Last month, China posted the largest trade surplus for a 30-day period ever recorded by any country in history. As Michael Pettis summarizes it: “The net result was an astonishing $101.3 billion trade surplus, once again China's (and the world's) highest ever monthly trade surplus. China's trade surplus year to date is 57% higher than last year's record trade surplus, and amounts to 5% of China's GDP.”
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.
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.
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.
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.
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.
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.
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.
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!
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/