Tuesday, March 5, 2024

Why are important people going missing at alarming rate in Xi’s China?

He Jinbi, head of Maike Metal International Group, China’s top copper importer, has not been seen in public recently, and is believed to have been detained by Chinese authorities. By the standards of disappearances in China this year, He’s case seems relatively minor. Qin Yaqing appointed as China’s foreign minister in December last year disappeared in July, while defence minister Gen. Li Shangfu went missing just last month. No official explanations have been forthcoming though it is very likely that Gen. Li at least has been detained on account of corruption in weapons acquisitions made during his previous appointment.

The anti-corruption campaign under Communist Party of China General Secretary and Chinese President Xi Jinping has proceeded in stages with the opening salvos targeting his political rivals as he sought to consolidate his power. As he has grown in authority, the campaign has turned from taking down political rivals to tackling local disobedience of central political and administrative diktats to addressing instability and financial irregularities in the Chinese economy.

In general, therefore, disappearances of prominent Chinese public figures today with rare exceptions can be attributed to their being implicated in corruption or financial mismanagement. But He, the copper tycoon, is not the first big Chinese businessman to go missing or to be investigated by the police. It was announced late last month that Hui Ka Yan, founder of China’s largest real estate company, Evergrande, was under investigation. Hui was once Asia’s richest man and Evergrande, the world’s biggest property developer. Today, it is the world’s most indebted company with over $300 billion owed to creditors.

What does China’s unabated record of important people going missing tell us about Xi’s plans and why is it important to track this closely?

The larger issue at play here is of the systemic risk and instability built into the Chinese economy. After the 2015 market crash, China’s central government cracked down on speculation and real estate bubbles, a process that has led to the current stressed balance sheets of the country’s property majors and defaults to the tune of hundreds of billions of dollars. Xi had famously said, “houses are for living in, not speculation”.

A crackdown then began of China’s high-flying tech majors as a way of ensuring they stayed in line with the Party-state’s objectives of ensuring control and surveillance of the digital space not just in China but also in foreign countries where their apps and investments held sway. Even Jack Ma, one of China’s most internationally well-known entrepreneurs, was forced out of public view for a few months at the end of 2020 and his Ant Group’s IPO cancelled by authorities.

One of the newest prongs of the anti-corruption campaign is the crackdown on mis-demeanours in China’s financial system. Both speculation and a ballooning of local debt would not have been possible without the decades-long nexus of local governments and enterprises with the banking system.

He’s fall is collateral damage. Maike Metals and He’s foray into real estate were both hit hard by the covid-19 pandemic-related disruptions. But while he was able to overcome a liquidity crunch following the 2008 global financial crisis by persuading banks to keep loaning him money, that approach is no longer possible with the banking system under the scanner. Last October, the head of Industrial and Commercial Bank of China’s Shaanxi branch – Maike Metals is the bank’s major client – was removed from his position.

This then also suggests that disappearances such as He’s should not come as a surprise. The signals were evident for a year and more. Xi Jinping is determined to focus on the “real economy” and to clean the Augean stables of the Chinese economy. 

China’s ‘red capitalists’ were first allowed into the Communist Party about 25 years ago giving them access to not just the corridors of power but also to easy money. Today, the Communist Party under Xi expects its members to be more ‘red’ than ‘capitalist’ and adhere to its vision of how the economy should operate. 

More bigwigs will fall and enterprises and institutions allowed to collapse as a lesson to others as the Party attempts to control and direct the Chinese economy. The impact of these developments will not be limited to China but extend across its borders impacting China’s overseas trade and investments, including signature projects like the Belt and Road Initiative, and the global economy through deep and wide trade linkages.

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