China’s lurch toward dictatorship and what it means to investors

Chinese President Xi recently did away with term limits.  China is the world’s second-largest economy and is now headed towards dictatorship.

This is a troubling development because dictatorships rarely work out well.  Indeed, the last dictator to rule China was Chairman Mao and his rule was an unmitigated disaster.

For instance, Mao’s Great Leap Forward 5-year plan kicked off an economic crisis that gutted industrial and agricultural production.  This kicked off a famine that killed more than 14 million Chinese.

The Cultural Revolution led to the persecution of millions of Chinese.
Mao’s Cultural Revolution led to millions of people to be persecuted. They suffered a wide range of abuses including public humiliation, arbitrary imprisonment, torture, hard labor, sustained harassment, seizure of property and sometimes execution.

After that, Mao’s Cultural Revolution led to mass purges of political opponents and persecution of millions.  Agricultural production stagnated and industrial production plummeted by 14%.  Rampant xenophobia led to isolationism and retarded Chinese growth for decades to come.

The main problem with authoritarian leaders is that they tend to double-down on their mistakes.  That’s because there are few checks to balance their power.  This means bad decisions snowball into epic disasters.

Unfortunately, China is once again headed down this road.  And since the country is so large and powerful, China’s descent will have global consequences.

China will become more belligerent

Most would-be dictators consolidate power by picking fights with internal and external enemies.  This is precisely how Mao, Hitler, and Stalin grabbed power and held onto it.  It’s almost a foregone certainty that President Xi will do the same.

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Al Basoglu

I am a financial services professional with over a decade of experience in various roles. I've lived and worked abroad in 5 different countries while pursuing personal and professional challenges. My interests include markets, history and different cultures. I tend to weave all of my interest into my analysis and articles.