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Richmans' Trade and Taxes Blog
The End of the Chinese NEP
Gordon Chang has an intriguing analysis of China's building attacks on multinationals up today on the Trade Reform website. The entire analysis is worth reading. Chang writes:
The frontal attack on foreign business brings to mind the xenophobia of Mao’s era, and that may be no coincidence. Chinese President Xi Jinping has been conducting a series of Maoist-inspired campaigns since he became China’s leader in November 2012. The use of Cultural Revolution-style methods against multinationals suggests that Xi’s Maoist rhetoric is already affecting Chinese governance.
Xi is now taking the country backward in another important respect. China prospered when it opened up its economy after the bloodshed and chaos of the Maoist years. Xi talks positive change but has, on important matters, sponsored regressive economic moves. Whether or not Xi has abandoned Deng Xiaoping’s transformational policies, he is on balance moving China’s economy backwards.
My interpretation is that this reflects the continuation of important strands of China's communist policy -- that China's New Economic Plan coming to an end. In the 1920s the Soviet Union opened (briefly) to western firms in order to acquire technology and capability. William F. Jasper (2006) writes that Lenin stated the strategy behind this opening as follows:
The Capitalists of the world and their governments, in pursuit of conquest of the Soviet market, will close their eyes to the indicated higher reality and thus will turn into deaf mute blind men. They will extend credits, which will strengthen for us the Communist Party in their countries, and giving us the materials and technology we lack, they will restore our military industry, indispensable for our future victorious attacks on our suppliers. In other words, they will labor for the preparation of their own suicide.
In Trading Away Our Future (2008, p 78-81), my coauthors and I suggested that China's opening to foreign firms might have similar characteristics, and that, like the Soviet NEP it would likely end with nationalization of foreign firms' facilities in China.
Unfortunately, it seems increasingly likely that we were right. Over the last several years the squeeze on foreign firms has gradually increased. The days of big profits from Chinese production or sales are likely numbered for U.S. and European multinationals. They will be replaced by days of competition in their home markets with the products of Chinese firms produced with know-how, technology, and equipment the multinationals so willingly (gullibly?) provided.
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