Sunday, December 18, 2022

China's Future Remains Cloudy And Uncertain (Part 2)

China's impact on the global economy is too large to ignore. Growth in China has stalled over recent years, with China exiting the covid-19 restrictions expectations of increased demand for several commodities are on the rise. Increasing steel production means China would need more iron ore. Citi Group reports this could drive iron ore prices from its previous price of $110 to as high as $150 a ton by June 2023. Now and then we see stories about how China is expanding its influence on the African continent and in other parts of the world. This is tied to China's need for natural resources and represents another potential source of conflict.

China Is Now Building Cutting-Edge Weaponry  

While America focuses on demonizing Russia, China's military-industrial complex sells arms to rebels and pariah states. These weapons are generally "low-end" and sold to almost anyone who pays cash with no restrictions. Chinese weapons have been used extensively in conflict zones across the world by terrorists and dictators. As the United States, Russia, and other countries battled ISIS, a study showed the biggest proportion of their weapons were made in China. Around 43 percent of arms captured from ISIS were Chinese-made, compared to 1.8 coming from America. 

China also has a currency problem. As China's debt service rises expect the yuan to weaken and create a serious balance of payment challenge. The Center for Global Development highlighted in a report entitled Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective, the problem of extending credit to poor or unstable countries. It has been pointed out that as many as 23 countries could be prone to “debt distress.” This group includes Pakistan, Djibouti, the Maldives, Laos, Mongolia, Montenegro, Tajikistan, and Kyrgyzstan which were rated in the “high risk” category. Many poor African countries share this trait. 

If countries default on loans from China it is possible that OBOR could become a massive expensive bridge to nowhere. With that in mind, it is very possible that in coming years China may find the projected explosion of the African continent's population a "pesky" problem that conflicts with China's interest. Call it racism or self-preservation but it would be wise for African nations to remember that racism and tribalism are not qualities limited to western culture. Throughout history, a lack of respect for the indigenous people in areas being developed has resulted in them being displaced or worse. An example is the fate of the American Indians that were not only pushed off their land but also killed in huge numbers.

Several Factors Are Having A Major Influence Over China

  • Covid lock-down / extended control over the masses
  • The collapse of the housing market and its effect on China's middle-class
  • Geo-political posturing has set China on an inflexible course forward

Understanding the core nature of China is important to comprehend the lack of flexibility ingrained in their system. China is still very much a communist country, and the Chinese Communist Party (CCP) controls everything. From indoctrinating children with Party slogans to requiring companies with more than 50 employees to have Party liaisons, the military and other areas of the country have similar programs. This is why we should be cautious.

China’s Great Internet FireWall is considered the largest, most extensive, and most advanced Internet censorship regime in the world. It censors content critical of the Chinese government or contrary to Communist Party policy. It is key to the suppression of the masses, part of this is about "group think." All this flows into an overt system dedicated to the social engineering of society. The idea that people think alike and how it shapes the individual and society is generally unappealing to Americans.

The Zero Covid policy China has adopted to "protect" its citizens and eliminate Covid-19" has included boarding people up in their apartments, attacking people trying to escape, all those fun things fascists like to do. For decades China has been pushing its people towards a more "homogeneous way of thinking." Without a doubt, China is far less polarized and divided than America where people seem unable to agree on much of anything. The Chinese people, however, appear far more accepting of what they are told but are also unwilling as individuals to take personal responsibility for much of anything.
This Is Why Americans Are Worried

Until recently, China’s growth has been explosive, many take this as an indication China has the capability to reshape the international order. This is why Washington now regards China as its biggest and most formidable strategic adversary and Americans are now putting things in their proper geopolitical context. China has no intention of being locked into producing low-end manufacturing of basic goods but is determined to move into high-tech products.

China is our rival and China's state-run economy is based on a business model that is geared to expand by crushing the competition. China's plan centers around both state-owned and private firms investing in and acquiring foreign companies to steal their technological innovations. Subsidizing those companies working within its system in a multitude of ways helps China achieve this goal. Countries that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and America and the rest of the world are their prey. 

Circling back to the dilemmas facing China, it could be argued that much of the pain China has been experiencing is self-inflicted. The country suffers from a mix of corruption, malinvestment, and the hidden economic cost that result from governments intervening too deeply in the free market system. China's options are more limited than most people think. If China embarks on issuing a wave of new credit that lowers the value of the yuan it could result in a crisis in Asia. In 1994 china devaluated its currency by 50%, doing so today would send a signal to the world of just how weak China is. 

The massive devaluation of the CNY in January 1994 from 5.8210 to 8.7219 created a favorable exchange rate environment for exporting goods from China. How much this helped as a whole is less clear. Today a weaker yuan and recession in China would most likely result in a wave of defaults. This also means that China could see many of its government entities go bankrupt and let equity holders take a hit. This does not paint an inspiring picture of a powerful empire on the rise but rather of a weak self-centered giant staggering along without broad support.

No account of China's direction and strategy to get there would be complete without a comment on how China's path forward might lead to war. If a war does occur, we can only speculate as to whether China would be victorious or collapse in defeat. With modern warfare comes risk most of us have a difficult time understanding. Hopefully, that is not where all this is heading. The world has enough problems without bringing upon us more death, destruction, and carnage.

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Footnote; Part 1 of this article can be viewed using the following link.

1 comment:

  1. The link below takes you to a video focused on just how poor many of the promises China has made are being kept. China is not the answer.