Xi’s power grows

The Chinese Communist Party approved a historic charter revision at the end of its party congress that moved Xi Jinping to a godly status equal to Mao Zedong. The move will most certainly mean Xi will hold sway and influence over policy and culture in China for decades. 

The focus for global business, as always with China and the Communist Party, is what does this mean for economic reform and allowing more say in the economic governance of the nation from those outside the party.

I say not much.

Adding more power and influence to Xi changes little in the short-term for global business. China still lacks a significant world-class brand. It is short on soft power derived from film, fashion, and music. Its universities don't allow the freedom for innovation and discussion found on the campuses of the West. Its sports teams and athletes have yet to break through and capture the imagination of kids playing in the streets. Its navy can't project power across the seven seas. One hundred sectors of the Chinese economy are still walled-off or limited to competition from foreign companies.

Not to throw cold water on the significance of the power and influence granted to Xi by his fellow party members, but the rest of the world simply hasn't given the same authority.

Frankly, Xi looks stronger due to the fact the rest of the world's global leaders look so weak and distracted. Spanning the globe, you see leaders focused on domestic political squabbles, coalition forming spats, and treaty break-up scraps.

Tomorrow will bring more bold headlines and Massachusetts Avenue, NW analysis for Xi as the party’s supreme decision-making body, the Politburo Standing Committee, is revealed with the slight possibility that a designated heir to the power of Beijing may be tapped.

Regardless of what happen's tomorrow, even this robust collection of male comrades sitting on a standing committee won't be able to stop the millions of Chinese that will enjoy a Coca-Cola, drive a Volkswagen, ride on an Airbus, use a Gucci handbag, or stay at a Marriott in the Middle Kingdom daily.

Sometimes having a lot a power and influence just means that and nothing more.

The Battle of Bretton Woods + currency + trade

A book we have been going back to for years is The Battle of Bretton Woods. The book explores the development of today's WTO, IMF, and World Bank all established in the closing days of WWII. What was discussed then is still being discussed today.

Harry White was the leader of the US delegation and recognized "most governmental problems are economic.” White had a fascination with policy questions surrounding the relationship between the workings of the international monetary system and the performance of the real economy. White concluded any new monetary standard would have to have “promotion of trade and finance” as a key criteria, but that it would also have to allow “sovereignty in shaping domestic policies.”  

Looking to develop a global system of trade and currency that lessens the chance of another major, great power military conflict, while at the same time respecting the sovereign need for nations to make decisions that suit their domestic needs and objectives was, and still remains, a challenge.

White believed when a county confronted an adverse balance of payments with the world (more imports and bond purchases than exports and bond sales) it faced a choice “between two evils” - a fall in the exchange rate or a fall in the domestic price level. Both actions were seen as disruptive and undesirable - but a choice had to be made.

The White House has always played in role in shaping the economy - often changing tactics when an administration changes. For example, President Hoover tried to preserve the gold standard by means of trade restrictions, while President Roosevelt maneuvered in the other direction, moving away from multilateralism in money while trying to preserve it in trade.

Delegates to Bretton Woods knew a final collapse of gold exchange would poison Anglo-American relations for decades and set the Americans on a path to greater support and responsibility of the global economy. To the British way of thinking, Britain had been ignominiously forced off gold by selfish and short-sighted American and French policies. Americans with their abominable import tariffs and the French with their wretched devaluations - the Americans saw themselves as innocent victims of an odious British default.

President Roosevelt believed “the sound internal economic system of a nation is a greater factor in its well being than the price of its currency in changing  terms of the currencies of other nations.” White, on the other hand, was making his mark at the meeting by arguing that currency stability was essential to achieving domestic economic stability, contradicting the president’s message.

White stated, "given the choice, every country prefers to have its currency undervalued rather than overvalued."

White believed without efforts to restore equilibrium exchange parities by international agreement, countries would act to protect their domestic industries by erecting import barriers and would protect their export markets through bilateral trade and exchange agreements all which would act to reduce global trade and hamstring recovery.

It appears not much has changed from that meeting in the New Hampshire White Mountains 73 years ago.

American business and Xi's second term

The 19th national congress of China's ruling Communist Party is set to finsh next week. To assist C-Suite executives to identify opportunities and challenges based on the policy and personality outcomes of this important gathering, on October 30 Caracal Global will release American Business and Xi's Second Term - A C-Suite Primer.

The report will explore the outcomes of the national congress and capture how the Chinese authorities will seek to balance growth, economic reform, and stability. For years, Chinese authorities have attempted to achieve growth and reform to move China's economy to world-class status, cultivate domestic strategic industries, and secure foreign direct investment. Outcomes of the gathering with set the roadmap for how the ruling Communist Party and Xi Jinping intend to guide the China for the next five years and highlight policy opportunities and challenges for American businesses.

There is no doubt that Xi Jinping will stay for a second term, but the real question for the national congress is who will join Xi on the Politburo and the Standing Committee - essential bodies that will influence commercial policy, economic reforms, and American businesses operating in China the next five years. Also, the outcome of gathering will provide an early indication whether Xi may break with recent precedent and stay for a third term (2022-2027) - a move which will lead to a new dynamic for American companies selling goods and services to the Chinese marketplace.

Designed for C-Suite executives, this Caracal Global primer will provide a foundation for your company to help better guide your auditing, research, planning, and management for your China business operations.

Secure a copy of the primer here: https://goo.gl/ieH9fd