Wednesday, February 27, 2013

China - Next Global Hyperpower

Well, you can just stop and think of what could happen if anybody with a decent system of government got control of that mainland. Good God... There'd be no power in the world that could even—I mean, you put 800 million Chinese to work under a decent system... and they will be the leaders of the world. - President Richard Nixon

China. The magical land that if you dig straight down from America you get to, and they are just like us. The missionaries kept singing their praises of being hard working and open to Christianity. Then we betrayed a friend, and everyone was asking, "Who lost China?". That question scared politicians on the left for decades, and was part of the McCarthy-Nixon line of attack on the commie friendly left. That slick SOB Nixon and Kissinger "opened" China, and they have been modernizing ever since. Bush 41 and Clinton had mealy mouthed responses to China's crack down in Tienanmen and steady human rights abuses all for that ever increasing need for more cheap labor. China learned a lesson with the Asian currency crisis in the late '90s, and their mercantilist game of reserve accumulation influenced all of Asia. The 2008 Olympics was the coming out party for China, and a growing uneasiness started in the USA. Americans have felt the national decline for a while just as China has been rising. Sure, Japan was an economic challenger and the Soviets had a nice run, but there is something deeper to this China game. Americans can feel it more and closer than our blinders wearing media. China will be the world's next hyperpower.

China set out on a road of industrial modernization. They also set up some social changes around the same time with their One Child Policy. While the West pushed the free trade meme and turned a blind eye to underclass dysfunction, the Chinese went in the opposite direction with mercantilist policies and limiting children from the underclass. They mismanaged their currency once before which caused massive food inflation, coincidentally right before the Tienanmen Square protests. The Chinese have had steady growth for decades now. They print money like mad in their dollar recycling scheme to keep their currency low to steadily drain jobs from the West. China's tech and manufacturing is occasionally top notch and dirt cheap. Did Microsoft sell Windows in China at $3/piece to combat piratism or because the Chinese forced them to do so to enter the Chinese market? Some Chinese manufacturing is completely below American standards and studies show their operational research and organization means it takes 18 Chinese firms to do what 3 US firms can do, yet consultants whisper in corporate ears to move jobs there (comical blog that often links odd Chinese stories). On the innovation side, Chinese patent numbers have been rising. The current focus in China is for gold, natural resources from 3rd world countries (Africa + "String of Pearls"), and creating bilateral trade and currency agreements to avoid the dollar. At the current rate of domestic gold production and importing, China will pass America's reported gold reserves in 2018. China has been making their move slowly, and while they too have income inequality issues that make liberals fret, they have lifted hundreds of millions out of poverty. Even if it is a ponzi economy on the edge, isn't that Europe and America as well? Would you rather be multikulti Europe or racially tense America as the economic order goes through a giant dislocation and reorganization or 92% Han China?

As noted above, they have tackled social problems. As Chuck has written, it's eugenics on a massive scale and alien to the American high road taking, status whoring way of life. China's mandarins are different from America's mandarin in that they are crony capitalist bastards, but China comes first. This might be a genetic thing with the English outbreeding and altruism at work. It might be the difference in the Oriental vs. Occidental mind. Does China have SAPLs? If so, they don't care about random minorities getting whacked. Corruption is everywhere in China, but looking around, there is plenty in America. China has a unique set up where they have the central authorities delegate responsibility and authority to local, provincial leaders. If someone runs a ponzi scheme and screws over the locals, they appeal to the central authority, and then someone gets jailed or capped. A corrupt official jumps on a plane with millions? Well, that plane will redirect and land back in China to take off again with one less passenger. They allow tons of freedom, but not the right to vote and not freedom of religion. The Chinese leadership realizes that the Chinese don't care about political rights (voting) if they are safe, feel treated OK by the law, and have a steady supply of food and consumer gadgets. Freedom of religion? It's the East. Entirely different religious tradition than you, SWPL, with your fake claims to support religion, you wouldn't understand. This is NOT an endorsement but imagine the secondary and tertiary effects on America's school system, obesity problem, welfare state, political system, oil usage, et cetera with a one child policy the last 30 years.

There are cracks in the mirror. The growth seems a bit odd with the ghost cities for millions that no one occupies. GDP doesn't count final sales, only if something gets made. I don't trust their stats, but I don't trust ours either. The Chinese suffer from a Coastal-Inland bifurcation of economic development. Their environment has take a huge toll for their economic growth. The military is a bit behind us, but up until the late '90s, the military was busy making money in economic ventures instead of working on assets and technology. There is that odd '90s period where they seemed to grab secrets from the USA as Chinese nationalists made donations to the Clinton re-election campaign (book here). Their military has a defensive outlook compared to America's attack posture, but they've made some changes with recent moves. Drones, stealth frigates and even an aircraft carrier aren't really defensive pieces. Their puppet pieces in the Middle East and North Africa are losing battles to American puppets, so their soft power projection might be far weaker than we envision. Crony corruption and negative selection affect the political system, but from an objective standpoint, how much worse is it compared to other big countries? A defense of China would be that when corruption gets bad enough, people get iced. They also have a huge local loan loss pool out there, so the trillion or so in TSYs might be needed to pay off those loans. Years ago, I considered their TSY hoard as a non-military weapon of mass destruction against the US. Over time, I have waffled as it feels like they have performed vendor financing for the US economy, and that never goes well for the lender/producer. People say they can't sell their TSY hoard or else the value of them would go dow, but who would ever bet against JPMorgan selling them derivative protection on TSYs as the Chinese simultaneously sell the TSYs with someone else? That sounds like a Chinese thing to do.

Others have noted these same problems, but like me, see them as either not as bad as a jealous western media sees them or as hard to overcome. There is another counter to the criticism that is like a mini-lab for what China could develop into with more time: Taiwan. Taiwan is a model as it's roughly the same people (+90% Han), only separated by a recent civil war. How have the Han of Taiwan done since being banished to a small island off the coast of China? Taiwan does extremely well. As a satellite of the American empire, it has received massive subsidies and aid, but so has China. I've heard arguments that we shouldn't fear Mainland China taking over Taiwan, but Taiwan being allowed to run Mainland China.

That's the heart of the matter. We expect them to come through and rise up to the top. Americans consider them intelligent and crafty. Caterpillar just lost $500 mil in assets in China last year. They might be so crafty that they reject the hyperpower title, and as a superpower act as a pole in a multipolar world with equal footing or a slight advantage compared to America. It might be the Sun Tzu approach to war vs. our European inherited Clausewitz approach that has been muddied by hearts + minds kumbaya antics. As I like to say with warfare and the Occidental hang ups, had Muslim terrorists crashed planes into Shanghai skyscrapers, the Chinese Army would have laid waste to everything from China's western border to Israel, stopped and made some business deals with the Jews there, and then gone home. Screw world opinion. That is also why Al Qaeda doesn't step to them. I doubt they'll leave us alone after decades of meddling there. Who is going to grow their food if they destroy their farmland? America will. They do have major roadblocks, but for every roadblock, they have a positive of equal size. When a writer mentions all of the above for positives and negatives, one thing they lean on is the demographic problem. Usually, pundits state the problem and don't finish the thought through the whole way. If China has spent over thirty years amassing wealth, building a middle class, trying to create a domestic consumer economy and denying their citizens the right to have more than one kid, how huge of a baby boom (and consumer economic boost) will they experience when the Chinese get the greenlight from the mandarins to have more kids? When they do flip that switch, it will be when China is ready. By then, they will be firmly entrenched in their new role with their hand on the steering wheel, if not for the world, for their preferred sphere of influence.

"...and they will be the leaders of the world." - Nixon


odinslounge said...

The most interesting story of our time no doubt.

It's amazing to see how many people think we should do business with China cause its win-win. They have no idea we're being gamed. Just like the people who were and still are USSR cheerleaders, what makes you think you'll survive?

The really interesting part is that China has problems itself that could be faults, the difference is that they are great manipulators and even a burst bubble would be an opportunity for them. That's the great thing about a one party system, while we're screwing around playing politics and pumping up the causes of our problems to do it again, they just tweak a few things and its all good.

We really are screwed, its just a matter of how safe we'll be. If they develop an old fashioned superiority mentality they'll take it out on us.

Anonymous said...

China's one child policy isn't eugenic. Its the urban people that are subject to it. The rurals (read dysgenic) and minorities are not.

Bob said...

This was perhaps one of the most well thought out analyses of the future of China in the red pill blogosphere. I had some thoughts to add.

China's GDP is inflated by their construction projects, which has flooded their marketplace with housing, despite vacancy rates > 70%. This massive oversupply based on fake demand will end up causing a massive re-balancing, destroying their construction and housing industries by eliminating millions of jobs and revenue sources. They will lose great amounts of capital as the people who have used real estate as an investment asset will see their assets tank. Many of their elite recognize this. There is already a great deal of capital flight occurring in China, usually among those in-the-know.

Their other major economic powerhouse is manufacturing, which is highly dependent on the health of other first world economies' and their amount of disposable income, and China's ability to maintain low labor costs. The European economy is in shambles and will be so for some time. The American economy is headed for recession, with real wages declining, inflation of commodities on the rise, and tax burdens rising for most people. Companies will still try to offshore their supply chains as much as possible. China may not be their first choice as their labor wages are increasing, and companies are becoming more concerned about copyright infringement (see Apple). The costs of automation are also dropping every year, and robots are able to perform increasingly complex tasks.

China isn't necessarily as eugenics-oriented as we may expect, as they are beginning to import African labor to combat rising labor costs. This is how it started in the US with Mexicans, though the Chinese may have less of a charity complex and keep Africans as sub-citizens. They could always do what Israel did. Either way, I think the current state of the world is one where every major power is a mess. China has the problems I mentioned above, the US has all the problems as you've covered and a major demographic problem, Europe has the euro crisis and a growing Muslim problem, Japan has a financial crisis and an aging population. Whichever country is the least fucked up will probably end up becoming the next major superpower.

However, that being said, you make a very good point about the Chinese. Billions of people with an average IQ approaching 110... my god! If they are able to get their financial house in order and survive their great re-balancing, there is massive potential. With their history of state control, they would be able to restructure their economy and government very rapidly. Japan was able to do this during their Meiji revolution, led by bureaucrats. They went from bronze age to industrial superpower in one generation, perhaps China can do the same.

You mentioned Taiwan, and I think Hong Kong and Singapore are also shining examples of what China could be given the right conditions. These small island polities, with a history of Anglo patronage have made a mockery of their former overlords.

Despite their tendency towards massive corruption on the mainland, the Han in Singapore are extremely cooperative with each other. Last I checked, Singapore was considered the LEAST corrupt country in the world. They have one the highest GDP per capitas in the world. If China were to begin grabbing land throughout Asia, as they seem poised to do, they would do well to absorb the policies of the other Asian tiger powers and become a true hyperpower. The future will be very interesting indeed.

Son of Brock Landers said...

Thank you both for the comments. A good financial blogger who was a Wall St guy for decades before is Bruce Krasting. He has some great posts on China's potential changes.

China did just pass the Lewis Turning point for labor now becoming an issue. As the Chinese wish upon enemies, may you live in interesting times. This 'turning' is indeed interesting times.

PRCD said...

I like the analysis too.

I have a friend who deals with import law and he says that Chinese officials are far less corrupt than American officials. The latter try to pretend they're moral while they bilk you for far more money. The former are pragmatic and require low upfront costs.

If they can build a blue-water navy, they are the next hyperpower. Sea power is the key to global power.

I think their 1-child policy has been disastrous on the middle class as well as teh lower classes and has caused a shortage of women and people who want to have kids. The societal ills found here are also found there. Once a civilization loses the knowledge of child-rearing, it's tough to recover, especially as wealth increases. If anything, they should've had as many Hans as possible and begged/borrowed/stolen the land they needed to house them.

They also seem to embrace idiotic Western ideas. All of my Chinese colleagues can recite large portions of MLK's 'I have a dream' speech. Many try to move here.

We don't have a crystal ball, so we don't know what will happen. But the hyperpower position is there for the taking.