Put All Doubts To Rest, China Is Betting On The Free Market

Xi Jinping's calls in Davos to protect free trade are not a jab at Donald Trump, but in keeping with China's march toward a market-led consumer society.

Shopping mall in Shanghai
Shopping mall in Shanghai
Marcelo Cantelmi


BUENOS AIRES — The Chinese president's speech in Davos is a high-profile confirmation of the changes, and the increasing pace of change, taking place in China.

We have come a long way since the capitalist pilot scheme launched in Shenzhen in the 1970s by party leaders Deng Xiao Ping and Xi Zhongxun, father of the current President Xi Jinping. Shenzhen and its special economic zones provided the first free market model in China that has now come to encase the Communist polity in a liberalized economic, rather than political, environment.

The former Middle Empire is today a capitalist monarchy where decisions are taken at the top and whose changing leaders broadly follow the same, pragmatic policies. Thus we should not be surprised by the liberal tone of President Xi's speech this week at the World Economic Forum in Davos. This was the first time a Chinese head of state was not just attending, but inaugurating this illustrious capitalist shindig.

The message he gave might have been culled from any Western leader's memo notes — though it is worth remarking that the changes coming in the United States, and the slogans being chanted by European nationalists, could change the very meaning of "Western" sometime soon.

It would be mistaken however to suppose that Xi's speech was intended as a direct response to Donald Trump's protectionist threats. The Chinese leader's words are aimed not just at the U.S. president-elect, but also to the world. Because in principle, China needs to ever more fully integrate itself in the free market economy, with its enormous competitive advantages, and which a globalized world is currently impeding.

Forward harmony

Also Xi represents the last stage of a radical transformation of the wealth accumulation model that followed the exhaustion of earlier models impelled by preceding presidents, Deng Xiaoping and Jiang Zemin. The process set off tremendous growth rates for China though at an equally steep price, both environmentally and in terms of draining wealth and populations from the vast inland into concentrated coastal zones.

Balance of trade? Photo: Jed Sullivan

That cycle began to change during the two-term presidency of Xi's immediate predecessor, Hu Jintao, who with his "scientific development" and "harmonious society" formulae, began to tackle pollution as Xi often and consciously cites.

But the central part of the mutation was the integration, through credit and loans, of large segments of the population into the consumer model. China not only abandoned its exporting profile but has become a consumer and services economy with the world's biggest middle class. Xi, who has wound up wielding more power than anyone since Mao, took office in 2013 with a call for economic reforms centered around the market's "decisive role in resource allocation." That, rather than competition with Trump, is at the heart of his speech in Davos.

China, with that immense consumer hinterland, has created its own free-trade zone in the Asia Pacific and a global bank with key partners like Britain and Germany. Its broader program envisages changes that include a much bigger role for private capital and purging elements obstructing privatization. This is the price the giant economy is willing to pay in taking up its inevitable role as a global power, just as it was for almost one thousand years before the 19th century.

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Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money but the simplest of errors exposed the scam and limited the damage to investors.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.

Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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