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The two Koreas: Some considerations on the relationship between North and South Korea

Giancarlo Elia Valori

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[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] I [/yt_dropcap]f the two Koreas reunified, as planned in 2000 with the joint declaration of June 15, we would have an unreasonable merging of two radically different political principles. South Korea has chosen to be a periphery of the American empire, which uses the US economy on the basis of its internal cycles and mature technologies that it exports by taking advantage of the low cost of manpower and of some raw materials.

North Korea played the Cold War card, supported only partially by China and Russia, which used North Korea as a block for the West and paid for said North Korea’s commitment with political stability and some economic aid.

The Cold War, however, is really over and this holds true both for North and for South Korea.

We need to think of new worlds and new “super-concept rules”, just to quote Wittgenstein.

Traditionally, unification is conceived as a Confederation, as supported by South Korea, or as a Federation with wide autonomy for both areas, as always supported by North Korea.

The two inter-Korean meetings held in 2000 and in 2007 – with the first one that even made the South Korean President be awarded the Nobel Peace Prize for his Sunshine Policy – recorded excellent economic results (including the free trade area of Kaesong and the tourist area of Mount Gumgang), but no effective political results.

Indeed, in November 2010, the North Korean Minister for Reunification officially dismissed the Sunshine Policy as a failure.

This always happens when politicians are only interested in conveying a good “image”.

However, let us better analyzing the reunification policies which are currently being proposed, also by authoritative US think tanks.

The excessive psychologism – the flaw Husserl saw in the European philosophy of his time – still characterizes the North American analysis of strategic phenomena in Asia and the Middle East

Hence, both in North and in South Korea, the phenomenology of elites is often quite simplified and devoid of the necessary nuances.

The “states of mind” or the subjective tendencies of the real members of the two countries’ ruling classes are not so relevant as they may appear at first sight.

“Les faits ont la tête dure” (Common sense is not so common) – just to quote Voltaire – and elites do not live on psychology, but enjoy verifiable and significant privileges that someone has to pay anyway.

Meanwhile, the Constitution establishing the North Korean Workers’ Party repeats still today that conquering South Korea militarily is the primary strategic (and economic) goal of the North Korean regime – not to mention the fact that North Korea’s ruling class is selected with military and national criteria, while South Korea’s ruling class is more technocratic and less prone to accept the line of military confrontation.

The difference is not marginal. Pending an inter-Korean conflict, South Korea’s elites would escape to the United States – thinking of being at home – while the North Korean ones would fight their war until final victory.

Furthermore, in this Asian context, our American friends quote the example of “de-Baathification” in Iraq after Saddam Hussein’s fall.

Never was an example more dangerous for the theses it intends to uphold.

The abolition of Baath, namely the Party-State, and the selective and loyalist mechanism of the ruling class in Syria and Iraq was, on the contrary, a real strategic folly which voided Iraq and certainly made it viable – just to use the typical terminology of US strategic analysis – not to the bipartite “democracy” which is so fashionable in the Anglo-Saxon world, but rather to the Iranian regime and later to the Sunni sword jihad of Daesh.

This means also viable to the division of the areas of influence in a country like Iraq, having a Shiite majority and a Sunni area which, through the jihad, has now become mass of geopolitical manoeuvre for the Gulf powers.

Every manipulation of the historical heritage of peoples and Nations is bound to lead to their fragmentation into new areas of influence, which have often not even been foreseen by the crazy “social engineers” who believe – as happened to the first US Governor of Baghdad – they can use the same laws in force in Boston to regulate road traffic in the Iraqi capital city.

Turkey, too, has got its hands on Iraq – obviously with a view to settling the Kurdish issue.

Furthermore it seems to flout any “line” worked out within NATO, of which Turkey is a member.

From the Balkans’ wars – waged to avoid the globalization of Russian oil and gas towards Europe and the Mediterranean region – to the massive use of the Afghan jihad to destabilize and disrupt the post-Yugoslav political system, to the stable destabilization – if I may use this oxymoron – of the Maghreb region with the silly “Arab Springs” to be completed with the end of Syria and its ethnic and religious splitting up, it seems that the current US global strategy is designed to disrupting every geopolitical region.

Nevertheless if all countries become “liquid” and viable, every political contagion will tend to spread and worsen.

Just think of Macedonia’s current situation and the not-so-secret plan to achieve a Great Islamized Albania, capable of standing up to the Slavic and, hence, pro-Russian Serbia.

Reverting to the US line in this Korean region, the idea is that of a reunification creating a favourable interest for the North Korean ruling classes.

How? The North Korean system based on songbun, namely the traditional caste system, is further divided into 51 subgroups.

Obviously, as everywhere, the main criterion is loyalty to the regime – hence I do not see how the North Korean elite can accept a soft reunification, in which North Korea will inevitably lose a share of power to preserve hegemony – although with fewer elitist “privileges” – in a possible peaceful reunification with South Korea.

According to the most reliable calculations, approximately 4.4 million North Koreans can be part of the local “ruling class”, but – as those who are acquainted with Pareto’s and Veblen’s theories know all too well – all elite classes are intrinsically factionist and must have strong symbolic and material incentives to back the regime that supports them.

Psychology and the democratic myth are not enough.

Suffice to recall the phenomenon of Ostalgie, namely the nostalgia felt by many German citizens and voters for aspects of life in East Germany after reunification – Nost-Algie for permanent and regular jobs, for the lack of unemployment, for the authoritarian but effective Welfare of the old Sociality Unity Party of Germany (SED).

Money, however, never pays for the symbol – hence intangible incentives must always be greater than the tangible ones.

There is also talk about a selective amnesty for North Korea’s defectors.

Why?

How could South Korea support this new share of frustrated ruling classes coming from Pyongyang and finally what would be the strategic aim of this operation?

We may assume that the aim would be voiding the North Korean regime from inside – but are we really sure that the South Korean ruling class can safely double its size, possibly incorporating the North Korean songbun classes that are already accustomed to unlawful transactions?

Furthermore, reunification would bring no concrete benefit to South Koreans.

Quite the reverse. It would be necessary to support a population – about 50% of North Korean inhabitants – who is well below the typical economic standards of South Korea’s working class.

According to our estimates, for the five years following reunification, this would create a public debt at least 24% higher than expected – which is already approximately 40% – in a situation of weak growth, due to the crisis and saturation of the US market and the contraction of the domestic market.

Being a client State never pays.

In other words, this kind of reunification would certainly lead to the default of the South Korean government.

Furthermore, currently South Korea is bearing the brunt of political uncertainty, after the impeachment of President Park Geun Hye – not to mention the already described decrease of domestic consumption, resulting from an excessive cyclical link to the US economy and the decline of exports to China.

With a 2.6% planned growth throughout 2017, South Korea certainly has not the potential to absorb or make credible its debt generated by the costs of reunification, regardless of its being an elitist or mass reunification.

Even demography does not help, as the South Korean population is expected to start falling structurally next year.

Certainly we must consider the North Korean manpower, but the labour force has a cost of training, obviously adding to the cost of the means of production which should guarantee jobs precisely to the North Korean workers.

It is worth recalling that it took over twenty years to achieve homogeneous social and economic conditions between West Germany and the old German Democratic Republic (DDR) – a goal that has not been reached yet despite the Euro manipulation and the huge German investment.

Moreover, at the time of Vereinigung, Germany was the third world economy and certainly not the respectable, but much smaller South Korea’s economy.

And what about China? Obviously it is not interested in the Korean reunification.

In fact, if this were to happen, it would be the repetition – in the Third Millennium – of the unification of Northern and Southern Italy and, in this case, the economic and political “line” would be dictated by South Korean and not by North Korea.

As can be easily imagined, China does not like this.

China has every interest in freezing any geopolitical issue in Asia, by operating with peripheral States – as in the Roman legend of the Horatii and Curiatii – by dividing and later linking them with bilateral agreements.

In Asia, China wants to avoid everything may lead to the creation of a new strategic bloc capable of dictating certain conditions to its geoeconomic and military system.

Considering that South Korea is always a US client State, China would regard reunification as an undesirable increase of the North American potential in the safety buffer zone of its Eastern and Southern coasts.

In many ways, however, not even the United States would benefit from the Korean reunification.

While there is no longer such a reason to keep large troops in South Korea, the correlation of US interests is inevitably expected to change, thus leaving the Korean Peninsula uncovered while the United States is supposed to redeploy its Armed Forces in the Pacific, around the South China Sea and in the Japanese safety buffer zone.

Currently neither China nor Japan appreciate this new scenario of the American military power in Asia.

If the United States maintained a large amount of troops in the new reunified Korea, everybody would regard this as only having the aim of opposing China.

Not even Japan would benefit from a German-style reunification between the two Koreas.

Both South Korea and, potentially, even North Korea, are now global competitors of Japan – not to mention the strategic bloc represented for the country by an imperial “co-prosperity area” that a reunited Korea would undermine.

There is no Japanese geopolitics not targeted to the whole Southeast Asia – it is not possible otherwise.

And this holds true both for the Empire – the Dai Nihon about which Haushofer spoke in the 20th century – and for the Japan regionalized by the United States.

Unlike Italy, Japan was defeated in World War II, but it is still able to think big and really understand geopolitical issues without demonizing its past and worshiping its old enemy.

Hence, what can be done? It is simple.

Reopen the Six Party Talks circle, as well as fund specific projects in North Korea and help its people with humanitarian aid, but above all, with a peaceful reindustrialization policy going towards Russia, China, the EU and, possibly, also the United States.

The Asian Bank for European Infrastructure and the European financial institutions should take immediate action – and Italy is present in the Bank of Asia. In a new type of nuclear negotiations, we should also rethink the civilian potential of North Korea’s nuclear system for it to sell energy to its neighbours.

Obviously the resumption of the Six Party Talks should be based on a reconstruction of North Korean free trade areas and on an effective relationship with Russia and China, which should become the new guarantors of the Korean Peninsula’s nuclear and economic balance.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs "La Centrale Finanziaria Generale Spa", he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group and member of the Ayan-Holding Board. In 1992 he was appointed Officier de la Légion d'Honneur de la République Francaise, with this motivation: "A man who can see across borders to understand the world” and in 2002 he received the title of "Honorable" of the Académie des Sciences de l'Institut de France

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East Asia

The Implication of China’s Diplomacy in APEC and ASEAN

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It is truly unusual that the Chinese President Xi Jinping and its Premier Li Keqiang are visiting the same area during nearly the same time: Xi’s visit to APEC from15th to 21st November and Li’s visit to ASEAN on 15th November. Yet, if we look into China’s foreign policy towards this area over the past years since President Xi took power, it is not difficult to understand both Xi’s and Li’s official visits to the “larger Pacific” and the meaning beyond.

As we know, President Xi has reiterated that the Pacific is large enough for the countries involved to share the prosperity with each other. In order to achieve the inclusive rather than exclusive benefits for all, China’s diplomacy aims to reject any kind of unilateralism, trade protectionism and anti-globalization. Given this, Xi’s at APEC and Li’s at AEASN is defined as a signal of China’s diplomacy to further reform and bold openness.

As a rising great country, China is surely eager to expand its investment and trade with the south Pacific area, and Papua New Guinea (PNG) is the first country visited by Chinese president. What is more, PNG joined the Asian Infrastructure Investment Bank (AIIB) early 2018 and then became the first state of Pacific islands to sign the MoU on “The Belt and Road Initiative” construction. As the theme “Harnessing Inclusive Opportunities, Embracing the Digital Future,” the APEC summit will focus on Regional economic integration, digital economy, connectivity, sustainable and inclusive growth and so forth.

Also during Premier Li’s visit to the ASEAN, he highlighted the necessity of the collaboration and mutual benefit among the countries involved on the 21st China-ASEAN leaders meeting. This is also the 21st ASEAN Plus Three Summit (10+3) and the 13th East Asia Summit (EAS).

Quite understandable, since the 1960s, the center of world economy has shifted from North Atlantic to Asia-Pacific, its dynamic growth in the region create countless jobs and push the development of world economy. This is the reason that Asia-Pacific region has the most trade agreements and the most complicated economic architecture around world. APEC and ASEAN, as two institutions that possess most member states, are the very pillars of the tumbledown regional economic architecture. APEC was launched by Australia and later included 21 member states in the region, amongst are United States, China, Japan, the economic giant three of the world economy. ASEAN is an institution that consist of ten small and middle states. Though they are not strong enough to meet the challenges from the power politics alone, ASEAN is a core force that firmly facilitate the economic integration of the whole region of East Asia and the Pacific. No matter what the way they embrace, they are the de facto basic regionalism of Asia-Pacific. The withdrawing of United States from Trans-Pacific Partnership (TPP) and hard-achieved Regional Comprehensive Economic Partnership (RCEP) once brought the regional economic architecture a fig leave and strengthened the impact of APEC and ASEAN.

As a result, the two visits of Chinese top leaders to the same region at the same time definitely attract worldwide attention, because they not only represent China’s recent diplomatic focus but also mark the fact that Asia-Pacific region has become one of the vital fields where China’s diplomacy will be actively conducting in terms of the Belt and Road Initiative, and carry on the good-neighbor policy. Since China has argued for creating a peaceful development milieu, to enhance economic transformation and upgrading oversea markets and partners in Asia-Pacific region.

Consider these facets, China, as the second largest economy, aims to promote its well-articulated stance on multilateralism and inclusiveness and globalization. As both President Xi and Premier Li have strongly said that China is ready to work with Pacific island countries to endeavor together and sail for a better future for bilateral relations. For the sake of that goal, China always believes that as long as all the countries involved have firm confidence in each other’s development, cooperation and the future of East Asia, and work closely together and forge ahead, all sides would achieve more and reach a higher level in the next 15 years.

For sure, China belongs to the part of a larger Asia-Pacific family, and the Chinese government defines its goal as the shared prosperity of this region. Therefore, China will continue to work hard and constructively to promote the overall development of impoverished but promising Pacific island countries under the Belt and Road Initiative.

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An uncertain step in moving China-Japan relations

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Authors: Meshach Ampwera  & Luo Xinghuan

On October 26, Chinese President Xi Jinping met Japanese PM Shinzo Abe and praised that both China and Japan have pledged to strengthen bilateral ties amid continuous efforts made by the two nations. Xi said, “Bilateral relations have returned to the right track and gained positive momentum, which is something the two sides should cherish.” As the two largest economies in Asia, China and Japan are also the vital players in Asian security and the global development.

In addition, since this is the first official visit to China by a Japanese PM in a seven-year “Cold Peace” period, it is widely assumed that Abe’s visit symbolizes the resumption of high-level visits and will be followed by an increasing rapprochement between China and Japan. True, the leaders of the two economic giants witnessed a wide range of agreements, including a 30 billion US dollar worth of currency swap pact, the establishment of a maritime and air liaison mechanism, and enhancing people-to-people exchanges.

Yet, three factors have to be considered seriously in looking into Japanese foreign policy given the current changing geopolitical landscape regionally and globally. First, Japan has still regarded itself as a “defeated” state during the WWII. Since then, Japan’s postwar posture has frequently described as a new pacifism; yet in fact it is considerably more complex. As Henry Kissinger put it: “Japan had acquiesced in the U.S. predominance and followed the strategic landscape and the imperatives of Japan’s survival and long-term success.” This means that the governing elites in Tokyo used to hold the constitution drafted by U.S. occupying authorities with its stringent prohibition on military action, and adapted to their long-term strategic purposes. As a result, Japan was transformed from the pacific aspects of the postwar order (that prohibited military action) into a nation that has focused on other key elements of national strategy, particularly using economic leverage regionally and globally, though not uncontroversial.

Second, in a recently-released paper written by the former US Secretary of Defense Ash Carter, he maintained that “Japan is a close ally of the U.S. and a rising military power, too, because of legal and constitutional changes of great significance championed by Prime Minister Abe.” In practice, the Japanese administration has engineered an expansion to enable its military to operate regionally and even globally in response to the rise of China, violent extremist activity in Asia, and the alleged North Korean belligerence.

Actually in 2013, Japanese Government White Paper revealed a desire to become a “normal country” with an active alliance policy. In a searching for a new role in the Asia-pacific region, Japan aims to act as an “anchor” of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) concluded in 2018 after the withdrawal of the United States. Now it involves 11 countries and representing 13.4% of global GDP ($ 13.5tri.). As the largest economy of the CPTPP, Japan has been active in moving it forward. Early this year when the British government stated it is exploring becoming a member of the CPTPP to stimulate exports after Brexit in 2019, Abe stated that the United Kingdom would be welcomed to join the partnership. It is said that even the U.S. reconsiders possibly rejoining the CPTPP if it were a “substantially new deal” for the United States.

Japan’s ardent involvement into the US-led strategy in Asia has also been endorsed to expand steadily as a normal power regionally and globally. For example, the Asia-Africa Growth Corridor (AAGC) is the result of the joint declaration issued by the India and Japan in 2016. Although it is premised on four pillars of development and cooperation, it is self-evident that the AAGC reflects a growing special “strategic and global partnership between India and Japan” in which both sides have viewed China’s growing, pragmatic and successful presence in Africa as a menace. There is no question that AAGC is a well-crafted vision and agenda of both India and Japan, linking with their own development priorities. But with increasing pressure from Washington and Brussels, Japan and India are in effect driven by the option for the AAGC to rebalance China’s Belt and Road Initiative (BRI).

From the inception of the BRI, they have more than ever before been concerned with being isolated in Africa by Beijing’s initiative. But, as Ampwera Meshach, a researcher at Jilin University put it, “Africa is on the growth trend and offers potential markets and raw materials. For this reason, Africa largely needs pragmatic and scientific, technological and development- oriented initiatives and these are clearly reflected in China’s BRI.” In light of this, the AAGC does neither reflect a novel nor pragmatic approach on how it fits within the African agenda. Instead, AAGC’s foundational pillars seem more inclined to the Western cooperation approaches that have for decades not been translated into development.

Controversially, two days before Abe’s visit to Beijing, Japan had decided to scrap official development assistance (ODA) to China, which is a program where Japan provides aids to developing countries starting back in 1954. Even though some people argue that Japan’s ODA is reasonably cancelled because China’s GDP is even 2.5 times larger than that of Japan, yet, it is necessary for Chinese to be aware of the reality that Japan is a longstanding ally of the United States. As Japan has long been an economic power, its impressive military capabilities would not be confined to a strict policy of territorial defense—no projection of Japanese power or the U.S.-Japan alliance to the region as a whole.

It is during the Abe’s administration which has recognized an environment of growing Chinese assertiveness, violent extremist activity in Asia, and North Korean hostility, and therefore, Japan has eagerly participated in Asian security, including training and exercising with other nations, beyond a purely passive, home-island defense role. This makes it an increasingly important player serving the US strategy in Asia but challenging the rise of China globally.

It is true that Abe tweeted about the trip — while recognizing the challenges in moving bilateral relations forward, he said that he would still work to “push Sino-Japan relations to the next level”. Given the two countries’ economic links, it is only understandable that there is a need for the two sides to come closer. Moreover, Japanese businesses has been an extremely active force behind the government’s shift of attitude on the Belt and Road Initiative (BRI).

Yet, all in all, we should never ignore that Japan’s ambitious foreign policy has gone beyond the economic goal.

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Red Flags: Why Xi’s China is in Jeopardy – Book Review

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George Magnus writes about the dangers of the Middle-Income Trap in the Middle Kingdom, among other issues, in Red Flags: Why Xi’s China is in Jeopardy. President Xi’s face adorns the book cover, with his name looming above.  Fitting, seeing as China has removed presidential term limits; China’s fate is thus likely to be tied to the decision making of Xi for the next couple decades.

Magnus writes about the dangers of Xi’s likely ascendance to President-for-Life.  Ever since the excesses of Mao’s one-man rule, China’s Communist Party has largely ruled by consensus, while provincial governments have served as a counterweight to federal authority via control of their land and many of their local State Owned Enterprises (SOEs).  Xi is challenging this staus quo.  So-called Xi Jinping Thought is now official party canon, being taught in schools and in the media.  The 2012 crackdown on corruption by Xi in his inaugural year was widely seen as a pretense for taking out political opponents and sending a message to his potential opponents.  Ever since, Xi has been working to centralize power to himself.  Magnus notes that being leader for life largely shields Xi from short-term popular discontent, but also means that every long-term decision, good or bad, will become part of Xi’s legacy.  Hence, the book informally reads as a personal policy checklist for Xi.

Red Flags lists four, well, red flags of likely impediments to Chinese economic development.  Firstly is debt.  China has been an unprecedented money-making machine for the past three decades or so.  However, signs are starting to appear of a possible economic slowdown.  Most significant is the debt-GDP ratio, which has skyrocketed over the past few years.  Magnus writes extensively about how China’s growth, up to this point, has largely been fuelled by credit (debt).  China’s much-maligned (by Trump, most notably) trade balance surplus has shrunk to no more than a few percent, statistically insignificant.  China could theoretically make up for shrinking foreign demand for goods and services with domestic consumers.  Magnus is unfortunately the bearer of bad news in this regard: “Household savings rose from about 5% of disposable income in the late 1970s to about 38% in 2016, or just over 25% of GDP. Savings by companies are also elevated, amounting to about 17% of GDP in 2016.”

Hence, the Xi regime has been trying to maintain economic growth via ever-greater sums of state investment funding.  Magnus explicitly warns against this: “The reason the investment rate has to fall is because the more China relies on it, the more inefficient that investment will become.”  Such a statement might seem self-evident, but Magnus backs it up with facts.  For instance, he points out, “Between 1978 and 2006, for example, China spent between 2 to 4 yuan of investment to get 1 additional yuan of GDP. Since then, the amount has risen steadily to reach about 9 yuan in 2015, corresponding to a marked fall in investment efficiency.”

Magnus writes a lot about the inefficiency of China’s thousands and thousands of SOEs.  “Officially, and according to some China-watchers, SOEs now account for just a fifth of output and a tenth of employment. The presumption though that the rest of the economy is in private hands, as we understand it in the West, is incorrect. Many private firms have large or majority state owners, who exercise significant control over senior appointments and corporate strategy, and state ownership is often disguised by multiple layers of investment companies ultimately owned by a state entity. Allowing for these opaque adjustments, the purely private part of the enterprise sector may actually be little higher than 20–30 per cent.”  SOEs have built much of modern China, but their efforts are increasingly being wasted on skyscrapers and airports that remain almost empty, Chinese Roads-to-Nowhere.  A blank check invites planners to ignore long-terms concerns of viability, blinded by short-term gains that go directly into the pockets of Party-affiliated contractors.  China’s financial services sector isn’t much better off.  Magnus writes about all the bailouts, takeovers and general heavy-handedness by the government of various Chinese banks and other related companies.  Due to a slowdown in trade and many other issues discussed in the book, state investment will figure to play an ever-larger role in China’s economy, inefficiency be damned.

The book’s second diagnosed problem for China’s future growth is its currency, the renminbi.  Xi mirrors the isolationist mindset of China’s ancient emperors with regards to cash inflows and outflows.  It’s very hard for Chinese investors to send renminbi out of the country.  Likewise, China restricts the ability of foreigners to own reserves of renminbi, or Chinese financial assets in general.  The renminbi is subject not only to this lack of liquidity, but also the confines of a planned economy.  China is infamous for its strict control of its currency valuation, as well as its monetary policy via diktats, investment and bailouts.  Its ownership of USD and other foreign currency reserves must always be flawlessly balanced to safely back up the value of the renminbi.  This resulted, for instance, in the selling off of a trillion of its USD reserves between 2014-2016.  The combination of currency illiquidity and over-management limits the ability of the renminbi to fuel Chinese economic growth.

Thirdly, the book mentions the so-called Middle Income Trap.  Once a country reaches a certain benchmark of development, it’s hard to maintain further momentum.  China’s already experiencing slowed growth due to factors such as increased global manufacturing competition.  As Magnus points out, China has already had its coming-out party to the world economy.  It can’t join the WTO again or eliminate mass hunger again.  Likewise, China has stalled in terms of rural development and education.  Rural China is increasingly falling behind the major cities and the hukou system of restricted movement and rights for migrant workers isn’t helping.  Students in China still attend far fewer years of school than students in developed countries like the US, especially in advanced fields like IT.  These issues of inequality and 21st-century education must be addressed if China is to fully develop.

Lastly, Magnus writes about the demographics crisis.  China has one of the highest ratios of elderly people in the world.  Combine this with China’s 1.45 birth rate and the gender disparity caused by the 1-Child Policy and you have a ticking time bomb.  The workforce is increasingly running out of youngsters who can take the place of retirees, causing a slowdown in economic output.  The higher the elderly population becomes, the more each working-age person will have to contribute to pensions and healthcare.  The economic burden that only-children will have to shoulder taking care of their aging parents will inevitably lower marriage rates and thus further lower the unsustainably low birth rate.

This is the most dire problem because there’s very little that society can do about it.  Xenophobia has prevented any meaningful amount of migration to China, but even if China were to let in tens of millions of foreign workers, that would be a drop in the bucket for a nation of 1.4B people.  Even after China ended its One-Child Policy, couples are still averaging well below 2 children, despite increasing prosperity.  The only real hope for China’s demography problem would be a literal ex machina: automation.  Robots may be able to generate untold wealth that could buoy a small nation like Singapore, but even an army of robots is unlikely to completely offset the gradual loss of hundreds of millions of working-age people to aging.  Even if AI is a magic bullet for all productivity woes, it take probably at least a century to meaningfully scale up, by which time China’s population will have substantially shrank.  It doesn’t help that China is, in many respects, barely keeping pace in the AI race with the US, Japan and the EU.  In the race for artificial intelligence, even being a year behind the competition can cost trillions of dollars; China’s tech sector will likely take a few decades to completely match Silicon Valley.  Lastly, it should be noted that not even innovation can overcome the limit resources of our planet.  We’re already running out of industrial resources like oil and lithium.  It would be foolish to place all of one’s eggs in the basket of a sci-fi utopia.

Red Flags is a very detailed and interesting book about the future of China.  Magnus isn’t anti-China by any means; he gives credit to China’s marvelous successes and doesn’t moralize.  If anything, the book was too generous by barely mentioning the unrest in Xinjiang and not mentioning the occupation of Tibet at all.  In an objective fashion, he succinctly explains China’s problems and offers possible solutions.  China has shown an unprecedented ability to adapt to change.  This flexibility may wind up being undone not external adversaries or limitations, but by increasing autocracy.  Dictatorship has rarely resulted in long-term, across-the-board growth.  One can look at a fellow Communist country for an example: the Soviet Union.  Though the USSR made impressive leaps in technology, manufacturing and agricultural output and human longevity, it was ultimately undone by its ideological rigidity.  A lack of accountability for its leaders meant that the USSR was forever a captive to bad policy.  Likewise, a lack of freedom stunted innovation.  If Xi is to avoid the pitfalls of the USSR, he must avoid letting his power get to his head and embrace a flow of ideas from both fellow Party members and private citizens.  Xi’s consolidation of control and crackdown on dissent would point otherwise, unfortunately.  Only time will tell if China will continues to beat the odds…

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