- - Thursday, January 28, 2016

China’s leaders are furious with the liberal U.S. business magnate George Soros for telling the World Economic Forum in Davos, Switzerland last week that “a hard landing is practically unavoidable” for the Chinese economy, and that monumental debt levels and deflation in China’s slowing economy are to blame for the current global stock market turbulence.

The Chinese state-run media called Mr. Soros a reckless speculator bent on “viciously shorting China.” The official news service Xinhua on Jan. 23 even threatened the billionaire with “higher trading costs and possibly severe legal consequences,” should the “world’s most ruthless hedge fund manager” begins to short China and the yuan, whose value, like the Chinese economic policy-making as a whole, is not decided by the market, but almost exclusively by the Communist Party’s Politburo.

It’s not the first time Mr. Soros has clashed with Beijing’s masters. To many within the Chinese ruling elites, Mr. Soros has been an international man of mystery for the past four decades. Just like his palindromic name, one can read him forward and backward, still unable to figure him out completely.

Mr. Soros‘ complicated romance with China started in the early 1980s. To reverse a vicious cycle of stagnation in the Soviet Union, the Brezhnev government conducted a bold but risky experiment with a limited market economy through the use of a special economic zone.

The experiment was conducted in Mr. Soros‘ native Hungary, which had become a vibrant and semi-open society within the Soviet system just as Deng Xiaoping was opening up China’s abysmal economy in the late 1970s. Partly inspired by the Hungarian model, China began to set up its own “special economic zones” along its southern coast when Premier Zhao Ziyang, a reformer, was in charge of China’s economic policies.

Through the New York-based Chinese writer Liang Heng, Mr. Soros got in contact with Zhao’s “Young Turk” advisers and received the approval in 1986 to set up a Chinese branch of the Soros-funded Open Society Institute, a reform movement inspired by the ideas of Austrian philosopher Karl Popper, initially with an annual budget of at least $1 million.


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One of the first and most important projects the China institute funded was a 1986 trip by Chinese economists and policymakers to Hungary. The delegation came back much impressed and wrote voluminous reports to a receptive Zhao.

However, within months, the Chinese state security establishment made their resentment against the Soros operation in China known. A high-level internal report accused Mr. Soros himself of being a CIA operative bent on a “Peaceful Evolution” to overthrow the Communist government. Zhao’s senior aides called the accusation nonsense, pointing out that Mr. Soros had also been operating in the Soviet Union and Moscow’s KGB would never have let a CIA operative to run a subversive shop there.

But the anti-Soros campaign did not stop: Informants began to tell Mr. Soros that the Open Society Institute branch in Beijing had been infiltrated by Chinese spies. During the epic 1989 Tiananmen Square pro-democracy protests, security forces used the Soros operation in China as a potent weapon to purge the Zhao wing of economic reformers. Mr. Soros was forced to close his Beijing office in May of that year and withdrew from China entirely. Within a few weeks, the Tiananmen massacre took place and Zhao was promptly purged. The Chinese government openly accused Mr. Soros‘ China office of being part of the U.S. government’s insidious secret plan to sabotage the country’s socialist system.

Later, Mr. Soros wrote of his experiences in China: “It became clear to me in retrospect that I had made a mistake in setting up a foundation in China. China was not ready for it because there were no independent or dissident intelligentsia. The people on whom I based the foundation were members of a party faction. They could not be totally open and honest with me because they were beholden to their faction.”

Sage wisdom for today’s China. Indeed, for as long as there is a Communist Party in China, the Politburo will always win, whether it’s run by “reformers” or “hard-liners.” And as long as the Politburo rules, there will be no hope for Popper’s and Soros‘ hopes for an “open society,” which is the ultimate inexorable logic of Chinese history.

Miles Yu’s column appears Fridays. He can be reached at [email protected] and @Yu_miles.

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