On China’s New Leaders

China’s unveiling of new leaders has not equally received warm reception from her domestic markets. The Shanghai index dropped 2.63% this week. The weekly losses account for 31% of the accrued year to date losses of 8.43%. 

Many have speculated on the whether currently selected leaders are “conservative” or “progressive” and of their possible policies when they assume their positions in 2013.

What has been known is that the current appointments by the top party leaders and retired officials[1] had been based on the rival factions of retired President Jiang Zemin, who seem to have prevailed over faction of outgoing President Hu Jintao (as noted by the table above from Merk Investments[2]).

What has also been a fact is that incoming President Xi Jinpin has a daughter studying at the Harvard University since 2010 (under a pseudonym and under 7/24 protection from bodyguards[3]) and that many of the contenders for China’s premier political power positions like Li Yuanchao (although he failed to get appointed), as well as with many incumbent bureaucrats and state officials, have been trained by or has affiliations with Harvard University. In short, perhaps the Harvard connection[4] may play an important role in China’s national and international political and economic affairs.

The reality is that we can never say what policies these people would assume in spite of their personal, academic and political backgrounds.

As a side note, US Federal Reserve Alan Greenspan comes to mind. Thought to have been influenced by free market leader Ayn Rand[5], upon the assumption of the chairmanship of the US Federal Reserve in August of 1987, Mr. Greenspan turned out to be a serial inflationist or bubble blower.

Once in command, the political environment will differ from their past experience since these leaders will have to deal with variegated political pressures from competing interests from every corner of China’s territorial borders.

Yet political pressures will not emanate solely from domestic front. External relations will be an ongoing concern too where China’s geopolitical and international economic interests lies.

In other words, the incoming leaders may or may not be influenced by the values or priorities of their benefactors or by their political parties, aside from the influences exerted by people surrounding them.

One thing that can be assured is that such leaders will operate along their self-interests. And that they would work under a mixture of limited knowledge, their perspectives and interpretations of events will be shaped by how information has been framed on them, their academic or ideological or cultural orientations, time preferences, value scales and the varying degree of influences from their networks will also matter, and lastly how all these political issues will harmonize or synthesize with their career (or even financial) interests or ambitions.

So far, following a series of record injections by the People’s Bank of China[6] (PBOC), the last of which has been made last month, credit activities appears to have picked up. The PBoC has made injections lately but has pulled back[7] from last month’s record highs

While the growth in new local currency bank loans has been weaker than consensus expectations, other credit measures such as corporate bonds, has shown marked advances[8]. Some say that this is bullish. Maybe. But perhaps the bulk of such improvements may be due to politically directed credit channeled through State Owned Enterprises (SOE) rather than from private sector. If this is true, then artificial stimulus may likely have a short term effect. Again everything depends on the feedback loop between the market’s response and the attendant policies adapted by the PBoC to address them and vice versa. 

Also part of China’s transitional government will involve PBoC Governor Zhou Xiaochuan departure or retirement. Albeit Governor Zhou says that the PBoC’s direction will work for the convertibility[9] of her currency the yuan, that would allow market forces to determine its value aside from opening China more to financial reforms.

I do hope that his successor will indeed push through with this reform agenda.

---

[1] Rappler.com FAST FACTS: China's 18th Communist Party congress November 8, 2012

[2] Axel Merk and Yuan Fang China's New Leadership: Progressive, Not Conservative Merk Investments, November 16, 2012

[3] DailyMail.co.uk China's new Princess - the daughter of Communist president Xi Jinping studying quietly at Harvard November 18, 2012

[4] See Uh Oh. China’s New Set of Policymakers could be Harvard Trained Keynesians November, 9, 2012

[5] Wikipedia.org Alan Greenspan

[6] Wall Street Journal PBOC Injects Record Amount of Liquidity November 1, 2012

[7] Wall Street Journal PBOC Continues to Trim Fund Injections November 12, 2012

[8] Danske Bank Political events take centre stage Weekly Focus November 16, 2012

[9] Bloomberg Businessweek China’s Next Step on Yuan Is Convertibility, Zhou Says, November 17, 2012

Uh Oh. China’s New Set of Policymakers could be Harvard Trained Keynesians

Wonder why China’s economic policies have transitioned into boom bust cycles? Well that’s because China’s policymakers has increasingly been influenced by the Keynesianism

Now Harvard trained Chinese politicians are vying for power.

From Bloomberg,

Li Yuanchao serves the Chinese Communist Party as head of its organization department. For a few months in 2002 he had a different overseer: Larry Summers.

Li controls the patronage system of the 82 million-member party that this month is unveiling its next generation of leaders, overseeing an apparatus that names cadres to posts in state-owned companies including China Mobile Ltd. (941) and acting as career manager for thousands of rising officials. He took part in an executive training program at Harvard University when former U.S. Treasury Secretary Summers was the school’s president. Li reminded Summers of that when the two met in 2010 in Beijing.

Li is the most prominent graduate of a program that has brought rising Chinese leaders to Harvard’s Cambridge, Massachusetts campus for more than a decade. The initiative underscores the fact that even as the U.S. and China are at odds over issues ranging from the value of the yuan to Syria, top politicians in China are increasingly drawing on their U.S. experiences in setting policy for the world’s second-biggest economy, said Anthony Saich, a professor at Harvard’s Kennedy School of Government who oversees the program.

And further evidence suggests that the relationship of US-China leadership have been joined to hip through the Harvard channel.

This bolsters my postulation that territorial disputes in Southeast Asia seem more of a false flag to shield other political agenda:

Other graduates of the program at the Kennedy School’s Ash Center for Democratic Governance and Innovation include Commerce Minister Chen Deming and Zhao Zhengyong, the governor of Shaanxi province. They get face time with some of Harvard’s most famous professors. In one program, officials attend a series of seminars Saich calls “star turn.”

Want to learn about how a country uses soft power? Joseph Nye, the political scientist who coined the term, holds a seminar on that. What about the U.S. presidency? Roger Porter, who served in three U.S. administrations, including as assistant to the president for economic policy under George H.W. Bush, meets with the students. Economics? Summers will lecture on the U.S. or global economy “or whatever’s on Larry’s mind at any particular time,” Saich said.

Harvard’s Kennedy School has been expanding its offerings to Chinese officials and executives at state-owned enterprises since the first program -- for senior leaders at the vice- minister level -- began in 1998, sponsored by Hong Kong’s New World Development Co. About 150 officials have been through the program since its inception, with 20 each year at most, Saich said.

And one can also guess that cronyism and nepotism could have been part of the Harvard-China leadership program

Harvard also attracts other relatives of China’s top leaders. Chen Xiaodan, the granddaughter of top planning official Chen Yun and daughter of China Development Bank Corp. Chairman Chen Yuan, graduated from the business school with an MBA this year, school records show. Xi Mingze, Xi Jinping’s daughter, is an undergraduate at Harvard College…

And it has dawned on me from this report that Harvard has become the most influential policy think tank on China albeit masquerading as school.

There are 686 full-time students from China enrolled at Harvard for the 2012-2013 academic year, more than from any other foreign country, and almost half of them, 331, are in the Graduate School of Arts and Sciences, according to the Harvard International Office website. The Harvard Kennedy School of Government, where Li and Bo attended, has 32 Chinese students, according to the site.

Harvard’s links to China go back at least to 1879, when Ko Kun-Hua, a Chinese language teacher, was hired, according to the university website. Ko died of pneumonia less than three years after arriving and his books became part of the Harvard Yenching Library, which now has more than 1 million volumes.

The above simply reveals of the pivotal role played by the Harvard connection in shaping China’s domestic and geopolitical policies.

Importantly if Harvard trained policymakers captures the top echelon of China’s state hierarchy, then we should expect more macro "demand management" measures such as stimulus, welfare and military Keynesianism to dominate China's policies. This means boom bust cycles will also commonplace feature in China.

And this also implies that the same political economic formula that has been a drag to the US (debt based consumption system) will likewise be the strategy used on China: a seemingly crafty move by US politicians through the Harvard nexus.

I am reminded by the snarky remark made by the late conservative William F. Buckley Jr. on Harvard:

I am obliged to confess I should sooner live in a society governed by the first two thousand names in the Boston telephone directory than in a society governed by the two thousand faculty members of Harvard University.