The US has absolutely no problem with corruption, internally (which is perfectly legalized and with recent changes in laws, impossible to challenge in courts due to the the language inserted in laws) and especially externally.
US had absolutely no problem with the massive corruption and the innordinate outflows of money from Russia prior to Putin and from China prior to Xi Jinping. However, when they started tackling corruption, they suddenly became autocrats.
Here is a different perspective on the corruption in China, where people still celebrate the act of protest of a bureaucrat from hundreds of years ago, who committed suicide to make a point: https://www.unz.com/article/corruption-in-china/
Hong Kong IS Chinese territory and this is undisputable. The protests from a couple of years ago weren't for democracy but as a refusal to be incorporated into One China system, from a security and safety perspective, which was supposed to happen soon after 1997.
The corrupt administration in HK, who still serves the tycoons, is well and hearty, haven't been touched by Beijing.
As in the US, the same in the rest. Living in the Anglosphere, I had my fair share of dealings with the government and its issues, from inside and outside. My polity definitely did not have a law abiding government or parliament, last time I checked. I lost my war with them but I managed a victory: due to fortuitous circumstances (an existing scandal), I forced the Parliament to replace the existing corrupt Merit Commissioner. But I was the exception there...
I am not trying here to defend China as the perfect place. We are humans and thus imperfect. However, I cannot take the level of hypocrisy, self-righteousness and exceptionalism emanating from the west, which only pays lip service to identifying problems in its own political system and peddles its values as they were actually true in fact, and not some normative things that nobody cares about in practice.
"The American Political Economy: Politics, Markets, and Power"
If I or my near ancestors had been engaged in a vicious fight to the death with a large population of very intelligent highly motivated fighters, and now their belligerent core that hated my guts and would happily murder me in my sleep if I gave them cause, were a safe distance from my shores on an easily monitored island, I'd think I was most fortunate and would be grateful for the current state of affairs. I think I'd not poke said hornet's nest with a stick.
It is hard to imagine the weaponry and devilish defenses awaiting MiniMao's suicidal attack squadrons, but, it will be gruesome. Vietnam all over again, only way, way, way worse. Kind of like Ukraine devolving into a typical European artillery slugfest only a touch more dynamic than the Iraq-Iran frontlines I suppose. Talk about inheriting the whirlwind! MaoMao's only hope is to EMP the island in advance of a perfectly orchestrated amphibious blitzkrieg, not that he'd gain much more than a hate filled smoldering ruin once the hand to hand got shaking. My guess is Taiwan is ramping up one-man highly mobile missiles, drones (land and sea), truly wicked new forms of smart-IEDs, and loitering weapons development with an efficiency and speed we in the antiquated States, with our single decaying pre-WWII facility for the sorts of weapons Taiwan will need, can only dream of. On the bright side, the Chinese aggressor fleet will likely create the world's largest artificial reef when it repositions on the sea floor. Taiwan will have a fantastic fishing industry and tourist scuba diving attraction once the noxious chemicals leech away. But that's only if the Chinese attackers are lucky. If they are unlucky their initial forces will gain a foothold and the ghost of Vietnam wars past will be summoned forth. It will be something to observe how the Taiwanese handle their mainland sympathizers compared to the Ukrainians.
Yup. I'd leave well enough alone. But what do I know. Cheers.
Or China can just blockade Taiwan, who needs food, energy, and raw materials to survive, never mind supporting the economic activity. Also, Taiwan lives out of exports, which also would tank.
Which companies do you think would send their ships, and which insurers would insure ships and cargoes if shooting starts?
A month of blockade and the Taiwanese would bring down their government for one that is less pro-independence...
That's the puzzle isn't it? If is a matter of "just blockade", then why hasn't China already done it? We know their stated reasons aren't worth spending ink on. A blockade will almost certainly trigger a shooting war and eliminate any surprise advantage. It will give nationalists in Taiwan plenty of time to 'round up' collaborators, lay in booby traps and mobilize international support. If the blockade happens tomorrow, then gets called off in a few weeks or months there will be no turning back for Taiwan when it comes to getting serious about ramping up autonomous missile, drone, and IED tech. The other small states in the region will be galvanized into taking sides and arming up. The Chinese fought with the Vietnamese for something like 700+ years as I recall. How'd that work out? The Taiwanese are busy building even more revenue streams out of Xi's reach. Naval blockades don't work so well when the opposing side has matching forces. So it's a reasonable assumption that many women and children will still be able to leave. Not unlike the incredible exodus the world watched on their TV's after Peter The Great Incompetent was resurrected from centuries past in Russia. Only different this time ;) Likely, Xi's windows are closing fast. But one thing will never change. The minds of dictators and authoritarians quickly turn to mush as the paranoia over their fear of dethronement consumes them in modern times just as much as in the past. Nor has the ultimate retribution seemed to have diminished for the power mad and their immediate family. It has just gotten worse for them (and everyone else that loves power and walking outside under open skies I suppose) as Hellfire's are quickly evolving into the 'old' sci-fi short film "Whistle" weapon. Ask the Taliban. Duncan Jones directed and David Bowie is credited with the sound track. Enjoy.
Why not done yet? Because China has expressed for long the intention to re-unify by peaceful means. But that seems to have escaped you.
But the US intention to maintain primacy and hobble competitors by any means, hook but mostly crook. And thus, the US pushes the non issue of Xinjiang as well as Honk Kong and now Taiwan, to stir trouble.
And a military blockade is not that difficult to impose. Look what is being done with Yemen nowadays. You Think that Taiwan's population would accept a government that would bring that to such a situation? For what? In fact such questions have resurfaced in a serious way after China started its military drills all around the island last week. A serious shooting match btw Taiwan and China would stop all commercial traffic and that would be very damaging to Taiwan, much much more than for China.
How about I peacefully inform you I'm going to incorporate you and all that is yours under my domain? How about I just take, or as you say "re-unify", what you have worked for and call it mine? Blockading Yemen is an idiotic comparison as it has little to do with implementing a naval blockade of Taiwan. You obviously are a Chinese troll wannabe who has apparently at least grasped that the overt "wolf" tactics do not work in relatively open societies, but, that doesn't make your polemics any less a waste of time. What makes you so obviously an amateur provocateur is your fervency to drive home your political and ideological agenda. It makes you tedious and boring. I suppose you get 'paid' by the word rather than results.
You forget that both China and Taiwan governments, since 1949, have claimed the whole territory of China as their domain, and that Taipei hold the Chinese UN SC seat until 1970s...
Your propaganda seem to rely on burring the past entirely and is more like a script coming from Orwell. Likely you, as the German security apparatus, are prepared to regard population protesting against blackouts and immiseration as Russian stooges and traitors...
I find the analysis biased in a particular sense. Why is China described as ideologically inflexible when the US is the one that is inflexible from an ideological perspective? Why use the term Xi regime when Xi administration would be more appropriate? We don't see mentions of Biden or Obama regime...
Truth be told, US presidents do not matter in a Plutocratic regime like the US has (as solidly demonstrated by academic research) where pragmatism, as Mr. Tooze sees it is in fact the "Go die" dictum used by Lambert at Naked Capitalism.
A common definition of regime is "a government, especially an authoritarian one". I believe that by almost any measure, China is considered significantly more authoritarian than the United States.
Who makes these measures? Who makes these definitions What are the basis of these measures and definitions?
The networked oligarchic system in the US with its deep collaboration between the state (security, military, judicial, and political arms) and private corporations especially media, gives the appearance that US is not authoritarian. I give you Julian Assange...
Could these measures and definitions you are asking for possibly be made by people living in the respective countries? (Or does only Julian Assange's opinion count?) Many Chinese seek US or Canadian or EU citizenship. Do you know many Americans, Canadians, or Europeans seeking Chinese citizenship?
The level of competition in China being insane, it is no wonder that people seek calmer pastures in other countries. We wouldn't stand a chance in such an environment.
And remember how good was the rating of the financial sector in the US prior to 2007 financial disaster. The same principles apply to everything else.
Adam, I think you might enjoy/profit from reading David P.Goldman in Asia Times a fortnight ago, on where specifically China's globalizing attentions have turned to, -namely the Global South :
I think that this is making a mountain out of a mole hill. The 100 billion in trade surplus is a rounding error relative to China’s overall foreign asset holdings, and despite all the piecemeal anecdotes of foreign investors deplaning some of their holds on Chinese assets not much has really changed in the gross picture. If China simple stops growing from this point on then of course all of those investments will eventually unwind, but the attractiveness of the Chinese market to foreign capital, even with geopolitical pressures as a looming factor, is largely still going to be dictated by how well the Chinese economy continues to improve on their own production capacity and production efficiency, a process that has long stopped being singularly dependent on foreign capital flows, and which is now predominantly and primarily driven by China’s own capital generation capacity from its domestic economic activities. Regardless of how “ideologically rigid” Xi is perceived to be the ultimate objective and target of his reforms is that production improvement picture, and that is what Xi’s “ideological” bent will be adjusted around as China’s policymakers calibrate their reforms for effect. What ultimately matters in terms of foreign capital movements in and around China is that long term gross picture, not simply short term net balance, especially as Chinese firms become their own takers of foreign assets as they do business abroad, rather than simply be recipients of foreign capital. The analysis behind this expression of concern is to put it in polite terms a lot of tail wagging dog. The gap in capital efficiency between Chinese and foreign sources is simply put nowhere near what it was twenty years ago, and so the commensurate effects from foreign capital movements in China’s capital account is simply not going to be as consequential.
And to that thought about “as Chinese firms become their own takers of foreign assets as they do business abroad, rather than simply be recipients of foreign capital”…
Think this observation might also contain an interesting story here about just who in fact is responsible for driving a large share of diversification away from the Chines supply chain…
Super interesting. Taiwan has a lot of reference material available to it by way of how Chinese leaders handled the integration of Hong Kong. Originally espousing the “one-China, two-systems” approach, the more recent crack-down on the pro-democracy movement in Hong Kong strongly suggests the unlikeliness of tolerance for a separate center of political or economic power in Taiwan.
There really can be no illusions now about that.
The Russian invasion of Ukraine has obviously increased tensions in a global scale. I don’t necessarily believe the escalation was exclusively on the Russian side, but there is no doubt Russia has revealed its authoritarian brutality on the worlds stage. It’s doubtful China sees any wisdom in such an open repressive response to pressures in regard to its stance on Taiwan. But recent efforts by the Biden administration to ramp up pressure on China on Taiwan, will likely cause China to act more boldly than it would otherwise. China is not Russia. As with Hong Kong, it would probably prefer to “unite” with Taiwan using more carrots than sticks, then gradually, after dominating the economic and political infrastructure, asserting more authoritarian control. So the invasion of Ukraine has accelerated strategies and tactics in all fronts. It appears to have the effect of accelerating the polycrisis and “super-wicked problems”, thereby reducing the time for thought between provocation and response.
With respect the the significance of export surplus as a symptom of the problem, might it also be a kind of blessing as a safely valve for their domestic economic problems? At least their is something to counter the domestic crisis. Not sure, but if they didn’t have exports, wouldn’t it be an even worse situation? Doesn’t the strength of exports and foreign investment returns, at least in the short run, offer some wiggle room while they problem solve the larger, more long-term challenges? It’s not good, but maybe better than the alternative.
The "democratic" push in HK actually tried to undermine the One China part of the equation, which was not formalized until Beijing passed the National Security Law after the quelling has subsided. That law was supposed to be passed by HK since 1997, according to the Basic Law, but it wasn't.
Leadership of students in HK rubbing heads with US security elements really didn't help the idea of democracy promotion, same as waving US and UK flags...
I appreciate the points you make. But, as with Ukraine, you can't really blame democratic forces for allying with the US as a tactical matter. Since the 1989 Tiananmen Square protests, the CCP has become more and more corrupt and authoritarian. The joke in China when Deng Xiaoping took over in 1978, was "Deng Xiaoping says the back door has been closed (corruption)--yes, but the walls have all collapsed!" Given this direction, it seems justifiable that Hong Kong democratic forces would try to hold on to a direction more toward independence from China than to lose ground. They needed to find a strong ally (as does Ukraine). I don't blame either of them for this. I understand the democracy movement in Hong Kong had some unsavory aspects, but really, is any movement against the take over by a more powerful nation ever perfect? If you speak with young Chinese students here in the US, you will find them also longing to go more in the direction of greater political freedoms. The surveillance in China makes our Homeland Security look like a birthdate party.
Unfortunately the US is not the beacon of democratic freedoms we would hope for either and is facing profound challenges in the upcoming election and beyond. But relative to China, it's an understatement to say it's preferable. I hope we are strong enough to stand up to the erosion of our own democratic institutions and human rights, rather than going more in the directions of China.
One should hope that foreigner investors will look at China more critically. I have watched China for decades, as an an investor, and I never could believe how naive investors and companies have been about getting involved in China. There has been this illusion, which people still, that the Chinese really are capitalists deep down and that they will allow foreigners to make gobs of money. China is a totalitarian state. The CCP’s main concern is staying in and will do what it takes to stay there. Moreover, China’s strategy has been to take (or steal) from outsiders so that it can one day dominate.
The fatal flaw in China, and in other communist and centrally planned economies, is that they fear the free flow of information that needs to take place in the economy that is necessary for innovation, progress, and for constant weeding out of poor performers. It is no wonder that the economies all over the world are in poor shape. The US is certainly strangling it’s economy by allowing companies to gain so much power through oligopolies and near monopolies. China certainly is held back by it’s SOE’s and by it’s suspicion of any company that flaunts it’s power to think it is above the direction of the government - Jack Ma and Alibaba are the poster children for that.
So, yes, foreign funds are leaving the Chinese market, but for how long? Foreigners are just far too glassy eyed about all the money they could make there. Hank Paulson and Wall Street in general are drooling at the idea of having a piece of the Chinese.
Now, the real question is this all going to play out. There a case to be made that the world is headed into a period when capital will be destroyed by the excesses allowed since China entered the WTO. Nonetheless, the bigger problem is if the Chinese really do pull back and isolate how are the huge surpluses of foreign, most US, fixed income holding going to be handling. In the 1980’s everyone worried about Japan’s huge holdings of foreign, but they never have liquidated them. China has I believed studied very carefully the fallout from the Japanese joint stock market and real estate bubble and is keen to avoid a deflationary spiral. Japan was the to enter the demographic bust. Second, Xi clearly looks at the US economy and recognizes the problems here of massive corruption and the elevation of Wall Street’s power, which has led to the destruction of the long term strength of American business. China has it’s wealthy elites, but they are very keen to provide the Chinese people with the feeling that the society is equal. What makes China fascinating is that the CCP’s long term power is based on the implicit deal with the Chinese people that the CCP will provide higher and higher standards of living in exchange for it’s power. Now that GDP is stalling at the level where countries truly move from being a developing country to developed country it’s a very dicey time.
So what do we have? It seems that Xi is trying to keep too many balls up in the air. By cracking down on corruption and real estate prices and industries like cram schools, he is trying to mollify the masses, second, he is cutting the legs off any companies who think they are independent. The huge push in surveillance and in propaganda is all about totalitarian control. Xi has not figured out how to get what he wants for China, which are resources, without raising even more suspicions about China’s true intentions. Xi could in fact see the long term solution to the resource problem is turning commodity rich Russia into a vassal state. Truly Russia is nothing but for it’s resources.
How this all plays out is anyone’s guess. My fear is that China, having grown super fast without having type of economic setback to clear out dead and poor performing assets and investments, is sitting a huge bad debt bubble that has to be addressed as it cannot be carried for evermore. It has overinvested in assets and has not been successful in building a domestic consumption base. Now, it is losing it’s competitive advantage as a low cost producer, it’s demographics are a killer, and so China is essentially a world disabling force because it’s financial asset build up could be used to devastate the world’s economy. One should never forget the culture of China and it’s resentment of having it’s empire being squelched by the west.
I think that we are in transitional time worldwide and the biggest potential 💣💣💣’s are in China and we really do not know the half of it
Thanks Adam. Appreciate the thoughtful analysis! Have been a fan of Mr. Pettis for some time so glad to see him mentioned as a source. Curious how you would put this in the context of Peter Zeihans recent take on China's near term future.
I truly question how China can expect to put Xi up for a 3rd term when they appear to be facing a self-orchestrated economic collapse? But then Putin has survived for 20 years.
The US has absolutely no problem with corruption, internally (which is perfectly legalized and with recent changes in laws, impossible to challenge in courts due to the the language inserted in laws) and especially externally.
US had absolutely no problem with the massive corruption and the innordinate outflows of money from Russia prior to Putin and from China prior to Xi Jinping. However, when they started tackling corruption, they suddenly became autocrats.
Here is a different perspective on the corruption in China, where people still celebrate the act of protest of a bureaucrat from hundreds of years ago, who committed suicide to make a point: https://www.unz.com/article/corruption-in-china/
Hong Kong IS Chinese territory and this is undisputable. The protests from a couple of years ago weren't for democracy but as a refusal to be incorporated into One China system, from a security and safety perspective, which was supposed to happen soon after 1997.
The corrupt administration in HK, who still serves the tycoons, is well and hearty, haven't been touched by Beijing.
As for the representative democracies, the question is, who do they represent? Obviously not the public: https://www.ineteconomics.org/research/research-papers/predicting-united-states-policy-outcomes-with-random-forests
As in the US, the same in the rest. Living in the Anglosphere, I had my fair share of dealings with the government and its issues, from inside and outside. My polity definitely did not have a law abiding government or parliament, last time I checked. I lost my war with them but I managed a victory: due to fortuitous circumstances (an existing scandal), I forced the Parliament to replace the existing corrupt Merit Commissioner. But I was the exception there...
I am not trying here to defend China as the perfect place. We are humans and thus imperfect. However, I cannot take the level of hypocrisy, self-righteousness and exceptionalism emanating from the west, which only pays lip service to identifying problems in its own political system and peddles its values as they were actually true in fact, and not some normative things that nobody cares about in practice.
"The American Political Economy: Politics, Markets, and Power"
If I or my near ancestors had been engaged in a vicious fight to the death with a large population of very intelligent highly motivated fighters, and now their belligerent core that hated my guts and would happily murder me in my sleep if I gave them cause, were a safe distance from my shores on an easily monitored island, I'd think I was most fortunate and would be grateful for the current state of affairs. I think I'd not poke said hornet's nest with a stick.
It is hard to imagine the weaponry and devilish defenses awaiting MiniMao's suicidal attack squadrons, but, it will be gruesome. Vietnam all over again, only way, way, way worse. Kind of like Ukraine devolving into a typical European artillery slugfest only a touch more dynamic than the Iraq-Iran frontlines I suppose. Talk about inheriting the whirlwind! MaoMao's only hope is to EMP the island in advance of a perfectly orchestrated amphibious blitzkrieg, not that he'd gain much more than a hate filled smoldering ruin once the hand to hand got shaking. My guess is Taiwan is ramping up one-man highly mobile missiles, drones (land and sea), truly wicked new forms of smart-IEDs, and loitering weapons development with an efficiency and speed we in the antiquated States, with our single decaying pre-WWII facility for the sorts of weapons Taiwan will need, can only dream of. On the bright side, the Chinese aggressor fleet will likely create the world's largest artificial reef when it repositions on the sea floor. Taiwan will have a fantastic fishing industry and tourist scuba diving attraction once the noxious chemicals leech away. But that's only if the Chinese attackers are lucky. If they are unlucky their initial forces will gain a foothold and the ghost of Vietnam wars past will be summoned forth. It will be something to observe how the Taiwanese handle their mainland sympathizers compared to the Ukrainians.
Yup. I'd leave well enough alone. But what do I know. Cheers.
Or China can just blockade Taiwan, who needs food, energy, and raw materials to survive, never mind supporting the economic activity. Also, Taiwan lives out of exports, which also would tank.
Which companies do you think would send their ships, and which insurers would insure ships and cargoes if shooting starts?
A month of blockade and the Taiwanese would bring down their government for one that is less pro-independence...
That's the puzzle isn't it? If is a matter of "just blockade", then why hasn't China already done it? We know their stated reasons aren't worth spending ink on. A blockade will almost certainly trigger a shooting war and eliminate any surprise advantage. It will give nationalists in Taiwan plenty of time to 'round up' collaborators, lay in booby traps and mobilize international support. If the blockade happens tomorrow, then gets called off in a few weeks or months there will be no turning back for Taiwan when it comes to getting serious about ramping up autonomous missile, drone, and IED tech. The other small states in the region will be galvanized into taking sides and arming up. The Chinese fought with the Vietnamese for something like 700+ years as I recall. How'd that work out? The Taiwanese are busy building even more revenue streams out of Xi's reach. Naval blockades don't work so well when the opposing side has matching forces. So it's a reasonable assumption that many women and children will still be able to leave. Not unlike the incredible exodus the world watched on their TV's after Peter The Great Incompetent was resurrected from centuries past in Russia. Only different this time ;) Likely, Xi's windows are closing fast. But one thing will never change. The minds of dictators and authoritarians quickly turn to mush as the paranoia over their fear of dethronement consumes them in modern times just as much as in the past. Nor has the ultimate retribution seemed to have diminished for the power mad and their immediate family. It has just gotten worse for them (and everyone else that loves power and walking outside under open skies I suppose) as Hellfire's are quickly evolving into the 'old' sci-fi short film "Whistle" weapon. Ask the Taliban. Duncan Jones directed and David Bowie is credited with the sound track. Enjoy.
Why not done yet? Because China has expressed for long the intention to re-unify by peaceful means. But that seems to have escaped you.
But the US intention to maintain primacy and hobble competitors by any means, hook but mostly crook. And thus, the US pushes the non issue of Xinjiang as well as Honk Kong and now Taiwan, to stir trouble.
And a military blockade is not that difficult to impose. Look what is being done with Yemen nowadays. You Think that Taiwan's population would accept a government that would bring that to such a situation? For what? In fact such questions have resurfaced in a serious way after China started its military drills all around the island last week. A serious shooting match btw Taiwan and China would stop all commercial traffic and that would be very damaging to Taiwan, much much more than for China.
How about I peacefully inform you I'm going to incorporate you and all that is yours under my domain? How about I just take, or as you say "re-unify", what you have worked for and call it mine? Blockading Yemen is an idiotic comparison as it has little to do with implementing a naval blockade of Taiwan. You obviously are a Chinese troll wannabe who has apparently at least grasped that the overt "wolf" tactics do not work in relatively open societies, but, that doesn't make your polemics any less a waste of time. What makes you so obviously an amateur provocateur is your fervency to drive home your political and ideological agenda. It makes you tedious and boring. I suppose you get 'paid' by the word rather than results.
You forget that both China and Taiwan governments, since 1949, have claimed the whole territory of China as their domain, and that Taipei hold the Chinese UN SC seat until 1970s...
Your propaganda seem to rely on burring the past entirely and is more like a script coming from Orwell. Likely you, as the German security apparatus, are prepared to regard population protesting against blackouts and immiseration as Russian stooges and traitors...
Begone evil.
I find the analysis biased in a particular sense. Why is China described as ideologically inflexible when the US is the one that is inflexible from an ideological perspective? Why use the term Xi regime when Xi administration would be more appropriate? We don't see mentions of Biden or Obama regime...
Truth be told, US presidents do not matter in a Plutocratic regime like the US has (as solidly demonstrated by academic research) where pragmatism, as Mr. Tooze sees it is in fact the "Go die" dictum used by Lambert at Naked Capitalism.
A common definition of regime is "a government, especially an authoritarian one". I believe that by almost any measure, China is considered significantly more authoritarian than the United States.
Who makes these measures? Who makes these definitions What are the basis of these measures and definitions?
The networked oligarchic system in the US with its deep collaboration between the state (security, military, judicial, and political arms) and private corporations especially media, gives the appearance that US is not authoritarian. I give you Julian Assange...
Could these measures and definitions you are asking for possibly be made by people living in the respective countries? (Or does only Julian Assange's opinion count?) Many Chinese seek US or Canadian or EU citizenship. Do you know many Americans, Canadians, or Europeans seeking Chinese citizenship?
The level of competition in China being insane, it is no wonder that people seek calmer pastures in other countries. We wouldn't stand a chance in such an environment.
And remember how good was the rating of the financial sector in the US prior to 2007 financial disaster. The same principles apply to everything else.
Adam, I think you might enjoy/profit from reading David P.Goldman in Asia Times a fortnight ago, on where specifically China's globalizing attentions have turned to, -namely the Global South :
https://asiatimes.com/2022/07/sino-forming-of-global-south-passes-point-of-no-return/
Best, Clemens S. Ostergaard, Copenhagen
I think that this is making a mountain out of a mole hill. The 100 billion in trade surplus is a rounding error relative to China’s overall foreign asset holdings, and despite all the piecemeal anecdotes of foreign investors deplaning some of their holds on Chinese assets not much has really changed in the gross picture. If China simple stops growing from this point on then of course all of those investments will eventually unwind, but the attractiveness of the Chinese market to foreign capital, even with geopolitical pressures as a looming factor, is largely still going to be dictated by how well the Chinese economy continues to improve on their own production capacity and production efficiency, a process that has long stopped being singularly dependent on foreign capital flows, and which is now predominantly and primarily driven by China’s own capital generation capacity from its domestic economic activities. Regardless of how “ideologically rigid” Xi is perceived to be the ultimate objective and target of his reforms is that production improvement picture, and that is what Xi’s “ideological” bent will be adjusted around as China’s policymakers calibrate their reforms for effect. What ultimately matters in terms of foreign capital movements in and around China is that long term gross picture, not simply short term net balance, especially as Chinese firms become their own takers of foreign assets as they do business abroad, rather than simply be recipients of foreign capital. The analysis behind this expression of concern is to put it in polite terms a lot of tail wagging dog. The gap in capital efficiency between Chinese and foreign sources is simply put nowhere near what it was twenty years ago, and so the commensurate effects from foreign capital movements in China’s capital account is simply not going to be as consequential.
https://twitter.com/adamkwolfe/status/1557365054802116614?s=12&t=Sux7w-T8PRfM4rg1W0IdDA
And to that thought about “as Chinese firms become their own takers of foreign assets as they do business abroad, rather than simply be recipients of foreign capital”…
Think this observation might also contain an interesting story here about just who in fact is responsible for driving a large share of diversification away from the Chines supply chain…
Super interesting. Taiwan has a lot of reference material available to it by way of how Chinese leaders handled the integration of Hong Kong. Originally espousing the “one-China, two-systems” approach, the more recent crack-down on the pro-democracy movement in Hong Kong strongly suggests the unlikeliness of tolerance for a separate center of political or economic power in Taiwan.
There really can be no illusions now about that.
The Russian invasion of Ukraine has obviously increased tensions in a global scale. I don’t necessarily believe the escalation was exclusively on the Russian side, but there is no doubt Russia has revealed its authoritarian brutality on the worlds stage. It’s doubtful China sees any wisdom in such an open repressive response to pressures in regard to its stance on Taiwan. But recent efforts by the Biden administration to ramp up pressure on China on Taiwan, will likely cause China to act more boldly than it would otherwise. China is not Russia. As with Hong Kong, it would probably prefer to “unite” with Taiwan using more carrots than sticks, then gradually, after dominating the economic and political infrastructure, asserting more authoritarian control. So the invasion of Ukraine has accelerated strategies and tactics in all fronts. It appears to have the effect of accelerating the polycrisis and “super-wicked problems”, thereby reducing the time for thought between provocation and response.
With respect the the significance of export surplus as a symptom of the problem, might it also be a kind of blessing as a safely valve for their domestic economic problems? At least their is something to counter the domestic crisis. Not sure, but if they didn’t have exports, wouldn’t it be an even worse situation? Doesn’t the strength of exports and foreign investment returns, at least in the short run, offer some wiggle room while they problem solve the larger, more long-term challenges? It’s not good, but maybe better than the alternative.
Truly challenging times on a global level!
The "democratic" push in HK actually tried to undermine the One China part of the equation, which was not formalized until Beijing passed the National Security Law after the quelling has subsided. That law was supposed to be passed by HK since 1997, according to the Basic Law, but it wasn't.
Leadership of students in HK rubbing heads with US security elements really didn't help the idea of democracy promotion, same as waving US and UK flags...
I appreciate the points you make. But, as with Ukraine, you can't really blame democratic forces for allying with the US as a tactical matter. Since the 1989 Tiananmen Square protests, the CCP has become more and more corrupt and authoritarian. The joke in China when Deng Xiaoping took over in 1978, was "Deng Xiaoping says the back door has been closed (corruption)--yes, but the walls have all collapsed!" Given this direction, it seems justifiable that Hong Kong democratic forces would try to hold on to a direction more toward independence from China than to lose ground. They needed to find a strong ally (as does Ukraine). I don't blame either of them for this. I understand the democracy movement in Hong Kong had some unsavory aspects, but really, is any movement against the take over by a more powerful nation ever perfect? If you speak with young Chinese students here in the US, you will find them also longing to go more in the direction of greater political freedoms. The surveillance in China makes our Homeland Security look like a birthdate party.
Unfortunately the US is not the beacon of democratic freedoms we would hope for either and is facing profound challenges in the upcoming election and beyond. But relative to China, it's an understatement to say it's preferable. I hope we are strong enough to stand up to the erosion of our own democratic institutions and human rights, rather than going more in the directions of China.
One should hope that foreigner investors will look at China more critically. I have watched China for decades, as an an investor, and I never could believe how naive investors and companies have been about getting involved in China. There has been this illusion, which people still, that the Chinese really are capitalists deep down and that they will allow foreigners to make gobs of money. China is a totalitarian state. The CCP’s main concern is staying in and will do what it takes to stay there. Moreover, China’s strategy has been to take (or steal) from outsiders so that it can one day dominate.
The fatal flaw in China, and in other communist and centrally planned economies, is that they fear the free flow of information that needs to take place in the economy that is necessary for innovation, progress, and for constant weeding out of poor performers. It is no wonder that the economies all over the world are in poor shape. The US is certainly strangling it’s economy by allowing companies to gain so much power through oligopolies and near monopolies. China certainly is held back by it’s SOE’s and by it’s suspicion of any company that flaunts it’s power to think it is above the direction of the government - Jack Ma and Alibaba are the poster children for that.
So, yes, foreign funds are leaving the Chinese market, but for how long? Foreigners are just far too glassy eyed about all the money they could make there. Hank Paulson and Wall Street in general are drooling at the idea of having a piece of the Chinese.
Now, the real question is this all going to play out. There a case to be made that the world is headed into a period when capital will be destroyed by the excesses allowed since China entered the WTO. Nonetheless, the bigger problem is if the Chinese really do pull back and isolate how are the huge surpluses of foreign, most US, fixed income holding going to be handling. In the 1980’s everyone worried about Japan’s huge holdings of foreign, but they never have liquidated them. China has I believed studied very carefully the fallout from the Japanese joint stock market and real estate bubble and is keen to avoid a deflationary spiral. Japan was the to enter the demographic bust. Second, Xi clearly looks at the US economy and recognizes the problems here of massive corruption and the elevation of Wall Street’s power, which has led to the destruction of the long term strength of American business. China has it’s wealthy elites, but they are very keen to provide the Chinese people with the feeling that the society is equal. What makes China fascinating is that the CCP’s long term power is based on the implicit deal with the Chinese people that the CCP will provide higher and higher standards of living in exchange for it’s power. Now that GDP is stalling at the level where countries truly move from being a developing country to developed country it’s a very dicey time.
So what do we have? It seems that Xi is trying to keep too many balls up in the air. By cracking down on corruption and real estate prices and industries like cram schools, he is trying to mollify the masses, second, he is cutting the legs off any companies who think they are independent. The huge push in surveillance and in propaganda is all about totalitarian control. Xi has not figured out how to get what he wants for China, which are resources, without raising even more suspicions about China’s true intentions. Xi could in fact see the long term solution to the resource problem is turning commodity rich Russia into a vassal state. Truly Russia is nothing but for it’s resources.
How this all plays out is anyone’s guess. My fear is that China, having grown super fast without having type of economic setback to clear out dead and poor performing assets and investments, is sitting a huge bad debt bubble that has to be addressed as it cannot be carried for evermore. It has overinvested in assets and has not been successful in building a domestic consumption base. Now, it is losing it’s competitive advantage as a low cost producer, it’s demographics are a killer, and so China is essentially a world disabling force because it’s financial asset build up could be used to devastate the world’s economy. One should never forget the culture of China and it’s resentment of having it’s empire being squelched by the west.
I think that we are in transitional time worldwide and the biggest potential 💣💣💣’s are in China and we really do not know the half of it
Thanks Adam. Appreciate the thoughtful analysis! Have been a fan of Mr. Pettis for some time so glad to see him mentioned as a source. Curious how you would put this in the context of Peter Zeihans recent take on China's near term future.
I truly question how China can expect to put Xi up for a 3rd term when they appear to be facing a self-orchestrated economic collapse? But then Putin has survived for 20 years.
Adam, you might also find this work on the cultural front interesting. Cheers!
https://sffilm.org/event/what-about-china/