1. ‍Xi’s New ‘New Life Movement’
2. ‘Spiritual Opium’
3. The ‘Social Credit System’
4. ‘Socialism with Chinese Characteristics'
5. A Thought Exercise
6. Two Out Of Three Is Bad
7. So What?
8. Reading Xi Jinping

Today's issue is a heads up on what may be Xi Jinping's efforts to reshape Chinese society.

• One more thing to watch as Mr. Xi remakes China in his own vision.

The latest in the tech ‘crackdown’ is limiting children’s time playing online video games.

• It’s easy to see this as two-fer: wean the kids off the ‘spiritual opium’ (parents are happy) and at the same take another hit the consumer internet companies (Tencent’s share price drops).

But Xi Jinping may have broader ambitions that we miss if we just situate these moves in the objectives of the tech ‘crackdown.’

• Better to consider them as part of a new effort to make the Chinese people good through coercion until they can do it the Confucian way through self-cultivation of virtue.

Chinese emperors and Chinese Communist leaders have been trying variations on this for a couple of millennia.

• But they didn’t have the tech, the individual data, and the internet like Mr. Xi does.

If this sounds a little farfetched, then how about situating the new regulations alongside China's sweeping ‘Social Credit System.’

• The ‘Social Credit System’ tracks what seems to be your every move. Punishes you if you aren’t good, and rewards you if you are.
• So fake it until you can make it (make it, as in, be a virtuous and obedient Chinese citizen and company until it comes naturally).

If in fact Mr. Xi is embarking on the contemporary version of Chiang Kai-shek’s ‘New Life Campaign’ (and its ilk in past governments) in an effort to outdo Mao and Deng and maybe all the Chinese emperors too, then…well…we have a whole new set of business and investment risks in China on our hands.

Here are a few thoughts on what’s happening and on how to better read Mr. Xi's speeches and other official pronouncements.

• So that you can better predict the next actions and not get blindsided.

1 | Xi’s New ‘New Life Movement’

The ‘Anti-Spitting Campaign’ is maybe the only detail I remember about the ‘New Life Movement’ from my year-long course in modern Chinese history in graduate school.

• That may be because I had already lived in Chinese society, had seen a lot of spitting, and thought perhaps another round of the campaign wouldn’t be amiss.

The New Life Movement of the 1930s was started by Chiang Kai-shek, China’s leader and head of the Kuomintang, the Nationalist Party.

• And it was at the time the latest attempt by government to instill in the Chinese people Confucian virtue, morality, and obedience to authority.

Over the previous 2,000 or so years, Chinese rulers, at one time or another, had given this a try (without much success).

• Their aim: Make the people good from the inside out by encouraging the self-cultivation of virtue, Confucian-style, or by enforcing strict laws, Legalist-style. Or both.
• Their purpose: Fulfill the emperor’s imperative of bringing Man into harmony with Earth and Heaven, or create a docile society that is easier to rule. Or both.
• (Chinese communist leaders have had similar objectives couched in Marxist terms.)

2 | ‘Spiritual Opium’

What brought all this to mind is Xi Jinping’s attack on kids’ indulging in the ‘spiritual opium’ of video games.

• The new rules: No online video games during the school week, and one hour a day on Fridays, weekends, and public holidays.

The Wall Street Journal reports:

• ‘The new restrictions targeting video games highlight the emphasis that Beijing has placed on cultivating morality in its youth, a preoccupation of senior officials that has come to the fore in recent weeks.’

‘Communist Party leaders have also gone after other influences on the lives of young people that they deem harmful.’

• ‘Among them: for-profit education services that have added to school pressures and a pop-culture industry that Beijing says has fostered an unhealthy culture of celebrity fandom around what state media terms effeminate male stars.’

‘The government’s recent focus is on children, who the party says it fears are being inundated with a toxic culture that poisons their minds, isolates them from society and saps young boys of their masculinity.’

• ‘Taken together, these moves represent a shift in the social contract that existed under Mr. Xi’s two immediate predecessors, in which the party expanded personal freedoms in exchange for acquiescence to the party’s monopoly on politics.’

I think there is more going on here than a change in the social contract.

• I get the vibe that Mr. Xi ambitions for youth and Chinese society as a whole are greater than that.

These new regulations are a part of the tech ‘crackdown’ on internet consumer companies to be sure.

• The share price of gaming companies, like Tencent, did fall first with the announcement of online games being ‘spiritual opium’ and now with the new rules, as did the share prices of online tutoring and celebrity platforms.
• But in these cases, these are two-fers: bringing the industry to heel as well as helping to reshape Chinese society.

Still it’s a big jump to infer that Mr. Xi is engaged in an effort aimed at the wholesale reshaping of society based on few new regulations.

• But these are just the latest moves and not the biggest.

The big one is the ‘Social Credit System.’

3 | The ‘Social Credit System’

The New Life Movement failed, as did its predecessors.

• But Mr. Xi’s efforts to make his countryman good might fare better.

He has two tools that neither Chiang Kai-shek nor the emperors could have dreamed of: the internet and big data.

• Both come together in the plan to make both people and companies virtuous, the burgeoning ‘Social Credit System.’

A scholarly analysis of the System from 2019 says:

• ‘China has already begun to experiment with metrics and quantification of the value and virtue of its citizens, going beyond the function of measuring workplace performance and health-related self-tracking to measuring one’s purchasing and consumption history, interpersonal relationships, political activities, as well as the tracking of one’s location history.’
• ‘China has also already begun to apply a reward and punishment system that rewards those who comply with the Chinese government’s ideals and punishes those who deviate from them.’

‘Implementing a social credit system that comprises disciplinary technology that rewards those who are honest, trustworthy and virtuous, while punishing those who display signs of dishonesty, corruption and deception is alleged by the Chinese government to be a necessity in fixing moral decay and bringing about a virtuous state of social harmony in China.’

• In other words, be good, or else. We're watching.

4 | ‘Socialism with Chinese Characteristics'

Most western assessments of the Social Credit System claim it is one more cynical attempt to assert even greater control over the Chinese citizenry and companies.

• That is no doubt true. But I think it's more.
• And that’s summed up by ‘Socialism with Chinese Characteristics.’

My take, as I’ve written before, on the ‘socialism’ part of ‘socialism with Chinese characteristics’ is this:

• Since Deng Xiaoping’s reforms, we in the west have come to believe that China is really capitalist, and its leaders are just mouthing Communist platitudes they really don’t believe.
• In fact, from Deng to Xi, as the Chinese put it: 社會主義是個目的，資本主義是個手段, ‘socialism is the goal; capitalism is a tool (or method).’
• And Xi Jinpings’s flurry of activity demonstrates that, for him, capitalism may have reached its use-by date, and he’s moving China on to the next stop on the road to socialism.

The other half of the equation, the ‘Chinese characteristics’ part, is many-faceted and complicated.

• But consider just one aspect with regard to Xi Jinping's societal ambitions.

In explaining the reasoning behind the new video game rules, the Xinhua news agency said (as reported in The Wall Street Journal):

• “The youth represent the future of the motherland,” adding that ensuring the health of China’s young people “touches upon the nurturing of a new generation of man for the rejuvenation of the nation.”

This ‘new generation of man’ sounds a bit like the Marxist ideal of creating the new ‘socialist man’ or ‘communist man,’ necessary for the ultimate realization of communism.

• But to my ear, it also sounds in line with China’s millennia-old campaigns to develop a virtuous ‘Chinese man.’ (Yes, as elsewhere, women traditionally get short shrift here too.)

And this, along with so much else Mr. Xi has said and recent Chinese commentators have written, is as big a part of ‘Chinese characteristics’ as adapting Marxist economic theory to China’s unique situation.

5 | A Thought Exercise

Here’s a thought exercise:

• What if Xi Jinping, great student of Chinese history and traditional political philosophy, is sincere. His aim is to fuse socialism with the best of Chinese thought for the greater glory of China and the prosperity of the Chinese people (along with being the power-hungry autocrat many say he is)?
• What if he doesn’t just want to be seen as greater than Mao and Deng?
• What if instead his aim is to be seen as greater than any of the emperors as well?

To accomplish that, he has to exceed all before him in three of several key traditional measures of imperial excellence:

1. Be a leader who works tirelessly for the good of the people – and does indeed better the people’s lot.
2. Manage an incorruptible bureaucracy.
3. Nurture a virtuous, obedient citizenry.

If we give him the benefit of the doubt and take him at his word, Mr. Xi and the Party, as he has repeated often in his speeches, are indeed working tirelessly for the good of the people.

• And he is certainly credited by his fellow citizens with improving their material well-being.

His signature ‘Anti-Corruption Campaign’ has gone a long way toward weeding out bad officials and scaring others into acceptable behavior. (Along with purging his enemies and tamping down criticism of him and his policies.)

• The bureaucracy may not yet be incorruptible but is more so than it was.

6 | Two Out Of Three Is Bad

While other leaders have had some success in these two first measures, none has succeeded in the third, creating an enduringly virtuous society.

• Xi Jinping knows that two out of three may work for Meatloaf but won’t for him to secure the place in history he seems to want.

Mr. Xi has of course reintroduced the study of Confucius along with Marx and Mao (who did all he could to eradicate Confucian thought and ways) and others.

• In so doing, he encourages his people to self-cultivate not just Marxist but also traditional Chinese virtues.

As a student of Chinese history, though, Mr. Xi knows that self-cultivation can only take the process so far.

• He needs to use the sticks also found in traditional Chinese political thinking (enter Han Feizi and the Legalists).

Just as he is betting on technology to overcome productivity shortfalls, Mr. Xi may well be counting on technology to provide those necessary sticks to make people good.

• And he may see the ‘Social Credit System’ as the biggest stick to finally make the Chinese people virtuous, or to at least act virtuously.

The new regs on video games, online tutoring, and celebrity culture may just be part of that larger project.

• Stand by. I'll bet more changes are on their way.

7 | So What?

Xi Jinping wants to make the Chinese virtuous and, as I posit, be seen as China’s greatest leader ever.

• So what?

We can’t get inside Mr. Xi’s head but understanding what he is thinking and why has real-world implications for CEOs and institutional investors.

Following Mr. Xi’s ‘surprise crackdown’ on Chinese consumer internet sectors, the Editorial Board of The Wall Street Journal wrote:

• ‘The big surprise from the slump in Chinese company stocks is that people are claiming to be surprised.’

‘President Xi Jinping has made plain for years that he intends to bring ever greater swathes of China’s private economy under the state’s control.

• ‘Guess what, Wall Street: He meant it.’

Turns out, as events have shown, he meant a lot more than getting control of the private sector.

8 | Reading Xi Jinping

Institutional investors got the message as one of my favorite headlines from Bloomberg shows:

• ‘Shocked Investors Scour Xi’s Old Speeches to Find Next Target’

But how they read the old speeches (and official proclamations) makes a difference.

• I’ve mentioned before that as a product of the Cold War, I had been in the habit of reading Mr. Xi’s speeches the way I had read those of the old Soviet leaders – as a bunch of disingenuous blather.

No more. Now when I read Mr. Xi’s speeches, I use three new points of view:

First: Yes, he means it.

• That is, I take him at his word until shown otherwise.
• So far, over his time in office, he has shown over and over that he is working step-by-step toward the objectives he publicly lays out – so, he does indeed mean it.

Second: Give Xi Jinping the benefit of the doubt until shown otherwise.

• When Mr. Xi says, for example, that he and the Party are working for the ‘rejuvenation of the Chinese nation’ (and not just for their cynical hold on power – although that too), I read him as sincere.

Third: Factor in Xi Jinping’s ambitions.

• There is no longer little doubt that he wants to be remembered as being at least as great as Mao and Deng, if not greater.
• As for being the greatest leader in Chinese history, well, it must have crossed his mind.

As I said, to accomplish either of these ambitions, he has to not only leave China stronger and more prosperous, he has to have both advanced the country farther down the road toward socialism and made the Chinese people more enduringly virtuous in the imperial manner.

• For that he has to create that ‘new generation of man.’
• How will he do it? That's the new thing we have to be on the lookout for.

So if the ‘shocked investors scouring Xi’s speeches’ and those of other government officials just look for the next economic target, they will miss the impact of the profound social engineering that seems to be underway.

• If they didn’t anticipate that the government would call video games something like ‘spiritual opium’ and that this would cause Tencent’s share price to drop, they need to broaden the points of view of their reading.
• And we should too.