All the news not fit to print
Email | Back to History | Back to the world news | Home | Support this website

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

Articles on China after 2012
China is a colony of the USA
Democracy vs Confucius
Articles on China before 2012

  • (november 2012) China is a colony of the USA. When talking about China-USA relations, most commentators begin by pointing out that the USA owes China a trillion dollars (not quite, but let's keep it simple). While this is technically true (China has been purchasing the debt of the USA year after year), it would help to restate it as "The USA funds China's GDP". The USA has been the main contributor to China's growth after the end of the Cold War just like it was the main contributor to Western Europe's growth and to Japan's growth after World War II. In all three cases (Western Europe, Japan, China), growth would have been much slower if the USA had not absorbed a sizeable percentage of the exports of those countries. The products in question were mostly low-tech products that the USA was happy to import instead of producing.
    Countries like Germany and Japan eventually managed to develop high-tech economies and become relatively independent of the USA. However, notice that they entered a prolonged period of stagnation or low growth and that, even today, the slightest (economic) cold in the USA inevitably translates into a major (economic) flue in Western Europe and Japan. The dependence is still there, albeit less pronounced, and, on the other hand, those economies have stopped growing the way they used to. China is in the first stage of that evolution: it exports low-tech products to the USA (the kind of products that the USA is happy not to make anymore) and it grows rapidly thanks mainly to those exports. It has not entered the high-tech stage yet. When a country reaches the high-tech stage, its currency also matures (or, better, the USA does not tolerate anymore that the currency is kept artificially low), and the country has to stand a lot more on its own. There is literally no country in the world except for Russia (and small communist countries like Cuba and North Korea) that stands on its own, that can do without the USA. Russia has historically been separated from the economy of the USA, and still is. Every other major country in the world depends heavily on the USA: it "borrows" know-how from the USA, it obtains capitals from the USA, it exports its products to the USA. The entire world (and especially China) depends on the innovation, on the capital and the market of the USA. Therefore, when one looks at the money that the USA owes China, one is really looking at the "favor" that the USA is doing China. That money is the very money that keeps the Chinese economy going. The USA does this for multiple reasons (last but not least, to fund its own growth), but that's another story. So far, China has been a beneficiary of the generosity of the USA, not the other way around. Whether China's growth continues or not depends in part on its own decisions (check how Western Europe self-destroyed with its reckless policies), but also on what the USA decides to do with China. The viceversa is not true. If the economy of the USA collapses, China's economy will suffer tremendously. If the Chinese economy collapses, the only people who will notice in the USA are the ones who invested in Chinese business and in the Chinese stock market (it will certainly take a toll on the Dow Jones index).
    The bottom line is that the Chinese economy depends on the economy of the USA a lot more than the economy of the USA depends on China. The most likely outcome of the next few years is that China will not be able to keep prices low and this will slow its exports (there are countless countries around the world that will be able to keep their prices lower). On one hand its currency will be forced to fluctuate (just like the USA did to Japan in 1985, an event that marked the beginning of the long Japanese stagnation), and on the other hand labor will demand higher wages, not to mention the fact that China's demand will keep pushing the prices of commodities up. For example, wages in China have already increased to the point that Mexico is becoming very appealing for companies based in the USA: in 2000 the Mexican manufacturing worker was five times more expensive than its Chinese counterpart, but in 2012 the Mexican is only 30% more expensive; and that's not counting the cost of shipping goods from China and Mexico to the USA (a cost that is clearly lower in the latter case) nor the time that it takes to ship those goods (months versus days). It used to be that China could offer better infrastructure and a better educated workforce, but now the infrastructure of countries like Brazil and Chile is as good as the Chinese one, and Mexico graduates more engineers than Germany. Economists routinely explain that China needs to create a consumer economy. Good luck with that: Japan is still struggling now with that goal, and China's population is infinitely poorer than Japan's.
    That is another problem that China has and the USA does not have. The biggest social problems that the USA has and that could erupt in armed revolts are the Tea Party and the Occupy Movement. Neither is likely to cause much harm to the nation. China, instead, is facing all sorts of subterranean discontent: widespread poverty in the majority of the country (outside of the main cities and even in the suburbs of the big cities), ethnic tensions that never went away (and not only in Tibet and in the Muslim far west), resentment against political corruption, and a pro-democracy movement that keeps quietly expanding. If any of these elements turns violent, the world will learn overnight how fragile the Chinese economy is.
    It is not clear how much it matters today that most countries control the circulation of content but this certainly still matters for ecommerce and in general for interconnecting businesses: the USA is the one that invented, deployed, spread and still controls the evolution of a worldwide infrastructure called Internet without which you're cut off from globalization.
    Incidentally, the job of running the Chinese economy (and the Chinese state in general) is often in the hands of managers and politicians who were trained in the USA. If they were trained in China, it is likely that they had at least one teacher who was from the USA. Yes: just like in many other allies and de facto colonies of the USA around the world. In 2010 nearly 130,000 Chinese students were enrolled in schools in the USA, a 30% increase from the year before (note that 2010 was the peak of the Great Recession for the USA). It is just a matter of time before the very top of the Chinese hierarchy will include someone with a PhD from the USA.
    Then there is the widely reported rearmament program, that feeds the fear that soon the world will be bipolar, with the USA and China confronting each other militarily like the Soviet Union and the USA used to do during the Cold War. This is far-fetched to say the least. China does not have a single soldier in the Americas, nor in Europe. In fact, nowhere in its own continent outside of its borders. The USA, on the other hand, has soldiers deployed in Mongolia, Kyrgizstan, Afghanistan, Pakistan, Thailand, the Philippines, a nuclear treaty with China's arch-enemy India, and formal military alliances with Taiwan, Japan and South Korea. It may soon have a base in Uzbekistan (this article) and even Myanmar and Vietnam are rapidly establishing closer ties with the USA. The USA absolutely dominates the Pacific Ocean: not only are some islands integral part of the USA (Hawaii), not only are some islands colonies of the USA (Guam, Eastern Samoa) but most of the others (notably the Marshall Islands, the Federated States of Micronesia, Palau) have tight military connections with the USA, and the two regional powers (Australia and New Zealand) rank among the closest allies of the USA anywhere. China is literally surrounded. It's not only that the Chinese cannot expand in any direction: they can't even escape. If they are an enemy of the USA, they are in some serious predicament.
    So much so that China has actually been a very reliable ally of the USA, perhaps more so than a Western country like France. China has veto right at the United Nations but it has rarely used it against the USA. In most international matters China has reluctantly done what the USA wanted, even tacitly approving the intervention in Afghanistan, Iraq and Libya, and playing a key role in threatening North Korea and Iran. China even tolerates that the USA protects and arms Taiwan, which is technically a runaway province of China. The reason is very simple: the USA has given advanced weapons to Taiwan that would probably cause devastating damage to mainland China if mainland China ever tried to invade Taiwan. Japan could become a nuclear power within weeks, if it wanted to. And both are highly developed countries with technology that mainland China can only dream of: in the event of warfare against Taiwan or Japan, the technological gap would be critical and humiliating.
    Viewed from China, the situation is tragic: the USA is encircling China, is signing treaties with all its neighbors, it maintains a huge naval presence in front of China's coasts, it spies China from the sky, it is even arming a runaway province, and all of this despite the fact that China has been very friendly to the USA. How would the USA feel if China deployed troops in Canada and Mexico, signed military treaties with countries all around the USA, sent warships around the coasts of the USA, and even armed some right-wing separatists of Texas?
    At the same time, China relies on that "encirclement" for the growth of its economy. China's economic boom would be impossible in a turbulent world. China was the main beneficiary of the "pax americana" that the USA military has maintained in the very seas that, commercially, are dominated by Chinese trade. China imports materials from Africa and Latin America, and exports goods everywhere. All of its imported energy has to go through the Malacca Strait (hence its projects to create land routes via Pakistan and Myanmar). This would be extremely dangerous and expensive if the USA did not protect those trade routes from Asia to other continents. Remove the navy of the USA, and global trade would shrink to what it was before the end of the Cold War: the USA trading with Western Europe and its Far Eastern "colonies" (South Korea, Taiwan, Japan).
    We keep hearing that China is the new emerging superpower. What power exactly does this new superpower have? Militarily, virtually none. It can't even scare Vietnam when they yell at each other over some tiny islands. Whenever it behaves like the regional bully, that attitude backfires badly because it sends the neighboring countries into even closer orbits of the USA. The presence of the USA has never been so widespread in the seas that matter to the Chinese, and one reason is that the other countries increasingly want the USA to be there. Whenever China flexes its muscles, it causes its neighbors to welcome more warships from the USA.
    Economically, that power is dubious: it can't pressure anyone, but just about every major economy in the world can pressure China. Culturally, this cradle of ancient civilization is simply absorbing more and more of Western culture, science and philosophy. Even the Chinese languages (Mandarin and Cantonese) are threatened to some extent by the emergence of English as the real second language of the country.
    If China didn't have such a huge population, it would even make sense for it to just federate with the USA. By being such a giant (of population) in a different continent, it generates fears that are, so far, totally unfounded.
    TM, ®, Copyright © 2012 Piero Scaruffi All rights reserved.
    Back to the world news | Top of this page

  • (july 2012) Democracy or Confucius. The scandal that severed the lightning career of Bo Xilai has been interpreted as a prelude to a change of leadership that should be coming to China before the end of the year, with the retirement of Hu Jingtao and the appointment of his anointed successor Xi Jinping (and probably the parallel replacemente of prime minister Wen Jiabao with Li Keqiang). Bo Xilai was a hardline populist, an ideological heir to Mao Zedong. China now seems split in three main currents of thought: the current leadership that tolerates the wealth gap between the very rich (and very few) and the masses in the name of continued economic growth; the populists like Bo Xilai who would like to redistribute wealth; and the democratics like journalist Zhang Musheng (the only one who has a bit of name recognition within China).
    For a long time the West has been engaged in a battle to spread democracy worldwide. It was a strange battle since the Western colonial powers were the ones that had prevented democracy in most of the world, but, after World War II, the USA became the real leader of the West and the West forgot its anti-democratic past and enthusiastically embraced democracy; so enthusiastically that it became a mission to save the world (from tyranny). With hindsight one can see that the main reason to embrace this mission was not idealogical but merely pragmatic: the enemy was the Soviet Union, and they were not at all democratic; hence it made sense to promote an alternative system as a way to curb the expansion of the Soviet Union; so much so that the West did not hesitate to support fascist dictators in Latin America, Asia and Africa as long as that helped the cause of the democratic West against the communist Soviet Union. With hindsight it was not democracy that prevailed over tyranny but simply the USA that prevailed over the Soviet Union, and the reasons can be much more complex than a simple desire for democracy. It is debatable which of the two systems was less loved by its subjects, since the USA and Western Europe lived through at least one decade of massive popular unrest (from the mid 1960s to the mid 1970s). What certainly won was the capitalist economy, and to some extent the appeal of the USA (that remained throughout the 20th century the main destination for emigrants worldwide). Whether democracy was a factor that helped the West or not is actually not so clear. Japan and South Korea (not to mention Singapore and Taiwan) were run by undemocratic regimes throughout the golden years of their economic boom. And one can go back to Hitler and Mussolini who, no matter how demented and genocidal, turned around the collapsing economies of their countries. Therefore the coupling of democracy and economic prosperity is dubious at best.
    Then there is the moral issue. Advocates of democracy proudly defend democracy as the aspiration of all people. They ignore the fact that both Hitler and Mussolini won fair elections, and that (in the age of daily polls) popular will routinely forces governments to do the wrong thing. If the majority of people in my country wanted to burn you alive (for whatever reason), would that be a good reason to burn you alive? You would probably object. This is not a hypothetical question since most ethnic persecutions have been backed by the majority. Hence the will of the majority is not necessarily "good". Democracy per se does not necessarily lead to a more moral world than tyranny. Japan, South Korea, Taiwan and Singapore created some of the most moral societies in the world when they were run by undemocratic regimes.
    Then there is a simple logical issue: does it really make sense to give every person the same right to vote? Why was nuclear power decided in a national referendum in Italy instead of having just the experts vote on it? Would you hold an election and accept the will of the majority if you were on a ship that is sinking? or would you look for the most experienced sailors around and do what they tell you to do? I suspect that all of us would take tyranny in any emergency situation, hoping that the tyrant as long as the tyrant became the tyrant because of his or her competence, and not because of mere brutality.
    Democracy fails to prove itself the best system. It just happens to be the one promoted by the current world power (the USA) and its allies (Western Europe), i.e. by the countries that control 60% of the world's economy.
    There are alternatives, and the West is too quick to dismiss them and demonize them. A classic alternative is the benign enlightened tyrant, best represented today by Vladimir Putin in Russia (the "I know better" model). This is a tyrant who allows for very little criticism but does not resort to truly brutal methods and his record justifies his power. He is "almost" democratic, in the sense that most people would probably vote for him in a democratic election just because he has delivered a better society than the one he inherited even if most people may disagree with his methods. The succession rule in this system is, usually, that the ruler appoints his successor (as Yeltsin did when he appointed Putin).
    Then there is the religious model. If you believe that the most important thing in the universe is God, then you should just live according to the scriptures. Today this is the model endorsed by Islamic movements like Iran, the Taliban and the most extreme members of the Muslim Brotherhood (basically, using shari'a law and having religious authorities interpret it and impose it). I always felt that all theocracies were hypocritical because i find it difficult to believe that anyone in power truly believes the silly stories contained in religious scriptures. Therefore i have always felt that theocracies are just excuses to install a tyranny by people who are a lot less religious than their subjects; but of course i could be wrong. The succession rule in this system is that the religious elite appoints one of them as supreme leader (this successor too is usually handpicked by the departing supreme leader).
    Finally there is the Confucian model (which has occasionally popped up also outside of China). In this model the ruler is divinely appointed (i.e. he is the son of the previous ruler) but his mandate is ultimately legitimized by how well he performs. In other words, people have the obligation to obey the ruler, but the ruler in turn has the obligation to rule them well. This model inevitably rewards the smartest people in society: the ruler has a vested interest in granting power to the smartest people he can find. Hence the traditional meritocracy used by China to create its bureaucracy. China became communist in 1949, but, after Mao's death, it has fundamentally remained a Confucian system in which technocrats move up the ladder of power. Sure they must also be loyal to the Communist Party (that's the prerequisite for being considered at all) but they are also judged by the Communist Party according to how well they performed in their government tasks. The succession rule here is much more complicated: it depends on a network of powerful men, and on the merits of each candidate. In fact, modern China has gone out of its way to ban the cult of personality that plagued the Mao years. Each leader of China is more faceless than its predecessor (Deng Xiaoping, who started the modernizing reforms and wielded immense power behind the scenes, never held the titles of president or prime minister of China). In fact they could claim that they are not tyrants at all: their power depends on the consensus of the party, and most of the orders don't come from them but from the various echelons of the party.
    The advantages of these three systems are many. To start with, they can think long term, whereas Western governments are under pressure to deliver short-term results in order to get reelected, even when the short-term results will cause long-term problems. The USA, for example, cannot enact five-year plans like China for the simple reason that a presidential term lasts four year (and usually the fourth year is spent campaigning for reelection). Secondly, these regimes don't have to live with political gridlock: democratic countries tend to be split 50-50 between supporters of right-wing and left-wing policies, and are therefore paralyzed by endless political bickering that prevents governments from taking urgent action. These regimes are also much more likely to take unpopular but necessary measures, whereas the primary goal of politicians in democratic countries is to get reelected, a goal that obviously requires to be popular, not unpopular.
    All three systems (Russian-style autocracy, Islamic theocracy and Chinese Confucianism) have become more popular during the Great Recession that mainly affected the democratic countries. They have also been fueled by resentment towards the old colonial powers (that are rapidly shrinking in power) and by nationalist spirit (it is a lot easier to claim that my system is better than yours than to try and change my system, especially when i can get jailed or killed for doing that).
    The Arab Spring is basically mediating between Western-style democracy and Islamic theocracy, the latter having the major drawback that it would impose a traditional lifestyle on a young generation raised on Hollywood values and Facebook interaction. Russians are less enamored of Putin's persona than they used to be when the economy was booming, and are probably worried of what will come after him.
    There is, instead, no significant threat to the power of the Chinese rulers. However, one can see two fundamental weak points in the Confucian model: 1. It is all based on delivering the goods; 2. It is all based on serving the people of the nation. Both these points have dangerous consequences. The consequence of 1. is that nobody really knows how the Chinese people will react when the first recession comes, and i personally think it's coming sooner than they expect (see The great illusion?). That recession will suddenly delegitimize the regime: if you are not even making me wealthy, why should i accept your tyranny? It might not even take a full-fledged recession: the current wealth gap is increasingly perceived by ordinary people (especially in the big cities and in rural areas) as a failure by the state to do its job properly. That would be enough to break the Confucian contract between Communist Party and society. Bo Xilai, a very authoritarian man, was much more popular than any democratic leader like Zhang Musheng because Bo was perceived as on the way to restoring the Confucian contract between government and people. "Democracy" per se is an empty word in China. It is not an ideal. A fair and just government is an ideal.
    The consequence of 2. is that the Chinese leadership is so intent to please its own people that it neglects the effect of its actions on other nations: China is inevitably getting more isolated at the time when it is trying to expand its influence over the world (see The evil empire). I say "inevitably" because it has to support brutal dictators in order to sustain its economic growth. The West does (or at least did) the same but rarely so blatantly. Sarkozy was willing to risk a spike in oil prices (that would have hurt France too) when he bombed Qaddafi out of power. China cannot run that risk: the price to pay for its leadership would be much higher (again, a loss of legitimacy, which is worse than losing elections).
    For one reason or another, the Confucian model is creating within the Chinese regime a paralysis that is not all that different from the political gridlock of Western democracies. There are ideologues who hold positions based on the interest of the country. There are opportunists who want to profit from the economic boom. There are ambitious career politicians who want more power. There are provincial leaders who basically run their own rich kingdoms. The Communist Party has become a vast and confused network of conflicting interests. While many in China feel that change is inevitable, any real change would expose those conflicts and create an explosive situation. So the leadership understands "change" as replacing the spectacularly unexciting Hu Jingtao with the even more faceless Xi Jinping. This is reminiscent of when the Soviet Union picked irrelevant men as Breznev's successors in order to avoid change, and ended up self-destroying.
    See also: The great illusion?).
    TM, ®, Copyright © 2012 Piero Scaruffi All rights reserved.
    Back to the world news | Top of this page
  • Articles about China before 2012

Email | Back to History | Back to the world news | Home | Support this website

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