A navigation map in the app of the Chinese ride-hailing giant Didi can be seen on a mobile phone in front of the app logo shown in this illustration image dated July 1, 2021.

Florence Lo | Reuters

This was a week to see how much the Chinese Communist Party (CCP) would be willing to pay to ensure its dominance.

The answer, after a rough calculation by a new partnership between the Rhodium Group and the Atlantic Council, is that up to $ 45 trillion in new capital will flow into and out of China by 2030 if the party were ready to make serious reforms. It is an immeasurable loss of economic momentum.

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Graphic courtesy of the Rhodium Group’s China Pathfinder Project and the Atlantic Council GeoEconomics Center

What is clear is that during the CCP’s centenary celebrations this month, Chinese President Xi Jinping sent an unequivocal message, both at home and abroad, about who is in charge.

Chinese domestic companies, especially technology and data-rich companies, are more likely to avoid western capital markets and cling to party preferences. Foreign investors, all too happy to take the risk of the long-established uptrend in Chinese stocks, must now factor in a growing risk premium as Xi tightens the screws.

“Wall Street must now recognize that the risk of investing in these companies cannot be known, let alone disclosed,” writes Josh Rogin in the Washington Post. “Therefore, US investors shouldn’t trust China Inc. with their futures.”

The story that caught the eye this week was the initial public offering (IPO) of the world’s largest ridesharing service, Didi, for $ 4.4 billion. The waves could be long-lasting and far-reaching for the lucrative relationship between China and Wall Street. Dealogic shows that Chinese companies raised $ 26 billion from new US listings in 2020 and 2021.

Up until this week, the biggest investor worry was that new US accounting rules would slow that flow. It is now more likely that the Chinese regulators themselves are plugging the nozzle.

The fact is, Didi Global began trading on the New York Stock Exchange on June 30, the day before the CCP’s centenary.

One of the first signs of trouble was that the company was downplaying the blockbuster list. Company officials not only defied the usual routine of ringing the opening bell. They went even further by instructing their staff not to post the event on social media.

Still, Didi’s shares rose 16% on day two of trading, setting the company’s market value at nearly $ 80 billion.

But by July 2, Chinese regulators put Didi through a cybersecurity review, banned it from accepting new users, and then went further over the next few days by instructing app stores to stop offering Didi’s app.

All of this can be attributed to a mixture of increasingly authoritarian politics, regulatory concerns about privacy and US markets, and the constant expansion of the front lines in US-China competition.

The cost to investors was down to just 67% of the stock’s original value by Friday. If that’s the downside, and if regulatory retaliation against Didi stops where they are, this week could still be labeled a victory by Didi executives.

The more serious matter is the wider deterrent effect surrounding a number of stalled or undone Chinese economic and market reforms.

The last came Thursday when the Wall Street Journal reported that the Cyberspace Administration of China, under Xi, would oversee all overseas listings.

On the same day, Chinese medical data company LinkDoc became the first Chinese company to go public after the Didi News. Expect more Chinese companies to postpone planned listings and many others to take them out of scrutiny.

With all of the billions in lost investment capital this could bring in the short term, the higher cost is one that could be measured in trillions of dollars of potential at risk as Xi consistently deviates from the market liberalizations he once seemed to advocate.

The story couldn’t be written more clearly than through the accompanying map of Rhodium and the Atlantic Council’s GeoEconomics Center. From 2000 to 2018, China’s economic growth rocked the world as it increased its share of global gross domestic product (GDP) from 4% to 16%. China saw similar growth in goods exports and imports.

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Graphic courtesy of the Rhodium Group’s China Pathfinder Project and the Atlantic Council GeoEconomics Center

At the same time, however, China’s inflowing portfolio investment rose from almost zero to just 2% of the global total, while its outgoing portfolio investment grew from almost zero to just 1%. Not only is this unmatched potential from the past – it’s now the highly endangered future potential, which could hit the estimated $ 45 trillion by 2030.

In an indispensable foreign affairs analysis of the Chinese economy, Daniel Rosen, a resident senior fellow of the Atlantic Council who is also a founding partner of the Rhodium Group, argues that under Xi, China repeatedly tried to reform the Chinese economy, only to withdraw. The attached table gives a useful overview of what has become a habit.

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Graphic courtesy of the Rhodium Group’s China Pathfinder Project and the Atlantic Council GeoEconomics Center

“The consequences of this failure are clear,” writes Rosen. Since Xi took control, total debt has increased from 225% to at least 276% of GDP. It now takes 10 yuan of new loans instead of six to create one yuan of growth. GDP growth declined from 9.6% to 6% in the year before the pandemic.

Rosen writes: “At some point, China’s leaders will have to face this compromise: [S]Sustainable economic efficiency and political omnipotence do not go hand in hand. “

Conventional wisdom has it that the West was naive to believe that China’s economic growth and modernization, which the West so enthusiastically supported, would eventually bring about political liberalization. Now the popular belief is that China has shown that it can be brutally authoritarian and economically dynamic at the same time.

It is more likely that Xi will soon face the contradictions between his simultaneous desire for economic dynamism and increasing authoritarian control. History shows he can’t have both, but right now, Xi seems willing to risk the momentum in favor of control.