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Articles on China after 2010
The Rare Earths Wars
China is facing reality
Is the USA dumping China?
China's unfair trade war
The Chinese purges
Articles about China before 2010

  • (october 2010)
  • (october 2010) The Rare Earths Wars. Rare earths are 17 elements that are essential to manufacture all sorts of high-tech gadgets. The biggest producer is mainland China and the biggest consumer is Japan. No surprise that 90% of rare earths used by the Japanese multinationals come from China. In june Japan and China argued about a group of islands that both claim. Japan seized a Chinese vessel that entered those waters. China responded by banning exports of rare earths to Japan. China denies that the two events are related by one must be really naive to believe it is a mere coincidence.
    China, however, has its own reasons. It owns only 30% of the known reserves of rare earths but it produces 90% of what is sold today. At this pace it will deplete its reserves in a decade or two. China correctly points out that the USA imposes restrictions on which goods its companies can sell to China (notably high-tech weapons and in general devices that can be used to manufacture such weapons) in an obvious attempt to limit China's power: so why shouldn't China do the same to other countries? The USA actually does not export its rare earths at all: it considers them as strategic as oil. At the same time the USA is threatening sanctions against China if China did the same. (Another reason why rare earths are not mined in the USA is that they tend to cause massive environmental problems, which most communities are not willing to tolerate, while Chinese peasants have no say in what their government decides to mine).
    If you were Chinese, you would think that a) China is selling its rare earths too cheaply, and b) maybe China should sell them only as bargaining chips. That's precisely what the Chinese leadership is coming to realize. Rare earths might become as important as oil, and, ultimately, they might be used as a weapon of sorts.
    Japan did not waste time: within a few weeks in november 2010 it signed a deal with Vietnam to build nuclear reactors there in exchange for Vietnam's rare earths.
    TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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  • (feb 2010) China is facing reality. The George W Bush era was China's era the same way that the Ronald Reagan era was Japan's era. The USA president conducted economic policies that triggered an economic boom in Asia by encouraging massive imports at the expense of USA manufacturers. Whether those policies were good or bad for the USA is still being debated, but they were certainly beneficials to turn poor Asia countries into economic superpowers.
    Japan was smart enough to remain a faithful and obedient USA ally throughout its economic renaissance. China has made the big mistake of becoming more assertive as it got richer, forgetting where its wealth was coming from. The $337 billion worth of exports to the USA alone constitute a little less than 10% of China's GDP. China's economy is growing at a rate of about 8-9%: it doesn't take an economic genius to realize what would happen to China's economic boom if the USA stopped importing goods from China. China's communist party used to call the USA "a paper tiger": there's a country that better qualifies as a "paper tiger", and that's China (no reference to the fact that this is the Year of the Tiger according to traditional Chinese astrology).
    The backlash has been slow in coming, but it is now coming. Obama is not as crazy as Bush was for funding China's boom, given that he has to fix the weakest USA economy in almost a century. And China does not have as many friends in the Obama administration as it had in the Bush administration, which explains why Bush is more popular than Obama in China (See this article).
    The tension starts with the economy but spreads everywhere else. The USA is being de-industrialized by a super-competitive Chinese industry that relies on an artificially low currency (See What went wrong?). Bush was willing to let China get away with it. If Obama is rational, he won't. China's currency needs to appreciate at least 20% if not more. This will inevitably rebalance the trade between the two countries and slow down growth in China. The Chinese leaders are resisting this move because they know what happened to booming Japan when it let the yen fluctuate: 20 years of stagnation. Basically, the USA called the bluff on Japan; and now it might call the bluff on mainland China.
    This is a serious problem also for psychological reasons. The leaders of China have brainwashed their population to think that China now competes as an equal with the USA. The truth is that the GDP of the USA is three times larger: $14.2 trillion vs China's $4.6 trillion. The USA economy dwarfs the Chinese economy.
    An obvious consequence of the relative economic weight is that the rest of the world is aware of what the average Chinese is not aware of: the USA is way more important than mainland China. The rest of the world is also aware of what the leaders of China are trying not to publicize too much: that the USA model has won and Mao's model has lost. China might be a good buyer of commodities in Africa, the Middle East, Asia and Latin America, but all those countries are very aware that ideologically the USA capitalists won and the communists lost. Therefore the influence that China can exert is only based on the money it's willing to spend, not on its ideological credibility.
    In 2009 China was becoming more and more assertive. Now it's the USA's turn to become more and more assertive. First the USA decided to sell advanced sophisticated weapons to Taiwan, that China claims as part of its territory. Then Obama announced that he will meet the Dalai Lama, whom China considers a terrorist (as the leader of Tibet, that China has occupied and annexed). Google finally decided to stand up to Chinese pressures for censorship: if mainland China loses Google, it loses the flow of scientific and technological knowledge that is educating its people and helping fill the gap with the USA. So far China has been able to tap into Western know-how while making sure that its population would not be "distracted" by Western propaganda, but now the USA is basically telling China that one cannot come without the other. China may have to choose whether it wants a closed world in which the government will have to replace the unlimited encyclopedia that comes with the Internet or an open world in which the Chinese people can read everything that is on the Internet (including a lot of embarrassing viewpoints on mainland China).
    For a decade the USA has mostly ignored the issue of "climate change", and Obama has done little in practice to reverse his predecessor's polluting policies. However, the moment China became the biggest polluter in the world the USA became very vociferous about the need to avoid "climate change". Whatever is decided in that framework is likely to cost dearly to mainland China.
    So 2010 will be the Year of the Tiger. It just might not be the "tiger" that Hu Jingtao had in mind.
    TM, ®, Copyright © 2010 Piero Scaruffi All rights reserved.
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  • (january 2010) Is the USA dumping China? A number of apparently unrelated events may represent more than mere coincidences. The USA has finalized a sale of Patriot antimissile rockets to Taiwan. Any military support of Taiwan is likely to upset mainland China, that considers Taiwan a breakaway province, and a sale of Patriot rockets (specifically intended to minimize the impact of a Chinese attack) is particularly irksome. In fact, Chinese media have emphasized the event with outrage. Next, the USA announces that president Obama will meet not only with the president of Taiwan (which would normally be enough to trigger a diplomatic protest by mainland China) but even the Dalai Lama, whom the Chinese consider a terrorist (it's a bit like China's president inviting Osama bin Laden over for tea). And then, after years of merely trying to appease the Chinese government, Google declares that is ready to pull out of mainland China is the Chinese government insists on censoring the results of Google's searches. It might be a coincidence, but all of these amount to a coordinated campaign to irritate China without triggering a real war.
    The real question, though, is not why the USA is doing this, but rather why the USA was not doing this before. After all, the USA has always openly supported the capitalist democracy of Taiwan, and morally should certainly side with it against the dictatorship of mainland China. After all, the USA never recognized the Chinese invasion and annexation of Tibet, whose people recognize at their leader the Dalai Lama. After all, the USA believes in freedom of the press and opposes political censorship, notably on the Internet. Why wasn't the USA doing this before?
    The reason could be that the Bush administration had a policy of involving mainland China in foreign affairs and in the international economy that the Obama administration may be rethinking. During the Bush era, the thinking was that mainland China was useful to negotiate with North Korea and indispensable to impose crippling sanctions against Iran. Economically, China was useful to keep inflation low with its low-cost exports, and was useful to maximize the profits of USA corporations that moved operations to China.
    All of these factors could become obsolete if:
    • North Korea has become more friendly towards the USA after Bill Clinton's visit
    • The USA has decided on a new course about Iran and is no longer interested (primarily) in passing sanctions
    • The USA has witnessed the downside of low inflation (the low cost of money caused the financial crisis)
    • The Obama administration sides with the USA workers against the USA corporations that want to export jobs abroad
    • The USA has decided that it is in the interest of the USA that the Chinese currency increases in value
    The North Korean regime has indeed changed its tone. It has even announced that it will allow more USA tourists to visit its country. A breakthrough in the negotiations might be close, or, at least, the USA might feel that the North Korean regime is no longer prone to confrontation.
    The USA's strategy towards Iran is still murky. The USA didn't even openly support the protests following the rigged Iranian elections. However, there are signs that the USA might be opening a new front: luring Iranian scientists out of the country. In january 2007 Ardeshir Hassanpour, a nuclear scientist, was mysteriously assassinated. An investigation by Italian reporters seems to point towards a political motivation: he was planning to defect to the USA. In may 2009 Shahram Amiri, another nuclear scientist, disappeared during a pilgrimage to Saudi Arabia. His whereabouts are unknown. The Iranian government indirectly admitted that he might have defected to the USA when it accused the USA of "kidnapping" the scientist (which, incidentally, might also be a valid suspicion). In january 2010 nuclear physicist Masoud Ali Mohammadi was assassinated, and, again, stories are circulating that he was close to the opposition and may have wanted to defect or, worse, to spy for the USA. There seems to be a strategy at work here: instead of bombing nuclear facilities that are spread all over the country and would probably provoke nationalist feelings among the population, the USA (or Israel or both) might have decided to cripple Iran's nuclear program by enrolling or kidnapping or assassinating its nuclear scientists. If this were the new strategy, then the USA might be less interested in United Nations sanctions against Iran, and therefore China's leverage within the Council would be greatly diminished.
    Economically there is more and more awareness that the policies of the 1990s and 2000s caused the evils that now haunt the USA economy. On one hand cheap Chinese goods helped keep inflation in check. On the other hand cheap Chinese cost of labor helped ship millions of jobs out of the USA. This at a time when the USA is probably not particularly opposed to higher inflation (higher inflation would lower the cost of USA debt). At the same time more and more economists as well as developing countries are calling for the USA to crack down on China's unfair trade war by forcing it to reevaluate its currency or by imposing tariffs on Chinese goods.
    The harmony of the Bush era might be rapidly turning into acrimony, and mainland China might have to relearn who the real superpower is.
    TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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  • (january 2010) China's unfair trade war. China has become an economic superpower, and is now the second if not the first exporter in the world. Simple economics dictates that its currency should be the strongest in the world. Instead it is still the currency of a poor country. That's because the Chinese governments artificially keeps its value low by buying huge amounts of dollars and euros. China has accumulated more than $2 trillions of foreign-exchange reserves.
    The low remimbi is hurting both the developed world and the underdeveloped world. The USA is de facto being deindustrialized by China, as more and more goods are manufactured there. There has been a net transfer of manufacturing power and know-how from the USA to the Far East, and most notably in recent years towards mainland China (when this phenomenon was directed towards Taiwan, South Korea and Japan, it was less severe from a political point of view because at the time all three countries were de facto USA colonies).
    The low remimbi is also hurting the other Asian manufacturing countries because they too have trouble competing with Chinese companies. Companies from Malaysia to Sri Lanka are being kicked out of business. The low remimbi is also devastating the economies of the non-manufacturing developing countries: they sell China the raw materials that Chinese factories desperately need and, in return, China floods their markets with cheap manufactured goods that send local artisans out of business.
    The developed world has long accepted this attitude because cheap Chinese goods helped keep inflation low during times of economic recovery when prices would have normally increased. (Indirectly, though, this helped create a bigger problem, because it encouraged low interest rates which in turn encouraged excessive borrowing which in turn caused the financial crisis of 2008).
    China, of course, is pursuing its own economic interests. They are implementing their own version of an imperial policy. They don't care about the Chinese consumer, whose worthless remimbi can't buy foreign goods (or even a vacation abroad). They only care for an ever expanding economy that is, de facto, just one huge multinational turning raw materials from Africa, Central Asia, Arab world and Latin America into finished goods to be sold to Europe, North America and everywhere else.
    China is also mindful of what happened to Japan when it obeyed similar pressures from the USO in the 1980s to let the yen fluctuate: Japan's economy then entered a 20-year stagnation.
    The unfair currency practices of China invite protectionism, which is exactly what the Chinese government is complaining about but is also precisely the direct consequence of their actions. There is no reason why the USA should not impose protectionist measures against Chinese goods proportional to Chinese intervention to keep its currency low. In fact, it goes against the USA's national strategic interests not to do so. The USA desperately needs to find a way to resurrect its ailing economy, and exports are just about the only way out (See my article What went wrong?).
    Other countries could exert their own kind of pressures. For example, most of the oil that China imports from the Middle East is transported through the Straits of Melaka. One wonders what China would do if all USA oil imports had to go through one of its straits.
    TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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  • (january 2010) The Chinese purges. In a short period of time the government of mainland China has removed from power four employees of the British-Australian mining giant Rio Tinto, Huang Guangyu, China's second richest man, Rixin Kang, the chief of China's nuclear power agency, Chen Tonghai, the chairman the state-owned oil company Sinopec, the chief of Beijing's Capital Airport (who was later executed), and the former mayor of Shenzhen (one of the most "capitalistic" cities).
    Mainland China has a tradition of low-profile purges that end up changing the course of the country.
    In the meantime the government of mainland China has executed (not just arrested) the leaders of the latest Uighus insurrection, and sentences to 11 years in prison one of the most famous dissidents, Liu Xiaobo.
    Basically China is cracking down on both ends of the spectrum that could slow down its economic progress: the corrupt or inefficient officials who run the economy and the troublemakers who want to have a political discussion.
    TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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  • Articles about China before 2010

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TM, ®, Copyright © 2015 Piero Scaruffi All rights reserved.