By Eric Kraus, author of the Truth and Beauty (and Russian Finance).
The good news is that we have a ringside seat for the decline of the West… the bad news – we are inside the ring!
The miserable thing about being a seer is that when you get it right – no one remembers – when wrong, not one forgets!
Actually, it may be worse to get it right since what seemed bold and provocative predictions a decadeago – the secular rise of China, the birth of a multi-polar world, the Malthusian struggle for resources – become banalities so widely held that one no longer dares reiterate them for fear of ridicule.
When not totally distracted by the flashing of electronic digits on an LCD screen, T&B has been known to muse on some of the Great Questions – inter alia: “Why here?”; “Why now” (i.e. at this particular time in a 14 billion-year history); “are we approaching a discontinuum…?” If, very unexpectedly, we find any definitive answers tonight, we shall include them in an appendix.
For now, suffice it to say that what best characterizes the “now” in which we live is a frightening acceleration; processes which once took centuries to play out now blaze to the fore in a matter of years. The world is obviously rushing towards an asymptote – a fundamental discontinuity; since the ultimate outcome is something best not discussed in a family-oriented publication, we shall confine ourselves to commenting upon some of the intermediate stages.
When, two years ago, in a vehement and slightly tipsy argument with a French diplomat parroting the typical Western line as regards Vladimir Putin, T&B snarled that “pretty soon, you people will be crawling hat in-hand to the Chinese, begging for a handout” we were, of course, being gratuitously provocative…or so we thought. Little did we imagine that “someday” was about to become “today”. How wrong we were! Calls for Chinese financial assistance by various European leaders were recently slapped down very publicly by Beijing – which suggested that support might ultimately be
forthcoming, but only in return for clear marks of obeisance from those uppity white folk, in particular immediate free-market status within the WTO, as well as undisclosed political concessions.
Interestingly, it was not Brussels but rather the Republic of Belarus which last week received some substantial Chinese financial support – $1bn in unsecured loans and major investment agreements. Perhaps not coincidentally, Lukashenko has never been heard to utter a critical word as regards Chinese policy.
Almost daily for the past 20 years we have been served up yet another series of reheated warnings of the imminent end to the “China story”, presumably fed by short (as well as nasty and brutish) hedgies. China is certainly not impervious to the economic cycle, and the risk of yet another Chinese banking crisis and/or a real-estate collapse cannot be excluded. There has been misallocation of capital, as well as serious social inequities and dislocation.
The absence of a proper asset management industry has created a series of minor bubbles (“minor” since they are fuelled with cash rather than with credit). Competition between the regions, and for power within regions, has led to an increase in bad loans and questionable investments. Central planning has led to inefficiencies, but whatever its theoretical limitations, in practice, China’s success is in no small part attributable to its singularly purposeful, competent and well-coordinated governance.
Over the past decade, tacit any warnings of impending collapse, the Chinese economy has tripled in size, while the Chinese populace has enjoyed the greatest increase in wealth in recorded human history; we would note that low-wage industries are beginning to delocalize from China to Vietnam and Indonesia as the Dragon hikes wages, moving up the value chain into capital goods, transportation, and technology. China has become the key factor in the majority of global commodity markets. The future is now.
We are not predicting imminent regime-change, but rather a continued shift to a multi-polar world, one in which Beijing shall have a disproportionate weight. The consequences are already felt in the developing countries of Asia, Africa and increasingly Latin America, where China is assuming the erstwhile place of Washington – preoccupied with its serial misadventures in the Middle East. The real challenge will be to accommodate this fundamental geopolitical shift in a peaceful fashion.
While we always assumed that China’s “harmonious development” policy was a temporary imperative to avoid prematurely alarming the West as regards its meteoric rise, we have been surprised by the alacrity with which China has moved towards a more expansionist and forceful foreign policy, expressing something akin to the Monroe Doctrine as regards its own neighbourhood, in particular the South China Sea which Beijing apparently views as a Chinese lake. While it could be argued that this is primarily defensive, given China’s resource dependency and susceptibility to naval blockade (analogous to the situation of Japan which led to the attack at Pearl Harbour), the great danger in the coming decades will be a collision between the rising new hegemon and its rapidly waning Western counterpart, still armed to the teeth and disinclined to abandon its habitual prerogatives.
you thing china having 3.2trn in potentially worthless paper is a sign of strength? Its v much in Chinas interests to back stop the european auctions as they have been doing in PIIG countries.