How the authoritarian regime of Xi will achieve economic goals but innovation will be elusive.

1. Xinomics:
Autocracy,Technology and
Dynamism
China’s State Capitalism on Steroids

3. Washington LooksTough
• Tariffs
– US consumer pays
– Some sectors suffer e.g., agriculture
• TikTok, WeChat, Hwawei . . . Banned
• Sanction HK Leaders
• Send emissary toTaiwan

4. China’s Growth Story
• China’s share of world GDP
– In 1995 it was 2%
– In 2018 it was 16%
• China’s exports as % of GDP
– In 2000 it was 30%
– In 2018 it was 16%
data.worldbank.org

5. Growth Drivers
• Debt, Debt and . . . more Debt
• Subsidies
• Cronyism
• Intellectual-Property theft

6. Wall Street Prattle
• Tech firms are copycats
• Ghost towns would bring banks crashing
• GDP figures are fiddled
• Capital flight inevitable

7. Xi’s Inheritance
• Private debt at 300% GDP {2010}
• Stodgy state firms
• WildWest private sector
– Predatory officials
– Murky rules
– Ripe for corruption

8. Structural Corruption

9. Endemic Corruption

10. 5 Pillars of Xinomics
• Tight control of economic cycle and debt machine
• Efficient Administrative State
• Blurring of Private and Public firms’ boundaries
• Focus on supply-chain ‘choke points’
• The Great Dual Circulation

11. Pillar #1 of Xinomics
• Tight control of economic cycle and debt
machine
– No more fiscal and lending binges
– Recognition of off-balance-sheet activity
– Build up buffers
– Sanitized bond market

12. Pillar #2 of Xinomics
• Efficient Administrative State
– Rules apply uniformly
– Commercial and legal framework responsive to
businesses
– Bankruptcies and patent lawsuits increased 5x
– RedTapeTrimmed
• E.g., Company set up takes 9 days

13. Pillar #3 of Xinomics
• Blurring of Private and Public firms’ boundaries
• The good part
– State-run firms to boost financial returns
– Draw in private investors
• The bad part
– Embed party cells in private firms
– Blacklist firms and give credit penalties for mis-behaviour

14. Pillar #4 of Xinomics
• Focus on supply-chain ‘choke points’
– Exert influence overseas
– Identify vulnerabilities for coercion by foreign states
– Become self-sufficient in key technologies including
semiconductors and batteries

15. Pillar #5 of Xinomics
• Invoke Great Dual Circulation
– New Mantra: ‘Get better and more Chinese’
– Great International Circulation
– Great Domestic Circulation

16. Great International Circulation
– Keep China open to the world
– Keep international markets dependent on China {hence will be reluctant
to criticize her}
– Develop economic leverage on foreign firms
– China is rising, America is in decline
– Where international linkages create vulnerabilities, China will minimize
them
– Where international linkages create benefits, China will expand them

17. Great Domestic Circulation
– Create a ‘Not Made In America’ mentality
– Boost productivity
– Reform, reform and reform Education,Training, Banking
– Loosen ‘hukou’ to allow movement of rural labour

18. Great Dual Circulation

19. Reduce Imports De-emphasize GDP Growth

21. Will Xinomics Work?
• In the short term YES
– Debt has reduced {trade wars and pandemic have
not created a financial crisis}
– State firms’ productivity has crept up
– Foreign money is coming in and powering
Chinese tech firms

22. Corruption is Endemic

26. Will Xinomics Work?
• In the long term: Probably NO
– China lacks diffuse decision-making
– China requires closed borders
– China prohibits free speech

27. SarmaVANGALA, Ph D
Chief Executive Officer
Metastrategy, Inc.
• SarmaVangala is a corporate consultant
specialising in Strategy, M&A and Business
Transformation
• Based inToronto, CANADA
• BTech (IIT(M)); PhD (Exon.); Professional Engineer
• sarma.vangala@metastrategyinc.com

28. Dynamics