What Comes After the War on Terrorism? War on China?

By Thomas L. Friedman

Credit...Wang Zhao/Agence France-Presse — Getty Images


The U.S. withdrawal from Afghanistan after a failed 20-year nation-building exercise has left many Americans and analysts saying, “If only we knew back then what we know now, we would have never gone down that path.” 

I am not sure that’s true, but it nevertheless raises this question: What are we doing today in foreign policy that we might look back 20 years from now and say, “If only we knew back then what we know now, we would never have gone down that path”?

My answer can be summed up in one word: China.

And my fears can be summed up in just a few paragraphs: The 40 years from 1979 to 2019 were an epoch in U.S.-China relations. 

There were many ups and downs, but all in all it was an epoch of steady economic integration between our two countries.

The depth of that U.S.-China integration helped to fuel a much deeper globalization of the world economy and buttress four decades of relative peace between the world’s two great powers. 

And always remember, it’s great-power conflicts that give us enormously destabilizing world wars.

That era of U.S.-China globalization left some U.S. manufacturing workers unemployed while opening huge new export markets for others. 

It lifted out of poverty hundreds of millions of people in China, India and East Asia while making many products much more affordable to more American consumers.

In short, the relative peace and prosperity that the world experienced in those 40 years cannot be explained without reference to the U.S.-China bonding.

For the past five years, though, the United States and China have been stumbling down a path of de-integration and maybe toward outright confrontation. 

In my view, it is China’s increasingly bullying leadership style at home and abroad, its heads-we-win-tails-you-lose trade policies and the changing makeup of its economy that are largely responsible for this reversal.

That said, if it continues, there is a good chance that both of our countries — not to mention many others — will look back 20 years from now and say that the world became a more dangerous and less prosperous place because of the breakdown in U.S.-China relations in the early 2020s.

These two giants went from doing a lot of business on the table and occasionally kicking each other under the table to doing a lot less business on the table and kicking each other a lot harder under the table — so much harder that they are in danger of breaking the table and leaving each other with a limp. 

That is, with a world much less able to manage climate change, biodiversity loss, cyberspace and the growing zones of disorder.

But before we transition from “co-opetition” to confrontation with China, we should ask ourselves some hard questions. China needs to do the same. Because we both may really miss this relationship when it’s gone.

For starters we need to ask: What aspects of our competition/conflict with China are inevitable between a rising power and a status quo power, and what can be dampened by smart policy?

Let’s start with the inevitable. 

For roughly the first 30 of the 40 years of economic integration, China sold us what I call “shallow goods” — shirts we wore on our backs, tennis shoes we wore on our feet and solar panels we affixed to our roofs. 

America, in contrast, sold China “deep goods” — software and computers that went deep into its system, which it needed and could buy only from us.

Well, today, China can now make more and more of those “deep goods” — like Huawei 5G telecom systems — but we don’t have the shared trust between us to install its deep technologies in our homes, bedrooms and businesses, or even to sell our deepest goods to China, like advanced logic chips, anymore. 

When China sold us “shallow goods,” we didn’t care whether its government was authoritarian, libertarian or vegetarian. 

But when it comes to our buying China’s “deep goods,” shared values matter and they are not there.

Then there is the leadership strategy of President Xi Jinping, which has been to extend the control of the Communist Party into every pore of Chinese society, culture and commerce. 

This has reversed a trajectory of gradually opening China to the world since 1979. 

Couple that with Xi’s determination that China must never again be dependent on America for advanced technologies, and Beijing’s willingness to do whatever it takes — buy, steal, copy, invent or intimidate — to guarantee that, and you have a much more aggressive China.

But Xi has overplayed his hand. 

The level of technology theft and penetration of U.S. institutions has become intolerable — not to mention China’s decision to snuff out democracy in Hong Kong, to wipe out Uygur Muslim culture in western China and to use its economic power and wolf warrior diplomats to intimidate neighbors like Australia from even asking for a proper investigation into the origins of the novel coronavirus in Wuhan.

Xi is turning the whole Western world against China — we will see just how much when China hosts the 2022 Winter Olympics — and has prompted this U.S. president and his predecessor to identify countering China as America’s No. 1 strategic objective.

But have we really thought through the “how” of how we do this?

Nader Mousavizadeh, founder and C.E.O. of Macro Advisory Partners, a geopolitical consulting firm, suggests that if we are now going to shift our focus from the Middle East to an irreversible strategy of confronting China, we should start by asking three foundational questions:

First, Mousavizadeh says: “Are we sure we understand the dynamics of an immense and changing society like China well enough to decide that its inevitable mission is the global spread of authoritarianism? 

Especially when this will require a generational adversarial commitment on the part of the United States, engendering in turn a still more nationalistic China?”

Second, says Mousavizadeh, who was a longtime senior adviser to U.N. Secretary General Kofi Annan: If we believe that our network of alliances is “a uniquely American asset, have we listened as much as we’ve talked to our Asian and European allies about the reality of their economic and political relationships with China — ensuring that their interests and values are embedded in a common approach to China? 

Because without that, any coalition will crumble.”

There is no question that the best way for America to counterbalance China is by doing the one thing China hates most — confronting it with a broad, transnational coalition, based on shared universal values regarding the rule of law, free trade, human rights and basic accounting standards.

When we make the confrontation with China the U.S. president versus China’s president, Xi can easily leverage all the Chinese nationalists on his side. 

When we make it the world versus China on what are the best and most just international norms, we isolate the hard-liners in Beijing and leverage more Chinese reformers on our side.

But China will not respond just to high-minded talk of international norms, even if faced with a global coalition. 

Such talk has to be backed up with economic and military clout. 

Many U.S. businesses are pushing now to get the Phase 1 Trump tariffs on China repealed — without asking China to repeal the subsidies that led to these tariffs in the first place. 

Bad idea. 

When dealing with China, speak softly but always carry a big tariff (and an aircraft carrier).

The third question, Mousavizadeh argues, is if we believe that our priority after a 20-year war on terrorism must now be “repair at home — by addressing yawning deficits in infrastructure, education, incomes and racial equity” — is it more useful or more dangerous to emphasize the China threat? 

It might light a fire under Americans to get serious about national renewal. But it might also light a fire to the whole U.S.-China relationship, affecting everything from supply chains to student exchanges to Chinese purchases of U.S. government bonds.

In any event, this would be my starter checklist before we pivot from the war on terrorism to the war on China. 

Let’s really think this through.

Our grandchildren will thank us in 2041.


Thomas L. Friedman is the foreign affairs Op-Ed columnist. He joined the paper in 1981, and has won three Pulitzer Prizes. He is the author of seven books, including “From Beirut to Jerusalem,” which won the National Book Award. 

Xi Jinping’s campaign

China’s new reality is rife with danger

The president will be defined by his campaign against his country’s capitalist excesses



Xi jinping is waging a campaign to purge China of capitalist excesses. 

China’s president sees surging debt as the poisonous fruit of financial speculation and billionaires as a mockery of Marxism. 

Businesses must heed state guidance. 

The party must permeate every area of national life. 

Whether Mr Xi can impose his new reality will shape China’s future, as well as the ideological battle between democracy and dictatorship.

His campaign is remarkable for its scope and ambition. 

It started to rumble in 2020, when officials blocked the initial public offering of Ant Group, an affiliate of Alibaba, a tech giant. 

It is thundering onward, having so far destroyed perhaps $2trn of wealth. 

Didi, a ride-hailing outfit, has been punished for listing its shares in America. 

Evergrande, an indebted property developer, is being driven towards default. 

Trading on cryptocurrency exchanges has been banned as, more or less, has for-profit tutoring. 

Gaming is bad for children, so it must be strictly rationed. 

China needs larger families, so abortion must become rarer. 

Male role models should be manly and celebrities patriotic. 

Underpinning it all is Xi Jinping Thought, which is being drummed into the craniums of six-year-olds.

This comes on top of an already brutal authoritarianism. 

As president, Mr Xi has purged his rivals and locked up over 1m Uyghurs. 

He polices debate and will not tolerate dissent. 

The latest campaign will show whether he is an ideologue bent on grabbing power for himself, even if growth slows and people suffer, or whether he is a strongman willing to temper dogma with pragmatism. 

His vision, in which party control ensures that business is aligned to the state and citizens dutifully serve the nation, will determine the fate of 1.4bn people.

Mr Xi is tackling real problems—indeed, many of them have parallels in the West. 

One is inequality. 

The slogan of the moment is “common prosperity”, reflecting how Communist China remains as unequal as some capitalist countries. 

The top 20% of China’s households take home over 45% of the country’s disposable income; the top 1% own over 30% of household wealth. 

Another concern is the clout of tech giants accused of unfair competition, corrupting society and having unfettered access to personal data (only the state has that privilege). 

A third is strategic vulnerability, particularly the threat that adversaries will obstruct access to commodities and vital technologies.

Yet Mr Xi’s campaign poses a threat to China’s economy. 

Pain from unravelling the debt of firms like Evergrande could spread unpredictably. 

Property developers are sitting on $2.8trn of borrowing. 

Property development and the industries that cater to it underpin about 30% of China’s gdp. 

Households have parked their savings in real estate partly because other assets offer a poor return. 

Households’ spending on unfinished property accounts for half of developers’ funding. 

Local governments, especially outside the big cities, depend on land sales and property development to generate revenue.

The crackdowns are also making business harder and less rewarding. 

The party had been creating a regulatory and legal framework, but Mr Xi is imposing big top-down changes so fast that regulation has started to seem arbitrary. 

Consider, for example, “tertiary redistribution”, in which shamed tech companies hand over cash to the state in an attempt to redeem themselves.

Because conspicuous success is dangerous, private companies will be more cautious. 

State-owned firms and strategic industries—including “hard-tech” such as semiconductors—may benefit, but not the entrepreneurs who have been the true source of China’s dynamism. 

One measure of anxiety is that foreigners, who are not bottled in by capital controls, pay 31% less than mainland investors for identical Chinese stocks. 

The gap has grown sharply since early 2020.

All this threatens to puncture China’s economy. 

It was already facing a squeeze from declining returns to infrastructure investment and the effects of a shrinking workforce and growing numbers of aged dependents. 

After 40 years of breakneck expansion, most Chinese are completely unfamiliar with the hard choices that a sharp, sustained slowdown will impose.

In politics the danger is that Mr Xi’s campaign degenerates into a cult of personality. 

To bring about change, he has grabbed more power than any leader since Mao Zedong. 

As he prepares to break with protocol at the Communist Party’s 20th congress next year by claiming a third five-year presidential term, he is using the campaign to organise a huge turnover in personnel, as the basis for an ideological crackdown and as the reason why he should remain at the helm. 

Each of these contains dangers.

One is that the bureaucracy fails him. Mr Xi wants it to be responsive to market signals, but with promotions and purges in the air, China’s officials are jumpy. 

One cause of the power cuts in 20 or so provinces in recent weeks was the panic of bureaucrats who suddenly realised that they were likely to miss their carbon-reduction targets. 

Equally, however, officials fearful of being accused of corruption or ideological deviance by their rivals tend to sit on their hands. 

Failure is dangerous for a bureaucrat who takes the initiative; so is success.

Another danger stems from the ideological crackdown. 

“Moral review councils” and “moral clinics” are enforcing orthodox behaviour using public shaming. 

Although there is as yet no prospect of anything as awful as the Cultural Revolution, Chinese people are becoming less free to think and talk. 

As well as promoting his own doctrines, Mr Xi has played up Red nostalgia and cast Maoism as a vital stage in building a New China, broadening his support before the party congress.

Last come the politics of Mr Xi himself. 

In the long run, if he clings to power the succession could prove highly unstable. 

In the short run, if his attempt to impose a new reality does not go to plan, he will face a fateful choice to double down or step back. 

Up to this point, repression looks more likely than compromise.

Western governments are also struggling with tech firms, inequality and national security. 

In America Congress has risen to the occasion by contemplating a default on the national debt. 

Some may envy Mr Xi’s scope to get things done fast. 

But to imagine he has the right answers would be a big mistake.

The Chinese control revolution: the Maoist echoes of Xi’s power play

The Chinese leader is extending the party’s dominance over civil society. The flurry of activity has many of the hallmarks of a new political era

Tom Mitchell 

© FT montage / Getty


A prominent leftist commentator in China has denounced “big capitalists” and entertainment industry “sissy-boy stars”. 

Leading public figures are disappearing from view. Others are racing to declare their fealty — and pledge billions of dollars — to the policy priorities of an all-powerful supreme leader who has life-tenure.

A sudden frenzy of political activity over the past two weeks has many people wondering if China is entering a new political era, one which embraces elements of Maoist political campaigns as the Communist party continues to take a more domineering role under President Xi Jinping.

Some even suggest that this could be the early signs of a new social upheaval reminiscent of the Great Proletarian Cultural Revolution, a cataclysm precipitated by Mao Zedong in 1966 that resulted in the deaths of at least 1m people and stopped the country in its tracks for the better part of a decade.

“A monumental change is taking place in China. 

The economic, financial, cultural and political spheres are undergoing a profound revolution,” Li Guangman, the pen name of a prominent leftist commentator, wrote in a commentary that captured the zeitgeist. 

“It marks a return [of power] from Capitalist cliques to the people . . . It is a return to the revolutionary spirit, to heroism, to courage and righteousness.”

A group of Chinese children in uniform in front of a picture of Chairman Mao Zedong holding Mao’s ‘Little Red Book’ during China’s cultural revolution in 1968 © Hulton Archive/Getty Images

Much as “big-character posters” were sometimes reprinted by state media organs during the cultural revolution, so was Li’s diatribe amplified by Chinese Communist party-controlled media.

Xi, China’s most powerful ruler since Mao, has no illusions about the cultural revolution. 

During the tumult, his father, a veteran of the Communist revolution that triumphed in 1949, was persecuted and Xi himself was “sent down” to the countryside along with millions of other Chinese teenagers. 

In a December 2018 speech celebrating the 40th anniversary of Deng Xiaoping’s economic reforms, which propelled China out of Maoist poverty, Xi criticised the cultural revolution for bringing “China’s economy to the brink of collapse”.

But in a series of dramatic moves over the past year, ranging from a crackdown on China’s biggest technology companies to strict limits on the amount of time young people are allowed to play video games, Xi is reinserting the party into the private sector and into family lives in a way that has not been seen since Deng launched the “reform and opening” era in 1978.

Many of the announcements represent a form of economic populism in response to widespread anxiety about inequality — a social boil Xi wants to lance as he prepares for an unprecedented third term in power next year. 

But in his efforts to assert ever-greater personal control over both the party and civil society, he is flirting with propaganda tools and intimidation tactics that many observers see as a throwback to the Mao era.

“Xi has no appetite to release the genie of popular rebellion from the bottle. 

He has never been a revolutionary like Mao,” says Ming Xia, a political-science professor at City University of New York. 

“But it does not mean Xi would not manipulate and direct the anger among frustrated people at political targets he wants to destroy.

“With his confident control over the army, propaganda and bureaucracy, Xi has been applying Mao’s strategy at a smaller scale. 

He selectively targets some officials, businesspeople, opinion leaders, stars [and] skilfully manipulates the popular mood . . . to please the impulse of some Chinese who are less successful [and] harbour hatred toward the rich.”

Xi’s ‘profound revolution’

Xi has made it clear that the party must not abandon its revolutionary ideals — that it is duty-bound to deliver “common prosperity” and stand up to the west, especially the US. 

These convictions, as well as his tendency to view everything through a national security prism, have driven a 10-month campaign that started with last November’s cancellation of a $37bn initial public offering by Jack Ma’s online internet giant, Ant Group. 

The drive has also ensnared Ma’s ecommerce platform, Alibaba, and Didi Chuxing, the country’s dominant ride-hailing operator now under investigation for its data security practices.

The most recent shot in Xi’s “profound revolution” came on August 17, when the party’s financial and economic affairs committee, which normally concerns itself with technocratic regulatory and policy matters, declared that it was necessary to “regulate excessively high incomes” in order to ensure “common prosperity for all”. 

Like almost all important party organs, the committee is chaired by Xi.

The declaration shattered the late-summer lull that descends on Beijing every August, when the party leadership typically decamps for the seaside resort town of Beidaihe. 

Many of China’s leading private-sector entrepreneurs snapped to attention, pledging billions of dollars to charities and social welfare even as prominent officials scrambled to assure them that Xi was not going to “kill the rich to help the poor”.


Ecommerce group Alibaba was fined $2.8bn in April for monopoly abuses © Mark Schiefelbein/AP


Alibaba and its biggest rival, Pony Ma’s Tencent group, have each pledged more than Rmb100bn ($15.5bn) to common prosperity-related causes.

“Common prosperity is not egalitarianism,” a commentary published by the official Xinhua news agency declared. 

“It is by no means robbing the rich to help the poor as misinterpreted by some Western media.” 

On September 2 Hu Xijin, a state media editor and one of China’s most prominent nationalist voices, criticised Li’s commentary for “evoking certain historical memories and potentially triggering ideological confusion and panic”.

Such reassurances, however, have been easy to overlook as institutions including the state tax administration, the Supreme People’s Court and the housing ministry began rolling out a government-wide effort to enforce common prosperity.

Over the past fortnight the tax administration pledged to crack down on tax dodgers and fined Zheng Shuang, one of the country’s most popular actresses, $46m for tax evasion. 

The Supreme Court declared the 72-hour work weeks common at many private-sector companies to be illegal. 

And the housing ministry said on Tuesday that it would cap annual residential rent increases at five per cent.

Chinese actress Zheng Shuang was fined $46m for tax evasion © Oriental Image via Reuters


In his incendiary post, Li drew a clear connection from these recent “rectification drives” to the cancellation of Ant’s IPO, a $2.8bn fine imposed on Alibaba in April for monopoly abuses and its ongoing investigation into Didi Chuxing, which angered officials by listing on the New York Stock Exchange in late June.

“This is a return to the party’s initial aspirations,” he wrote. 

“The capital market will no longer be a paradise for capitalists to get rich overnight, the cultural market will no longer be a paradise for sissy-boy stars and [people] will no longer worship western culture.”

TV shows and movies featuring Zheng, who did not challenge the tax administration’s penalty and apologised, were quickly wiped off the Chinese internet. 

So were those of another popular actress, Zhao Wei, and Gao Xiaosong, a popular talk show host and former head of Ma’s film studio, Alibaba Entertainment.

Zhao’s offence was less clear than Zheng’s, although Chinese nationalists were recently offended when pictures surfaced of an actor represented by an agency she established visiting Tokyo’s Yasukuni shrine, where Japanese war criminals are interred. 

As rumours swirled that Zhao had fled the country, a post on her Instagram account reportedly said she was in Beijing with her parents. 

But that too disappeared.

Content featuring Gao Xiaosong, a popular talk show host, was wiped from the internet © Visual China Group via Getty Images


Gao was pilloried for observing on a talk show that many Japanese people had a different view of Yasukuni, triggering a cascade of criticism. 

The Chinese Academy of Social Sciences’ history unit put out a statement declaring him guilty of “historical nihilism” — code for narratives that do not accord with the party’s — and saying he should be “buried in history”.

The new emperor

While such denunciations are reminiscent of the cultural revolution, there are no signs of the anarchy associated with that era in Xi’s China. 

Though Mao basked in a cult of personality that far exceeds what Xi currently enjoys, China’s revolutionary founder felt that real executive power had been appropriated from him by party apparatchiks. 

He responded by launching a mass movement, with youthful red guards at the vanguard, that attacked the party until he felt his grip on absolute power had been restored. 

Only after extrajudicial vigilante violence veered out of control did Mao call in the army to restore a semblance of order.

By contrast, Xi’s hold on executive power is far stronger than Mao’s was in the years preceding the cultural revolution. 

And this time it is the party that is on the offensive, attacking Ma and other prominent technology entrepreneurs, entire sectors ranging from the tutoring industry to video gaming, and public figures such as Zheng and Gao. 

The party-state’s monopoly on violence has never been stronger.

Ren Yi, a popular patriotic commentator, says comparisons with the cultural revolution are “total nonsense”. 

“The cultural revolution was a mass movement launched by [Mao] to overthrow the government,” Ren says. 

“It targeted the entire bureaucratic system . . . Do you see Xi going to Peking University to call on students to attack the government?”

Beijing has placed strict limits on the amount of time young people are allowed to play video games © Alex Plavevski/EPA/Shutterstock


Ren adds that Donald Trump calling on his supporters to deny the results of last year’s US presidential election — and the subsequent attack on Congress — was closer in spirit to the cultural revolution than anything Xi is doing. 

He and other Xi supporters argue that the recent policy onslaught is essentially benign and long overdue — and shares much with the economic populism in the US of Bernie Sanders or Alexandria Ocasio-Cortez. 

Xi, they say, is determined to rein in special interest groups whose privileges he believes undermine the common good.

According to this argument, people should judge Xi’s administration not by its often draconian means but by its ends — from lower living costs for China’s squeezed middle class to more checks on the monopoly powers of the country’s tech giants.

“Expanding equality of opportunity is important to prevent class entrenchment, enhance social mobility and maintain the vitality of society,” Ren wrote in a recent essay. 

“If western politics is more about the conflict between individuals and government, our politics is about the conflict between interest groups and the public interest. 

China’s goal [is to] maximise the wellbeing of the majority of the population and achieve greater equality of opportunity and common prosperity.”

Didi Chuxing, the country’s dominant ride-hailing operator, is under investigation for its data security practices © Hector Retamal/AFP via Getty Images


A Chinese venture capitalist, who asked not to be identified, agrees with Ren that many of Xi’s policy objectives are admirable. 

“The way they’re doing it is very abrupt and abrasive — the optics aren’t great,” he says. 

“But these initiatives are not fundamentally wrong as long as they continue to protect private property and the market economy.”

His main concern, he adds, is the sense of unpredictability arising from Xi’s sudden offensives in the business and economic sphere over the past year. 

“These are the facts — at least as of today. Tomorrow we have no idea what’s going to happen.”

While fears of a second cultural revolution in China may be overblown, Xi’s late summer policy offensive has only reinforced the almost universal expectation in China that he is gearing up to take a historic third five-year term in late 2022, when the party will hold its 20th congress.

Xi’s admirers see him as a “transformational” leader in the mould of Mao and Deng — a “good emperor” who needs more time to lead the country into a new era in which it will finally match the wealth and power of the US. 

Yet in doing so, he will jettison what many people view as a major accomplishment of the reform era: a predictable transfer of power every 10 years to a new president and party head.

The Communist party continues to take a more domineering role under President Xi Jinping © Wallace Anthony/AFP via Getty Images


Since the Qing dynasty collapsed in 1911, there have been only two peaceful transitions of power, both under Communist rule. 

The first was that from Jiang Zemin to Hu Jintao in 2002, and from Hu to Xi in 2012.

But in 2017, shortly before the start of his second term, Xi purged or sidelined the two youngest members of the party’s politburo, leaving no clear successor. 

The following year he abolished the two-term limit on the presidency, in a clear signal he had no intention of retiring in 2022. 

Seen from this perspective, Xi’s “common prosperity” campaign is a signalling device for his policy priorities through 2027, when he will turn 73 and perhaps seek a fourth term in power.

“China is a leaking boat,” says Desmond Shum, a Shanghai native who invested in projects with some of the party’s most powerful families and has just published a book about his experiences. 

“There are so many humongous problems, whether it’s the ageing population or the economic structure, that every leadership [team] says they’re unable to tackle all of them. 

They will handle it the best they can during their administration and then pass it on to the next guys. At some stage everybody believes it is going to explode in their face.

“But Xi,” Shum adds, “sees himself as the emperor who revives the dynasty. 

He’s going to tackle these problems himself.”


Additional reporting by Xinning Liu and Emma Zhou

viernes, octubre 01, 2021

IS CHINA UNINVESTABLE? / THE FINANCIAL TIMES OP EDITORIAL

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Is China uninvestable?

Punishing foreign investors costs the Communist party little

Robert Armstrong 


Is China uninvestable?

If you have not been following the political and financial tremors that have been shaking China in recent months, I recommend the twin reads by my colleagues Tom Mitchell, James Kynge and Sun Yu, detailing how Xi is “reinserting the party into the private sector and into family lives in a way that has not been seen since Deng launched the ‘reform and opening’ era in 1978”.

Investors will have heard about government interventions in the technology, education, alcohol, video game, real estate and entertainment sectors, and will be wondering which industry is next on the hit list. 

To me, however, it is the tone set by the party and its allies that is most unsettling. 

A taste:

“A monumental change is taking place in China. The economic, financial, cultural and political spheres are undergoing a profound revolution,” Li Guangman, the pen name of a prominent leftist commentator, wrote in a commentary that captured the zeitgeist. 

“It marks a return [of power] from capitalist cliques to the people . . . It is a return to the revolutionary spirit, to heroism, to courage and righteousness.”

This commentary was amplified by state media. 

When governments start transmitting messages about “capitalist cliques”, surely it is time for foreign investors to pack their bags?

Some are. 

Here is a chart of global equity funds’ collective China exposure, based on a sample of funds with more than $1tn in assets, compiled by Copley Fund research:


The market capitalisation of China’s four biggest tech companies, formerly foreign investors’ darlings, have fallen by almost $1tn:


There is not a universal rush for the exits, however. 

Todd Sohn of Strategas Securities points out that the KraneShares CSI China Internet ETF received $1.5bn in inflows in August. 

While some of that may be down to demand for exchange traded fund shares for shorting, he says, most of the flow is likely to be from bargain hunters.

Looking at Chinese stock valuations, however, it is clear that we have not had a proper rout. Here are the forward price/earnings ratios of mainland Chinese stocks, Hong Kong shares and an index of US-listed Chinese groups, along with the 10-year average valuations of each (the dotted lines):


China stock valuations sit at their long-term averages, having only given up the premiums picked up in the past year and a half. 

Given the politics, is a foreign investor sticking their toe in this not particularly inexpensive water making a big mistake?

It would be useless for me to attempt to draw a gestalt image of Chinese political economy, and weigh the chances of various outcomes. I don’t know enough. But a clarifying question does occur to me: does the CCP care about what happens if foreign investors take flight? Do outcomes for foreign investors figure in the party’s political calculus? I put the question to three China experts.

George Magnus of Oxford University’s China Centre, who appears frequently in this space, thinks the answer is basically “no”:

“I don’t think the party does care that much if global investors are selling Chinese equities, especially if these are foreign listings. 

If a distrust of Chinese assets resulted in a fire sale of domestic equities and bonds in China and capital flight putting pressure on the reserves, then yes, I think they’d try to limit that damage. 

“But you know what? 

The speed and scale of the initiatives that are being unrolled smacks of an ideological campaign to put backbone into citizens and the economy. 

It may not be a revolution as such, but there’s nothing random about it either. 

And because of that I suspect the leadership sees global investors as bits of capitalism that are of little relevance to them. 

“ . . . I suspect real estate and healthcare are the next sectors in the regulatory crosshairs, maybe even finally, the introduction of a property or other tax on capital.

“Foreign investors need to factor in the risk they could get blamed for any market or economic volatility, and have restrictions imposed on access to dollars and more restrictions on outward capital movements. It’s that sort of climate.”

Another noted China watcher — who did not want to be named because they live in China and would prefer to continue doing so — noted that as long as the party aims to internationalise its currency, it has to consider the “prestige” brought by foreign investment in its capital markets. But the party has no economic need for foreign investment: 

“When do you need capital inflows? 

When they bring you something like technology or management skill, or if you have huge investment needs and weak domestic savings . . . 

China doesn’t need capital, it has huge investment and a huge current account surplus, and stock and bond investments don’t bring technology or skills.”

The problem the party has to solve is almost the opposite: investment is so high that much of the capital is malinvested. 

As a result, debt is growing faster than gross domestic product. 

The irrelevance of foreign investors to China key problems doesn’t mean Chinese stocks might not go up, “but you have to get both the valuations and the politics right, and that’s just really hard”.

Jörg Wuttke, president of the EU Chamber of Commerce in China said:

“Does the party care [about foreign investors in capital markets]? 

Of course not. 

We should not forget, they are Communists, what matters to them is the party, what the party hates most is volatility [which they see in open stock markets].

The party is fully aware they are a huge domestic economy, they only rely on a few things from the world market . . . they feel less vulnerable and more at ease becoming a more insular country. 

They care more about foreign manufacturers, because they substitute domestic supply chains for foreign ones. 

But if someone doesn’t buy stocks and bonds, who cares? 

Institutional investors? 

Nice to have, if they don’t ask to look at the books.

China may not be uninvestable. But the stock market as a whole is still expensive, given that the party is cracking down on the symbols and sources of wealth and inequality, and has little incentive to consider the fate of foreign investors. 

Medieval mapping

A monk in 14th-century Italy wrote about the Americas

That was long before Christopher Columbus set sail


That vikings crossed the Atlantic long before Christopher Columbus is well established. 

Their sagas told of expeditions to the coast of today’s Canada: to Helluland, which scholars have identified as Baffin Island or Labrador; Markland (Labrador or Newfoundland) and Vinland (Newfoundland or a territory farther south). 

In 1960 the remains of Norse buildings were found on Newfoundland.

But there was no evidence to prove that anyone outside northern Europe had heard of America until Columbus’s voyage in 1492. 

Until now. 

A paper for the academic journal Terrae Incognitae by Paolo Chiesa, a professor of Medieval Latin Literature at Milan University, reveals that an Italian monk referred to the continent in a book he wrote in the early 14th century. 

Setting aside the scholarly reserve that otherwise characterises his monograph, Mr Chiesa describes the mention of Markland (Latinised to Marckalada) as “astonishing”.

In 2015 Mr Chiesa traced to a private collection in New York the only known copy of the Cronica universalis, originally written by a Dominican, Galvano Fiamma, between around 1339 and 1345. 

The book once belonged to the library of the basilica of Sant’Ambrogio in Milan. 

In Napoleonic times, the monastery was suppressed and its contents scattered. 

The owner of the Cronica let Mr Chiesa photograph the entire book and, on his return to Milan, the professor gave the photographs to his graduate students to transcribe. 

Towards the end of the project one of the students, Giulia Greco, found a passage in which Galvano, after describing Iceland and Greenland, writes: “Farther westwards there is another land, named Marckalada, where giants live; in this land, there are buildings with such huge slabs of stone that nobody could build them, except huge giants. 

There are also green trees, animals and a great quantity of birds.”

Mr Chiesa says that giants were a standard embellishment of faraway places in Norse folklore and, indeed, Galvano cautioned that “no sailor was ever able to know anything for sure about this land or about its features.” 

The Dominican was scrupulous in citing his sources. 

Most were literary. 

But, unusually, he ascribed his description of Marckalada to the oral testimony of “sailors who frequent the seas of Denmark and Norway”.

Mr Chiesa believes their accounts were probably passed on to Galvano by seafarers in Genoa, the nearest port to Milan and the city in which the Dominican monk is most likely to have studied for his doctorate.

His thesis raises a new question: why does the eastern seaboard of America not feature on any known Genoese map of the period? 

But it could help explain why Columbus, a Genoese, was prepared to set off across what most contemporaries considered a landless void.