In response to an article on Linked-in, we posted a comment about Wang Huning. The response was such that we thought it worth publishing a longer article on this largely unknown (outside of China) academic and philosopher, whose thoughts are now seemingly central to the activities of the CCP. making him arguably the most powerful man in the world right now. In our view, to study, Wang Huning is to begin to understand a little more about modern Chinese government,

The original linked-in comment

Back in 1988, Wang Huning, a young Chinese academic, went to America, intending to follow the path of a modern day Alexis de Tocqueville. Instead, he came away with a vision for China that was to very much NOT be like the US. In his book America against America, he observed and predicted much of what we see today. This is important as he has been one of the key political theorists since then and is right at the top of the party today. The west convinced itself that ‘the China dream’ was really the American dream and that China was set to become the world’s biggest emerging market and ‘benefit’ from the marvellous policies of the Washington Consensus. China never had any intention of doing so and certainly not the ‘phase 2’, Wall Street ‘ stage where all public goods are privatised, sold off, leveraged and turned into rent extraction vehicles for western ‘investors’. It was around 2015, when the western multi nationals realised that China was not there to make them rich that they stopped blocking sanctions. Understanding the role of Wang as the eminence grise of the CCP helps explain a lot of China’s path.

To the extent that western observers consider Chinese politics at all, they tend to regard the CCP as a single, unified, authoritarian regime, when in reality it is notoriously factional. The two key factions have been the so called ‘Shanghai Gang’ of former Paramount Leader Jiang Zemin (1989-2002), and the Beijing based Communist Youth league of his successor Hu Jintao (2002-2012). What is rarely discussed in the west is that Xi has his own breakaway faction from the Shanghai Gang and thus had two rival factions to deal with in his early years as Paramount leader, but what is most extra-ordinary against this background is that one man has ‘survived’ all three leaders and is now right at the top of the CCP as Xi’s eminence gris and political philosopher, Wang Huning.

In what is probably his most quoted work ‘The structure of China’s changing political culture’, written in 1988, Wang discussed the concept of ‘software’, by which he meant Culture, Values and attitudes, being just as important as ‘hardware’, i.e economics, systems and institutions in shaping a path for China. This came at a time when Deng Xiaoping was rapidly opening China to the world and was a warning against losing core values and was a plea to combine the best of the west with Chinese tradition as China moved toward a more consumption based economy- Socialism with Chinese characteristics.

However, it is his most famous work - America against America - that is arguably more relevant for the west to understand why China does what it does, and what it might do next. As noted in the Linked-in comment, Wang went to the US as a young academic and came back convinced that what he saw even back then (1991) in terms of the homelessness, drug crime and what he saw as the take over of government by large corporations was a natural consequence of the radical individualism at the heart of modern American liberalism. In particular he talked of a ‘younger generation that is ignorant of traditional Western values’ (this is 1991 remember!) and asks “if the value system collapses, how can the social system be sustained”.

Wang was equally critical of China and as China opened up further under both Jiang and Hu, a case could be made for Wang’s fears for China atomising like the US coming true, with increased inequality, commodification and nihilistic individualism and it is against this background that we see the survivor that is Wang emerge into the influencer that he is now. The point of this post is not a discussion of what may or may not have gone wrong in the west since then, or even if Wang’s views are ones we agree with - the point is that they are at the heart of the thinking of the CCP, especially right now. Xi’s signature policies of his first two terms, The China Dream, Common Prosperity, One Belt, One Road, all come from the thoughts of Wang Huning and it was the most recent one of Common Prosperity, with its apparent crackdown on Oligarchy, monopolistic practices and the emerging financialisation of China that has finally brought the thoughts of Wang Huning to western attention (albeit still only a minority of observers.)

So what does it mean?

To the extent that China was ever to be viewed as ‘the world’s biggest emerging market’ to  ‘benefit’ from the wonders (sic) of the Washington Consensus (WC), this idea is clearly dead. In fact, China never went along with ‘stage 1’ of the WC, it didn’t open up its capital account, float its currency or allow foreign ownership of its factories. While workers moved from the farms to the factories, it never allowed those farms to become plantations for export (and thus make China dependent on imports of basic foods from the US) and nor did it allow its banks to borrow heavily in US$ to fund consumer lending booms that drove imports of western high-end consumer goods. This was the first five years of Xi (and Wang) with the ‘China Dream’, which the west chose to (mis)interpret as a version of the American Dream - ie the WC.

There was nevertheless confidence in the west that the second term for Xi would lead to stage 2 of the WC, the financialisation of everything, particularly public goods, that could be sold via the western sponsored financial markets, then leveraged up and turned into rent generating vehicles for western ‘investors’. While in the early stages - especially 2013/14 - this may have seemed to be happening, being on the ground in Hong Kong, it was clear that this was not in fact the case. The tech entrepreneurs were allowed to be rich, even very rich, but when they started to get involved in politics, the response was swift. After the China stock market boom and then bust in 2015 and the collapse of aspects of the shadow banking system, it seemed that both sides started to diverge; the US corporations, realising that the easy plunder they had hoped for was not only not available, but that no amount of lobbying would make any difference, started to walk away. This meant that there was far less resistance to the notion of tariffs and sanctions brought in by President Trump. China meanwhile started aggressively pursuing its One Belt One Road strategy over this period, initially successful in Europe, but increasingly walking away from the west as its dominant trade partner. But one policy in particular appears to be behind the rift - made in China 2025, China's declared policy of moving up the value added chain - something we could perhaps also attribute to Wang were we to cherry pick from this New Yorker article of a few year's back, Wang's quote “If you want to overwhelm the Americans, you must do one thing: surpass them in science and technology.” It is fear of being overtaken in science and technology that is driving - and will continue to drive - US attitudes to China, particularly in terms of tariffs and trade restrictions, but it is equally clear that China is not going to stop.

Meanwhile, in financial markets, the clamping down on the for-profit education sector in 2019 was a key part of Wang/Xi’s new policy of Common Prosperity and a wake up call for many US hedge funds who were very active in the ADR space as a way of ‘playing China’. In brief, the concept of the ADR required some ‘magical thinking’ from both sides - that the company was both 100% owned by the Chinese and simultaneously 100% owned by western investors. A sort of Shrodinger's cat security. Once China declared that the Education stocks were Chinese and would no longer be allowed to make profits from education, they effectively called time on that thinking. The ADR market started to unravel, and with it a lot of the still previously positive attitude to China. The multi-nationals could not make money out of China and now, seemingly, the hedge funds could not make money either, therefore the narrative started to shift to the assertion that the Chinese government are ‘bad’.

Just as the west previously assumed China wanted to be just like them economically, so they now assume their Geo-Political motives are the same.

And so it has continued to escalate, such that now the anti-China bias in much of the Western media is becoming quite alarming from a global stability, let alone a global prosperity viewpoint. The truth is that the western interpretations of China have tended to be that they were simply going to follow the well-worn path of emerging markets, whereas particularly since Xi - and Wang - the path has become increasingly divergent, albeit pretty transparent, should you care to look. The current fashion for over-analysing Xi's motivations in terms of peace proposals in the Middle East and Ukraine, as well as statements over the $, Taiwan and general talk of 'Imperial ambitions' all look to us as similar to the previous economic projection of China being 'just like the west' as opposed to following the underlying philosophies proposed by Wang. The fact that Common Prosperity, One Belt One Road, The China Dream and the anti Corruption regime have all come from the ideas of Wang, means that they are going to continue, as is the focus on software as well as hardware in terms of cultural values (and by extension a rejection of some of the western 'liberal values'). Incidentally, Wang is one of the key members of the Politburo now focussing on Taiwan re-unification.

To stress, none of this is to take sides, rather it is to point out that, as in markets, there are always two sides and that if we only listen to one side, and in particular their projections of the motivations, not of themselves, but of the opposite side, then we risk missing half the picture. Reading up a little more on Wang Huning is a good place to start.