| "You can't be half-communist." This according to Stephen Kotkin, a preeminent historian of the Soviet Union and expert on great-power relations. He contends it's an all-or-nothing proposition. "Either you have a monopoly on power," Kotkin says, "or you don't." True, the first cabinet after the Chinese Communist Party took power on the mainland in 1949 was roughly half-and-half (11 of the 24 ministerial portfolios were non-CCP members). But within years, Mao Zedong launched an "anti-rightist" campaign that purged more than half a million people so as to tighten the CCP's grip on the country. This history is worth keeping in mind amid a wave of optimism about President Xi Jinping's apparent pivot toward the private sector in recent weeks. (Xi himself knows something about purges, as he continues to prosecute what he calls an anti-corruption campaign that's seen millions of party members investigated.) For now, investors are raving about Xi's public rapprochement with Jack Ma, the tech mogul who co-founded Alibaba Group, and endorsement of DeepSeek, the AI start-up that wowed the world earlier this year. But two separate events this week showcased how, underneath all the bonhomie, Kotkin's point remains paramount. This week in the New Economy | - Markets brace for "China shock" if Trump makes good on latest tariff threats.
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The backdrop for Xi's current embrace of China's entrepreneurs is the economy's persistent struggle to meet the government's growth target of about 5%. The lingering property-sector recession has not only erased the main driver of GDP gains, but also weighed on consumer confidence. Limited appetite in the private sector to take on new credit stoked concerns about "Japanification," as this newsletter has repeatedly highlighted. Add to that US President Donald Trump's tariffication program. He's already slapped a cumulative 20% surtax on Chinese imports, with more potentially coming April 2, the latest deadline in a two-month cycle of protectionist threats. This time, Trump promises to announce "reciprocal" tariffs against America's trading partners. With all those headwinds to China's economic expansion, it's no wonder Xi decided to fete Ma, Tencent founder and "super app" champion Pony Ma and other prominent entrepreneurs in a private-sector love fest last month. Many of those participants' companies had been hit by a variety of punishments in recent years as Xi championed "common prosperity" and his lieutenants railed against "disorderly capitalism." The giant initial public offering by Jack Ma's Ant Group was nixed in 2020, shortly after he delivered an arguably thoughtful speech on how China's companies were suffering from the (state-dominated) financial system's "pawnshop mentality" of insisting on collateral. Ma himself reportedly moved to Japan in 2022 — the same refuge many pioneers of modern China turned to at the end of the last empire and in the early days of the republic a century ago.  Jack Ma, former chairman of Alibaba Group Holding Ltd., at the Tokyo Forum in 2019 Photographer: Kiyoshi Ota/Bloomberg But last month, Xi promised to abolish unreasonable fees or fines against private firms and level the playing field with state-backed competition. He pledged the government would "continue to make great efforts to solve the problem of difficult and expensive financing for private enterprises." (This addressed one of Ma's original points.) But China is still a communist country, one of the few left. As such, the embrace of the private sector can only go so far when there's an autocracy bent on monopoly power, as Harvard University economist and China analyst David Yang wrote in a paper discussed in this newsletter last year. Despite Xi's pledge, the State Administration for Market Regulation (SAMR) has made clear that it will, in the end, do as it pleases when it comes to regulating privately owned enterprises. The consultancy Trivium China highlighted that the SAMR on Tuesday released a document on the final implementation measures for fair-competition reviews that, well, "isn't very fair." Fair-competition assurances can be set aside for reasons of national security, enhancing China's innovation, "social public interest," or "other circumstances prescribed" by the government. That means Beijing retains "sweeping authority" to exempt policies from fair-competition review, even if firms operating outside "sensitive sectors" will still benefit, Trivium said.  Li Ka-shing Photographer: Anthony Kwan/Bloomberg Another reminder of the CCP's perspective on private enterprises is the treatment of a Hong Kong-based company's sale of a chunk of its port business to a consortium led by American asset manager BlackRock Inc. From a business perspective, CK Hutchison Holdings Ltd.'s transaction was unimpeachable — a bold, $19 billion deal that was yet another feather in the cap for 96-year-old Hong Kong billionaire Li Ka-shing, whose storied career began as a teenage factory worker. But there was a hitch: the Panama Canal. CK Hutchison's port holdings had come under the glare of Trump, who demanded an end of "Chinese" ownership of canal ports. The company had packaged those with others into a deal whose announcement sent its shares surging as much as 25%. It was "a perfect example of turning geopolitical risks into opportunities," Gary Ng, a senior economist at Natixis SA, said at the time. But that was before Beijing's reaction became clear. Chinese authorities, including the SAMR, have begun looking into the sale, Bloomberg News reported Tuesday. The Wall Street Journal said that Xi himself was angry about the plan, and that China's leadership had intended to use the Panama ports as leverage in bargaining with Trump. It's not clear what, if anything, Beijing can or will do against CK Hutchison. But the reaction was a stern warning to all Hong Kong firms — let alone those on the mainland — to keep the CCP in mind should they wish to exercise their animal spirits. —Chris Anstey | 
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