  • fire rescue duties. 
It includes the China Coast Guard and provides support to the PLA Ground Force during wartime. The PAP has a commander, a political commissar and several deputy commanders and deputy political commissars.

[It should be noted that the PAP does not do routine policing. The Ministry of Public Security (MPS) in the Executive Branch is the principal police and security authority of the People's Republic of China and the government agency that exercises oversight over and is ultimately responsible for day-to-day law enforcement. It currently has 1.9 million officers. Before 2006 local municipal police under the MPS formally were usually unarmed with firearms routinely in contrast to the soldiers of the People's Armed Police (PAP), however they are armed with expandable batons and incapacitant sprays. Sometimes, multiple use tactical knives are issued to the policemen. Since2006 they have been trained in the use of and have been issued sidearms.]

Organizationally the People's Liberation Army is still carefully supervised by the Central Military Commission of the Chinese Communist Party Central Committee. But today both the state and the party commissions are identical in membership, actually forming one identical institution under two different names.

The chairman of the Central Military Commission of the People's Republic of China, elected by the National People's Congress, is the commander-in-chief of the armed forces.  The 11-man commission issues directives relating to the PLA, including senior appointments, troop deployments and arms spending. Almost all the members are senior generals, but the most important posts have always been held by the party's most senior leaders to ensure absolute loyalty of the armed forces which over the millennia has a history of challenging the emperor.

The one personage who, as we've discussed in a previous post, has a kind of celebrity status, Xi Jinping, is President of the People's Republic of China, Chairman of the Central Military Commission, and General Secretary of the Communist Party of China. When you understand the Chinese system, while you cannot call him a dictator, it is most certainly fair to note that he is "the first among the oligarchs."

The Communist Party of China

Within this 21st Century reality in both the United States and China the normal routines of life go on for most people.

Both countries have governments. And historically every few years (5 years in China and 4 years in the United States) dominant political parties (one in China, two in the United States) have met nationally for several days to determine how best to have government govern. (In both countries the participation of minor political parties occurs with various limited results.)

In the United States most of the participants in the national Democratic and Republican political party meetings are determined by the popularity of Presidential candidates which, more and more, is based upon the celebrity status of political personalities. With 1.4 billion people, China's system must be different.

The following is the organization chart for the Communist Party of China (CPC):

The membership of the Communist Party of China (CPC) in 2017 was 89.45 million. That is more people than the total population of the 32 smallest states in the United States. But it is only 6%+ of the 1.4 billion population of China.

Some Americans try to compare that Communist party membership number to party voter registration in the United States.  Golly gee whiz, the Democratic Party has about 44.7 million registered voters while the Republican Party has about 32.8 million.

But those U.S. numbers cannot even predict the approximate votes cast by Democratic registered voters and Republican Party registered voters for candidates from their own party, much less represent the number actually participating in party organization functions at the local level which is minimal. In contrast to the Communist Party of China, U.S. political party participation is minimal.

To join the Communist Party in China, an applicant must be approved. In 2014, only 2 million applications were accepted out of some 22 million applicants. Admitted members then spend a year as a probationary member. In contrast to the past, when emphasis was placed on the applicants' ideological criteria, the current CPC stresses technical and educational qualifications.

Members are expected to participate and work, not criticize and complain all the time. There are numerous party committees at all levels of government which are appointed by the party congresses at all those levels of government. It is in those committees and congresses that policy is created. Final control, however, tends to be top down. But even that is not simple.

The role of the Party is to make certain that the goals and policies for the people as formulated and framed within the Party are achieved in China by assuring that resources and human energy is directed to achieve those goals.

In fact, the CPC still embraces democratic centralism, a principle conceived by Russian Marxist theoretician Vladimir Lenin which entails democratic and open discussion within the Party on policy on the condition of unity in upholding the agreed upon policies within government. This isn't a state democracy any more than the U.S. government is a state democracy (think of gun control policy when in the U.S. it pretty clear that a substantial majority of the population supports regulation and Congress absolutely refuses to adopt regulation).

Perhaps the most difficult idea for Americans to understand is the deep belief of the Chinese in the one-party-dominant system of China which seemingly constitutes an institutionalized oligarchy, meaning a form of power structure in which ultimate power rests with a small number of people, officials of the Communist Party.

Before exploring the truth of that, one thing needs to be made clear. Despite what you may read elsewhere, the Chinese do not literally embrace Marxist theory. The current generation understands that men like Mao won the war ending the century of humiliation - that period of intervention, imperialism, and slaughter by Great Britain, Russia, France, Japan and the United States in China between 1839 and 1949.

But they also understand that Mao, who died in 1976, almost lost the peace at least partly because of ideology. As a result, the economic ideology of the CPC has been evolving beginning in 1978.

Within the framework of CPC democratic centralism, beginning in 1978 new economic thinking has been incorporated at various times known as socialism with Chinese characteristics, Deng Xiaoping Theory, Three Represents, the Scientific Outlook on Development and Xi Jinping Thought on Socialism with Chinese characteristics for a New Era.

But that still doesn't explain away the institutionalized oligarchy which should be rejected by freedom loving people, like in America. Yeah, right. A response to that is offered in a footnote.1

Now that we've explored a "short" primer regarding the government of China, we need to consider the economic policy put in place in the March 2018 NPC and CPPCC session. Unfortunately we cannot depend upon the American press to give us a comprehensive picture even though it was a significant subject well discussed in a very important international conference this month, as we shall explain next.


1 Some American's get hung up on the issue of freedom. The goal of these posts is to discuss cultures and economies, but if "truth, justice, and the American way of freedom" are going to get in the way....

Pretend for a moment that you are a Chinese person who has received a decent education, perhaps even having spent some time in the United States. And you are fluent in reading English.

From your perspective the problem is that any ongoing news coverage of China caters to a knee-jerk reaction in too many Westerners, as we shall see. Americans start writing about the horrors of Marxist ideology because "proper" American thinking about freedom begins and ends with getting rich, with a side thought of being able to criticize others without retribution.

The American idea of a "big picture view" is a 72-inch TV screen. They freely express concerns about authoritarian rule in China while being ignorant of their own country which is built on the pain of native Americans - the largest population in world history to be subjected to government-sponsored genocide.

And it is as if they don't understand that Capitalism, which has an "-ism" at the end of the word. It is an economic ideology every bit as much as is Socialism and the evils of both ideologies when rigidly applied are real.

In much American writing, a government implementation of Socialism is an attack on freedom while the U..S. government's implementation of Capitalism is not even acknowledged despite the fact that it is much of the subject matter of the Constitution.

Most certainly most white Americans do not understand what "authoritarian" means or how it has been carefully implemented by governments in the U.S. to support Capitalism.

According to the Oxford English Dictionary authoritarian means "favoring or enforcing strict obedience to authority, especially that of the government, at the expense of personal freedom."

You know, of course, that the United States has the highest incarceration rate in the world.

The reason for this most Americans understand clearly. The United States has a set of government implemented laws that are based on a very subjective morality that has deliberately selective racial and religious bigotry components that would have been unacceptable in all other countries of the West in 1999.

The "Black Lives Matter" movement didn't arise because the United States offers the most authoritarian-free government possible to its people. If you're a black American, you live in a fearful world created by a police state not unlike Nazi Germany. If you read that as an overstatement, you are an "in-denial probably-white American" or participant in the police state culture.

If the enforcement of strict obedience to authority at the expense of personal freedom is what defines "authoritarian", then the United States is the most authoritarian country in the world. The People's Republic of China (PRC) doesn't even come close with an incarceration rate somewhere between Canada and Luxembourg.

Of course, in China the expression of opinion regarding political, economic, and social issues is subject to government restriction. And that includes a lack of freedom of the press. Whether within the United States today that is considered good or bad depends on

  1. whether people think that the press is an obstacle to their objectives and
  2. whether you believe the myth that entertainment can be defined as the press.
But one has to wonder about a people...

  1. that know their country has the highest incarceration rate in the world, 
  2. that know that most of the incarcerated are black and brown males, 
  3. that know that "a." and "b." were the result of a deliberate choice by white people, and
  4. that, without acting to stop it, know that their police are killing people (black and brown males) at a rate not seen in any other "first world" country but is frequently seen in the most backward of countries engaging in genocide,
...but who still think that the United States does not have authoritarian governments at all levels.

Pretend for a moment that you are a Chinese person who has received a decent education, perhaps even having spent some time in the United States. Would you think a system built on Capitalist ideology that imprisons many thousands of people - the highest per capita incarceration rate in the world - is much better than imprisoning a relative handful of people for being outspoken against the Communist Party? Would you think a system built on Capitalist ideology that has uniformed police killing more people in the street than any country in the world because of their race is much better than one built on Socialist ideology that kills people who engage in and advocate revolution?

But these posts are about the economic future of our children and grandchildren. So pretend for a moment that you are an American who knows practically nothing about the world's most populous nation which by many standards has the largest economy in the world. Since many understand that this nation, China, has already begun to replace the United States as the leader of the world, it is likely that it will be very important in the lives of your children and grandchildren.