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Who Rules Over Human Destiny?

Iqbal Latif - 7/16/2007

Alone I stand in the autumn cold
On the tip of Orange Island,
I see a thousand hills crimsoned through
By their serried woods deep-dyed,
And a hundred barges vying
Over crystal blue waters.
Eagles cleave the air,
Fish glide under the shallow water;
Under freezing skies a million creatures contend in freedom.
Brooding over this immensity,
I ask, on this bondless land
Who rules over human destiny?
- Mao Zedong (1925)

If Mao would have asked this question from his grave today the answer he would get be China! Exactly the way he wanted. However the path through which China has reached this success is contrary to his theories and prophesies.

Cash is king – Blackstone IPO made immense news on the markets. China's recently established Foreign Exchange Investment Company made the investment in the form of nonvoting common units of Blackstone (BG.UL). China announced in March it was setting up a vehicle to diversify part of its $1.2 trillion of foreign exchange reserves to im prove returns and decrease risk. State media have said the new agency could manage up to $200 billion, although some Chinese economists have called for twice that amount to be at its disposal. "If we are going to borrow from them, then we have to let them buy things," said William Overholt, director of the RAND Corp's Center for Asia Pacific Policy.

China with over a trillion dollars sitting on its exchange reserves has launched a new invasion from the East. The new free traders from 'The East' stipulate no paramountcy, no fealty but only a secure sheltered home for their new found wealth of over trillions of dollars. Blackstone's newly appointed China chief Antony Leung, who was financial secretary of Hong Kong from 2001 to 2003 led New York-based Blackstone to set up shop in China. The price of the privilege for the defeated under Mongol invasions was the mass-sacrifice of their native aristocracy and the export of their treasure to their coffers. The Blackstone IPO -- dubbed by some the "Wall Street event of the year" -- is off and running. After pricing at 31 dollars per share, trading opened Friday at $37, and closed at 35.07. The Day's Range: 34.25 - 38.00. Chinese have announced their arrival on world global markets with a bang. They negotiated a huge discount of 4.5% on initial price offering Chinese and than took a big stake of $3 billion dollar in the private equity giant. Chinese made upwards of $500 million on day one, based on 100 million at $29.6 closing at 35.07.

In today's world invasion from 'The East' works the other way around. Chinese have accepted limited voting rights and no right whatsoever to elect Blackstone's general partner. Probably the generous discount was based on this waiver from imposing decisions on the Blackstone board. In other words, while China may stand to make a profit on its investment, it doesn't get much control on how the company is managed in return for its money. Invaders of today are exporting their treasures and empowering the native aristocracy. Albeit much to the chagrin of the financial experts like FT's Plender who worry on the risks that such unaccountability creates on the corporate governance standards. If management is not answerable to shareholders needs what else will stop management to uphold basic principles of good corporate governance. The risk, writes Plender, "lies in the threat these flows pose to high corporate governance standards in the developed world."

China's bold positioning in one the bluest of the private equity firm buried the notion of China as the icon of successful model of Marxist socialism. The 1949 Chinese Revolution was an amazing episode of human history not only for the Chinese but for the rest of humanity, as well. The 1917 Bolshevik Revolution in Russia put on track an international competition for the hearts and minds of people all over the globe, the Chinese revolution raised the stakes by providing than 1/5th of humanity as canon fodder for the new revolution. The intelligentsia in the "West" defined this struggle as between "capitalism" and "communism." China's leadership rarely ever claimed to have 1949 Revolution as a communist revolution. China's leaders were members of a communist party like Bolsheviks, but never claimed to erect communism. They wanted a society that would be based on Socialism and it would be an intermediate stage between capitalism and communism.

Involvement in the Blackstone IPO is the concrete sign of huge transformation of Chinese emerging as a new benevolent capitalist of the world. This is the culmination of Deng instigated reform in 1978. Mao Tse-Tung termed "capitalist roaders" who he argued existed within the ruling Party structures and would try to restore the bourgeoisie and thus their class interests to power reflected in new policies, while only keeping the outer appearance of socialism for legitimacy purposes. Deng Xiaoping was identified as one of these "capitalist roaders" during the Chinese Cultural Revolution, when he was placed under house arrest. Mao had a great foresight he identified the abilities of Deng very precisely.

China is reeling from the battle of the graves between the Mao and Deng era. 30 years on though Deng beyond his grave has triumphed and 30 years on his policies have altered the course of the Chinese economy. Leading 'capitalist roader' as he was termed left a legacy that is far more entrenched than the failed 'Great Leap Forward' or Cultural Revolution. The Great Leap Forward is now widely seen, both within China and outside, as a major economic disaster, effectively being a "Great Leap Backward" that would affect China in the years to come. The official toll of excess deaths recorded in China for the years of the GLF is 14 million, but scholars have estimated the number of famine victims to be between 20 and 43 million. Mao saw grain and steel production as the key pillars of economic development. Mao forecasted that within 15 years of the start of the Great Leap, China's steel production would surpass that of the UK . That was never to be under state controlled enterprise, it has happened now as of today China has almost doubled its exports to become the largest steel exporter in the world at nearly 52 million tonnes followed by Japan, Russia, Ukraine and Germany . Production of crude steel for the 67 countries reporting to the IISI totals for the first 4 months 2007 was 428.4 million tonnes, China, accounted for 36% of world production in the first four months of 2007. Against China's 160 million tonnes UK production in t he 4 months totalled to paltry 4.8 million tonnes. Mao would be turning in his grave today. The forced entry of 130 million farmer families into communes and ravages of Mao's excesses are now all part of forgotten past. Here we see today a rejuvenated country that is in all definition a capitalist economy.

Chinese investment in Blackstone IPO cannot be termed only as an opportunistic portfolio diversification, it is death of the Marxism socialism and it finally an élan vital of a mass conversion to capitalist system. Without sounding too dramatic the event in its after effects and far-reaching impact is no less than overnight fall of the Soviet in 1990 or the fall of the Berlin wall. The investment in Blackstone IPO is just the first trickle in an oncoming flood of money from developing nations sitting on huge reserves of foreign currency that are looking for better returns, but won't push for influence in how the companies they buy into are run. If capitalism needs an icon like the Roman churches for Catholics or Iran under Ayatollah, capitalism can hardly ever be better represented by the likes of Blackstone. A global business with 86 investment professionals and offices in New York, London, Mumbai and Hong Kong , they are the world leader in private equity investing, managing five general private equity funds as well as one specialized fund focusing on communications-related investments. From an operation focused in Blackstone early years on consummating leveraged buyout acquisitions of U.S.-based companies, with approximately $33.1 billion of assets under management.

China with over a trillion dollars sitting in its exchange reserves invests $200 to $300 billion a year in US assets, so far these investments earn the going rate of 3 to 4 percent for US treasury bonds. Chinese seem to agree with Charles de Gaulle on the alleged ability of the US to force the world to accept dollars and a low return on dollar-denominated securities because of the dollar's key currency status, a strong tradition of protecting private property, and its place as a safe haven in a stormy world. Why this should bother anyone?

In an essay in 1999 titled 'Capitalism, Socialism, and the 1949 Chinese Revolution:

What Was the Cold War All About?' Satya J. Gabriel raised questions like

Is the transformation taking place in China likely to alter the social relations on the planet in such a dramatic fashion as to inaugurate a distinctly new epoch in human history? If so, what are the dimensions of this sea change? What new algorithms will arise in the human family? And is it inevitable or are there possible obstacles that could block this transition and lead global civilization down alternative paths?

Today we see some partial answers to all the queries as reports of Chinese emerging as not only major equity and debt players but showing telltale signs of a strong capitalistic economy biggest gas guzzlers as in the first five months this year, China's net oil imports roared to 65.83 million tons, an increase of 11.5 percent from the same period last year. China has overtaken the United States as the world's biggest producer of carbon dioxide, the chief greenhouse gas, figures released. China's recorded emissions for 2006 beyond those from the U.S. It says China produced 6,200 million tons of CO2 last year, compared with 5,800 million tons from the U.S. As China enters in the world global capital markets as a responsible player and emerges as a new responsible economic player with in the global community. China, whose gross domestic product growth is barrelling along at a sizzling 10%-plus, and whose stock market, as measured by the Shanghai Composite Index, is up 56% this year following a 130% surge in 2006. With performances like this China definitely poses new questions on the permanence of the new global integrated markets. Alan Greenspan, made headlines with his warning that "the rally in Chinese stocks is 'clearly unsustainable'" and that "there's going to be a dramatic correction at some point." What impacts Chinese slow down will have on the world and its ability to export price stability or continued low inflation are the new questions that global economy is now looking answers for. Does a China face a future like Japan, wherein 80's the asset bubble created a national debt that has not until yet able to ignite domestic demand. The 'carry trade' of today is the remnant of that bubble induced slow down, if Greenspan is right, and the bubble burst killing indigenous demand and leaving China with huge loans the next generation of entrepreneurs world over might benefit from 'Yuan' carry trade instead of 'Yen' of today. What a great epitaph of Mao's land the savings of Chinese helping finance the consumption spree of global capitalism.

Dimensions of this sea change are immense and definitely these events are modifying the societal dealings on the globe in such a spectacular manner as to initiate a markedly new aeon in human history.