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China, USA and North Korea

Giancarlo Elia Valori

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On October 21 last, the Russian Federation and the People’s Republic of China began their joint exercises in the Sea of Okhotsk, the most suitable maritime area to hit the US bases in the Pacific.

 It may seem strange – but it is not so for those who look to the issue carefully- that in the same days there was a Sino-Russian joint naval-air-land action in the North Sea.

 It is by no mere coincidence.

 The Sino-Soviet joint operation in Asia took place after checking President Trump’s statements at the United Nations on September 19 last, when he had claimed he could “completely destroy” North Korea and its nuclear stations.

 The more Trump is in military contrast with North Korea, as well as with China and Russia, two  of the major military fleets after the United States – although this assessment is no longer fully true – the more Putin and Xi Jinping take joint action to indirectly defend North Korea, the terrestrial axis of their security against the possible US penetration from the Korean peninsula and the nearby areas.

 North Korea is the point where the Sino-Russian security is weaker, at least for the time being. Hence, regardless of the North Korean leader’s assessment, both Putin and Xi Jinping convey incontrovertible signs to the United States.

 The message conveyed is the following: do not touch our border north of South Korea, which is too full of US soldiers and nuclear bombs.

 It is by no mere coincidence that the Sino-Russian joint training operations began on both national territories exactly on September 18 last.

 The joint exercises – formally started on September 18, the day when Trump had brought the world leaders together to discuss the UN reform – were organized with a sequence of operations less than 100 miles off the North Korean coast.

 This happened while the Chinese ships came to the bay of Peter the Great, outside the port of Vladivostok and while the United States, Japan and South Korea carried out operations to simulate an aircraft attack on North Korea with B1B bombers, as well as four F-35 fighters from Japan and two other ones from Guam.

 Four other South Korean F-15K fighters added to the operation already underway but – before the UN Security Council  meeting and after the bilateral USA-Japan-South Korea and Russia-China exercises –  the US Ambassador to China reported that China “would never accept North Korea as a nuclear State.”

 It will never accept a nuclear State, but it will certainly accept a buffer State against South Korea, a US and a quasi-nuclear base.

 This means that China does not want a strategic threat on its border, nor a structural weakening and full  denuclearization of North Korea, which would pave the way for the hegemony of the United States and South Korea (which is de facto a nuclear State) over Southern China and the South-Western maritime border of the Russian Federation, which is short but of utmost strategic importance to it.

 China has not officially accepted that the United States could put pressures on it to convince North Korea to lower the threshold of its military programme.

 China attaches particular importance to form and it does not certainly want to be “second” to the United States in the Korean peninsula.

 Conversely, the true Chinese project is to reduce the North Korean missile, nuclear and chemical-bacteriological umbrella to create a friendly shield towards its Southern stations. This would ensure full strategic autonomy also to North Korea.

 Nor should we forget that China accounts for 90% of North Korean trade and economy.

 The United States has also a stealth base in Japan, from which aircrafts only partially protected and covered by North Korean and Chinese radars can leave.

The United States has also a base in Kadena, on the Japanese island of Okinawa. Nevertheless, as demonstrated in their joint manoeuvres, China and Russia can immediately show five major ships, two nuclear submarines and some support ships.

 China, which is traditionally cautious in the manoeuvres showing its strength off, sent three surface ships and two support submarines.

 In short, the “long arm” of the US Navy cannot do much against the mix of Russian and Chinese naval forces in the region which, in the event of a final US action, would defend North Korea as if it were their metropolitan territory.

 Russia and China are close, the United States and Japan not.

 On top of it, South Korea does not want to definitively sacrifice itself to “democratize” North Korea.

 Hence Russia and China will never accept a “serious” Western and Japanese military operation on the Korean territory. They have said so in all possible military languages. On the contrary, as Xi Jinping and Putin underlined in the meeting they held in Moscow on July 5, they want “to cool the North Korean programme down”, in connection with a substantial denuclearization of South Korea and, above all, of the Japanese areas in the Pacific Ocean.

 The United States has 35,000 soldiers in South Korea and 40,000 in Japan, deployed in eleven bases, many of which very close to North Korea and, above all, to the Chinese coast.

 As was easy to imagine, Trump’s tour in the region was interpreted as a scarcely friendly sign by North Korea.

 The North Korean leadership always speaks about the “huge US power in the region” – and this is not just propaganda. It also recalls the long story of the unresolvable conflict of the 38th parallel, which was a show of strength of the Korean Army and the Chinese forces, as well the attack and capture of the “Pueblo” spy ship in 1968, whose sailors were released after a long negotiation between North Korea and the United States on December 23, 1968.

 North Korea’s propaganda continues with other examples of US weakness in defying its seas and skies. Indeed, I do not care about the sequence of North Korea’s victories.

 It should be noted, however, that the United States must finally accept a share of North Korea’s defence on all sides, in relation to the protection that Russia – which is not always co-ordinated with China – will wish to provide to their buffer State in the Korean peninsula, while North Korea shall eventually agree on a wide ​​protection area for its defence apparatus, which will mean integration with the Russian and Chinese economies, in particular.

 The United States will deal with the South Korean border, now drilled and crossed by many new tunnels, in addition to those who are now visited tourists, while the North Korean-Russian-Chinese axis will control – with possibilities of credible threats and retaliation – the entire Southern China Sea and the South Pacific, by defusing the US bases in the region and threatening the rational rearmament of the Japanese “Self-Defence Forces”.

 For Shinzo Abe that wanted it, the reform of the Japanese “pacifist” Constitution is a delicate balance in making the United States understand that Japan is a good proxy army in the Pacific, while it shall soon leave for economic crisis or other reasons; and that Japan, in particular- if it reams itself – is the  true bulwark against China.

 Paradoxically Japan reasons in the same way as North Korea: it no longer trusts a seventy-year-old equilibrium and wants to military balance – on its own – the economic integration with China and South-East Asia, where the United States has completely different aims than Japan.

 With a view to countering this project, we would need much more than President Trump’s polemic against the North Korean “weapons of mass destruction” – a script for failure already seen at work against Saddam Hussein in Iraq.

This happened after his weakening with a ten-year war against Khomeini’s Iran, when even the United States had forced the Shah to “democratic elections,” which were to overthrow him, and while US State Department emissaries ordered to Artesh, the Iranian army, to stage a coup against the Shah himself.

 The lesson that Kim Jong-Un has learnt from the United States is that of the Balkans and Iraq – and it is very hard for someone to make him change his mind.

 We would need a clear declaration recognizing the State of North Korea to open a channel to put pressure on China and Russia in North Korea. We would also need nuclear talks like the Six Party Talks, exactly where they ended in 2007, when North Korea agreed to close its nuclear facilities in exchange for fuel and “steps forward” towards mutual recognition between North Korea, the United States and Japan.

 Still a good start, to which we could add some economic actions that could integrate North Korea in the European markets, as well as the Japanese and Sino-Russian ones.

 We should fully assess the North Korean production formula to include it in the matrix of economic internationalization that currently characterizes the whole South-East Asia with different and symbiotic productive structures.

 The letter sent by North Korea to the President of the UN Security Council – later filed as document A/72/545-S/2017/882, both for the UN Security Council and for the UN Assembly on October 28 – must be seen in this sense.

 In said letter North Korea pointed out that the naval and air operations organized by the United States and its allies in the Pacific could be defined as “acts of war”.

 From a certain viewpoint, this is legally legitimate.

 Later the aforementioned North Korean document was handed out as official document of the Council on October 30.

 Furthermore, another North Korean official document shows that the country will not accept the recent charge of “money laundering” directed to it, because –  if the financial transactions are designed to purchase technologies or military components for self-defence – there is no infringement of the rules of the Financial Action Task Force (FATF) established, exactly for North Korea, in the FATF meeting held in Buenos Aires On November 1-3 last.

 With specific reference to the sanctions against North Korea, the United States can currently hit the textile, the banking and the fishing sectors.

 It is also said that China advised its banks and financial companies to block trade with North Korea.

 Furthermore, Europe added to the sanctions already decided by the United Nations also a ridiculous block of trade for luxury goods and purebred horses.

 Ironically, since the current year the North Korean economy has been growing by 4%, the fastest rate over the last seven years.

 Certainly, China’s “covert” market network has been widely used in these years of sanctions, while Chinese banks have done everything – through the Chinese companies – to link North Korea to the global market.

 From this viewpoint, there is no hope for an effective regime of sanctions against North Korea.

Too important for Russia and inevitable for China, which would like to see it powerful enough to close its Southern border, but not too nuclearized to force it to negotiate with North Korea.

 Hence either North Korea is accepted as regional nuclear power or it is destroyed with nuclear weapons.

 Moreover, the US propaganda itself, which sometimes emphasizes the need for a “preventive nuclear attack” against North Korea is a demonstration – according to the same and opposite propaganda of North Korea – of the “necessary” military autonomy of Kim Jong-Un’s Korea.

 North Korea also believes that the very presence of US military bases, both in South Korea and elsewhere in the Pacific, is in itself a threat to its strategic autonomy.

 This is also true, but here Kim Jong Un speaks on behalf of China and, partly, of Russia, which is less interested in the South Pacific, but considers the non-hegemonic freedom of the region a necessary protection for the Russian operations between the Kurili Islands and Siberia.

 According to its official documents, North Korea “is careful in observing the US movements and the renewal of the US forces and its allies in the Pacific”.

 This is the right time to rethink new “Six Party Talks” to: a) set the limits of the US direct hegemony in the South Pacific; b) set the limits of the North Korean nuclear power, if this can still play a real protection role; c) establish  official relations between the United States and North Korea, and also with Japan; d) provide the economic support to the differentiation of the North Korean production system, which could find itself better in the world market than as Russian and Chinese sub-supplier.

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

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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East Asia

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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East Asia

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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