Wednesday, 20 April 2022 — Albert Park

By Callum Newman Editor, The Daily Reckoning Australia

[6 min read]

• The emperor’s old clothes
• The threat of China’s ambitions

Dear Reader,

Jim Rickards has explained in previous editions of The Daily Reckoning Australia how the West’s delusions about China are all wrong. High debt, real estate, and demographics all pose significant headwinds for the Chinese ‘growth miracle’.

But today, he focuses on one of the biggest misunderstandings about China — geopolitics and ideology. Understating the role of ideology in China is a dangerous mistake, and it’s one that could have significant geopolitical consequences.

Keep reading if you want to find out what these are…

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia

By Jim Rickards Editor, The Daily Reckoning Australia

Dear Reader,

The biggest blind spot in the US’s evaluation of communist Chinese intentions has to do with the role of ideology in Chinese policy. Most of the elite analysts assumed that the Chinese were only paying lip service to Marxism and that they were eager to move on to a market-oriented playing field. They could be authoritarian, but that was different from being a hardcore Marxist.

Now, the whole world knows the experts were wrong. A new generation has taken the helm, but they are more Marxist than the preceding group. Far from discrediting Marxism, China’s market success has convinced them that Marxism works just fine and is the inevitable path of the entire world.

The grip of ideology in China has been given the title ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’. That’s a mouthful in English, but it fits neatly into just a few Mandarin ideograms. The title is meant to put Chairman Xi Jinping on par with Chairman Mao Zedong in the Chinese Communist Hall of Fame.

The emperor’s old clothes

This coronation of a new emperor (that’s what it is) will be formalised at the sixth plenary session of the 19^th Communist Party Central Committee meeting in Beijing. Chairman Xi will emerge as a de facto ‘emperor for life’ with what Chinese culture calls the ‘Mandate of Heaven’. That’s the only true source of legitimacy in China — regardless of whether it is ruled by Mongols, Manchurians, or Communists.

The market implications of this are already playing out. Chairman Xi has crushed the equity valuation of DiDi, a popular ride-hailing service sometimes called the Chinese Uber. DiDi may have to delist from the New York Stock Exchange as a result, because it didn’t kowtow to Communist demands to change its app and other tech features before going public.

This approach is now being applied to a long list of Chinese success stories, including Ant Group, Tencent, Baidu, CITIC Group, China Life Insurance, and other tech, social media, and financial giants. Separately, China has banned Bitcoin [BTC] transactions and ended bitcoin mining operations there.

Western observers are mystified. Why would the Chinese government destroy the value of their most successful companies? That question reveals the ignorance of Western analysts. They’re approaching this through a market-oriented frame where governments regulate businesses, but don’t destroy them. The Chinese are not market-oriented, they are Marxists. They simply ask who gains and who loses, with the goal of making sure the Communist Party gains.

Since when do communists care if their own oligarchs lose money? That helps to reduce a rival power centre. Since when do communists care if US investors and funds lose money? That’s like weakening your enemy.

The Chinese Communist Party is glad that oligarchs and Western investors are getting crushed. All they care about is the power of the party. By that measure, their actions make perfect sense.

The threat of China’s ambitions

The Chinese Communist Party’s attacks on markets are playing out against a broader assault by China on countries in its region. China is making blatant threats to invade Taiwan, flying fighter jets and nuclear-capable bombers through Taiwanese airspace.

China is laying claim to the entire South China Sea (which should be shared among six surrounding nations) and dredging the sea floor to create artificial islands. China then constructs airfields and ports on those islands for military operations.

China also launched a trade war on Australia because of Australia’s insistence that independent investigators get to the bottom of the leak of COVID-19 from a laboratory in Wuhan. China also aimed vague threats at Japan when it voiced its support for Taiwanese defence efforts.

In short, China is moving aggressively in all directions to establish itself as the sole hegemonic power in the Western Pacific and South Asia. Of course, this kind of hegemony means ejecting the US from the area and turning Japan, Australia, and India into tributary States.

This aggressive posture has now triggered pushback rather than acquiescence. The US, Japan, Australia, and India have formed the Quad, a four-power soft alliance to contain Chinese ambitions in the region.

A quick glance at a map reveals that the Quad control all the sea lanes and choke points in the Western Pacific and Indian Oceans, which could be used to cut off energy imports and manufacturing exports by China. China could be choked into ruin by sea in the same way the Royal Navy choked Napoleon and continental Europe in the early 19^th century.

Australia, the UK, and the US have also created the AUKUS alliance, which will provide Australia with nuclear-powered submarines. These submarines will give the Australian Navy greater range and longer deployment times without having to stop or surface for refuelling.

But does this mean we should expect war?

All the best,

Jim Rickards,
Strategist, The Daily Reckoning Australia

This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

Dominating the headlines are crime…war…inflation…and Elon Musk. Newspapers have their ‘foreign affairs’ sections. Finance. Local news. Classified. And Musk.

Bloomberg’s ‘Musk Desk’ reports:

‘Billionaire entrepreneur Elon Musk kept investors in the dark this weekend, floating a cryptic tweet with the word “tender,” a likely wink-and-nod reference to a potential tender offer to Twitter Inc. shareholders for control of the company.

‘The world’s richest person caused a stir last week after he filed a $43 billion proposal offering $54.20 a share for the social network, which led Twitter to adopt a so-called poison-pill provision on Friday to make it harder for Musk or a group of investors to acquire more shares.

‘If Twitter directors ultimately reject him, the world could learn whether Musk was truly threatening a direct appeal to shareholders or had just added the 1956 Elvis Presley hit “Love Me Tender” to his playlist.’

The SEC must have a Musk department too. Even on Easter weekend, it was investigating Elon. There are so many laws on the books, even an average person is said to break six of them before breakfast. A man as active as Elon must break dozens of them.

Here’s BizPacReview:

‘After Thursday’s surprise announcement by Elon Musk that he was offering to buy Twitter lock, stock, and barrel for a cool $43 billion, now there’s news that the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are opening an investigation into both Tesla and Elon Musk, including how he acquired his controlling stake in Twitter.

‘The news was first reported by Fox Business’s Charles Gasparino.

‘“[Musk] is under investigation,” he explained. “A joint investigation, by the DOJ and the SEC over lots of stuff, including some of the stuff involving how he went about accumulating his shares on Twitter and how he disclosed that, whether he properly disclosed his intentions—which was obviously a full takeover—also some of this stuff with Tesla, you know, disclosures there…”’

The law of rules

Did Musk break the law?

Probably. Even with a whole team of high-priced lawyers following you around, you’re still likely to run afoul of something. Your team of lawyers will tell you it’s OK. The SEC…or FTC…or FCC…or WTF…will take a contrary view. Then, your lawyers can battle their lawyers until the issue is finally settled.

Yes, dear reader, inflation dogs us everywhere. We inflate our laws…reducing the value of each one while making everything potentially illegal. We inflate our money, ‘printing’ more and more, as each dollar loses value. We inflate our knowledge, too; the more we think we know, the less we actually do know.

And to protect itself from Musk, the Twitter board threatened to inflate its own shares. It’s called a ‘poison pill’ provision. Seems a little underhanded to us, but corporate boards can decide to give out extra shares to existing shareholders. In theory, no matter how many shares Elon is able to buy, the existing shareholders will always have more. How it works, exactly, we don’t know. We’re not sure it ever works, either. Merely threatening it is enough to make the bidder back off.

Playing the blame game

The ‘poison pill’ gambit is essentially an ‘inflation’ of the shares, rendering each one worth less than it used to be.

In effect, it’s what the Fed has done to the US’s money.

Joe Biden attempts to shift the blame:

‘What people don’t know is that 70 percent of the increase in inflation was the consequence of Putin’s price hike because of the impact on oil prices. Seventy percent.’

But The Washington Post calls him out:

‘The individual items in the CPI report make for grim reading. Meat, poultry, fish and eggs rose 13.7 percent from March 2021 to March 2022, used cars and trucks rose 35.3 percent, airline fares rose 23.6 percent, butter jumped 12.5 percent, coffee rose 11.2 percent and apparel rose 6.8 percent.’

What did Vladimir Putin have to do with the price of eggs in Cleveland? How is he responsible for higher prices on used cars…or coffee?

Wait…The Post continues:

‘Gasoline prices rose 48 percent, while overall energy prices rose 32 percent.

‘Energy makes up only 7.547 percent of the basket of goods in the CPI, so even with that big jump, how does Biden get to 70 percent?’

Even The Post — an apologist for Washington — has a hard time swallowing the ‘Putin done it’ excuse.

It wasn’t Putin who slipped the poison pill into the US’s morning coffee. It was the Fed. And our guess is that it has a lot more where that one came from.

Regards,

Bill Bonner,
For The Daily Reckoning Australia