Emperor Non Grata

Xi Jinping is in the US this week. That’s unfortunate.

There’s no more urgent matter than reducing the odds of an existential military conflict between the world’s two superpowers. That much goes without saying. But I’m not sure inviting Xi to dinner or, in this case, inviting him to San Francisco so he can invite other people to dinner, actually achieves much in that regard.

For years in the lead-up to Vladimir Putin’s annexation of Crimea, the UK countenanced what Downing Street knew was a systematic assassination program targeting a group of FSB defectors, exiled Russian business executives, dissidents, financiers and lawyers all connected to oligarch Boris Berezovsky. At least a dozen people were killed on UK soil in confirmed or suspected assassinations over that period, including Berezovsky himself and, famously, Alexander Litvinenko.

The UK didn’t push back in any meaningful way until 2018 (a dozen years after Litvinenko died and four years after Putin seized Crimea), when Russian operatives contaminated a dozen sites in Salisbury while trying to kill Sergei Skripal with Novichok.

The point of that brief, toxic trip down memory lane is simple: Placating a ruthless autocrat on the excuse that in doing so, you’re reducing the odds of armed conflict, won’t necessarily prevent wars. In fact, history suggests the opposite is true, and so does the present day. You could argue (and some have) that Downing Street’s “look the other way” approach to Putin’s years-long campaign against Berezovsky’s circle of confidants in the UK set the stage for Crimea and, ultimately, Putin’s full-on invasion of Ukraine.

There are differences, of course. No exiled Chinese billionaires have taken up residence in the US with the intent to spend their fortunes fomenting rebellion back home. Xi hasn’t sent waves of assassins to the US armed with radioactive poisons and rare nerve agents, and although China is engaged in all manner of cyberattacks and propagandizing, Beijing’s efforts to undermine Western democracies aren’t as overt as the Kremlin’s.

But just because Xi isn’t as outwardly nefarious as Putin doesn’t mean he’s any less dangerous. In fact, he may be considerably more dangerous in many respects. Xi’s every bit the autocrat that Putin is, and he’s also a totalitarian dictator in a way that Putin isn’t (or at least wasn’t until very recently). Xi commands a much more powerful military, domestic dissent is nonexistent, China’s economy is imposing even in crisis and, most importantly, Xi’s unabashedly determined to seize control of a neighboring democracy and he’s made no secret of his willingness to use military force to do it.

Given that, and given what we know to be true about autocrats’ penchant for testing boundaries, Xi should be persona non grata in the US up to and until he can be trusted. Putin was a lost cause from the beginning. There are no circumstances under which you can trust a KGB operative with deep ties to the Russian mafia. That was always absurd, but a lot of people bought into it — including Berezovsky early on. By contrast, there are circumstances under which Chinese leaders can be trusted. And although I personally think Xi’s too far gone, it’s not inconceivable that the US and Xi’s China can come to a mutual understanding on key issues. But that isn’t possible until the US makes it clear that Washington isn’t going to abide an antagonistic, openly adversarial totalitarian dictator who every day menaces his neighbors, and who very recently stripped Hong Kong of its democracy.

Instead, the US is resorting to appeasement and corporate America is descending on San Francisco for the opportunity to catch a glimpse of the emperor and maybe even get a word in with him. “Some of the biggest names in American business are scheduled to attend the [Asia-Pacific Economic Cooperation summit], among them Citigroup’s Jane Fraser, Exxon’s Darren Woods, Microsoft’s Satya Nadella and Elon Musk,” Bloomberg wrote, previewing the circus. “A number of executives have been invited to dine with Xi… a chance for them to air their concerns and ambitions in a less formal setting.”

Joe Biden is, of course, set to meet with Xi as well. Investors (and geopolitical observers) see it as an opportunity for the two sides to build on ostensible progress made earlier this year when Antony Blinken and Janet Yellen traveled all the way around the world in an effort to smooth things over before China did anything irrevocable. Bilateral relations hit a new low in February when Biden made a show of blowing a Chinese spy balloon out of the sky with a Sidewinder missile.

I know what you’re thinking: It’d be foolish, irresponsible and outright dangerous to risk any further deterioration in the relationship. After all, China’s on the rise, and the US is declining, according to conventional wisdom. The PLA is a mighty fighting force and the Chinese economy is indispensable for global growth. That narrative is partly true, but perhaps exaggerated. The PLA’s untested: You might have a great basketball team on paper, but it’d be unwise to choose the 1997 Chicago Bulls for your first scrimmage unless you enjoy being humiliated. The global economy did just fine before China was an economic powerhouse and while it’s true the country is now so deeply integrated as to make de-coupling a non-starter, what’s less clear is the notion that broad-based de-risking from China need be economically disastrous. Indeed, if we’ve learned anything in the 2020s it’s that being too dependent on China is a very risky proposition economically.

China released activity data for October on Wednesday ahead of the fanfare in San Francisco. Retail sales rose 7.6% last month, according to Beijing. That was better than economists expected, but the comp was easy.

Industrial production rose 4.6%, and fixed investment slowed to just 2.9% over the first 10 months of 2023. Property investment fell 9.3%.

The update was of little use in answering the myriad questions on investors’ minds, and while I’m sure the sell-side’s China economists will come up with something intelligent to say after parsing the figures, I can assure you that nothing revelatory is forthcoming.

Domestic demand is still a top concern for China watchers. Consumer prices fell 0.2% last month, underscoring the threat of deflation. Producer prices spent a 13th month in contraction.

CPI has loitered on the brink for months, underscoring calls for more aggressive stimulus. Core CPI rose just 0.6% last month.

The PBoC eased in dribs and drabs this year, with little to show for it. Beijing has announced too many half-measures to count (dozens, hundreds even) but there’s scant evidence anything’s succeeded in moving the needle.

Imports did manage to post a surprise gain for October, the first in eight months, but credit data released earlier this week reinforced the notion that domestic demand remains subdued. The vast majority of the month-to-month increase in credit in October came from government bond sales to fund infrastructure.

Note also that China’s export slump persisted last month, when shipments abroad fell 6.4%.

Bottom line: China’s recovery, to the extent you can call it that, is feeble and delicate. That’s almost entirely a function of Xi’s decision to stick to 2020-style COVID lockdowns long after they went out of style, and his concurrent efforts to rein in China’s private sector by way of an iron-fisted crackdown carried out in the name of “common prosperity.”

Western corporates aren’t going to dissuade Xi from his domestic agenda by venting over dinner. And Western democracies aren’t going to dissuade Xi from his foreign policy agenda by hosting him at summits. He’ll hear executives out without listening and he’ll rattle off familiar platitudes during cordial discussions with Western leaders. But none of it will mean a damn thing. Xi will eat, talk, shake some hands and take some pictures in California, then he’ll fly right back to Beijing where he’ll get right back to strategizing.

There isn’t anything anyone can do to change this dynamic. Not really. Xi sees himself as destiny incarnate. He has big plans for China, and no one else’s opinion matters. Part of his plan involves taking control of Taiwan. Nobody should kid themselves about that. He certainly doesn’t make a secret of it. As long as Xi continues to posture towards Taipei and as long as he insists on propping up Putin’s failing (or at least flailing, with an “l”) regime in Moscow, the West would do better to leave him out in the cold. Because it’s a new Cold War either way. Warm dinners in San Francisco and warm words with “old friends” like Biden won’t change that reality. And, coming full circle, history is clear: Placating autocrats doesn’t prevent war.