Who’s Afraid of China?

The most enduring feature of Donald Trump’s legacy was affecting a bipartisan pivot to a confrontational stance with China. I agree we should get tough on their companies, given their grossly unfair practices in allowing market access. But as far as fearing the rise of China … I just don’t get it.

I’m old enough to remember the rise of Japan. They were going to dominate industry and own everything. Didn’t happen. Japan rose in the world, found their place and settled in. They’re a large, powerful country, but the apocalyptic rhetoric proved wrong. I think China would be lucky to perform as well as Japan did. I think it’s more likely that speedbumps will knock them off course for a generation or two.

China is almost where the United States was at the end of the 19th century. The U.S. emerged as a superpower after humiliating an old European power in the Spanish-American War. But this is when the hard climb began, and there would be speed bumps. China has only begun the hard part.

Effectively negotiating those speedbumps requires political pluralism. Since democracies have emerged around the world, we have yet to see an autocracy outperform them. We have seen some come and go, and we have seen some self-sustain around the global middle or lower-middle class. But not one has excelled over the long run. China may be the most effective meritocracy of those autocracies to date, but I still wouldn’t bet on them.

Political pluralism works like a pressure valve in appeasing the masses in tough times. If unaccountable autocrats make decisions outside the public interest, pressure can crack the system. We recently saw the Chinese people force the government to back down on pandemic restrictions, in a rare case of pluralism. What happens when the government can’t meet their demands? And there are harder problems than COVID-19 on the horizon.

China is heading toward a demographic cliff. There won’t be enough workers to support retirees. When Germany faced a similar demographic cliff, they took on 1 million Syrian immigrants. Could China do that? Are there 20 million people who want to move to China? I’m not sure. But if there were, can China absorb that kind of immigration? What happens to their economy if they don’t? What happens if workers have to take care of their own parents and grandparents?

China has a giant black box of debt. You’ve seen the empty cities and apartment towers. You don’t see the books of state-owned enterprises, banks under state influence, municipal governments themselves. How will China manage its first financial crisis? Will they inspire faith and confidence in the rest of the world?

The Belt and Road initiative was initially hailed around the world for being easy money for developing countries with no moral superiority, no strings attached. But that program is starting to crack as countries default. China will learn firsthand why rich countries don’t make money easy. How will they behave as creditors to a sovereign country in default? Will they try to muscle aside other creditors for priority, as many of their agreements stipulate? What will they behave before countries with political leaders hostile to their interests?

China has an unrivalled surveillance state and repression machine. The closest equivalent was probably the Soviet Union. How much does that cost? Adam Smith believed that societies that allowed slavery paid more in costs of repression than the benefits of free labor were worth. It’s unknowable, but there is a nonzero percentage of Chinese GDP dedicated to policing thought. Is that the kind of society that dethrones established leaders of the free world?

The national security establishment is concerned about a flashpoint in Taiwan, which of course is dangerous. But I can’t imagine China winning a hot war after not having fought in any since a handful of border skirmishes with Vietnam in the 1970s. Russia’s army of battle-hardened veterans is having their asses handed to them in Ukraine. How would China’s military, untested from top to bottom, fare against a heavyweight?

China’s GDP and army were both much larger than Britain’s in the 19th century. Neither saved them from being humiliated in the Opium Wars, like Spaniards routing Incas. China has hostile neighbors in Japan and South Korea who, unlike Poland or Lithuania, aren’t bound to stay out unless all of NATO goes in. If China were to be distracted to its east, it’s hard to imagine India not taking advantage to its west.

Source: Gallup

This is still the most important measure among nations: where do people want to move? It’s not perfect, and there are anomalies (Saudi Arabia probably overrepresented among Arabs not wanting to leave their region/language), but China doesn’t even make the top 10.

Political pluralism is the secret sauce. I don’t believe we are witnessing some groundbreaking shift in humanity, a history-making form of government that will ultimately displace democracy. And if China is anything less than groundbreaking, then it loses. Taking a historic view, totalitarian China could still be a flash in the pan.

Worst* case: Chinese Communist Party collapses, China adopts messy, flawed democracy and becomes like Russia.

Base case: China is shaken by financial crisis but Communist Party survives and weakened state operates at the level of Japan or South Korea.

Best case: China easily survives financial crisis and maintains one-party rule but demography hobbles growth, country attempts to lead world with more difficult speedbumps ahead.

* Worst case may have best outcome in 100 years.

I’m old enough to remember when the Soviet Union was the main adversary. And I remember hearing in the 2000s something that you still hear today, that the Soviet Union was never a threat. It was always unsustainable.

That wasn’t so obvious to my parents’ generation. That’s why I’m boring you with this China rant. It’s easy to knock the Soviet Union in the 21st century. But who was saying it in the 1960s? I’m on record now. China is a paper dragon. And someday people will say it was all so fucking obvious.


  1. I’m not so sure of you any more, dear Colin. Maybe you need to read more widely and rapidly.

    Fun fact 1: the USD loses prestige once other nations start doing FX directly. Catch up with this, please. Fun fact 1a: GBP is a hidden dependant of the USD, since the Untied Kingdom gave up making things in the 80s, the current obsession there with “Financial Services” depends on other nations being happy to do their insurance etc in the City of London. Fun fact 1b: the EU(R) has never had a Central Bank that can discipline the member nations’ individual budgets.

    All projections as to world finance need to account for the trends just mentioned,

    Fun fact 2: prosecution of the Ukraine Vanity War is gulping whatever sense these nations’ earlier budget projections might have made earlier. Fun fact 2a: apart from the gross recklessness demonstrated in the “covid 19” “pandemic” which not only shrieked the brakes on the economies but moreover wasted ¿billions? on stupid masks and jabs and soporifickised most of the working population.

    From the above, the “West” (Five Eyes and Europe) are now in a black hole, literally, escape is impossible – apart from whatever elements of suigenocide may, according to Deagel, have been emplaced.

    Meanwhile, all those eastern nations seem to have come to a conclusion that they can actually work together without necessary recourse to our own brotherhood (/sarc) of nations.

    Fun Fact 3: Top EU Authority von Leyen meets Chairman Xi on the Macron trip and, guess what, whose departure from China turned out to be through public channels, baggage deposit, passport check, etc. Not sure if a more wounding public humiliation of the European Union President could have been devised…

    Point Made!

    My sympathies for our once powerful world are tainted somewhat with what your compatriots are doing to my beloved Perú but, of that, another time.

    Oh, and if I hadn’t explained earlier, recirculating elections that suck campaign funds from You Know Who canNOT give rise to democratic systems. My standard disclaimer for those who use the term “democracy” Without Due Care And Attention.

    Cheers & Many Thanks!!


    1. Your critique is not about China, but the West. Even if I granted you all those points, every country makes mistakes. To be king of the hill, a country needs to be strongest. Nothing here makes that case.

      Recent high-profile (and low-volume) moves toward RMB partly inspired this post, along with prolonged rhetoric in my country. I am aware of the USD bears’ opinion. But do you read the other arguments? Here’s food for thought. At 2.8%, the Chinese Yuan has surpassed the Canadian Dollar to be the world’s FIFTH most trusted currency as judged by what governments keep in their vaults. If China can inspire enough confidence to DOUBLE that, which is to say increase adoption by 100%, they’ll surpass the post-Brexit pound sterling to take the #4 spot.

      It’s a joke. The real threat to the USD is in fact the Euro. But it has its own problems, not the least of which being one of its most influential members leaving. Sorry, but nobody is strong enough to overtake U.S. Not in my lifetime. Probably not my children’s either.


      1. I don’t see any commentary re stuff like the US, UK, EU unfunded pension & benefits accounts dear chap.

        UK is waiting for its coffin, a state which it would not have come to without getting involved in a vanity war. EU has no financial discipline. And the US external debt was fine until other nations begun to get involved in what is really a USD boycott. All these nations’ economies are predicated on debt interest. Now, if the Big Man has nothing in his pockets, some time soon, someone will find out.

        To be king of the hill to me is a somewhat jingoistic sentiment. The big question is: can, or for how long can, the USA sustain it while recklessly flinging wars around? Still?

        Seems to me your anti-China projections are something of a strawman argument. Is the big problem China, or is the big problem the USA?

        Speaking as a resident of yet another USA-couped country! “Remember Afghanistan”?


        1. World War II devastating Europe and the economic collapse of the Soviet Union are the inflection points that the United States survived and thrived to sit atop the world. If you think public debt or the war in Ukraine or going to lead to similar catastrophes for the U.S. / the West, while China thrives and surpasses them in power, then we just agree to disagree, and wait and see!


  2. I think what is interesting is that ‘top desired destinations for potential migrants’ chart and nine of out of the ten offer permanent residence and citizenship which is what a lot of immigrants want. If you end up making a new life somewhere you want that security if you end up making a life for yourself in The States or the UK or Japan – you’re able to place a foothold there without them kicking you out after 15 years – at the moment, you can’t do that with China but they will have to start giving out these kind of incentives if they want the brightest and the best to come.

    Latin America is a great example because it is a part of the world that does offer PR and citizenship to potential immigrants – most of Africa and Asia doesn’t and with that – most of Latin America have trebled their immigrant/expat population – look at Peru, they have more than trebled the number of immigrants living there in the last 30 years with Argentines leading the pack and this is a good thing, if people want to come and live in your country then it is because there’s a future there, they’re not emigrating to the DRC or Cameroon.

    Therefore, you get productive people going there if you offer those incentives and they’ll be willing to invest and put roots down in your country. The Chinese will have to do it when they take over the mantle of no.1 economy of the planet – the South Koreans and Japanese have done it and they’re some of the most xenophobic societies in Asia – but they understand you need these incentives to attract the talent.


    1. I could not agree more with this sentiment. I believe that someday the whole world will become what is considered middle-class today, and birth rates will decline, and societies will compete for human capital. In this brave new world, long after I’m dead, nations will compete for immigrants. They’ll look back on the anti-immigration xenophobia of the 20th and 21st centuries as something as curious as we see ways of life from the 18th and 19th centuries. There will be a competition for people in this brave new world. This is what I believe!!!


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