China plans to amend its constitution to eliminate term limits for the president. If so, maybe
Mr. Xi can serve more than two consecutive terms. Given China's imperial legacy and the long
run for Mao and Chou, the knee jerk response from outsiders is that Mr. Xi wants those
imperial trappings and may signal a new cult. Could be. And, since this is a bull market, look
for China apologists to put a positive spin on this transition if that is all it is.
To be a contrarian, I offer a different and more dangerous assessment. Suppose the younger Party
climbers and technocrats have indicated to Xi that his generation has created an obvious financial
mess in China and that it is Xi's job to clean it up. There is no new "Great Leap Forward" for
China unless The Party straightens out the country's finances first. A genuine reform transition
would involve efforts to gain control over China's finances, specifically debt creation.
That cannot be done without creating pain and economic and financial fallout that will extend
beyond China's borders. It cannot be accomplished without a president that is in a very strong
position and who can command the Party rank and file to do the bidding necessary to turn
this enormous debt laden boat around. Mr. Xi already tried and failed to generate a super bull
market in equities to balance the debt. Recall that China had to make open market purchases to
keep its equity market afloat. And, if China continues to leverage up and create new entities to
take on its bad debt, the result will be accelerated capital flight, the destruction of its currency
and bitter recrimination from the international markets.
Now, if all Xi wants to do is to become the imperial Xi, that could have dangerous unintended
consequences as well, including an eventual and destabilizing mutiny.
Do not ignore this decision. Comments are invited and welcome.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!