Just a few weeks after Chinese President Xi Jinping secured an unprecedented third term as the leader of the world’s largest communist country, he projected supreme confidence at the G20 conference in Indonesia. But as Xi insists that China is still a nation on the rise with a promising economic outlook, many of his top lieutenants are quietly moving their cash out of the country, signaling that there may be big trouble ahead.
To understand how the money trail reveals a great deal about the true state of affairs inside communist nations, it is helpful to look at the actions of Soviet elites or nomenklatura during the Cold War. John C. Whitehead, who served as Deputy Secretary of State for President Ronald Reagan, once remarked that the best way to tell what the nomenklatura really thought about the state of the regime was to look at the location of their wealth. If the Soviet banks transferred large sums of money to Western banks, it was a sign that the Soviet elite was, at a minimum, uncertain.
Until the mid-1980s, the U.S. Treasury was unable to block or sanction these wealth transfers. But by monitoring them, it provided a window into the true state of the Soviet economy and internal turbulence of the Politburo.
This same “follow the money” method today reveals that all may not be as well as Xi Jinping wants the rest of the world to believe inside China.
Following the pattern of the Soviet nomenklatura, Chinese elites have of late created joint ventures with foreign firms primarily to access Western financial institutions to park their cash – most of it acquired through bribery and embezzlement.
Notably, Xi Jinping’s consolidation of power last month corresponded with the largest transfer of wealth out of China since Xi first rose to power. Financial records indicate that a hefty $45.2 billion left China almost immediately after Xi was confirmed for his third term. Since June of this year, when Xi escalated his crackdown on dissent and began setting the stage for expanding his power, more than $101 billion in money assets has left China and been relocated to foreign banks.
This amount is comparable to the record outflows in 2016 amid widespread fears of a market crash. At that time, over-taxation and over-regulation turned out to be a death sentence for thousands of Chinese companies. Only firms with Western partnerships survived, backed by large budgets and security in Western markets.
It’s now clear that top officials within the Chinese Communist Party are convinced that Xi Jinping’s crackdown on capitalistic elements in China’s economy and his rapidly growing cult of personality portend an even more disastrous downturn.
When Xi first came to power, China was in the midst of implementing a number of reforms, including opening up to more cooperation with U.S. businesses. But for Xi and other hardline CCP leaders, the end goal of restoring China’s economy was always to strengthen the regime and implement an even more stringent version of state control.
Now, it appears that Xi may have developed an inflated sense of China’s economic strengths, even as he has begun cracking down on private businesses. During the COVID-19 pandemic, the Chinese government instituted more price controls, disrupting production in many industries. The CCP also took a more direct role in many companies and began installing party representatives on executive boards and sometimes in management roles.
Predictably, the Chinese economy has recovered far more slowly than the rest of the world after the pandemic, a fact that is evident even if the CCP inflates China’s economic numbers. Despite three rounds of stimulus money, Chinese housing prices continued to fall last month. New home prices fell 0.6 per cent in September from the previous month, extending the slide to a whole year. Developers are now in danger of not being able to finish the more than two million homes they have presold, threatening a broader collapse of the Chinese economy similar to what the United States experienced in 2008.
With a crashing real estate sector, employment prospects have also looked bleak, reaching their weakest level on record in the third quarter of the year, as the People’s Bank of China’s Employment Sentiment Index slipped to 35.4. That figure represents the lowest reading since the index began in 2010. China’s currency has also hit its weakest ever offshore trading level against the U.S. Dollar.
Chinese Communist Party dissidents who were interviewed for this column but who wish to remain unnamed are convinced that Xi Jinping wrongly estimates that “the East is rising and the West is declining.” As they explain, the fundamental problem is with China’s communist system itself, and the inherent flaws in the Marxist vision of a state-run economy.
When asked whether America’s founding principles, including the principle that government derives its just powers from the consent of the governed, make the United States forever stronger than the Chinese Communist Party, these dissidents replied “absolutely.” They emphasized their appreciation for what America truly is even though some lived in other countries.
One dissident specifically referred to President Trump’s 1776 Report and reflected that China’s fundamental weakness was that the communist system violated principles that recognize the worth, equality, potential, dignity, and glory of each and every man, woman, and child created in the image of God, and therefore a unified, healthy Chinese nation was a utopia.
Whether they share the more philosophic views of these dissidents or are only worried about factors impacting the economic bottom line, many top Chinese officials clearly recognize manifest shortcomings of the regime – even if Xi Jinping himself may not. While these officials can project confidence to the world, their secretive actions behind the scenes to move their money reveal that China may soon be heading for the same fate as every other communist country throughout history.