by Gary Alexander

May 4, 2021

This week marks the 12th anniversary of my work for Navellier & Associates. My first columns were not called “Growth Mail” then, but they definitely focused on growth. My first column in early May 2009 covered the Chinese economic growth miracle, and my second column covered the outlook for a super-strong U.S. stock market recovery after the Great Recession, just concluded. I’d like to reflect on both columns, since no question is greater than “Who will win this century – China or the United States?”

This month also marks the 25th anniversary of my life-changing three-week tour of the “real China,” (no tourist stops) in May 1996, under the guidance of Keren Su, and my investment partner of the time, John Dessauer, along with 30 of his subscribers to “Investor’s World.” I was so impressed with China that I wrote an 88,888-word memoir (the number 8 is auspicious in Chinese culture), “China Chronicles,” finished September 9, the 20th anniversary of the death of Mao Zedong. While we were there, many Chinese were celebrating the 20th anniversary of the end of their tortuous Cultural Revolution (1966-76).

At that time, and for two decades thereafter, I was a great supporter of China’s growth and China trade. I was inspired by their rapid emergence from poverty, their support of capitalist enterprise – first on the farm, then in enterprise zones, then in the coastal trading ports. In the last five years, however, that story has turned sour. A country that had been run by pragmatic engineers for the previous two decades is now being taken over by a “dictator for life,” a man who has visions of recreating a Mao-like dominance.

Chinese Communist Party Leaders Image

Deng Xiaoping (1904-97) suffered greatly from the Cultural Revolution, but he rescued China from the excesses of Mao, setting it on a path of reform from 1979 to 1989, but he failed to prevent the excesses of Tiananmen Square, so he stepped aside in favor of the moderate Jiang Zemin (born 1926), who served as Chairman of the CCP from 1989 to 2002. He had been trained as an electrical engineer and then served as Shanghai’s provincial governor. When students there staged a similar protest in 1989, he dispersed them peacefully. Jiang was a consensus builder and pragmatist (see his biography, by Robert Lawrence Kuhn. A broader survey by the same author covering more Chinese leaders is How China’s Leaders Think).

The next CCP chairman was Hu Jintao, born 1942 (CCP chair, 2002-12), trained as a hydraulic engineer, also a consensus-builder, so China’s leaders from 1989 to 2012 were engineers, “team players,” and they believed in term limits of about a decade, despite voting being prohibited for the 1.4 billion Chinese.

In my book, I compared the ruling junta of 1996 to our then-current U.S. leaders, with Jiang Zemin playing the obvious role of President Bill Clinton, but with several other power brokers: China’s Vice President Zhu Rongji, 67, was their economic czar – their Alan Greenspan. There was also Qiao Shi, 65, Head of the Congress of China, whom I called their Newt Gingrich. He appealed to the private sector’s entrepreneurial class there, as he wanted to force banks to be more responsive to risk-takers in making more loans. On the other extreme was Premier Li Peng, 66, the Communist hardliner, who believed in more state planning, saying, “Socialism has been good to China.” He even backed more state repression.

So, you can see, it took a delicate political balancing act for Jiang Zemin to keep an economy growing while keeping various political forces at bay. The same for his successor, Hu Jintao. As a result, China’s GDP has grown over 16-fold in the 25 years since I toured that country – one week in primitive Guizhou Province, the poorest part of the country; one week in Sichuan province, a growing central hub, then sailing down the Yangtze through the dam building to a final week in Wuhan and Shanghai/Pudong.

China's Gross Domestic Product Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In 1996, China’s GDP was less than $1 trillion – at $863.7 billion. It’s now over $15 trillion. The latest official figure is $14.34 trillion in 2019, for a 1,560% gain in 23 years. That works out to 13% per year, compounded, included the drawdown during the 2008 global recession. I probably wouldn’t recognize China if I returned. Their superhighways of bicyclists would now be replaced by luxury cars, I suppose.

Four Reasons Why China is More Dangerous Now

I’m all for global trade between peaceful powers creating a richer world for all – that’s what Growth Mail is all about. I have been promoting that vision with Louis and others for over 30 years. But this China is different. On April 15, Ed Yardeni published several ways in which this China leadership is different, and more dangerous than the three or four leaders who preceded the “Xi who must be obeyed.” For starters, in February 2018, China’s current leader proclaimed himself chairman for life, unlike his three predecessors.

“The Communist party of China central committee proposed to remove the expression that the president and vice-president of the People’s Republic of China ‘shall serve no more than two consecutive terms’ from the country’s constitution,” Xinhua, China’s official news wire, reported.

China’s recent changes for the worse, in brief, are that China is now threatening to invade Taiwan, after invading Hong Kong and installing its own power structure there – something even Mao would never consider. The PRC is also punishing U.S. and multinational companies that speak out against China’s crimes against humanity; and they are also flouting all laws against counterfeiting and product piracy.

Here are some more details, courtesy of Jackie Doherty of Yardeni Research.

#1: War Games Against Taiwan. Chinese military aircraft have been flying near Taiwan’s airspace almost daily this year. The U.S. military is concerned that China’s more aggressive stance in the South China Sea and its continued military buildup signal that the country might attack Taiwan. “We have indications that the risks are actually going up,” Admiral Philip Davidson, the most senior U.S. military commander in the Asia-Pacific region told a Senate panel last month, according to an April 7 AP article.

#2: Clamping Down on Hong Kong. When the UK turned control of Hong Kong over to China in 1997, Hong Kong’s capitalistic system and freedoms were supposed to be protected through 2047. But over the past year, the PRC has changed the laws in Hong Kong to squash Hong Kong citizens’ voting rights and essentially end free speech… Protesters have been jailed, gone underground, or fled the city.

#3: Businesses May Need to Pick a Team. The most surprising move by the Chinese government has been its recent aggressive posture toward corporations. Apparently, China’s desire to attract companies offering jobs and technology has been replaced by the PRC’s need for corporations to play by the nation’s rules, especially those regarding speech. (Examples include Jack Ma, founder of Ant Group and Alibaba). Why start a business in China if it could disappear overnight because you said the wrong thing?

Fake Goods Origin Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

#4: Not playing by the rules. The Chinese government doesn’t always play by the same rules that govern business or politics in the West. The most recent and stunning example is the PRC’s failure to give World Health Organization officials enough access to Chinese facilities and information to determine the source of Covid-19. China retorted by suggesting WHO investigators examine the U.S. military biological lab Fort Detrick, without providing any evidence that Covid-19 was created there. Chinese hackers certainly aren’t playing by the rules. In January, they reportedly broke into Microsoft’s Exchange Server systems and infected as many as 20,000 of the company’s customers’ systems (several other examples were cited).

Next week, I’ll cover the U.S. side of the debate, harking back to my second Navellier column in 2009.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Another Rising-Rate Rotation Coming

Sector Spotlight by Jason Bodner
Beware of “Things You Know that Just Ain’t So”

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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