The CCP "spending spree": A sign of strength? Or Weakness?

As one would expect, Secretary of State Hillary Clinton's visit to Beijing was the leading news regarding the Chinese Communist Party - and not in a good way. The Secretary not only threw the victims of the CCP under the bus (New York Post), but then proceeded to embarrass herself and her fellow Americans even more by pleading with the cadres to keep buying American debt (Agence France Presse via Breitbart). The cadres were more than happy to agree, and score highly undeserved political capital in Washington for it (AFP via Yahoo).

The regime was sickeningly gleeful at how obsequious the Secretary was (AFP via Yahoo), but such is the cost of ensuring the cadres will continue to lend to us, right?

Wrong.

To understand why the Secretary's appeasement was so unnecessary (and thus, all the more maddening), we need to look at what else the cadres are doing abroad.

In Australia, Canada, and France, the CCP is looking for firms desperate enough to need capital now - and finding them in abundance (Christian Science Monitor). The regime is building a special sovereign wealth fund to buy up foreign resource firms (London Telegraph) - at least the ones not already dependent upon regime-run banks for loans (International Herald Tribune). High-ranking cadres are going on import tours in Europe (AFP via Yahoo), and the regime is already buying half of Australia's mineral exports (Bloomberg).

All of which would be taken as signs that the regime is spreading its economic wings and effectively buying geopolitical power - which it is. It will also be taken as a sign that the CCP has arrived as a major global power in all realms - which is also true.

Finally, it will be seen by some as a "tipping point," revealing that with America weakened by the global downturn, the Chinese Communist Party is taking the wheel and driving the global economy. That's where the narrative jumps the track.

While the regime does indeed look strong from afar, get closer in and the picture looks very different. As Zhongnanhai prepares to gobble up chunks of the global economy, the regime's national pension fund posted its first ever loss (Bloomberg). Meanwhile, the details released on the CCP's "stimulus" are so vague that a lawyer in Shanghai (Yan Yiming) is threatening to sue for more information (Bloomberg) - and in a very clear sign that the cadres themselves haven't figured out their own thinking, Yan is not only still out of prison, but being quoted approvingly by Communist mouthpieces. Given what the regime would normally do to such gadflies (Epoch Times), one can only assume at least some of the CCP's factions are cheering Yan on, which would mean a deep division on the most important issue the regime faces: how to get the Chinese economy out of the ditch.

So what can we take from the regime's recent actions? What does it mean when the tyrannical elite will invest in prostrate foreign firms but steer clear of its own pension fund? What can we infer from the cadres' complete clarity on what to do for, with, and to other economies when coupled with the fog of confusion about fixing their own?

I would humbly submit that the regime is not investing abroad because it wants to do so, but because it has to do so.

First, we have to remember that the regime is dependent upon expanding its influence and power abroad to distract the people at home. This has been the cadres' modus operandi ever since the Tiananmen spring. So it should be no surprise that they are moving into the economic realm now that they appear to have the resources needed.

However, there are two other factors that cannot be forgotten. The more obvious one is the cadres' dependence on their exports. Despite the advice of nearly every economist on the planet to shift from an export-centered economy to a domestic-demand-centered one, the cadres know that such a move would (as all adjustments do) cause some serious hardship in the transition. Since the cadres have been relying on a wealthy, urban elite to defend its "mandate from heaven," any transition that would turn said elite into a poor and angry one is not in the cards. Thus, the Communists, trapped in their export dependence, must rely on foreign spending to keep them in power.

In America, that means the regime cannot pull the plug on its massive debt holdings. In fact, it is facing the exact dilemma I predicted last year. Any attempt by Beijing to force American policymakers to do its bidding by unloading American bonds would either drive down the dollar so far that American exports become competitive with their CCP counterparts, have absolutely no effect as others snap up the bonds the cadres sell, or (most likely) somewhere in between these two extremes. More importantly, such a move would certainly reduce or eliminate any appearance of Communist leverage over the American economy (and appearance is all it is), while moving American politics an decidedly anti-Communist direction.

For these reason, the CCP can't afford to sell its American debt holdings. In fact, they can't even afford to stop buying more - especially with U.S. Treasury notes continuing to be a safe haven for just about every investor on the planet.

In other words, Secretary Clinton didn't need to beg Beijing to keep buying American debt. If anything, the cadres need to lend us money more than we need to borrow it from them. That the Secretary of State felt the need to do it anyway - almost certainly at the behest of her boss, the President - is a very troubling sign of what we can expect from both of them regarding the CCP.

Sadly, it appears we must wait until 2013 for an anti-Communist Administration - and in many ways, that could be too late.