Was it all mere window dressing? A con pulled by cunning Communists who needed to secure the collateral security of an intended transition toward the opposite direction? What a difference a few years makes, then, given how when Xi Jinping began his term in 2012 the word most in the West used to describe his agenda was “reform.” Every strongman carelessly throws the term around, but, we were told by all the “right” people, Xi was uniquely serious.

Beyond the reform plans of Deng Xioaping! That was how Pieter Bottelier, a senior adjunct professor of China studies at Johns Hopkins University’s School of Advanced International Studies in Washington, D.C, gushed over the Third Plenum of the 18th Party Congress held in November 2013. “This is by far the most ambitious, comprehensive reform plan that I’ve ever seen,” Bottelier added.

The specific word which had them all on the edge of their seats salivating over this presumed neoliberal adoption was “decisive.” The 60-point blueprint spit out by that particular 2013 Third Plenum – titled appropriately The Decision on Major Issues Concerning Comprehensively Deepening Reform – declared for the first time that market forces in China would play the “decisive function in resource allocation.”

Previously, under Xi’s successor Hu Jintao, markets were only one “fundamental” factor in economic management besides central planning. This particular language shift colored high-brow Western commentary toward proclaiming the Chinese as already moved closer to the rest of the world. Long-promised, many started to see China completing its promise to finally open up its economy.

The primary impediment, in a business sense, was how internally China’s system was dominated by State-owned Enterprises (SOE). Preferred politically as well as in the spheres of finance and law, for decades since Deng foreigners have complained futilely for the lack of competitive environment.

Suddenly, markets were going to play the “decisive” role and everyone thought that meant what it seemed to mean in its most straightforward sense. In the context of late 2013, with a world the same observers believed was about to break out of its post-2008 funk and re-join its precrisis globalizing trend, this was more good news to add to the pile.

It is a huge mistake to assume that the Chinese leadership, any of them but especially Xi, cares one bit about neoliberalism as anything other than expedience. There is no commitment to it beyond what might be useful to maintain the current political arrangement. What drives these Communists is the same hardcore ideology which drove Mao to his most self-destructive aims: Socialism with Chinese Characteristics (中国特色社会主义).

To the Communists, this is as China itself.

When Deng saw what Mao’s version of it had wrought for them, and in the wake of the Soviet Union’s painful failure and dissolution, Socialism with Chinese Characteristics came to represent (literally Jiang Zemin’s Three Represents) an uneasy alliance between market-led economic reforms and a tight centralized grip; not because they believed in freedom or Western-style notions of justice. Authorities had always feared freedom, but they absolutely feared repeating the late eighties/early nineties wave of oppressed peoples revolting against their authoritarian overlords more.

But what Communism cannot do – ever – is what China needed to do in order to avoid the same fate as their Soviet neighbors. They dollarized themselves and joined the eurodollar wave globalizing the entire global economy.

It was more than rudely interrupted by the first Global Financial Crisis (GFC1) and its Great “Recession” which the Chinese figured out (in any official capacity) before anyone else in the West (who officially remain clueless) how it hadn’t actually been a recession at all. Uncovering the distinct traces of the “impossible” unit root, this was a horrifying permanent shock whose eventual aim was more ominous than 2010’s “new normal” speak.

In light of 2012’s global slowdown, the Chinese began to speak of their own about “rebalancing” in addition to this reform stuff, which flew right over the heads of Western observers thinking China was still interested in becoming Western. Expedience, and devotion to Socialism with Chinese Characteristics, however, demanded something else. Rebalancing was the notion that over time the internal economy would wean itself off the faltering globalization trend.

Wean, not cold turkey. To give rebalancing any chance authorities would have to cover the economy for a lengthy period of time until the formerly invest, export-led model could be converted into a consumer-driven services system. And that would require a massive amount of financial (meaning monetary) resources.

The Chinese needed the “dollars” to continue flowing, even if it a trickle when compared to 2007 and before. Their only other option would have been to set the PBOC free to become an independent monetary system which risked catastrophic currency destruction. The lesser evil, and still currency destruction, was obviously to try to maintain the current framework – continue to bring us your dollars, China’s a great investment!

What better way to encourage and further burnish this slogan than by whetting the appetites of Western capitalists who had been drooling for decades at potential business prospects they’d figured they get from an “open” China. At a crucial moment in post-crisis (euro)dollar history, in 2013 just as the Asian-focused Euro$ #3 was about to be unleashed, Xi Jinping played the role of reformer for the cameras.

And he did it well, just not well enough.

Whether he and his new regime were ever truly committed and serious – and I seriously doubt it – there was no escaping the gravity of Euro$ #3. It may have been that Li Keqiang, once Xi’s main rival and the man everyone thought was the certain successor to Hu Jintao, was responsible for “decisive” and the reform agenda. To placate the opposing faction, perhaps all of it was allowed to seek its audience if for only as long as it made sense (which, again Euro$ #3, wasn’t long at all; see: 2015-16).

Either way, by the 19th Party Congress held in October 2017 everything had changed; including Li cowed and sidelined. China continues to deal with the fallout from those changes even now; especially now.

Reform or not, the dollars never really came back – not for lack of trying, there just aren’t enough of them these days. Even in 2017, Reflation #3 was comparatively uninspiring from a global perspective, downright conclusive in proving its negative reaction inside the Chinese Communists. Socialism with Chinese Characteristics could be rewritten again, would have to be rewritten, this time without the need for such pretenses.

COVID merely provided more cover to deepen and accelerate the transition.

In a speech delivered at the end of October 2020, Xi Jinping spelled it out yet again; seriously, listen to what the guy is explicitly saying.

Building a complete domestic demand system is related to the long-term development and long-term stability of our country. After the reform and opening up, especially after joining the WTO, my country’s entry into the international cycle has formed the development model of the market and resources (such as mineral resources) “two ends” and the “world factory”, which helps my country seize the opportunity of economic globalization and rapidly improve Economic strength and improvement of people’s lives have played an important role. In recent years, economic globalization has encountered headwinds. This epidemic may intensify against the trend of globalization.

Translation: we realized awhile ago that the Great “Recession” wasn’t a recession, the world economy has undergone a fundamental change which necessitates a very different and inward-looking response from a regime perched precariously atop a political model (Deng’s) which had depended for decades on the dollar-driven gifts of externally-based economic growth. Therefore:

The implementation of the strategy of expanding domestic demand is the current need to deal with the impact of the epidemic, the need to maintain the long-term sustainable and healthy development of my country’s economy, and the need to meet the needs of the people’s growing better life.

Moving away from integration, the Communists are more aligned with SOE’s as a matter of, yes, expedience. Experience early last year with COVID proved that the new internal-faced Socialism with Chinese Characteristics would have to be dominated by state monopoly. Beijing didn’t just notice that it had been SOE’s which responded more reliably and predictably to difficult pronouncements from the top.

Private companies were found far less likely to behave according to policy demands; which only makes sense.

No surprise, in the 14th 5-year Plan teased late last year, and in the planning sessions which crafted it, SOE’s are being given an expanded role in China’s next economic phase. In a statement purportedly made back in April, though timed for release with the first publicized statements about the 14th 5-year Plan, Xi declared:

[SOE’s] form the economic and political foundation of China’s socialist system and are a key pillar for the [Communist] Party’s rule. They must be built stronger, better and larger.

He also added that the state sector “cannot be negated nor weakened.” So much for 2013. Regardless of whose fault the anti-globalization epidemic might be (eurodollar), the Chinese are embracing it with every endorsement. The question is whether “reform” was anything other than a ruse for Western business and official benefit.

This is no trivial factor, even if it might seem today feels to be ancient history. In the post-COVID recovery, though, there remains this Western idea of a resurgent China still chasing precrisis (2008) glory. That authorities made promises (reform) to move closer to neoliberal standards which require, among other things, huge doses of “stimulus” when faced with “undesirable” levels of economic advance.

Again, however, the Communists don’t care one bit of these things unless they advance their singular goal: Socialism with Chinese Characteristics. This, not moving in the direction of Western “justice”, even when it comes to economic output, it is the only thing they wish to see survive – even at, think Mao and the Great Leap Forward, potentially huge internal costs to those suffering underneath it.

In short, Xi’s China is committed only to political survival, a calculation which Xi had changed for him before he ever took over. Should China stumble again, the entrenched notion of a grand “stimulus” response ironically thought consistent (by Keynesians) with market-based reforms is not China’s baseline expectation. It is no longer consistent with the current rewrite of Chinese Characteristics.

As I wrote yesterday in the context of risks potentially being embedded and traded in rising T-bill prices:

Putting this altogether, what might happen if the economic recovery stumbles, or if it has already stumbled enough, because, say, China’s economy doesn’t contribute what everyone seems to think it is guaranteed to underwrite of a global economy? Such a thing might move Fitch and its cousins to start moving banks in EM economies off negative watches and onto active downgrade considerations.

Over the weekend, receiving very little attention, China’s National Bureau of Statistics reported an alarming drop in its official Non-manufacturing PMI. Blamed on resurgent COVID (as usual), the overall index declined by a sharp 3.3 points to fall to 52.4 in January 2021 (the NBS manufacturing PMI was also down, but only 0.6 pts at 51.3).

That level puts the PMI reading for last month – dealing with China’s internally-faced services economy – at its third lowest since 2009, fifth lowest in its history (similarly the low level indicated by the New Orders component). Any respectable recovery from last year’s huge plunge would have made it, in PMI terms, up into the higher sixties if not better.

What does fifth-lowest in history translate to? Even if it is more COVID in China, what does this do to the balance of risks globally?

A possible stagger in China’s economy at a crucial moment for the global system which is being told to rely on the Chinese even as the Chinese reiterate yet again for the participants of the global system they shouldn’t bother. Given the collateral basis for the T-bill story I laid out yesterday, that is making some sense.

In the end, it may not matter if they were serious about “reform” around 2013, by 2015 and Euro$ #3 the point and the purpose had been rendered moot anyway. So far as Xi had been concerned, all that was left was clearing the decks of any political opposition. Either way, the world better get used to Socialism with Chinese Characteristics meaning something very different than the global prosperity put up under what is now an entirely ancient practice.