China’s economic miracle over the last four decades must be attributed to its millions of ingenious, dynamic, hard-working and “never say die” business people.
In my view, the critical turning point took place during the late paramount leader Deng Xiaoping’s Nanxun (Southern tour) in 1992 when he exhorted them to go out to build their businesses and make money in any way they thought best.
Deng made two grand declarations: “To get rich is glorious” and “I don’t care whether the cat is black or white for as long as it catches the mice”.
These two assuring statements unleashed the “entrepreneurial genie in the Communist bottle” that was confined during Mao Zedong’s regime.
As they say, the rest is history.
On my recent trip, after meeting 30 businessmen in group meetings and group dinners, I sensed their heightened distress and unsettled minds.
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They seemed to have concluded that doing nothing is most prudent, that is, to tangping (lie low) for now.
For those who have made their millions, emigrating is the safest of the safe options, and many have indeed emigrated. It is estimated that the emigrants have brought out US$1 trillion ($1.3 trillion) of their wealth.
What has happened? Two things.
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One has been the anti-corruption campaign, which has not eased even after 10 years.
The other is the recent tax evasion inspections that can go as far back as 30 years. It is probably not an exaggeration to say that virtually no Chinese business- man has not lost sleep over the two concerns.
They prefer to forgo making their next million if it means avoiding a call from the graft bust- ers or tax authorities.
Metaphorically speaking, they have sought refuge by unwillingly returning to the genie bottle.
In many ways, it is sad for them and China. Let me explain. Without them, China would not have enjoyed the colossal wealth creation this century, the largest ever in any country’s history.
Like many Asian societies, Chinese society is not grounded in a strong legalistic foundation where laws and regulations are promulgated in “black and white” fashion.
For instance, the exchange of gifts and the giving of “red packets” filled with cash are millennia-old traditions and are not discouraged, legally or otherwise.
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In many instances, they are used to forge relationships between friends and family members and bribe counterparts or get favours in business deals.
During Deng’s time, China took a pragmatic approach and did not care about the colour of the cat.
But in today’s regime, the colour of the cat matters.
Red and white are preferred. Black, brown and blue, caveat emptor.
Making millions by degrading the environment, adopting improper business practices such as employing monopolistic tactics or selling unsafe food products, ruining the future of the youth by promoting video games and bribing officials are strictly banned by President Xi Jinping and his party.
The audit of compensation practices at mutual fund companies, especially the state-owned enterprises (SOEs), was near its peak tempo during my latest visit to Shanghai.
The mood was encapsulated by a senior executive at an SOE investment bank, who told me that salaries of their front office staff had been slashed markedly in 2023 as well as 2024, with bonuses of one to three months for those who hit their targets instead of the 12 to 24 months during the go-go years.
His own was cut by 30%.
Xi is intent on cleansing the financial sector of excesses, with compensation being a key thrust.
Although we have yet to see a mass exodus from the industry among the affected employees — perhaps indicating that while harsh, the cuts seem not quite “right down to the bone” — it added to the already negative sentiment.
I have repeatedly asked: “What is one policy measure that can bring back China’s past economic vigour and dynamism?”
To my mind, that policy would be to bring back the energy that had successfully powered the country.
To uncork the entrepreneurial energy of the Chinese in the genie bottle once again.
I have no doubt the economy will be firing on all cylinders again.
Most Chinese — students and ordinary folks alike — support China’s anti-corruption campaign because they are convinced that corruption must be weeded out.
Xi inherited the corrupt system and took it upon himself to face it head-on.
Singapore also has had its corruption problems and launched anti-corruption campaigns in its early years of nation-building.
A minister who was investigated for accepting bribes involving state land for private development committed suicide in 1986 before he could be formally charged in court, leaving behind a letter addressed to then-Prime Minister Lee Kuan Yew expressing his remorse at what had happened and his view that he should “accept full responsibility” and “pay the highest price for his mistake”.
Lee and his team were convinced that rotten political and economic systems would eventually destroy the nation.
But Singapore was blessed in that the scale of corruption in the government and in business occurred on a much smaller scale.
China’s problems seem more extensive and deep-rooted.
At this scale, investigations could continue indefinitely, but that must not happen.
For the sake of China’s future, it is worth contemplating a cut-off point or a general amnesty so that the country can start on a clean slate as soon as possible.
What to do with past violations? Surely, they must not be let off lightly.
A penalty of a certain percentage of declared assets can be contemplated and imposed.
An enormous side benefit would be that local governments could have a major source of fiscal revenue.
If the above is feasible and to avoid a repeat of the same old problems, this time, clear out-of-bounds lines must be drawn, so that business people will know what is permissible and what is not permissible as they make their millions in China’s new productive business regime.
Negative wealth effect
The days of making easy money through the property boom — where one could scalp a 30%– 40% capital gain overnight by flipping a property or snatch a 100%–200% gain from a stock IPO — are over.
Added to the property market gloom is stock market doom.
Weak consumption is the result of the negative wealth effect that has affected the middle class.
High-end restaurants, where diners typically dropped at least RMB1,000 ($183.05) per seat during China’s long property boom, now struggle to attract diners for half that amount.
Mid-end ones, which had charged RMB500 per diner, are now charging RMB200 to RMB300 per head.
The owner of a high-end restaurant in Shanghai shared with me that expense claims for SOEs are now capped at RMB300 per meal.
In the e-commerce sector, major players are slugging it out in a price war for market share.
Alibaba and JD.com are arm-twisting their merchants to cut prices to bare-bones or even near-zero margins this year.
Even Pinduoduo, the low-price player, is feeling the heat.
No wonder China’s Consumer Price Index has stayed subdued this year.
Foreign luxury brands are also feeling the pinch.
Paris-based LVMH — home to 75 high-end brands including Louis Vuitton, Dior and Tiffany & Co — saw sales in Asia, which include China but not Japan, falling by 14% in 2Q2024, worsening from a 6% decline in 1Q2024.
It is not alone, as Chinese consumers cut back on pricey purchases and social media accounts of influencers who have flaunted luxury goods online get shut down, hitting names like Burberry, Swatch, Hugo Boss and Richemont, which owns Cartier.
Apple’s smartphone shipments in China fell by 6.7% in 2Q2024 as the tech giant faced in- tensifying competition from rivals like Huawei, according to data from market research firm Canalys.
Apple’s total shipments for 2Q2024 stood at 9.7 million units, down from 10.4 million units in the same quarter last year, Canalys data shows.
This went against the grain of China’s smartphone shipments, which rose 10% in the quarter.
Vivo was the top vendor with a share of 19%, followed by Oppo, Honor and Huawei with 16%, 15% and 15% respectively.
In contrast with Apple, Huawei’s smartphone shipments surged 41% y-o-y to 10.6 million in the quarter, bolstered by the launch of its new Pura 70 series in April.
Apple’s market share decreased to 14% from 16% in 2Q2023, with its ranking in China’s smartphone market falling to sixth place from third.
There is a move to purchases that are value for money as China’s younger consumers grapple with a moribund job market, eschewing ostentatious consumption and foreign luxury brands, which is how Apple is perceived in China.
The days of extravagance and desire, especially for foreign brands, are over.
EVs – not all is bleak
During my trip, I visited Nio and Leapmotor.
Leapmotor, founded only in 2015, is most impressive because it makes most of its components in-house.
The founder and his small team from Dahua, a surveillance system company, built almost everything from scratch, albeit with some assistance from their former employer.
The electric vehicle (EV) industry and many other tech industries have made brisk progress in recent years, but this is not quite trumpeted in China and elsewhere.
Xinjiang – no right to self-defence
After having read media reports of abuses such as mass arbitrary arrests and detention, torture, mass surveillance, cultural and religious persecution, family separation, forced labour and even genocide for many years, I decided to visit the province and find out the truth myself.
On my arrival in Urumqi, the first question I asked my personal guide was: “Is it safe here?” To my astonishment, he confidently said that Xinjiang was currently the safest province in China.
In disbelief, I asked the reasons for his view.
He said that in a physical fight in Xinjiang, both the aggressor and the victim would be fined, with the former copping a larger sum.
One can say there is no right to defence; that is, the law must not be taken into your own hands.
The aggrieved party ought to call the police, who will arrive expeditiously — within three minutes. In all the places I visited, police cars are ubiquitous.
A Shanghai businessman confirmed this was his experience some years ago.
During my eight-day trip, the system seemed to be working well, with all parts of the city safe for locals and tourists alike at all times of the day.
No need to keep your head on a swivel to guard against pickpockets or muggers.
No drunken louts picking fights. Freedom of movement and safety for the ordinary folk, who seem to be too busy working in a tourism industry that is booming from domestic travellers.
More than one hundred million Chinese tourists visit Xinjiang every year.
If law and order continue to be good, I expect tourism to continue to boom because there is so much unmatched, breathtaking, stunning scenery in Xinjiang.
I did not experience or sense any anger or rancour from Uighur citizens against the Han Chinese, which I would expect if genocide was committed against them.
The young Uighurs enjoy economic conditions that are far better than what their parents grew up under.
The province is at least no longer mired in violence and disorder, with headline-grabbing incidents few and far between in the past few years.
When I got more familiar with my guide, I probed him about forced detentions.
I said that foreign reports have estimated the number to be 1–2 million.
His reply was, “Impossible!” Several hundred thousand? “Not possible.” Several tens of thousands? “I don’t think so.” Several thousand? “Maybe.”
He had worked as a police officer before becoming a guide.
he sparsely populated province of around 26 million people spread across 1.6 million sq km — more than four times the size of Japan — is well served by roads befitting any developed nation, which connect its population centres and also serve as conduits for its bountiful agricultural products to be enjoyed by the rest of China.
Besides lamb, milk and beef, aquaculture has also taken off in the vast arid and semi-arid province that is not richly endowed with large bodies of fresh water.
When there is a will, there is a way.
Xinjiang’s real GDP grew 6.8% in 2023, though this may have been understated, and it is expected to grow 6.5% in 2024.
Whether economic prosperity will bring lasting law and order remains to be seen.
For now, the Uighurs seem to be enjoying standards of living never experi- enced before.
But Xinjiang is a province worth visiting because there is so much beautiful and stunning scenery.
Wong Kok Hoi is the founder and co-CIO of APS Asset Management. He has 43 years of investment experience, including CIO at Cititrust Japan, senior PM at Citibank HK and senior investment officer of GIC
