Nomi’s Note: For today’s guest edition of Inside Wall Street, I’m handing the reins to my colleague Peter Zeihan.

Peter is a geopolitical strategist and New York Times bestseller. He advises investors, businesses, and even government officials on how to prepare for the macro events right around the corner.

Below, he shares his thoughts on Xi Jinping and the challenge posed by Chinese leadership. As Peter says, the biggest threat to China could be from within.

And if you enjoy Peter’s work, I encourage you to get a copy of his newest book, The End of the World Is Just the Beginning. It hit shelves this summer, and it’s a must-read.

Grab your copy – at a discount over major retailers – right here. Then read on…

Today, I’d like to talk about leadership.

Specifically, I’d like to talk about the leadership of Xi Jinping, Chairman of the Chinese Communist Party (CCP).

Xi was recently elected to a third term for that position.

For the China-watching world, this was never in doubt. The only question was if he would make himself president for a third term or just dictator for life.

But the trappings of how he justifies his position are irrelevant. He is a dictator for life.

But what is relevant is for us to look at China and see how Xi fits into that.

The Emperor is Far Away

China is a tough place to govern…

It’s a huge country with a massive amount of geographic diversity.

And even though the Han supermajority is over 90% of the population, the regions are so distinct that there’s a lot of diversity even within the ethnicity.

North – on the Yellow River – you’ve got the North China Plain, which is where about half of China’s population lives. And it has always been tight in the grip of Beijing.

In the south, you have the cities from Shanghai going down to Hong Kong, which have always been a little more secessionist and integrated with foreign zones, especially when it comes to their food supply. They’ve always had their own identity.

And in the middle, you have the Yangtze River from Shanghai to Sichuan, which has always been the most sophisticated and functional part of the Chinese economic system. They have usually resisted Beijing’s rule, but they are still quintessentially Chinese.

Ruling this is difficult because each region has its own ideas, its own vision of what should happen or not happen, and how to put it all together.

And in Beijing, you have the emperor who has to manage all of this. That means China tends to oscillate wildly between two conflicting visions.

On the one hand, you’ve got local autonomy. The locals are determining what happens. They have a saying in China: “The emperor is far away.” And so, China tends to spin apart into dozens of competing systems.

On the other hand, you’ve got the emperor who tries to hold it all together and tends to overcentralize as a result.

And combining those two themes means China has the most war-torn and conflicting history of all the major cultures in the world.

So, what does this mean for Xi and China?

The Most Isolated Leader in the World

In the leadership years before Xi, there was this idea that there had to be balance between these regions. But by the time we got to Xi, the decision was made that there should be someone to represent all the regions. And Xi was brought in as something of a compromise candidate.

And then he took over…

In his first five years, there was what he called a massive “anti-corruption” campaign. But it was really a purge of all the competing power centers throughout the party and throughout the system.

If you had a different vision of how China should operate, you were kicked out. And if you were a local or regional boss, you were brought to heel.

In the second five-year term, Xi went after everybody who agreed with him. He made sure nobody was capable of independent thought in his area.

That has made him the most isolated leader on the world stage right now. He’s arguably the most isolated Chinese leader in history. He’s more shutoff than even the Kim dynasty of North Korea.

And we are seeing catastrophic policy decisions being made as a result…

Information Lockdown

Terrible decisions are being made on everything from economics and trade to Covid and security. And if you’re in the bureaucracy, you can go one of two ways.

Option number one is you can be a true believer. When Xi says something, you snap to it and try to implement it in the most extreme way possible.

This is one of the reasons why the lockdowns in Hong Kong became so intense recently. And it’s why you’ve got idiots out there disinfecting airport runways. They think that’s what Xi wants them to do to fight Covid.

But the vast majority of the bureaucracy knows that if they get brought to Xi’s attention – good or bad – it could be a disaster. So, they just don’t do anything unless they are specifically told.

Because of this, we’re seeing a “seizing up” through the entire system – because we have a leader that is so disconnected from everything. He’s making decisions with no information at all because everybody is afraid to bring the information to him.

We think we have problems in the United States – jumping from W. to Obama to Trump to Biden and all the inefficiencies that come with that.

But it is nothing compared to the complete information lockdown that now exists at the very top of the Chinese system.

What this means is that the biggest threat to the Chinese system is not a foreign power.

The thing that could bring down the Chinese government in the foreseeable future is its own leadership…

Regards,

Peter Zeihan

Nomi’s Note: If you enjoy Peter’s work, be sure to pick up a copy of his new book, The End of the World is Just the Beginning. Grab a copy for yourself – and receive several additional bonuses… including a special four-part interview I’m doing with Peter – right here.