Tag Archives: China

Diary of the Second Addams Administration 12.

Posted on by
Reply

            For a long time, the United States has imposed lower tariffs on the goods of its trading partners than those trading partners have imposed on American goods.  The US did this because the national strategy was to foster a world of openish markets in pursuit of “peace, prosperity, and American exports around the world.”[1]  A month into office, President Donald Trump is announcing the end of the Age of America as the “benevolent hegemon.”  Now it is “pursuing its own interests first.”[2]  Trump’s actions began wreaking havoc in the international economy.  He doubled the tariff on Chinese goods, announced a looming 25 percent tariff on imported steel and aluminum, and raised the possibility of tariffs on semi-conductors, drugs (and not the fentanyl kind either), and cars. 

            Take the example of cars.  About 8 million of the 16 million new cars sold in the United States each year are manufactured abroad, chiefly in Germany, Japan, and South Korea.  Many more “foreign” cars are manufactured in American plants.  In late February 2025, President Donald Trump raised the idea of imposing a 25 percent tariff on car imports.[3]  One solution might be for foreign car-makers to increase production in their American facilities, while reducing exports to the United States.  Fine, except that a) it takes along time to build a car plant and recruit a work force, and Trump might be out of office before the plants are ready, taking his tariffs with him back to Mar-a-Lago; and b) if they cut manufacturing in their home country, they will have to lay off many workers there, as well as taking the political heat that comes with the lay-offs. 

            Then there’s steel.[4]  Many foreign countries subsidize their own steel industries at the expense of American producers.  Eighty percent of America’s steel imports come from “friendly” countries (Europe, Japan), rather than from China.[5]  Trump wants to privilege American steel-producers over those foreign competitors.  American steel-consumers—car companies for example, and their American customers—will have to bear the transitional costs. 

            The push-back came swift and hard.  Basically, “He did this in his first term and the results were BAD!”  Prices rose, American companies saw their sales fall, and car companies came under a lot of financial stress.[6]  Moreover, bullying our friends gains us nothing.  Canada—the country that invented hockey—dropped the gloves, at least rhetorically for the moment.[7]

On the other hand, some observers thought that the threat of tariffs could serve a useful purpose.  It could bring foreign trading partners to renegotiate existing trade deals.[8]  In short, Trump isn’t serious about actually imposing the tariffs. 

But what if he is serious?  And what if he insists on including the reduction of Non-Tariff Barriers (NTB) to trade?  This would include things like currency manipulation, and the taxation and regulation of American businesses abroad.  Eeeek! 

[1] “Trump’s tariffs: A new era of protectionism,” The Week, 28 February 2025, p. 34.    

[2] See Oren Cass, quoted in “Tariffs: Does Trump know what he is doing?” The Week, 14 February 2025, p. 6. 

[3] “Trade: Tariffs may hike foreign car prices,” The Week, 28 February 2025, p. 32. 

[4] “Trum brings back steel tariffs,” The Week, 21 February 2025, p. 32. 

[5] That is, our “friends” have been harming us for decades in the service of domestic interest groups. 

[6] “Trump’s tariffs: A new era of protectionism,” The Week, 28 February 2025, p. 34. 

[7] “Canada: Proudly resisting Trump’s bullying,” The Week, 14 February 2025, p. 14. 

[8] “Tariffs: Does Trump know what he is doing?” The Week, 14 February 2025, p. 6. 

Diary of the Second Addams Administration 11.

Posted on by
Reply

            The year began with a menacing fact about Sino- American trade.  In the course of the last year of the interminable Biden presidency, China’s global trade surplus hit $992 billion, the highest ever.  China’s surplus in trade with the United States reached almost $525 billion.[1]  That’s over half of the total trade surplus for the year.  This news came as a grim confirmation of fears to people who think that trade deficits represent job losses in the deficit country, represent a victory for the chief rival of the United States, and that China is trying to export its way out of grave domestic economic problems. 

            This fact provides important background to President-elect Donald Trump’s tariff policy.  Trump had promised to impose tariffs “on Day 1.”  He didn’t quite do that.  No sooner was he inaugurated than Trump said that he was considering a 10 percent increase on the existing tariffs on imports from China and a 25 percent tariff on imports from Canada and Mexico.[2]  The tariffs would go into effect on 1 February 2025. 

“He’s a fake!” chortled Never-Trump pundits in early January 2025.[3]  He campaigned on levying tariffs of 10-20 percent on all imports from everywhere.  Now the President-elect is talking about focused tariffs on a few things.  Others took a more nuanced view.  This is his second term, so people have become accustomed to his “bluster.”  More than likely, he talks about tariffs in order to “squeez[e] out some concessions.”[4]

            In the eyes of critics, there are two different issues here.  The first is economic warfare against China.  America’s aggressive rival[5] has some serious weak spots.  Most noticeably, these include “a spiraling property market, perilous local government finances, a shrinking labor force, and brittle consumer confidence.”[6]  Since the first Trump administration, many American companies have been pulling back from China.  The country is vulnerable to pressure. 

            China hawks felt ambivalent about tariffs.  The very smart Aaron Friedberg,[7] took a hopeful view.  To resist “Chinese mercantilism,” tariffs “in a more targeted, tailored form” can be useful.  Tariffs on everyone else, however, would impede formation of an anti-China alliance.[8]  Meanwhile, China is exploiting every opportunity to build an anti-American alliance.  Why increase the number of volunteers? 

            The second is the tariffs on everyone else.  The tariffs on Mexico and Cananda “could throw American diplomatic relationships and global supply chains into disarray.”[9] 

            What does China do with all the dollars it earns from selling to America? 

[1] “The bottom line,” The Week 24 January 2025, p. 32. 

[2] “Trade: Trump readies tariffs on rivals and allies,” The Week, 31 January 2025, p. 32. 

[3] No, he’s all too real. 

[4] Gabriel Rubin in Reuters, quoted in “Trade: Trump readies tariffs on rivals and allies,” The Week, 31 January 2025, p. 32.

[5] “A toughish lot, but very go ahead, rather like we were in the old days.”—Sam Collins to George Smiley in John LeCarre, Smiley’s People. 

[6] Eswar Prasad in NYT, quoted in “China: Does Trump really want a trade war?” The Week, 17 January 2025, p. 34.

[7] See: Aaron Friedberg – Wikipedia 

[8] Friedberg’s blog at Foreign Policy, quoted in “China: Does Trump really want a trade war?” The Week, 17 January 2025, p. 34. 

[9] Ana Swanson in NYT, quoted in “Trade: Trump readies tariffs on rivals and allies,” The Week, 31 January 2025, p. 32. 

War with China.

Posted on by
Reply

            At the end of the Chinese Civil War in 1949, the defeated Nationalists withdrew from Chinese mainland territories.  Some entered the remote border areas of Laos and Thailand.  Most of them crossed the Formosa Straits to the island of Taiwan.  Here they created their own country. 

The Peoples’ Republic of China (PRC) has never recognized Taiwan as independent.  In similar fashion, it refused to recognize any of the territorial losses during the age of European imperialism.  Where it could do so, it made good its claims: Shanghai and Tibet.  Other places had to wait for their “liberation.”  Recently, China has retaken Hong Kong and Macao.  Now, attention has shifted to Taiwan. 

            As part of President Richard Nixon’s “opening to China,” American policy toward Taiwan became more ambiguous.  In 1979, the United States ended diplomatic relations with Taiwan while re-establishing them with the PRC.  In 1982, the Reagan administration said that it would not pursue “a policy of ‘two Chinas’ or [of] ‘one China, one Taiwan’.”  All subsequent administrations have made clear American opposition of a declaration of independence by Taiwan.  They have believed that such a declaration would trigger an invasion by the PRC.  If that happened, then the United States might be drawn into a wart with China.  This would upset many apple-carts.[1]  So, American policy effectively has been to trust in the eventual evolution of the PRC toward the kind of society which Taiwan would willingly join.[2] 

            For the United States, the situation is more complicated than before.  For one thing, some serious observers of military affairs doubt that the United States now could win a conventional war with China in the Western Pacific.  Rearmament and rebuilding the defense industrial base could take some time.  What id China pounces before then?  For another thing, there is a suspicion that China’s aims extend well beyond merely regaining “lost” territory.  Taiwan forms the center of what strategists call the “first island chain” cutting off China from easy access to the Pacific.  Japan and the Philippines are the two other links in the chain, but it is anchored at either end by South Korea and Vietnam.  What if the Chinese determination to “restore” Taiwan forms merely an entering wedge for a larger plan of aggression?  For yet another thing, Taiwan has become a major industrial economy.  In particular, it is home to the Taiwan Semi-conductor Manufacturing Company (TSMC if you want to go check the contents of your IRA).  Chinese rule would both mark a further shift in the balance of power and harm America’s economy. 

            In 2023, the CIA assessed that Xi Jinping had instructed military leaders to “be ready [to invade Taiwan] by 2027.”[3]  In mid-December 2025, the navy of the PRC carried out maneuvers in the waters around Taiwan.  The 90-ship group was, in the view of the Taiwanese military, practicing a “blockade exercise.”[4]  Blockade would be one way of bringing Taiwan to its knees.  Bombing would be another.  Invasion—amphibious and airborne–would be yet another. 

            All this is worth public discussion.  Now and not later.  We don’t have much “later.” 

[1] See David Sacks in While Pledging to Defend Taiwan from China, Biden Shifted on Taiwan Independence. Here’s Why That Matters. | Council on Foreign Relations 

[2] See: Wilkins Micawber.  Sounds like goofy American optimism, until you consider the alternative. 

[3] “The World at a Glance,” The Week, 14 February 2025, p. 9. 

[4] “The World at a Glance,” The Week, 20 December 2024, p. 9. 

“The System Is Blinking Red” 3.

Posted on by
Reply

            In 1989-1990, the Soviet Union collapsed.  With it went the credibility of autarkic, centrally-planned economies.  Determined to maintain its monopoly on power, the Communist Party of the Peoples’ Republic of China hastened to adopt a new course.  It opened China to the global market and capitalist methods.  Essentially, use foreign-supplied capital and technology to become the workshop of the world.  Start by making cheap simple stuff, then climb up the ladder.  Pull its people out of impoverished rural life into urban prosperity.  Pull China out of Developing Country status into global power. 

American business and political leaders took an optimistic view of these developments.  China would be a cheap producers of consumer goods for Western markets, raising living standards for Western peoples by lowering costs.  China would become a consumer of high-end  Western products and expertise.  An economic revolution in China would create a growing—and increasingly assertive—middle class.  This would nudge China toward political democracy.[1]  Naturally, there would be some job losses suffered in the West.  Experience with the rise of Japan in the 1970s and 1980s showed that displaced workers would shuffle into new jobs. 

In 2001, China won admission to the World Trade Organization.  Many restrictions on Chinese exports were removed.  Things did not work out as planned.  China moved much faster than expected and on a much larger scale than had been expected.  “Many U.S. manufacturing towns couldn’t compete.”[2]  Factories downsized.  Manufacturing shrank as a source of employment in many towns.  Some workers were laid off, but most were attritted through retirement.  They were not replaced.  Most of the displaced workers were White and Black men without a college education. 

Then, it seemed, the hard-hit areas bounced back.  They didn’t return to the original state.  Instead, “affected areas recover[ed] primarily by adding workers to non-manufacturing who were below working age when the shock occurred.  Entrants are disproportionately native-born Hispanics, foreign-born immigrants, women, and the college-educated, who find employment in relatively low-wage service sectors such as medical services, education, retail, and hospitality.”[3] 

Readers may question the argument that “towns” came back, while “workers” did not.  “Those communities experienced higher unemployment, lower wages, higher use of food stamps, higher disability payments, higher rates of single parenthood and child poverty, and elevated mortality.”[4]  Would make a good movie if John Sayles was still working.[5] 

The natural response is to connect all this distress to the rejection of globalism and—eventually—to the rise of Donald Trump.  What stands out, though, is the failed hopes of the people who set China policy and their failed sense of social solidarity when the choices they made had a harmful impact on ordinary people.  Now US AID is on the block. 

[1] That’s how it had worked in Western Europe in the 18th and 19th Centuries.  Why wouldn’t it be the same with China? 

[2] Justin Lahart, “How ‘China Shock’ Upended U.S. Workers,” WSJ, 5 February 2025.  Lahart is reporting on a National Bureau of Economic Research working paper by David Autor, et al. 

[3] Places versus People: The Ins and Outs of Labor Market Adjustment to Globalization | NBER 

[4] Justin Lahart, “How ‘China Shock’ Upended U.S. Workers,” WSJ, 5 February 2025. 

[5] See: “Sunshine State” (2002) and “Casa de los babys” (2003).   

ChiMerica 5.

Posted on by
Reply

            For decades after the death of Mao Zedong, China’s national policies were set by Deng Xiaoping and his like-minded successors.  China opened itself to the world, carried out major reforms, and pursued rapid economic growth.  An enhanced international power would surely come as a result of these policies.  Yet, it seemed to many foreign observers, that China would progressively integrate itself into a larger world system.  These hopes have been abridged.

How should we understand Xi Jinping, leader-for-life of contemporary China?  A recent book on Xi’s political thought as revealed in his speeches and writings cast some light on the issue.[1]  Xi possesses—or is possessed by—vast ambition for China.  He aims at the “rejuvenation” of his country by a Leninist dictatorship.  He wants to return China to its one-time status as the greatest nation in the world.  On the one hand, Xi’s aims mean asserting the power of the Communist Party as the guide of the nation in all political and economic matters.  He found the Chinese Communist Party demoralized by a loss of purpose.  He found it riddled with corruption.  Xi’s anti-corruption campaigns began by purging many of his enemies or rivals, but they seem not to have stopped there.  Xi’s reassertion of party primacy gives him a powerful lever to guide and to mobilize the Chinese people.   

On the other hand, Xi’s aims require displacing the United States from its long role as guardian of what might be called “American Asia”: Japan, South Korea, Taiwan, the Philippines, and Vietnam.  As one of the means to this end, China has carried out a massive military build-up.  China has been asserting its claim to the South China Sea as a kind of Chinese lake, rather than an open international waterway. 

            Xi’s ambition is bad for the United States and bad for the states of “American Asia.”  Among these states, Japan serves as the linch-pin of the American position and it is a natural bete-noire for Xi.  Japan’s brutal behavior in Asia during the Second World War gives Xi’s propaganda a lot to work with in mobilizing Chinese opinion.  China’s battering of the fishing fleets and coast guards of the peripheral states around the South China Sea aims at controlling one of Japan’s main lines of trade. 

            Xi has been at this for a dozen years.  He has set his target date for the completion of China’s rejuvenation as 2050.  The end date is well after Xi will have shuffled off the scene.  He has been working hard to instill “Xi Jinping Thought” as the guiding ideology for his country. 

            The United States has been struggling to respond to the new China.  The presidential transition from the Democrat Joe Biden to the Republican Donald Trump requires a review of the essential questions.  How widely understood is the seriousness of China’s challenge?  Can anyone craft a plan for a successful response to China’s challenge?  Is it possible for the United States to mobilize the military and diplomatic resources needed to meet the challenge?   

            Countries close to China seem to profess the most confidence in the American alliance.  Perhaps they have no choice but to believe it.  Countries farther away in Southeast Asia are more skeptical.  One theory is that the evident inadequate level of American military power gives them pause.  So, is America bluffing when it claims that it will support its allies?  If so, then Asian countries will spot that like a leopard spots a limp. 

[1] Steve Tsang and Olivia Cheung, The Political Thought of Xi Jinping (2025), brought to my attention by Walter Russell Mead, “Does Biden Take China’s Threat Seriously?” WSJ, 9 April 2024. 

The Middle Kingdom Commission on Higher Education.

Posted on by
Reply

            It can be difficult to conduct normal academic research in contemporary China.  The country is a Communist dictatorship, even more so under Xi Jinping than under his immediate predecessors.  Information is tightly controlled.  The rising tensions with the West, and especially with the United States, make people both suspicious of and suspect from close contact with Westerners. 

            As a result, much of the most insightful work relies upon personal experience or interviews with a few people willing to talk in some depth about their own experiences.[1]  Such personal experience and observation can cast light upon larger institutions.  Thus, two recent books agree that China’s educational system remains as it was in the 1990s: “competitive, repetitive, [and] test-focused,” requiring “intense powers of focus…to succeed.”  The exams begin early in elementary school and continue through high school.  Then there are the exams for college admission.  All the exams open—or close—the paths to success in many areas.  Parents worry that their children will fall by the wayside.  Often, they pay for supplemental instruction, either in-person or on-line to buff up their children’s chances of success.  That makes for long hours of hard work for both parents (to earn the money for the courses) and the children (who grind through the lessons).[2]  Failure traditionally means a life of blue-collar industrial work.  Sewing pants and shirts in a sweat-shop for the American market, for example. 

            Is such a system “good” for Chinese society in general and for the students themselves in particular?  Well, it gives China a lot of highly qualified human capital in whatever areas the government values.  If it is engineers, scientists, and economists, then it serves the needs of a society in the course of economic development.  China’s economic performance over the last half century has been remarkable.  People who perform poorly on the exams provide some of the less-skilled labor to man the factories. 

            It is more of an open question about how well the system fills the needs of the students.  Part of the difficulty in assessment is that most American students don’t work as do elite Chinese students.  So it is natural to respond “Yikes!”  Then, American education isn’t very well attuned to the “needs of society” being more important than the desires of students.  That isn’t the same thing as students not being well attuned.  They generally want good jobs and are alert to signals from the market.  Hence, there are a lot of business majors and nurses in training.  The colleges and universities fall into line in the desperate struggle to stay afloat and avoid being yelled at by parents, donors, and Senators grabbing a sound-bite.  Yet the United States seems to fall behind at producing engineers and scientists, while over-producing lawyers. 

            Education is one area in which Communist Party control remains clear.  There is always the possibility that rigid institutions will generate resentment and resistance.  Keeping the lid on works.  Until the temperature inside rises enough to cause a boiling over. 

[1] See Maura Elizabeth Cunningham, “China’s Education Grind,” WSJ, 13-14 July 2024.  Cunningham reviews Peter Hessler, Other Rivers, and Yuan Yang, Private Revolutions. 

[2] Many recent immigrants from the Far East to the United States, mostly Chinese and Vietnamese, pursue the same strategy in their new country.  The success rate of such Asian-American students in gaining admission to the selective, exam-based elite high schools in New York City has spawned an ugly backlash.  Parent-of-Other-Color complain about the small numbers of Black and Hispanic students who win admission. 

The Woes of China 2.

Posted on by
1

            China scares people elsewhere, but not only for the reasons that Zi Jinping desires.[1]  In recent decades, infrastructure projects powered much of China’s economic growth.  Now there is a fear that China’s economy will not escape an avalanche of debt incurred to finance those projects.  As part of its effort to build infrastructure, the government centralized the financing of local development and infrastructure schemes.  Yet the central government wanted cities to take the lead in this effort.  Perhaps the theory was that local people know better than a remote bank what opportunities exist in their communities.  At the same time, the central government had traditionally kept a tight leash on borrowing by cities in the form of borrowing limits.  So, where would the money come from if the cities could not issue many more bonds? 

            The solution came through cities borrowing from state-owned Local Government Financing Vehicles (LGFVs).  The LGFVs may be state-owned, but they keep their own set of books.  These are separate from the central government’s books.  The LGFVs borrowed money from state-owned Chinese banks, then re-lent it to local governments all over the country.  The banks lending the money seem to have believed that the government would never let the cities or the LGVFs default because it would wreak havoc on the country’s financial system. 

The trouble is that those local governments did not always know what kinds of real opportunities existed, or they derived income from selling public lands to developers, or they didn’t care so long as they could keep their locals employed.[2]  In any case, the result appeared in massive over-building relative to real demand.  Since 2022, China’s real estate market has been slipping downward. 

            How much money is involved?  It’s hard to tell for sure.  Economists estimate that it is between $7 trillion and $11 trillion.  (For comparison’s sake, the debt of the Chinese national government is estimated to be $4-5 trillion.)  A big chunk of that debt—around $800 billion–is in the shadow of default.  

            There seems to be a fair amount of mutual back-scratching: many LGFVs guarantee the debts of other LGFVs even when both are heavily indebted; and some park their own assets with other LGFVs when their financial stability is being assessed.[3]  Now central government officials are showing up in localities carrying a lot of debt.  They are demanding to know “What in the Wide, Wide World of Sports is going on here?”[4]  There mere presence seems to be paralyzing projects already under way. 

            “Well, let them go bankrupt: serve them right and teach everybody a good lesson,” would say theorists of capitalism.  The thing is that another capitalist slogan holds that “Small debts are a problem for the borrower; big debts are a problem for the lender.”  If the local governments default, then either the government has to step in with a bail-out or the banks have to write-down the loans.  In the latter case, in particular, the result would be a tightening of credit throughout the economy.  That might be hard to contain. 

[1] Brian Spegele and Rebecca Feng, “Trillions in Hidden Debt Threaten China,” WSJ, 15 July 2024. 

[2] One local government official has been arrested and charged with spending the borrowed money on “political vanity projects.” 

[3] See: The Sting (1973) – Paul Newman card trick – YouTube 

[4] Blazing Saddles ( Kansas City Faggots ) (youtube.com) 

China and Demography.

Posted on by
Reply

            Beginning in the 1960s, China’s population began to rise sharply.  By the 1970s, China found itself caught in a demographic “scissors”: population was rising faster than the economy was growing.  A growing population collided with a relatively stagnant economy.  Eventually, living standards would be forced down.  Moreover, an extended period of child-care for multiple children restricted China’s ability to mobilize women into the paid-labor force.  In 1980 Deng Xiaoping announced the “One-Child Policy” as part of the solution to this problem.[1]     

            The policy shifted many women into the paid-labor force at a time when China sought to prioritize economic growth.  The share of the population of working age people grew substantially in comparison to the share of the population of non-working age people.  Basically, that means children and retirees.  More labor became available for more years.  Huge numbers of Chinese between the ages of 20 and 64 flooded into the work that became available thanks to China’s opening to the West.  Double-digit economic growth rates followed.  That is, it worked! 

            There seems not to be available a source that tells us what the government decision-makers anticipated would happen over the long-term.  Worrying about what might happen many years down-range from some action taken today can paralyze action. 

            Today is the down-range of the many-days-ago.  What did happen?  The One-Child Policy shifted the age composition of the population.  Now, China’s population has a shrinking number of working-age people.  Women make up half of the working age population.  As a result, China also has a shrinking number of child-bearing age women.  China’s total population will fall.  A United Nations report projects that China’s population will shrink from 1.42 billion in 2024 to 639 million in 2100.[2]  Logically, there will be far fewer workers, anywhere from half as many to 60 percent fewer.  Thus, demographers anticipate that the most serious effects of this shift will not be felt for another 20 to 30 years. 

            Nor will they be felt in equal measure by other important countries.  For example, in terms of total population, in 2024 it is estimated that there are 1.42 billion Chinese and 344 million Americans; by 2100 there will be 639 million Chinese and 321 million Americans.  That is, China will go from having four times as many people as the United States to having twice as many.  The U.N. estimates that 31 percent of Chinese will be aged 65 or older by 2050; and 46 percent by 2100.  In contrast, the share of over-65s in the American population will by only 23 percent in 2050 and 28 percent in 2100.  That means that in 2100 China could have 345 million people under the age of 65, while the United States could have 248 million. 

            Zi Jinping appears to harbor grand ambitions for China.  China looks like it will have fewer workers, fewer consumers, fewer scientists, fewer engineers, and fewer soldiers.  The human basis of those great ambitions will slowly erode. 

            Will this foster a sense of desperation among Chinese leaders, either Zi in the immediate future or his successors in the later 21st Century?  There are ways to adapt to changing conditions.  You just have to be willing to do it. 

[1] Liyan Qi and Ming Li, “China Pays Price for Its One-Child Policy,” WSJ, 12 July 2024. 

[2] However, in 2022, the same U.N. office predicted China’s population would fall to 766.7 million people by 2100.  That’s a 128 million-person difference.  Another projection says that China will have 525 million people by 2100.  It’s not that the demographers are incompetent.  It’s just that getting reliable information out of China can be tricky. 

Great Power Conflict in the Far East.

Posted on by
Reply

            Ah, the 1990s!  The Soviet Union collapsed; its Eastern European subject states escaped from Communism; the Peoples’ Republic of China got religion in the form of a transition to capitalism (if not democracy); and all sorts of places junked much of the state-centered economic system that they had established during the Cold War.  Thereafter, China became increasingly tightly bound to the West.  It imported capital, technology, and “know-how” in exchange for cheap manufactured goods.  Meanwhile, the old Soviet Union came apart like a leper in a hot tub, while Russia itself plunged into corruption and economic chaos.  The United States employed its victory to push forward the boundaries of the “one right way”: free markets, an open world economy, democracy, human rights, and cultural freedom. 

            What a difference thirty years makes.  First, the economic component (labelled “globalization”) is under attack and in retreat.  Second, the political component (democratization, human rights) has not developed at the pace expected by many people.  (The unfulfilled promise of the economic and political components explains much about the flood of migrants from authoritarian developing countries into democratic developed countries.)  Third, the post-Cold War American-dominated world politico-economic system is under attack.[1] 

            At the heart of the matter lies China.  Zi Jinping’s “Belt and Road” initiative envisions building strong bonds, at the least, with surrounding countries.[2]  On the one hand, it means a focus on Central Asia.  On the other hand, it means domination of the little countries around the South China Sea.  Eventually, it may mean entirely driving the United States out of the Far East.  In the meantime, Russia’s war against Ukraine and Iran’s disruption of the Middle East pre-occupy the United States. 

            Vladimir Putin has been pursuing the resurrection of Russian power for two decades.  To this end he has used political manipulation, the fostering a Eurasian economic community among former members of the Soviet Union, the disruption of American policies in the Middle East, and war.  He has sought to escape isolation by tightening Russia’s relations with China, North Korea, and Iran.[3] 

            All through the Cold War, India was “neutral” on the side of the Soviet Union and at odds with China.  The Sino-Soviet conflict worked to India’s advantage.  Then the collapse of the Soviet Union and China’s post-Mao economic and military transformation left India adrift.  Now, the working alliance between China and Russia leaves India in a more awkward position. 

            Real conflicts still divide China and Russia.  Putin’s desire to reunite the old Soviet Union (or recreate the Tsarist Empire) run cross-wise to Zi’s ambitions in Central Asia.  Putin’s recent tightening of relations with North Korea intrudes on an area of Chinese interest.  Putin’s recent visit to Vietnam may have vexed Zi because Vietnam is one of those nations around the South China Sea that China hopes to dominate. 

            No one should expect these conflicts to disrupt cooperation between China and Russia in the near term.  First they have to topple the Americans. 

[1] Walter Russell Mead, “Asia’s New ‘Game of Thrones’,” WSJ, 9 July 2024. 

[2] See: Belt and Road Initiative – Wikipedia; or Jane Perlez and Yufan Huang, “Behind China’s $1 Trillion Plan to Shake Up the Economic Order,” NYT, 13 May 2017. 

[3] All of which serve as “enablers” of his war against Ukraine. 

Red Hot China 20 July 2019.

Posted on by
Reply

Something I wrote in early 2011, but never posted.

The good news.  China has made extraordinary progress.  Between 1980 and 2010 the Chinese economy grew at an average rate of ten percent per year.  The massive expansion of wealth and comparatively well-paid employment has lifted half a billion people out of poverty in a nation of 1.3 billion people.  China has conquered world markets in all sorts of things.  To take an extreme example, sixty percent of the clothes manufactured in the world are manufactured in China.  Ten years ago a million people graduated from university.  This year six million people graduated.

The bad news.  Progress has come at a cost.  First, China’s economic growth has been driven by exports rather than by an expansion of domestic demand.  On the one hand, this makes China’s economy highly sensitive to down-turns in the world market.  The 2008-2011 recession pushed down Chinese exports by ten percent and forced the closing of 100,000 factories (which involved laying off 30 million people).  Sustained economic growth will depend on a global economic revival.  On the other hand, wages and living standards for most Chinese remain extremely low.

Second, China’s environment has been devastated by rapid industrialization.  China has lots of coal, so it burns it for energy.  Half the rivers are severely polluted.  Drinkable water is running short.  China is home to 16 of the world’s 20 cities with the worst air quality.

Third, contemporary China resembles to 19th Century Europe: there are great and obvious disparities of wealth; poverty-stricken peasants flood into raw new cities which are unready to receive them; and an educated class is being created faster than are jobs for them to fill.

What does the future hold?  That is hard to say.  The government responded to the global recession with a stimulus plan substantially larger than the one approved by the United States (“We are all Keynesians now,” as Richard Nixon said, but apparently some are more Keynesian than others).  The government is allowing wages to rise in order to create more domestic demand and to improve living standards.  The government has announced a commitment to spending over $400 billion to develop green technologies by 2020.  At the same time, there is much discontent.[1]

The average Chinese faces a lot of insecurity.  There’s virtually no old-age pensions; the one-child policy has ended up forcing one child to care for two parents and even for four grandparents, but the kids don’t have the means or the time; private schools are much better than the public schools; public health care is lousy; there’s no unemployment insurance; there is no system of farm price supports, so price or harvest fluctuations can devastate the income of peasants.  For all these reasons, the Chinese save—rather than consume–about a third of their after-tax income.  In most countries, about 70 percent of GDP goes to consumption; in China only 36 percent is consumed.

A further problem arises from the enormous profits of the State Owned Enterprises.  These are re-invested, rather than distributed as dividends, as would be the case in most places.  The result is the creation of excess productive capacity while consumer incomes are held down.  This is a prescription for disaster at some point.  One solution would be to either privatize the SOEs or to heavily tax their profits and shift them to consumers through payment or social security systems that reduced their own need to save.[2]

[1] “The cracks in China’s engine,” The Week, 8 October 2010, p. 15.

[2] Nouriel Roubini, “The Confucian Consumer,” Newsweek, 24 January 2011, p. 31.