"China" Rising: The Parade

Think of the PRC September 3 military parade, officially "Commemoration of the 70th Anniversary of the Victory of the Chinese People's War of Resistance Against japanese Aggression and the World Anti-Fascist War", as a tabula rasa, a blank screen upon which observers can project their PRC-related hopes, fears, anxieties, and fantasies.  And, for Xi Jinping, to illustrate his "China Dream."

While the PRC exhibited its military might, some Western outlets flexed their China bashing muscle.

Western coverage of the parade was perhaps not journalism’s finest hour.  Condescension, cluelessness, and barely concealed agendas shared the rostrum with reportorial rigor and objectivity.

One China watcher analyzed the parade for the Western media before it even happened, and then announced on his Twitter feed that he wouldn’t deign to watch the festivities, perhaps to preserve the Platonic purity of the image he had devised.

Time: Tiny Pacific Nation of Vanuatu to Join Motley Crew at China’s WWII Anniversary Parade 

VOA: Analysts: Beijing Military Parade a ‘Bazaar’ of Stolen Technology 

Somewhat lower down the food chain, The Daily Beast: Hey, Look! Tanks in Tiananmen!

In my opinion, a central purpose of the parade was to elevate and celebrate Xi Jinping as a key figure in 21^st century China.  The parade recapitulated Deng Xiaoping’s parade on the 35^th anniversary of the founding of the PRC in 1984.  Xi, like Deng, rode down Chang An Avenue by himself with the gaze of the world upon him, so on and so forth.  The CCP, by the way, had the same fear of snipers back then.  I was there in ‘84, ventured out on a balcony for a better look, and was promptly and firmly instructed to get back inside.

As to what doctrine Xi was promoting, the parade was not an “anti-Japan” parade.   Japanophiles may be distressed to read this, but I don’t think the PRC seriously regards Japan as an invasion threat to China anymore.

Actually, the parade was an “anti-United States” parade.

The ostensible reason for the display of the PRC’s military might was that the United States has turned its back on the Potsdam dispensation, abandoned the “honest broker” “Pacific peacekeeper” role it claimed after World War II, and has instead become an overtly destabilizing force in the region, encouraging Japan to expand its military role, egging on the Philippines & Vietnam, etc.  The PRC, therefore, not only has to look out for itself; it’s got to look out for the whole East Asian region to keep US adventurism in check.

PRC perceptions of the US posture were confirmed by Washington’s disparagement of the commemoration.  The US recapitulated its boycott of Putin’s V70 parade and sent no national leader—not even Joe Biden!—to Beijing and merely sent Ambassador Baucus.  Japan and the Philippines sent nobody.  Most other countries hedged their bets.  India, for instance, only sent VK Sing, Minister of State for External Affairs.  The US media framing that the parade was only attended by lickspittles, jerks, losers, Putin, and Vanuatu was perhaps not appreciated by the President of Vietnam, Truong Tan Sang, or the President of the Republic of Korea, Park Geun-hye, or for that matter UN General Secretary Ban Ki-moon.

The United States flirted with the same overreach that tainted its opposition to the AIIB by leaning on South Korea’s President Park not to attend.   Park attended, and so did Ban Ki-moon, despite criticism from Japan.  Ban’s presence was a reminder that the stated purpose of the parade was to uphold the post-World War II order that created the UN and turned over the job of ordering the world UNSC superpower club, and also a hint that US geostrategic boffins infatuated with Abe and roping Japan into the US security regime in Asia are ignoring ROK resentment at Japan for its brutal decades-long colonial occupation (and current zero-sum economic competition) at their peril.

All in all, the US response probably strengthened the hardliners around Xi by reconfirming US hostility to “rising China”.

In an interesting sidebar, the US government dropped its September 2 Victory Day holiday in 1975 in the spirit of US-Japanese amity; Rhode Island is the only state that still gives its government workers a holiday, despite some resentful lobbying by Japanese interests.

The United States prefers to get its World War II rocks off at Normandy on D-Day, June 6, when world leaders converge to commemorate America’s astounding success in convincing the West that the US and not the USSR was responsible for the defeat of Nazi Germany.  Don’t believe me?  In 1945, 57% of French surveyed attributed the victory in Europe to the USSR, and only 20% to the US; now the numbers have flip-flopped completely: 54% credit the US, only 23% credit the Soviet Union.

Soft power, baby!  Undoubtedly, Xi is chagrined at his relative lack of success in moving the historiographical needle in favor of Chinese contributions during the Second World War, at least in the West.

Much unfavorable attention was paid to the tsunami, excuse me, haixiao of hyperbolic Japan-devil-bashing, Japan-murdering Chinese superhero-fluffing, ahistorical movie, TV, and print campaign to exalt the Chinese role and CCP leadership in the anti-Japanese struggle, perhaps reaching its nadir with a movie poster apparently placing Mao Zedong (instead of Chiang Kai-shek) at the 1944 Cairo Conference.  Of course, whose nadir is perhaps open to question.  The Guardian mocked the PRC for putting Mao in the poster for the movie; but from what I can see of the trailer, Chiang is accurately shown at the conference, while Mao is depicted uttering some noble anti-fascist verbiage from inside China.

Ah…or aagh…soft power.  The West is obviously extremely protective of its role in winning “World War II”, and laying claim to leadership/lawgiver status in the postwar order.  Now that the PRC asserts that the West is abdicating that role in order to cozy up to Japan and contain the PRC as a peer competitor, the West is getting testy about PRC pretensions to stepping up to sustain and guarantee the post-war order in Asia in its stead.

History would not seem to be on Xi’s side.  China, let alone the CCP, cannot claim a great deal of martial glory in the defeat of Imperial Japan, as this detailed rundown by Han Linchao of who did what in WWII illustrates.  It was pretty much an American show, and a bloody one at that.

However, the CCP has adroitly “sliced the World War II salami”, to coin a phrase, by splitting the Asian conflict into two separate chunks.  There’s the “Pacific” chunk, in which the United States overwhelmed Japanese military forces in the Pacific from 1942 to 1945; and there’s the ”China” chunk, in which Japan started to fight its way into China in 1931 via Manchuria and got caught in a quagmire that it departed only with the utter collapse of its military capabilities in 1945, and after inflicting gigantic human suffering on China.

So the CCP calls September 3 “Commemoration of The 70th Anniversary of The Victory of the Chinese People's War of Resistance Against Japanese Aggression (a.k.a. China chunk) and The World Anti-Fascist War (Pacific chunk)".

And it may gravel Western sensibilities, especially with its implication that the US was the decisive force in only one of the four global theaters, but this conceptual split captures what happened in Asia better than “World War II”, which is largely a US/UK construct.

Indeed, Japan uses a similar formulation to the PRC: the “China War” and the “Pacific War”.  Probably the reason why Abe feels its proper to apologize to the US and backhand South Korea and the PRC is that Japan was unambiguously defeated by the US in the Pacific War, while the collapse on the Asian mainland had little to do with superior Korean and Chinese arms and valor, and a lot do to with catastrophic, serial defeats in the Pacific, Hiroshima, Nagasaki, and the opportunistic Soviet invasion of Manchuria and the Kuriles in the last moments of the war.

In his brief remarks kicking off the parade, Xi Jinping presented the situation reasonably accurately, especially if one defines “winning” as the first time since the Opium War a Chinese representative got to sit down on the victor’s side of the table and stick it to an imperial freebooter:

The Chinese People's War of Resistance Against Japanese Aggression and the World Anti-Fascist War were a decisive battle between justice and evil, between light and darkness, and between progress and reaction. In that devastating war, the Chinese People's War of Resistance Against Japanese Aggression started the earliest and lasted the longest. In defiance of aggression, the unyielding Chinese people fought gallantly and finally won total victory against the Japanese militarist aggressors, thus preserving China's 5,000-year-old civilization and upholding the cause of peace of mankind. This remarkable feat made by the Chinese nation was rare in the history of war.

The victory of the Chinese People's War of Resistance Against Japanese Aggression is the first complete victory won by China in its resistance against foreign aggression in modern times. This great triumph crushed the plot of the Japanese militarists to colonize and enslave China and put an end to China's national humiliation of suffering successive defeats at the hands of foreign aggressors in modern times. This great triumph re-established China as a major country in the world and won the Chinese people respect of all peace-loving people around the world. This great triumph opened up bright prospects for the great renewal of the Chinese nation and set our ancient country on a new journey after gaining rebirth.

During the war, with huge national sacrifice, the Chinese people held ground in the main theater in the East of the World Anti-Fascist War, thus making major contribution to its victory. In their war against Japanese aggression, the Chinese people received extensive support from the international community. The Chinese people will always remember what the people of other countries did for the victory of their War of Resistance.

 

The PRC posture is also something of a gift to the Kuomintang (albeit something of a poisoned chalice that the politically-vulnerable KMT on Taiwan cannot quite bring itself to accept at this time).  The standard narrative of Chinese involvement in the continental war effort was that Chiang Kai-shek, by and large, was a maladroit and unenthusiastic ally, holding back from the anti-Japanese struggle and instead hoarding his forces and US weaponry in anticipation of a restart of the civil war, which he lost in a rather humiliating fashion.

Instead, the current CCP revisionism accommodates the KMT as flawed, indeed, doomed Chinese partners in the anti-Japanese effort.  And, with the veterans, memories, and animosities of the Chinese civil war dying out, the CCP is determinedly and not entire inaccurately packaging the anti-Japanese struggle as a shared heritage of all the Chinese people.

So I think the “Xi Jinping is trying to pretend Commies won WWII” mockery is somewhat misplaced.

Instead, Xi was advancing a new formula for the PRC’s relationship with its people, its neighbors, and the Chinese diaspora: it was moving beyond the CCP as embodiment of the Chinese peasants and proletariat (Mao) and the Chinese nation (Deng) to claim a role for the party as the representative and shield of the Chinese people in the region and around the world, and a guarantor of East Asian stability.

The parade was meant to demonstrate that the PRC has a military heft commensurate with its ambitions…and that Xi Jinping is an effective steward of this mission.

And it did a pretty good job.

For CCP, Stock Market Meltdown Takeaway Isn’t “Interference is Bad”; It’s “Why Didn’t Interference Work?”

I suppose much of the journo commentariat was born since 2008 and therefore has no memory of TARP, Too Big To Fail, or Jamie Dimon rolling around naked inside a gigantic vat of taxpayer money, so there has been a considerable amount of handwring about how the CCP defiled the purity of the stock market by flinging a trillion or so RMB at the markets in a faltering attempt to moderate the collapse of share prices on the Shanghai exchange.

“Purity of the stock market”.  Chew on that a while.

I expect the poohbahs of Zhongnanhai are more concerned with the interesting question of why a few phone calls and a trillion RMB were unable to stem the decline in a neat, orderly way, and it turned out the best way to handle the rout was to stand back and let the stock market crater.

And, no, I don’t think the red emperors’ conclusion is “markets are awesome and all-powerful and the CCP must accept its new role as humble handmaiden to high finance”.

Here’s a few observations/interpretations.

1.  The bubble had to pop.  Valuations were at ridiculous P:E levels of 60 to 80 and the optimistic "Silk Road Will Save Us" narrative that was supposed to prop up equities and ease the transition to the "New Normal" of lower growth wasn't holding up for international or, I imagine, knowledgeable domestic investors.

2.       I think history will judge that the bubble was fueled not only by gullible small-time investors, but an ocean of money brought in by the carry trade (borrowing cheap dollars to convert into RMB to chase high returns in the PRC stock market).  Somewhere I read that a trillion dollars of carry trade money might have made its way into the market.  That’s serious money.

3.       In my opinion, the PRC situation looks a lot like Japan in the 1990s.  Banks with underperforming/nonperforming policy/infrastructure loans looked to boost their bottom lines through carry trade, investment vehicle, and stock trading shenanigans.

4.       A lot of money, smart and otherwise, came into the market through unconventional funds, margin accounts, and whatnot.

5.       The whole stock market spectacle from April to July looks like a classic pump-and-dump, with big money investors levering up to boost the bubble and sucking in fish/sheep to be shorn/sacrificial lambs or whatever hapless animal metaphor you want to call the retail investors whose primary function, as always, was to get stuck with the funny paper at the end of the day.

6.       When the slide began, in the best time-honored fashion priority was given to make sure that the big money boys and girls dodged their margin calls and got closed out of the market at acceptable levels.  The fact that the top securities companies were entrusted with executing the bailout probably didn’t hurt their buddies one bit.

7.       The CCP wanted and expected the bubble to pop in an elegantly authoritarian and orderly fashion.  When it didn’t, the leadership bought the idea that a disorderly decline was undesirable, mainly because a spectacularly craptacular market would be unable to handle the new share offerings intended to wean the SOEs from their leech-like dependence on the banking system for ridiculously cheap capital.  So we got the panicky money-shoveling, the trading bans, and orders to security companies not to sell their own book.

8.       But instead of orderly, they got spectacularly craptacular.  That POs the CCP.

9.       What I expect concerns the CCP is the suspicion that market control efforts were balked by a lot of things: not just market forces, but also poorly monitored and regulated capital inflows, and by self-dealing shenanigans by the securities companies that were charged with executing the bailout.

10.   So now it’s time to suppress the forces that interfere with CCP-mandated market operations.  Limit margin, limit short sales, crack down on the unconventional finance companies a.k.a. hedge funds with Chinese characteristics, and hammer a few security firm execs.

11.   I expect there is a genuine split within the CCP between liberal reformers a.k.a. believers in the inevitability of oligarchical market-driven growth & Xi Jinping’s emphasis on controlling and channeling market and economic forces to buttress CCP dominance.  Xi’s aura of omnipotence has certainly taken a hit.  But I don’t think the internal takeaway is going to be that Xi blew it and Li Keqiang is unfairly taking the fall.  I think it will be that liberal reformers were naïve in thinking that the laissez faire “let a hundred hedge funds bloom” attitude could deliver a stable, manageable financial sector.

12.   Should be remembered that “liberal reformers” have the ear of the Western press while Xi Jinping probably doesn’t give the highest priority to what’s written about his economic policies overseas.  So it’s important to bear in mind the distinction between insider tittle-tattle and insider ass-covering.  In coverage look for the perennial “Li Keqiang is an economist, Xi Jinping is just a chemical engineer” tell in order to get an idea of who’s pushing what.

13.   If “liberal reformers” spend too much effort defending themselves in the Western press, I’m guessing ugly exposes of corruption, lax regulatory oversight, whatnot by China’s would-be masters of the financial universe will start popping up in Chinese media and courts.  And I expect there’s plenty to play with.

14.   The key internal fingerpointing, in other words, may turn out to revolve around “how did the bubble form so quickly and unwind so chaotically?” rather than “dang, we shouldn’t have violated the market with intervention”.

15.   I think the market will show some stability now, not necessarily because it’s reached a rational P:E, but because the insiders have cashed out and the pressure from the carry trade mechanism is gone with the collapse of returns on the China stock markets.  In fact, one way to look at the RMB devaluation that appears plausible to me is that the CCP instituted it in order to break the dollar peg and gut the carry trade.

16.   If you really want to get into the financial warfare weeds, PLA fireeater Maj. General Qiao Liang (who, according to Francesco Sisci has the ear of Xi Jinping) has put forth the theory, well, accusation, that the United States knowingly pumps up emerging markets and then crashes them.  In this scenario, the RMB deval would be a pre-emptive move to wind down the carry trade and deflate the bubble before the Fed yanked out the plug this fall with a rate hike.

17.   The carry trade equation will reverse and we’ll see capital flight out of PRC into and via Hong Kong, something to remember when the free-market wonderfulness of the Hong Kong stock exchange is extolled.

18.   The CCP can decide if it wants to cherish forever the big pile of paper it accumulated in trying to prop up the market.  I think it would be a great idea to make the shares disappear—swap them for some crappy debt that is immediately defaulted on and forgiven—but I suppose the irresistible temptation will be to hang on to the shares with the expectation that prices will recover and they will be bled into the market for triumphant “we didn’t lose a mao!” crowing.

19.   Bottom line, I think, a major embarrassment for Xi Jinping, a source of division and discord within the elites, and a big knock to the financial machinery that will set back reform plans for a couple years.  It will also strengthen the hand of the go-slow factions that, for various interested and disinterested reasons, don’t want to see the SOE/business as usual/corruption toleration applecart upset.  I expect Xi is currently weighing the options of either hammering these guys pre-emptively before another mis-step weakens him further, or cutting his losses and risks by concluding a truce with his opponents.

20.   Regardless of what happens to Xi Jinping’s mojo, I think the CCP learned an expensive lesson about financial bubbles.  And I think the lessons concerning regulation, monitoring, and control are somewhat different from those free market advocates in the West would like them to draw.