China's outlook from McMaster

[0R0 + 6,251]

McMaster is showing how the CCP has been viewing the world and its clear knowledge that the Chinese economy will turn sour and old sooner rather than later, so this is its peak and China's opportunity to obtain secure supply chains for its needs through manipulation of the supplier countries into vassal positions via political bribery, control of the transnational organizations and commercial bait and switch for corporations. 

https://www.theatlantic.com/magazine/archive/2020/05/mcmaster-china-strategy/609088/?utm_source=twitter&utm_content=edit-promo&utm_medium=social&utm_term=2020-04-17T11%253A00%253A25&utm_campaign=the-atlantic

Highlight 

The party’s leaders believe they have a narrow window of strategic opportunity to strengthen their rule and revise the international order in their favor—before China’s economy sours, before the population grows old, before other countries realize that the party is pursuing national rejuvenation at their expense, and before unanticipated events such as the coronavirus pandemic expose the vulnerabilities the party created in the race to surpass the United States and realize the China dream. The party has no intention of playing by the rules associated with international law, trade, or commerce. China’s overall strategy relies on co-option and coercion at home and abroad, as well as on concealing the nature of China’s true intentions. What makes this strategy potent and dangerous is the integrated nature of the party’s efforts across government, industry, academia, and the military.

 

The party’s efforts to exert control inside China are far better known than its parallel efforts beyond China’s borders. Here again, insecurity and ambition are mutually reinforcing. Chinese leaders aim to put in place a modern-day version of the tributary system that Chinese emperors used to establish authority over vassal states. Under that system, kingdoms could trade and enjoy peace with the Chinese empire in return for submission. Chinese leaders are not shy about asserting this ambition. In 2010, China’s foreign minister matter-of-factly told his counterparts at a meeting of the Association of Southeast Asian Nations: “China is a big country, and you are small countries.” China intends to establish a new tributary system through a massive effort organized under three overlapping policies, carrying the names “Made in China 2025,” “Belt and Road Initiative,” and “Military-Civil Fusion.”

 

 

[0R0 + 6,251]

I think it is obvious that the West will have to reduce by more than half China's role in supply chains. A "Not made in China" universal policy. Ultimately creating bypass organizations to all those that China has a seat in. Particularly the UN, WTO, World Bank, the Development banks, IMF, BIS, SWIFT, the World patent  office. 

China can not be allowed to interact commercially in the world at all. As all its interactions are military in nature and solely designed to provide the CCP with political and financial leverage over the countries that China needs to supply it. 

China is about 90-95% open, but it is operating at 80% of capacity. The container ships are only 20% full. Shadow unemployment is about 25% as per Liu Chenjie, economist at Upright Asset in China. Estimating that as of end of March, over 205 million people have lost their jobs with 180 mil of the losses permanent service jobs depending on Chinese consumer's will to spend, unless new activity picks up, they will not be rehired. 

https://www.scmp.com/economy/china-economy/article/3078251/coronavirus-chinas-unemployment-crisis-mounts-nobody-knows

Subway ridership indicates 30% of workers, though returned to their work cities are still not working. While much of this gap is work from home office workers still working from home, that leaves the support workers that cleaned the offices and delivered food and office supplies and staffed the restaurants and shops out of work. 

The other big issue is the 180 mil export manufacturing workers, where orders have been down by 60% and shipments bottomed at 80% down bu recovered only in small part. 

https://www.reuters.com/article/china-economy-pmi-factory-caixin/chinas-april-factory-activity-unexpectedly-dips-as-export-orders-collapse-caixin-pmi-idUSZUN000A1Q

export orders contracted at the fastest pace since the 2008 global financial crisis, with a sub-index dropping to 33.7, as external demand collapsed due to heavy lockdowns worldwide. That reading was even worse than February when China’s economic activity ground to a standstill.

Factories in industrial cities are laying off more workers and stopped recruiting new ones. The lack of spending from paychecks of export driven jobs is suppressing consumer spending further, which is already down substantially as people that had returned to work have not returned to spending in order to increase their savings back to beyond prior levels before the Wuhan coronavirus pandemic. Food inflation is hurting badly as food expenditures have risen as a % of incomes to leave little spending power on other goods and services. 

“A package of macroeconomic policies, as suggested in the April 17 Politburo meeting, must be implemented urgently. It is particularly necessary to aid weak links including small and mid-size enterprises and personal incomes.”

I don't believe they can lever up from >500% of GDP to "whatever it takes" to return 20% of economic activity back to where it had been. Their SOE sector had already gone from 180% of GDP in debt to 200% of GDP due to the "lend to employ" banking policy for SOEs. China has apparently returned to >50% SOE and government composition and these figures, if not reversed immediately will have the SOE+government sector at 60% of the economy. Activity is implied to be down still 20% from a year ago. Having shrunk in April. Paychecks have been reduced for many workers and they have increased savings while food expenses have risen 20%. That threatens 30% of consumer spending, and combined with a 60% drop in export orders, it implies a collapse of the Chinese consumer economy. 

https://www.nytimes.com/2020/04/28/business/china-coronavirus-economy.html

China's small Millennial cohort bump known for its spendthrift ways, is now unemployed, on reduced wages, or saving up, while food prices press on them and they have cut discretionary spending to a trickle. 

Even official stats show that the 20% decline in spending has not improved much. It is down still 15% from this month last year. 

Satellite imagery shows that Chinese industrial areas emitted considerably less light this spring than they did a year ago, in a sign that fewer building sites may be floodlit for 24-hour construction and that fewer factories may be operating around the clock.

 

 

Edited May 2, 2020 by 0R0

[Marcin2 + 726]

13 minutes ago, 0R0 said:

I think it is obvious that the West will have to reduce by more than half China's role in supply chains. A "Not made in China" universal policy. Ultimately creating bypass organizations to all those that China has a seat in. Particularly the UN, WTO, World Bank, the Development banks, IMF, BIS, SWIFT, the World patent  office. 

China can not be allowed to interact commercially in the world at all. As all its interactions are military in nature and solely designed to provide the CCP with political and financial leverage over the countries that China needs to supply it. 

It is simply not possible, but give me some hope.

Tell me about any international organization United States created in the last 40 years.

I can tell you about many organizations and agreements that US left, in fact isolating itself.

You would not believe it, I still do not, it must be some media hoax, but lately US tried to undermine WHO during global pandemic.

I understand that you just click bait users so would not comment about 1.4 billion nation being isolated.

Look at the map, China has land borders with 14 countries and maritime borders with further 3. Together this is 35 million km2 of land and 3.3 billion people.

Edited May 2, 2020 by Marcin2
typo

[0R0 + 6,251]

2 minutes ago, Marcin2 said:

It is simply not possible, but give me some hope.

Tell me about any international organization United States created in the last 40 years.

I can tell you about many organizations and agreements that US left, in fact isolating itself.

You would not believe it, I still do not, it must be some media hoax, but lately US tried to undermine WHO during global pandemic.

That is not a stage 1 response. It is a much later response. "ultimately" most definitely does not mean now. 

In the meantime, the effort is to gut the existing organizations completely. The WHO is a start. The WTO is already paralyzed. The strategy is to bring about international abandonment first, a new system later. Interpol will likely be cut down to size as well pretty soon. Trump has said literally that the US does only bilateral relationships. That is what all of this means. As far as the US is concerned, the multilateral organizations don't exist. The background action is to eventually remove the founding treaties of these organizations from internal US law. Meaning that their decisions can not be followed internally in the US. Legal references to them will not be enforceable. 

There is a need for the US to chorale the West into a coherent policy of high tariff on China. China can retaliate against individual countries, but it can't attack them all.  Individually, they are all onboard to subsidize the "not made in China" trend for their companies. That is the little carrot - a universal tariff on China content in imports is the stick. 

At some point, CCP members in the company's board and management will get them classified as Chinese military or intelligence organizations and they will be forced out of US operations and ownership of assets 

[Marcin2 + 726]

But during past 5 years China included:

- all the world minus US, Mexico and poorest African countries in AIIB

- nearly half the world in BRI

- Pakistan and India into SCO

”ultimate” needs to mean now, just to counter Chinese offensive.

What is your opinion about China canceling all the tariffs on US exports in 2-3 weeks ?

Edited May 2, 2020 by Marcin2
Typo

[Douglas Buckland + 6,308]

3 hours ago, Marcin2 said:

It is simply not possible, but give me some hope.

Tell me about any international organization United States created in the last 40 years.

I can tell you about many organizations and agreements that US left, in fact isolating itself.

You would not believe it, I still do not, it must be some media hoax, but lately US tried to undermine WHO during global pandemic.

I understand that you just click bait users so would not comment about 1.4 billion nation being isolated.

Look at the map, China has land borders with 14 countries and maritime borders with further 3. Together this is 35 million km2 of land and 3.3 billion people.

....how did we know that this would be your response?🤔

[SUZNV + 1,197]

4 hours ago, Marcin2 said:

It is simply not possible, but give me some hope.

Tell me about any international organization United States created in the last 40 years.

I can tell you about many organizations and agreements that US left, in fact isolating itself.

You would not believe it, I still do not, it must be some media hoax, but lately US tried to undermine WHO during global pandemic.

I understand that you just click bait users so would not comment about 1.4 billion nation being isolated.

Look at the map, China has land borders with 14 countries and maritime borders with further 3. Together this is 35 million km2 of land and 3.3 billion people.

Which approach US didn't try?

Funded WHO and WHO is leaded by China. China can fill the gap in WHO with or without US funds. You pay more but you have no say, why should you pay for someone's else employees? Did the funds to WHO have any help in stopping the disease? And US did send money to other countries in needed directly, not through WHO. WHO did not have anything to do with US isolation or not. 

Even before US started to isolate itself, China did corrupt  or using their money to gain influence to lots of goverments. They bought lots of businesses in EU before Covid19. The solidified the disputed islands while Obama was pivoting to Asia.

How many agreements China broke since join WTO? You cannot play chess with a person who doesn't follow the rule of chess.  Any agreement is trash when one party broke them. Should US sign more agreements? 

US cannot compete with China in term with ODA projects or bribe other governments, that is for sure. Xi can decide how to use China's resources as his will, and can corrupt any government, while US have a budget with congress control and  are bound  by "rules and ethics". What should US do? Any corrupted governments will take China ODA instead of US ODA simply because of the bribe from China will be kept secret while it will be a political blow to US governing party if they do the same, and it will affect the bribed governments.

Look at the map, how many of China's neighbor didn't have wars with them in the last century? Didn't no country know about CCP violation of human rights? They simply ignored all to get to China's market or fund, including US. US in or out of any organization doesn't create more corruption gap for China to fill in. Most of the other countries get benefit from both the US compete to China for influences, but  all of the funds from the US were taken for granted while they keep trading their futures to China, only because they cannot do the reverse. They know China can punish them and US won't.

Democracy system does not help if most of its citizens choose to sell their future to China , let along other political systems, how do you want to buy your future back without paying anything? There is no mechanism for US government to bail out other countries future and even if there is, what stops them to sell their future again? 

Edited May 3, 2020 by SUZNV

[0R0 + 6,251]

4 hours ago, Marcin2 said:

But during past 5 years China included:

- all the world minus US, Mexico and poorest African countries in AIIB

- nearly half the world in BRI

- Pakistan and India into SCO

”ultimate” needs to mean now, just to counter Chinese offensive.

What is your opinion about China canceling all the tariffs on US exports in 2-3 weeks ?

Cancelling taxes on US exports is a good move to catch Trump's attention.

The BRI countries are seething with resentment. As I pointed out elsewhere, the BRI deals with China are already being reneged. They will have the ports and dams they cheated their way into nationalized like those of all colonial powers before them. The president of Tanzania called the BRI deal of his country "signed by a drunkard" and has no intention of fulfilling it. Others will follow. The BRI was a beginner's blunder on the part of China. 

I would not be surprised if after a series of nationalizations in Africa and S and SE Asia, Chinese attempts at reprisals will push countries to seek protection from bigger ones. The US, EU as a whole or Germany and France separately or UK and Japan. 

The 14 nations bordering China and the 3 sharing a disputed sea border are not the makings of a regional block but of a seething underground war. They would rather China were not there. It is far more a competitor than it is a market or a source of supply. 

You keep believing that the nations that nobody has ever managed to make into partners in anything would suddenly change in order to make themselves vassals of China. The saying has always been you can rent them but you can't buy them. What is theirs and was sold to you is still theirs and they will sell it again to someone else. The 99 year lease is a thing of the past next year. 

 

 

[Marcin2 + 726]

4 hours ago, Douglas Buckland said:

....how did we know that this would be your response?🤔

This is response of any unbiased person that knows geography at secondary school level.

[Marcin2 + 726]

8 hours ago, 0R0 said:

That is not a stage 1 response. It is a much later response. "ultimately" most definitely does not mean now. 

In the meantime, the effort is to gut the existing organizations completely. The WHO is a start. The WTO is already paralyzed. The strategy is to bring about international abandonment first, a new system later. Interpol will likely be cut down to size as well pretty soon. Trump has said literally that the US does only bilateral relationships. That is what all of this means. As far as the US is concerned, the multilateral organizations don't exist. The background action is to eventually remove the founding treaties of these organizations from internal US law. Meaning that their decisions can not be followed internally in the US. Legal references to them will not be enforceable. 

You cite some US voices about abandon of UN and other global organizations. But these were voices of the past, mainly of 1980s and 1990s when G7 was dominating the world. G20 is the major forum now.

I do not argue internal inconsistence about US isolating itself into oblivion under Trump , leaving international organizations but later somehow rising like phoenix from ashes. It was good in Greek mythogy ( or in Harry Potter for most Americans). In global politics when you are out, the  void is filled by your rivals.

World is actively filling the void of post-American order.

[Tom Kirkman + 8,860]

Cap of Trump's 2011 tweets about China.  Trump has been sounding the alarm about CCP shenanigans for a decade,

[Douglas Buckland + 6,308]

1 hour ago, Marcin2 said:

This is response of any unbiased person that knows geography at secondary school level.

Well, as I have actually worked all over the world and am now on my fifth US passport (the first four had multiple sets of leaves, which is no longer possible), I would be willing to bet that my knowledge of geography, peoples and cultures is somewhat more advanced than someone whose knowledge simply comes from studying maps in a textbook.

[Marcin2 + 726]

49 minutes ago, Douglas Buckland said:

Well, as I have actually worked all over the world and am now on my fifth US passport (the first four had multiple sets of leaves, which is no longer possible), I would be willing to bet that my knowledge of geography, peoples and cultures is somewhat more advanced than someone whose knowledge simply comes from studying maps in a textbook.

This thread is about How @0R0dreams that US would create new global organizations to prolong its hegemony and even commercially isolate China.

I like 0R0 dreams cause there are always some interesting general idea in each of them, very rare event at this mono forum.

But sometimes I cannot help but ask questions like in this particular case: US is doing a lot to isolate itself and China, country at the geopolitical center of Eurasia is in obvious political offensive.

I just ask what US is doing cause what I know US has done till this very moment is: out of UNESCO, contra WHO, out of TPP, out of Climate Change and so on.

I am not asking questions to convince anybody, there could be No discussion among devout believers. Discussing Prophet Muhammad is sacrilege punished with stoning. I look at Trump believers in the same way.

The difference is that unlike Middle Eastern feud that we do not care about till oil flows, polarization and isolation I observe in US ( but also in Poland) has real impact on peoples lives.

Edited May 3, 2020 by Marcin2
Typo

[Douglas Buckland + 6,308]

“I just ask what US is doing cause what I know US has done till this very moment is: out of UNESCO, contra WHO, out of TPP, out of Climate Change and so on.”

Why, pray tell, should the US remain part of UNESCO, WHO, TPP, the Paris Accord, NATO and so on, when they are expected to pay the lion’s share of the budget for these organizations, the organizations do not directly benefit the US, the members are antagonistic towards the US, and concerning climate change, the science is not definitive?

[Dan Warnick + 6,100]

12 hours ago, 0R0 said:

before the population grows old

"....if only there was a virus...."

(don't mind me, just sweeping up over here)

[0R0 + 6,251]

1 minute ago, Marcin2 said:

This thread is about How @0R0dreams that US would create new global organizations to prolong its hegemony and even commercially isolate China.

I like 0R0 dreams cause there are always some interesting general idea in each of them, very rare event at this mono forum.

But sometimes I cannot help but ask questions like in this particular case: US is doing a lot to isolate itself and China, country at the geopolitical center of Eurasia is in obvious political offensive.

I just ask what US is doing cause what I know US has done till this very moment is: out of UNESCO, contra WHO, out of TPP, out of Climate Change and so on.

The US does not want to police the world, only a small set of close allies that forms the core of its future world, but does not want to leave all the world's resources in China/Russian hands, as they are the only ones now prepared to do anything about them. EU is not ready and still imagines that it can have a closed "green economy" of renewable energy and recycled minerals and not have to defend anything, Japan can protect itself and its trade, but not all of the resources. It can secure the Gulf with either Australia or the UK or anyone else from Europe. But the "else" candidates are sitting on their hands for 3 years and have no decisions. 

The Chinese economy had till 2025 till its financial system went cash flow negative. At that point, you can't leverage yourself out of it because you plug the hole with money printing (at the banks or PBOC) and this creates price inflation because retired people pulling out savings are buying stuff to sustain themselves. The inflation trend lowers real savings outstanding and causes the young to spend less and the old to buy what they need before prices rise further. This is going on right now with food prices. Food sales are up 33% from last year, but all other retail sales are down 25%. Exports are still severely depressed. New orders are not coming in from EU nor US. So they are on pace to reach 2025 right now. 

I have followed China's development since high school when Deng instituted his reforms. I was cheering China's opening up and rapid development, and saw how it was powering up its boomer generation and I was expecting them to expand their productivity and raise quality the way Japanese Koreans and Taiwan had done before it. I saw them stretching the global system, but the people were there, so the demand was there, exports boomed and there was plenty of room for more. But productivity barely budged. Unlike agriculture where output went on increasing on better land productivity and labor productivity, China did not manage to make industry budge. Only foreign manufacturers and their direct contractors figured out how to make the illiterate and innumerate middle school barely grads (76% of the people) typical of industrial workers, and the 10% of them who graduated from college and could at least follow instructions in writing and count so were supervisors - only the foreign companies managed to get substantially improved productivity out of them. In technology production, some local companies finally managed to copy Flextronic's methods and got a large improvement in productivity. Lenovo, ZTE, Huawei etc. 

It all came to an abrupt halt in the 2008 GFC. The floating labor pool of migrants went home for Lunar new year's and didn't come back. Their old employers in export manufacturing abandoned their plants and flew off to the West and SE Asia with whatever cash they could borrow as the PBOC and the big 4 banks went on a credit rampage bigger than that of the US EMU and Japan put together. They took the easy financing and took off. Demographically, that was the turn down where the middle of the baby boomers had peaked in their spending wave and they started saving more than they were spending. Their millennial children leaving the house. The tone of China flipped entirely during the GFC. Deng's reformers  were swept aside and the ancient hardliners popped back out of the background and started to go on a xenophobic bully path abroad, but were touting a new consumer culture and the new consumer and services economy. The private economy was still expanding rapidly with cheap credit available in round about ways (private markets had no access to bank loans).

This was going on till 2013 when Emperor Xi took over and wanted China to take over for the US as a financial center and reserve currency/gold market and came out with his plans to dominate economically and politically. In order to do that he did reforms in the financial system to restrict leverage and credit expansion. Within 1 year the economy was slowing down its growth trajectory and Chinese numbers were no longer tracking GDP stats. Something was very fishy. Money supply and credit, however, didn't stop growing fast as the economy had, but actually accelerated. Then the long awaited big bang financial reform came in and Emperor Xi opened the shiny new financial district and opened the capital account. By the end of 2016, $1 Trillion fled the country and reserves hit the IMF's suggested minimum. Inflows didn't rise much. Exporters didn't resume repatriation of their money. It had to stop immediately, and Emperor Xi did exactly that. But without the expected foreign capital inflows and with domestic consumption and investment lagging, they blew the doors open on stimulus and embarked on the biggest ever credit expansion event both nominally and as a % of GDP.  Most of it via the Shadow banking sector and its wealth management products and funds and off the books provincial SIVs financing the projects. By 2017, China was at 300% Debt to GDP when official PBOC shadow bank debt is included (not in the official banking numbers reported) but the unofficial private market financing added another near 200% of GDP in new debt. Real estate speculation was rampant and people were buying second homes. Millnnials were spending like mad and racking up credit. Things were getting very dangerously over-leveraged. 

So they raised the RRR, stomped shadow banking into a freeze, assassinated the HNA Financial CEO and had to face the Trump tariffs. Unofficial estimates of GDP for 2018 were just above 0. By 2019 they were negative. Nothing at all was working properly in China. 

The only thing growing in reality was Chinese aggression on all the political fronts, and the bribery campaigns all around the world, They were acting like the end of their window of opportunity to implement their grandiose and unworkable scheme of becoming an empire was closing fast. Which it is. 

It is important to note that the China of Jim Rogers in the 2000s and what followed since the Hardliners took over and setup Emperor Xi are two diametrically opposed items. Any straight lines projecting from the trends of the 1990-2010 boom peak out and head south from that point. @Marcin is talking about the past and projecting it into the future while the steam driving the engine had all escaped. Those straight lines tower over the flattened reality. The huge ramp in agricultural productivity peaked. Steel peaked (but for the rush job in 2019 to get pipes into Russia in time before oil flows in the dollar market dry up with China's vanishing forex cash flows from the negative current account (when errors and omissions are added in). 

The stats that @Marcin refers to are all show and no substance. Proficiency exams are carried out on the 1/4 of students who make it into high school. Cram course universities rival Trump university for the imaginary value of their education. Only one university in China has global standing as a top tier institution.  The bulk of the college graduates are just about literate and numerate and may be able to fumble about for vaguely correct answers. Foreign employers in China find 90% of the graduate degreed job candidates to be at best marginally adept at their area of study, only 10% having the requisite skills the degree would have conveyed from a Western school. By my figure that makes the annual output of China's universities and technical schools only 500k of actual talent and the rest graduate from college with the equivalent skill set of a high school diploma. The patents are mostly minor tweaks of no substance over prior art, papers published have a 30% probability of being withdrawn due to plagiarism, fake data, or unsubstantiated analysis or claims. Citations are thin.

The China that @Marcin keeps talking about and I keep looking for appears to be just bluster and bluff.  Like an old oil well outputting water at huge volumes rather than oil as it used to. That does not mean that China has no means to form a significant threat to the world and is not trying to take over whatever it can in the biggest ever bribery and arm twisting campaign of its suppliers and markets. 

[surrept33 + 609]

19 hours ago, 0R0 said:

That is not a stage 1 response. It is a much later response. "ultimately" most definitely does not mean now. 

In the meantime, the effort is to gut the existing organizations completely. The WHO is a start. The WTO is already paralyzed. The strategy is to bring about international abandonment first, a new system later. Interpol will likely be cut down to size as well pretty soon. Trump has said literally that the US does only bilateral relationships. That is what all of this means. As far as the US is concerned, the multilateral organizations don't exist. The background action is to eventually remove the founding treaties of these organizations from internal US law. Meaning that their decisions can not be followed internally in the US. Legal references to them will not be enforceable. 

There is a need for the US to chorale the West into a coherent policy of high tariff on China. China can retaliate against individual countries, but it can't attack them all.  Individually, they are all onboard to subsidize the "not made in China" trend for their companies. That is the little carrot - a universal tariff on China content in imports is the stick. 

At some point, CCP members in the company's board and management will get them classified as Chinese military or intelligence organizations and they will be forced out of US operations and ownership of assets 

The WTO and WHO need reform to be sure. How that's done is still completely uncertain, and it will continue to be uncertain for a while. Trump's trade wars have not exactly been very popular internationally, and has split opinion domestically. I think a new multilateral round of reform may just as easily happen, which might be more frictionless than replacing the WTO or WHO wholesale.

A few days ago, this happened @ the WTO:
 

Quote

A group of major trading countries on Thursday officially notified the World Trade Organization of their agreement to create a new interim appeals court to get around Trump’s blockade of the WTO Appellate Body, which ceased functioning in December.

The European Union and 19 other countries, including Australia, China, Canada, Mexico, Switzerland, and Singapore, will now start putting in place a pool of judges that can be called on to help solve trade disputes. It effectively isolates the United States.

 

 

Edited May 3, 2020 by surrept33

[Marcin2 + 726]

Well, @0R0 if you are right it is much better for all of us, cause it means China would not dominate the world.

I would like US, China and EU to become and stay as tri-polar world order, it would be safe.

I am just using metrics, raw data and opinions of people that professionally analyze Chinese development.

I formulate my opinions on the basis of these data, professional presentations etc.

I do not conduct my own research, it is just a hobby.

I do not know Chinese language and not traveled to China.

Very important point: that the data and research I use in my analyses are backed by actions of US government.

Please do not analyze the reasons United States acts the way it acts.

US actions speak for themselves, nobody uses such sanctions, concentrates on high-tech containment if the rival-China would be just 3rd world, developing country. Majority of US war effort in latest 5 years is to counter China.

I encourage you to present the data, professional opinions that prove that China is weak and collapsing.

Since September 2019, it were really rare events in which such data were provided.

For me it is difficult to discuss with you guys discuss due to 3 factors:

1. You do not have experience in economic analysis, often do not understand economic analysis, your background is in engineering or oil industry, well this forum is about these topics, not geopolitics

2. You do  not provide data or professional presentations/papers/articles to back your opinions. Probably it is due to point 1 - your background is different. When I am speaking about something I usually conduct thought process that could be followed. I ask about errors in the process, not the wholesale: "you are wrong Marcin" statements. I am often wrong but I do not Understand you opinions, you speak different language.

I am harsh, I know.

Sometimes there are pearls here, I think I would always comment such posts "this is a pearl" cause they are rare. People are frustrated and leave this forum. I am looking for other forum to exchange ideas, have not found yet.

I would look at your recent comment to show you what I mean:

"The US does not want to police the world, only a small set of close allies that forms the core of its future world, but does not want to leave all the world's resources in China/Russian hands, as they are the only ones now prepared to do anything about them. EU is not ready and still imagines that it can have a closed "green economy" of renewable energy and recycled minerals and not have to defend anything, Japan can protect itself and its trade, but not all of the resources. It can secure the Gulf with either Australia or the UK or anyone else from Europe. But the "else" candidates are sitting on their hands for 3 years and have no decisions. "

Largest military, spending 40% of global, the spending that US no longer can afford with 1 trillion budget deficits, other items are slashed and military is first in access to US federal budget resources  (Have you noticed ? I provided a few numbers  to counter your argument that US does not want to police the world. I am expecting contra arguments of such type).

Opinion about EU defence I agree. Military spending in some major countries below 2% threshold.

Japan, Australia, UK : I do not know how they would act in military sphere.

What I know is that China does not want them as adversary, they want them in its sphere of economic influence. China already has Japan and Australia. China knows that US military would back any country to instigate conflict with China. From Sun Tzu: "If your adversary is superior, evade it". China does it, especially this election year.

"The Chinese economy had till 2025 till its financial system went cash flow negative. At that point, you can't leverage yourself out of it because you plug the hole with money printing (at the banks or PBOC) and this creates price inflation because retired people pulling out savings are buying stuff to sustain themselves. The inflation trend lowers real savings outstanding and causes the young to spend less and the old to buy what they need before prices rise further. This is going on right now with food prices. Food sales are up 33% from last year, but all other retail sales are down 25%. Exports are still severely depressed. New orders are not coming in from EU nor US. So they are on pace to reach 2025 right now. 

What does it mean: cashflow negative ? China would import more than it exports, or you probably mean current & capital account ? We already discussed money printing. You insist on definition that when state-owned banks, even very profitable are buying government papers it is always money printing. In virtually all countries banks are investing in government financial instruments. There are many legal incentives for them to do so. China is not different. Apart from that you have proofs from US and EU that large private banks are actually state-owned, I am sorry their profits are private, their losses are public. So having well managed large state-owned banks is not that bad, thou they should not dominate the lending. This is the weakness of Chinese state capitalism, I agree. But it is not money printing.

China has very low government debt. They have positive interest rates, the most prudent monetary policy in all G20

( Show me numerical example that I am wrong, these are just numbers: check inflation against basic rate. Yes I know I am right, you cannot find such example).

China together with other East Asia, have highest savings rate, 40% in the world, this allowed them to develop so quickly, even with many wrong investments. That is why they have the largest banking system in the world (by total assets). It is 190 trillion yuan , 220% of GDP (this is another number, please show me counter number).

Total Chinese credit is about 280% of GDP at the moment, 98% of that in yuan. (another 4 numbers, that show you how stable Chinese financial system is. 

And I can go on like that.

Consider @surrept33, these I call pearls

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27 minutes ago, Marcin2 said:

US actions speak for themselves, nobody uses such sanctions, concentrates on high-tech containment if the rival-China would be just 3rd world, developing country. Majority of US war effort in latest 5 years is to counter China.

 

China is absolutely dangerous, and is time constrained. They do have the ability to steal and bribe their way into technological near equivalence at one generation behind. They do have the masses to put things together rapidly and sloppily. That economic inversion of the demographic driving force is familiar to Chinese leadership. The IMF and World Bank published voluminously on China's problems. That is not a question of net capability but that the house of cards they built is on borrowed time. So they are desperate to secure their supplies and bring their neighbors into submission as vassals now rather than later. Because later their dependency ratio in one decade will leave little room to spare and their ability to be the export superpower will wane.

The time tables for China are tightening because of the CV19. Which makes it more dangerous rather than less. They are bristling more because they know they are not ready to follow through and press an advantage in the empire of bribery and theft with military action to secure the vassal relationships. You really don't want to be set against a desperate enemy. They tend to do very aggressive and dangerous things and inflict enormous damage. . 

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48 minutes ago, Marcin2 said:

Japan, Australia, UK : I do not know how they would act in military sphere.

 

They are acting now, particularly Australia and Japan. 

Note that the nations surrounding China's sea have together as large a navy as they do, even without the US being involved. That is why they built bases out of coral reefs and sand islands rather than much more expensive large carriers. They need whatever war advantage they can buy cheaply.

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2 hours ago, 0R0 said:

China is absolutely dangerous, and is time constrained. They do have the ability to steal and bribe their way into technological near equivalence at one generation behind. They do have the masses to put things together rapidly and sloppily. That economic inversion of the demographic driving force is familiar to Chinese leadership. The IMF and World Bank published voluminously on China's problems. That is not a question of net capability but that the house of cards they built is on borrowed time. So they are desperate to secure their supplies and bring their neighbors into submission as vassals now rather than later. Because later their dependency ratio in one decade will leave little room to spare and their ability to be the export superpower will wane.

The time tables for China are tightening because of the CV19. Which makes it more dangerous rather than less. They are bristling more because they know they are not ready to follow through and press an advantage in the empire of bribery and theft with military action to secure the vassal relationships. You really don't want to be set against a desperate enemy. They tend to do very aggressive and dangerous things and inflict enormous damage. . 

I know that China is dangerous, very dangerous and at least you admit it. I really do not like that guys like Douglas, Jan, even Tom or Rob, Ron really underestimate them. I think they represent majority of Trump supporters. And they are top 5% of US society, they were executives or had own businesses, are educated, travelled a lot, worked in different countries.

I think China problems are not that important. Why I think so ? Gavekal, Ian Bremmer, McKinsey etc. really think Chinese are going to have top place. And they proved this in their presentations, lectures.

Again Sun Tzu: Appear weak if you strong, appear strong if you are weak. China is not critisizing or argumenting with Western claims that China is weak. It is the deliberate work of CCP Propaganda Department.

Chinese have every aspect of outward appearance in control.

Trump entourage is dressed just according to very formal dress code, dark plain suits in dark blue and dark black different colours, but they have different ties, nobody controls ties in Trump surroundings.

Ties are controlled in Xi Jinping surroundings, they have matching ties and suits have the same shade of the same colour, like Xi army that they are.

And it is not because China is that good, but US and EU have very shortsighted policies and are losing ground.

Edited May 3, 2020 by Marcin2
typo

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43 minutes ago, 0R0 said:

They are acting now, particularly Australia and Japan. 

Note that the nations surrounding China's sea have together as large a navy as they do, even without the US being involved. That is why they built bases out of coral reefs and sand islands rather than much more expensive large carriers. They need whatever war advantage they can buy cheaply.

OK, at the moment Japanese, South Korean, Australian fleets put together are 1/2 of Chinese fleet, I admit.

( In destroyers they are on par, but China has additionally too many frigates and corvetts).

But Chinese fleet has much higher build up.

But why anyone of them would fight with China ? Australia, South Korea , Japan: millions of direct people to people business and leisure contacts. In Australia a lot of Chinese students. All these economies are complementary with Chinese. They are small enough to not be direct threat to Chinese economy ( Put together just 8 trillion dollars and 200 million people).

People with direct contacts never fight with each other. In the past, communist times we were taught that West Germans are evil, descendants of nazis. But since millions of Poles worked in this country as illegal gastarbeiters, or later emigrated there, the myth of evil Germans vanished. I worked with Germans, for Germany based companies or briefly in Germany. They are people like us. 

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52 minutes ago, Marcin2 said:

1. You do not have experience in economic analysis, often do not understand economic analysis, your background is in engineering or oil industry, well this forum is about these topics, not geopolitics

 

I have been doing economic analysis for financial market forecasting for 20 years. The perspective is from a quantitative adaptation of Austrian school economics, and the structure of debt and monetary balances (rather imbalances). I point out financial and economic statistics and demographic factors and you never react to the content. 

You keep insisting that only the numbers that China reports to official institutions are to be trusted, while the literature is saturated about how those are fake and how the gap between reality and the reported numbers keeps rising over this decade. The financial data obtained by GNS' Malinen, Kyle Bass, Brian McCarthy and Zeihan on the shadow banking system and the analysis generated from the forex administrator in China, SAFE, somehow don't matter and the doubtful statistics from China mysteriously gain superior value.

The leverage ratio in China is >>280% of GDP even by available numbers, as state bank's participation in the Shadow banking sector is recorded and provided by the PBOC, which brings China into the 330% range. But the big deal is the enormous credit impulse of 2016-17 and the resulting stepwise increase in real estate values and volumes. 

I should say that since you never quote significant data and post no sources I do need to go check what you are talking about. Then I find the stats and they essentially stick "orange" labels on grapes and count them all as equal to come up with aggregate numbers of "oranges" and "equivalents". 

My experience has been that what is well analyzed and documented is at the end of its useful life and trend. It is far harder to create a useful analysis of current dynamics, cycles and trends into the future as the future has no documents. 

Thus opportunities in financial markets are contrary to mainstream analysis and are characterized by a lack of documentation. The wrong analysis is driven by a consensus about a well documented past.

All driving forces in economics and finance are small differences between large numbers. Gross and net margins are more important than raw sales. This is obviously not comprehended by Chinese leadership and its huge coterie of cheerleading analysts. The gross investment and production numbers are not backed up by productivity gains and increasing unit  margins. Thus are not reflective of the values. of that production and investment. China's economy has dropped in the marginal utility of incremental capital investment down to the point of making good iron ore and coke into valueless excess amounts of unsaleable low grade steel.

While the huge numbers from China appear to impress the consensus analysts, it does not impress the stock markets, and China's stock markets are stuck in a post bubble plateau, propped up by perpetual stimulus. That is because Stock values weigh net margins and place discounts on the relative values of outputs vs. inputs. Those have been declining since the Shanghai market bubble popped a few months after the great financial crisis started. 

This is captured by the TFP chart that I keep posting from Malinen. He shows that the globe is competing with a losing investment trend in China's economy, where each incremental unit of capital invested and labor put to work, produces less of an increment in economic activity than the investment itself, Meaning that outputs have less value than the inputs. Here it is again. China leads in it, and every bit of bad investment it makes drives values in international trade down in tandem. 

https://gnseconomics.com/2019/08/08/where-from-here/

I will add this too. China's labor participation rate starts dropping with the advent of retirements of the leading age of their Baby boomers at the same time the center of the baby boom demographic enters the savings stage of life in 1999 and will proceed to the peak in annual retirements in 2025-2030. It is more spread out as legal retirement age has been raised for that period. 

 

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41 minutes ago, Marcin2 said:

I think China problems are not that important. Why I think so ? Gavekal, Ian Bremmer, McKinsey etc. really think Chinese are going to have top place. And they proved this in their presentations, lectures.

 

The standard picture for global economic analysts is what I had followed into the early 2010s in regard to China, when things just went off the rails and they suddenly looked like Eurosclerosis zombification statistics rather than the gung ho China stats of the 1990-2011 period. The most telling was the capital flight from 2014 onwards. 

I am a big fan of Vincent Gave and his company. But the straight line analysis he provides along with his coleagues you mention are a clear case of relying on the well documented past for the statistical projection of the future without considering basic cyclical and demographic factors and actual leverage statistics that are hidden by the PBOC rather than published. His statistics of home ownership and sqft/capita vs. GDP/capita are very striking but miss the point that the values are in the Tier 1 cities while the volumes are in the low tier cities. Where occupancy in Tier 1 has remained in the 96% range till just recently, it was falling and continues to fall in Tier 2 and 3 cities and is below 75% as of 2017 and likely now at just over 70%. The recent building boom in Beijing actually managed to finally lop off the occupancy rate from >92% to >86%. 

The imbalance is corrected to a point by people living in Tier 2 or 3 cities or their rural surroundings and working in factory dorms in Tier 1 cities as migrant workers. This population is shrinking and getting older faster than the general population. The incoming generation of migrants is far smaller than its predecessors. 

The question is what happens if Gave is right and the people finally manage to move their employment to where they can afford to live. Tier 1 real estate is 40-46 X income. Tier 2 is below 10 times income. The big mortgages are on the Tier 1 properties, the speculative cash buying is in Tier 2 and 3. If they normalize then Tier 1 will drop as it did in Tokyo past the bubble - just that the losses would not be 60% of value relative to incomes, but more like 80% drop because Tokyo topped out at 20X income, while tier 1 cities in China are 44X incomes. That means that the banking sector will lose the bulk of the value of its assets as they are handed the keys and try to resell the defaulted properties. Even at 50% of official mortgage leverage, the reality is that the unofficial sector's second liens will have 0 values and so the WMP and AMPs will crash to 0. The banks will have - based on the 50% mortgage limit, a 60% loss of the value of the mortgages on these properties. Their equity position would be essentially negative as real estate loans are the balance of their portfolio and even SOE debt, which is 200% of GDP now and 2/3 of bank assets, is heavily invested in real estate development projects. The bulk of the $3.7 Trillion of external mostly dollar debt is by real estate developers and operators. That too will turn negative. Punching another big hole in the already loss laden global financial system. 

With the enormous respect I have for Gave and co. for their early realization of China's potential, they are now unwilling to recognize that it is no longer in the same position it was at the start of their careers.  

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1 hour ago, Marcin2 said:

OK, at the moment Japanese, South Korean, Australian fleets put together are 1/2 of Chinese fleet, I admit.

( In destroyers they are on par, but China has additionally too many frigates and corvetts).

But Chinese fleet has much higher build up.

But why anyone of them would fight with China ? Australia, South Korea , Japan: millions of direct people to people business and leisure contacts. In Australia a lot of Chinese students. All these economies are complementary with Chinese. They are small enough to not be direct threat to Chinese economy ( Put together just 8 trillion dollars and 200 million people).

People with direct contacts never fight with each other. In the past, communist times we were taught that West Germans are evil, descendants of nazis. But since millions of Poles worked in this country as illegal gastarbeiters, or later emigrated there, the myth of evil Germans vanished. I worked with Germans, for Germany based companies or briefly in Germany. They are people like us. 

I am not making the argument that they would go to war. @Wombat is the one making the argument that China will have to have its navy sunk in order to prevent a later war when it would have equivalence in technology and capacity and can actually back up its aggressive and loudly expounded expansion plans with an actual navy to enforce it. They are not waiting for the US. But have joined US exercises. 

I am of the opinion that the tradeoff for China to engage in actual war now is equally as bad as it is for its "trade partners" that are decidedly not anywhere near friendly with China that claims that they will be its vassal states. That was the point of putting up McMaster's piece. China has blusteringly bloviated in regional political forums demanding acquiescence of its neighbors to China. It has been actively bullying them all with its military and commercial activities. It has no such things as regional friends.

Your  observation is precisely inverted to historical reality. It is heavy trade partners that go to war with each other. Not nations with nothing to do with each other. It is in order to secure those suppliers or end markets that they go to war.