Question: I’ve been presented an opportunity to go back to several places in China I visited in the past–namely Beijing, Xi’an, Yangshou and Shanghai. Probably three weeks.
I will also spend a week in South Korea with old friends, where I lived in 1993-94.
Is this a trip you, the readers of Ian’s site, would be interested in?
Back in the 70s and 80s, the USSR’s economy was in terrible shape. It hadn’t always been, that’s a triumphalist myth: for a long time it out-performed the West, and economic textbooks of the 50s discuss the problem that the Soviets were growing faster than we were.
So Reagan’s administration came up with a plan: they’d increase defense spending, the Soviets would have to do the same, and the strain would screw over their economy. There’s various arguments, but it seems to have worked.
Recently Trump suggested that Russia, America and China all cut their defense spending in unison. Russia was interested, China said no.
Now, of course, the US spends way more than anyone else on its military, but that’s mostly because it over-pays for everything because of vast corruption.
But the real issue here is that China is a rich state, and the US is not. Forget GDP, it’s completely misleading. China is ahead in everything that matters: 80%+ of tech fields, has more population and the largest industrial base in the world and it’s the main trade partner of more nations than anyone else, including America.
This graphic is illustrative, but it applies to everything except planes and launch capacity, and soon it will apply to them too:
As Keynes once said, “we can afford anything we can do.” The corollary is that we can’t afford anything we can’t do. China can afford almost anything because it can do almost anything. Within four years it will have cheaper and more lift capacity than the US. Its civilian airliner industry is taking off, it’ll take longer, and the competition is Airbus, not Boeing, but they’ll win that competition too: even if Airbus avoids the Boeing quality collapse, Chinese jets will be cheaper and about as good.
China can easily afford its military budget. I’d guess it could double or triple it and be OK. The US is struggling: the Trump cuts are a reflection of that, and are at the same time reducing government capacity, of which China has plenty, and unlike America government, they’re competent and at this point not even very corrupt and what corruption does exist is honest corruption—you can take a cut, but you have to deliver on time and on budget.
So China’s laughing at America. “No thanks. We’ll just keep out-producing you and we know you can’t keep up, but feel free to try.”
This is the sort of thing the US used to be able to do, and Britain back in its day:
China has built over 30,000 basic-level smart factories as part of a nationwide push to accelerate industrial digitalization and intelligent upgrading, according to the Ministry of Industry and Information Technology (MIIT).
The initiative, under the smart factory gradient cultivation action, has also seen the creation of 1,200 advanced-level and 230 excellence-level smart factories…
…The 230 excellence-level factories, distributed across all 31 provincial regions in China and covering over 80 percent of manufacturing sectors, have carried out nearly 2,000 advanced scenarios, including smart warehousing, AI-powered quality inspections, and digital research and development, said MIIT.
On average, these factories are 28.4 percent shorter in product development cycles, 22.3 percent higher in production efficiency, 50.2 percent lower in defect rates and 20.4 percent lower in carbon emissions, said the ministry.
Meanwhile, in South and Central America (a similar map could be done for Africa and chunks of Asia):
So, here’s the thing. Under the threat of Trump’s tariffs, Canada and the EU have been offering America to get tougher on China. “China’s the real enemy!” they scream.
Problem is, in the new Cold War, China’s going to be the stronger and more prosperous side. Russia, and most of Asia, Africa and South America are going to align with it. It will soon be in the “US after WWII” position of having more industry than everyone else combined, and it’s already leading in 80% of technological fields. It won’t be long before that’s 90% and I wouldn’t be surprised if in 15 years it’s damn near 100%.
Choosing to align with America is choosing to align with a declining Empire. It’s like laying your bet on Britain in 1918.
I don’t think this is a done deal for all of Europe. The old order is dying, new parties are challenging the old center-right and center-left parties and while the current leadership are lapdogs, the future leadership in many countries will not be. All China has to do is offer to not de-industrialize Europe, or all European countries have to do is cut a deal along those lines.
The sooner one makes the deal, the sooner one defects to the winning side, the better the deal will be.
It is my judgment that it won’t be long before the two best countries to live in are China and Russia. They are rising, and rising fast and the West is in decline. America’s strategy of cannibalizing its allies industries is stupid, because its allies industries are old legacy industries which are mostly already surpassed by China, and those that aren’t, like Pharma, soon will be.
There’s no reason to be loyal to America. Trump’s made it clear that the United States has no loyalty to anyone else, and it’s offering a really shitty deal. Russia doesn’t want to conquer Europe. They conquered half of it once before and it didn’t work out, they just want security.
This won’t happen this year, that’s clear, but smart nations will make the switch as soon as possible. I suspect the EU is likely to break up, so some European countries will change sides, and some won’t. But if it is done as a group of nations, even if not the whole bunch, the deal will be better.
The Cold War is already in its late early stages. I was writing about it as early as 2017, and it’s gathering steam. This is the new world. Choose your side, but for most countries, choose you must and wise statesmen choose the winning side.
Recently French troops have had to leave Mali, Niger and Burkina Faso. Now it’s Chad booting them.
Update: Senegal has now announced it intends to seek the withdrawal of French troops.
The first three countries have Russian troops in them now. Wonder how long it’ll be before Chad joins the crowd?
France has been the most important country in a lot of its ex-colonies in Africa, but it’s losing its place, not just militarily but economically. Countries are turning to China for imported goods and development at the same time as they turn to Russia for security. Chinese goods, development and loans are cheaper, and neither Russia nor China interfere nearly as much in domestic politics.
It’s just a better deal. For a long time you HAD to go to the West, but now Russia and China can supply pretty much everything you need.
As regular readers know I’ve been following Europe’s collapse for a few years now. It’s practically a freefall. In Germany Volkswagon, for example, is planning on closing factories for the first time.
Europe’s well on its way to being what it was for most of history: a backwards and irrelevant peninsula, with the main action and most important civilizations elsewhere in Asia.
So, this was true once:
The Chinese learned a lot from Western Joint Ventures, and I remember talking to a consultant back in the early 2000’s about tech transfer. He said it was very clear: you got into the Chinese market and/or used their lower cost production and what they got in exchange was tech transfer. This isn’t some evil conspiracy, back in the 80s when the US fell behind on cars they basically forced Japanese car companies to set up factories in the US, and yeah, there was transfer of knowledge to American companies.
Now, for the West, what Western companies and the West in general got in return for their tech was not worth the cost: it was stupid and short-sighted, but companies were lining up to do it and economists and business gurus and politicians in the West were for it: the only thing that mattered was making more short to mid-term profits and all sorts of nonsense about it not mattering where goods were produced was espoused by very important intellectuals and officials. There was no attention to the long term cost in terms of loss of technological lead and moving the industrial base to China. I know: I was one of the voices warning, publicly, to stop taking short term profits by selling China our future.
But at this point it’s no longer accurate. Chinese car companies are more advanced than Tesla: they have better batteries, better HUDS, better auto-pilots and they also have faster product cycles.
Again, in most fields the Chinese are now more advanced than the West: the remains are important but in a minority—things like lithography and aerospace, but they’ll catch up in both in time and for Aerospace I’d already buy a jet-liner from China before Boeing, and Boeing’s problems have nothing to do with China. Airbus is still clearly better, but it won’t be in twenty years, and possibly not even in ten.
The West was 100% complicit in the “China Cycle”, but that cycle is almost entirely over and China is now just straight up more advanced and out-competing us.
The West made this choice. We could have maintained our tech lead for another fifty years or so if we wanted to and followed the necessary policies. We didn’t, and to expect China to not use the same methods every other major country used to industrialize is insane. Every accusation made in the “China Cycle” is something the US did to Britain back in the 19th century.
Perhaps China could have industrialized without it being disastrous for the West, but not under any sort of laissez-faire or neoliberal international trade regime.
If you’re young, learn Mandarin. Maybe even if you’re not young.
The effect of chip sanctions was to create a Chinese chip industry which now controls the low-end of the chip market, and which is coming on strong. The effect of Huawei sanctions was to make Huawei stronger, end Android support and gut Apple’s market share in China.
Now we have this brilliance from “Open AI”, presumably at US government behest:
Chinese attempts to lure domestic developers away from OpenAI – considered the market leader in generative AI – will now be a lot easier, after OpenAI notified its users in China that they would be blocked from using its tools and services from 9 July.
“We are taking additional steps to block API traffic from regions where we do not support access to OpenAI’s services,” an OpenAI spokesperson told Bloomberg last month.
OpenAI has not elaborated about the reason for its sudden decision. ChatGPT is already blocked in China by the government’s firewall, but until this week developers could use virtual private networks to access OpenAI’s tools in order to fine-tune their own generative AI applications and benchmark their own research. Now the block is coming from the US side.
Generative AI isn’t like lithography machines. It takes vast amounts of data and a bunch of coders and scientists, and China has plenty of both. In fact, it’s limited mostly by access to data: social media, websites, books, art work and so on.
There’s no particular reason to think China can’t catch up and exceed in generative AI.
It’s interesting, though, that China’s government was already blocking Chat-GPT. Clear protectionism meant to help the internal market. China’s decoupling as much as America is.
My guess is that in five to ten years the most advanced generative AI will be in China. Just as Tesla was once the world leader in electric-vehicles, then Chinese companies ate its lunch (you can get a decent EV for 14K$ in China and at each price point the quality is better than Tesla), Chinese AI companies will out-perform Open AI.
It’s China’s world now. We just live in it.
Regular readers will have noted that for the past few years I’ve been writing far more about China than I used to.
Why?
The primary purpose of this blog is to explain the world: how it works, how it has worked, and how it will work.
China is probably the most important nation in the world right now: it has the most manufacturing, is about tied for population, is the largest trade partner of the greatest number of nations and leads in most scientific and technological fields.
If you don’t understand China, you don’t understand the world. In the same way that I spent so much time learning about and understanding America, I (and you) need to understand China. I’m so serious about this I’m probably going to learn Manadarin, and if you’re under fifty, I suggest that you should do the same. In ten to fifteen years not speaking Manadarin will be as crippling as not speaking English currently is.
As we move into a multipolar or cold-war period, nations are rising in importance: China, Russia, Iran, Vietnam, and so on. If we don’t understand the internal and external dynamics of those countries, we are ignorant of how the world works in the worst sense of that word.
As this happens, nations are losing importance: all of Europe, America and the Anglosphere, in particular. I live in Canada, I’m a member of the West and the Anglosphere, and of European descent, so I’m concerned with those countries. But maintaining too much of a focus on them would be foolish.
It is also important to understand what other countries are doing and have done right. If China is now the world’s most important nation, why? What is it doing? How are its policies likely to turn out? The same is true of Russia, whose economy is doing better than, say, Europe’s.
Of course, understanding what the West is doing wrong (and the rare things it’s doing right) matters too, but I’ve spent twenty years writing those articles.
The world is changing. To understand it and to operate skillfully within it, we must change with it.
You get what you support. If you like my writing, please SUBSCRIBE OR DONATE
I was a doubter about Xi. His early anti-corruption drive seemed most likely to be a way to purge the Party of his enemies, and I assumed he was driven primarily by ambition for personal power.
I was wrong.
If you want to join the CCP, you have to be accepted. It isn’t automatic. Once accepted you undergo training and if you want real power you have to rise: you have to be in charge and deliver.
In this the CCP is similar to the old Roman Republic: high political rank required you to rise up thru the cursus honorum. Doing so required you to gain experience with government: roads, sewage, trade, law and so on. In practice, few people were elected to the highest offices without military experience, and the result was that high elected officials had some actual experience with how both military and civic affairs ran.
The CCP has much the same virtues, minus the de-facto military experience. You can’t get to the top without having risen from the bottom.
There were serious threats to this in the early years of the second decade of the twenty-first century. The first was corruption: the job of officials shouldn’t be to make themselves and their families rich. People shouldn’t rise to the top because they’ve spread wealth to their supporters.
So an actual crackdown on corruption was required to retain the CCP’s policy effectiveness.
The second threat was the “princelings”. Children or grandchildren of high Communist officials, often companions of Mao. They expected office and power without having truly earned it. Xi has sidelined the majority of them. Very few have any real power in the CCP.
The third was the oligarchs. By one calculation the wealth of billionaires declined by 47% between 2021 and 2024. During the same period in America it increased over 70%. More than that, the CCP has prosecuted and imprisoned multiple billionaires, something the West never does.
Wealth=power. Huge concentrations of power outside the CCP were a huge threat to it, especially in combination with internal corruption, since corrupt and rich party members were cooperating with the oligarchs.
This has allowed China to do things like move massively to social housing and crash the housing market, something oligarchs would never allow the government to deliberately do in America. Young people being unable to afford housing was (and still is) a huge threat to the CCP’s legitimacy, but it’s being dealt with.
Weakening oligarchs hasn’t come at the expense of industry and commerce, either: the Chinese economy continues to grow, science and engineering progress is rapid, and they have recently taken control of the majority of the global EV market.
Internal corruption, cliques and external power centers controlling government are the biggest threats to any government and especially to any one party state. Xi has dealt with these problems effectively and relatively quickly and is moving on other policy concerns.
This doesn’t mean the CCP is perfect or doesn’t make mistakes. Zero Covid was done very badly (avoiding Covid was the right policy, but they screwed it up.) It does mean that they retain the ability to implement policy, often effectively.
And that’s a big win for China and the CCP.
Donors and subscribers make it possible for me to write, so if you value my writing, please DONATE or SUBSCRIBE
Powered by WordPress & Theme by Anders Norén