A decorative plate featuring an image of Chinese President Xi Jinping is seen behind a statue of late communist leader Mao Zedong at a souvenir store next to Tiananmen Square in Beijing on February 27, 201 Photograph:( AFP )
The Chinese state under Xi JInping has been seen to crack down on companies in many sectors of Chinese economy. These include real estate, education and more. Will these decisions lead to discipline in Chinese economy or will it have a adverse domino effect like one of the fateful decisions taken by communist leader Mao Zedong?
China is in a crackdown mode. From tech to education to real-estate, even gaming has not escaped the reach of the Communist Party of China (CCP). Though the entire and clearest picture as to why the state has resorted to such measures is yet to fully come to light, media reports are rife with claims from experts around the world who say that this is an attempt by the Chinese state to rein in 'out of control' sectors and assert its primacy in China's internal affairs.
Billions of dollars have been wiped out from the wealth of Chinese business tycoons like Jack Ma and their companies. The crackdown in many sectors has investors, both within and outside China, worrying about their money stuck in Chinese financial system. The government, till now, appears in no mood to stop.
But when you play with economy too much, the game comes back to bite you as it has been already seen in the Mao era.
In this particular example, Mao did not play with economy as much as he apparently satisfied his urge to show the country that he is the man who can successfully implement sweeping reforms.
The hasty, unscientific decision
Mao Zedong in his Great Leap Forward in the 1950s, announced major, sweeping campaigns with an aim to modernise China and improve Chinese life. It was viewed that sparrows were an obstacle to development as they ate foodgrains.
In 1958, Mao appealed the Chinese to undertake a massive campaign to eliminate the bird that in his view was keeping China from fully achieving its potential.
Large number of people were mobilised for this. They destroyed sparrow nests, shot the birds down from the sky, set up traps, even beat drums to stop sparrows from landing so that they would die by exhaustion. The scale of this operation was massive.
Exact numbers are not known but even if it is considered that one person killed one sparrow, it would come to more than 600 million birds having been killed!
The effects of such a hasty and unscientific decision were apparent immediately in the following year.
Sparrows did not just eat foodgrains. They also ate insects that destroyed the crops. As sparrows effectively vanished from the Chinese skies, it caused massive increase in the number of insects like locusts who brought devastation to Chinese agriculture. With its natural predator gone, the insects were free to destroy crops at will.
The result was death of millions of Chinese people due to shortage of food or other domino effects that had killing of sparrows as their cause. Official Chinese estimates say that 15 million people died. But some scholars say that the number was between 45 and 78 million.
Current crackdown similar to Mao's?
Chinese President Xi Jinping's crackdown may have come at a time when China is not a primitive nation but one capable of challenging reigning superpower, but effects of the sweeping decisions are more than apparent.
Take Evergrande crisis for example.
The prominent real estate group in China is tottering on the brink of collapse. It has a debt upwards of USD 300 billion, far greater than the company's actual value. Evergrande failed to pay interest to bondholders at least two times recently. This has sent a major scare among investors worldwide.
The recent warning bells from China's real estate sector followed country's crackdown on excessive borrowing by real estate companies. Though the intention may be to discipline the sector, collapse of a major firm can have a disastrous effect across Chinese economy and have a spillover in global economy. The crackdown is already causing loan losses at banks and pain in credit markets. They are wary eyes on the fate of Evergrande.
Real estate sector forms a quarter of China's economy. A major rumble in this sector can shake the economy that invests heavily in US economy. It is too well known that when US economy sneezes, global markets go down with high fever.
Chinese way of decision-making may necessitate an iron fist and sweeping decisions. But will China make the same mistake twice is something that is being actively observed.
(Disclaimer: The views of the writer do not represent the views of WION or ZMCL. Nor does WION or ZMCL endorse the views of the writer.)