While the global economy is in its 10 year of expansion, China is struggling with internal growth challenges while fighting a trade war with the United States. Talk of cyber wars and even space conflict is rising as China wants to be recognized as the second super power. The US sees the China challenge as a second Cold War, a second Soviet Union but with several glaring weaknesses.
The central theme is that China is growing at a fast rate of 6.7 %, in GDP terms, per year but slowing fast. The main stream media fails to report the weaknesses of China, not only mountains of debt, but demographic implosion and Communist Party fears of losing control of the country. China is fragmenting and the government`s response has been to arrest 1.5 million regional leaders in business and politics and name President Xi as president-for-life. These are signs of weakness, not strength.
For years geopolitical scientists have warned about China`s exposure to global trade, lack of food and energy security, mountains of debt that keep growing and demographics that will make it challenging to feed and care for the again population in 25 years. China is the polar opposite of the United States as it has local reach (does not have a blue water Navy) and global needs (must export to the US and Europe survive) while the US has global reach (the largest blue water Navy power in history), but domestic needs. With only 7 percent of its economy reliant on global trade, and most of it with friendly like-minded states in Canada and Mexico, the global trade system could collapse the US would feel far less pain than Germany and China which rely on exports to the tune of 45 percent of GDP and 37 percent of GDP respectively. Trump is blamed for the trade war by the main stream media, but the seeds of this war were planted from 1944 to 1948 when the global system, designed by the US and European powers at the end and after WWII. This system focused on the US economy as an export target as the US boasted 50 percent of the world`s GDP at the time, while the US protected all energy security and trade routes.
The US GDP is currently $18.5 trillion, while China stands at $12.0 trillion. However, the US GDP growth rate is slower, now at 4.0% while China is expanding at 6.7%. We at Classiarius see both the US and China slowing down, with the downside risk to the economy much greater in China.
Evidence points to the US designing and nurturing the trade deficit after WWII to bribe her parters. She is now using it to destroyer her enemies – Germany and China.
This so-called trade deficit that the US has with unfair traders such as South Korea, Japan, Germany, Brazil and China was designed, structured, funded and built by the United States. The US ran trade deficits with 50 countries since WWII because it want to spread prosperity and spread Capitalism, to fight off the Soviet Communist system. China and the Soviet Union knew that their economies were hopelessly inefficient and they had to liberalize and start embracing some form of free market capitalism to keep up with the West, so the threw the “people own the means of production nonsense” preached by Karl Marx and allowed private ownership of small, medium and sometimes large companies.
Note that both China and Russia have leaders who are, to put it bluntly, leaders-for-life because they see the chaos coming – totalitarian regimes in the past, and in the future.
China came to the party late after opening up in 1972, just 4 years after the horrible Cultural Revolution in which millions perished at the hands of Chairman Mao and the Communist State`s secret services. Those who followed Mao opened the country and liberalized the economy. The US ensured that all energy and food security got to China with no bumps in the road. And currently, the US supplies energy and commodities to China, along with Canada, France, Australian and 20 other countries. To be clear, China has bought into the system as it uses the Bretton-Woods system, global payment systems and the US Navy to ensure that trade is uninterrupted. China relies on the US, Europe, Australia and Brazil for food, and relies on those countries buy their finished goods while all shipments are escorted by US Navy ships. China relies on a lot of countries for everything, so it is massively exposed to food, energy, trade routes and trading partners do dump its goods around the world.
The US is now leveraging said weaknesses and exposure of China, by challenging it on all fronts, including the South China Sea and more importantly, its massive export machine. China is the manufacturer of the world, Trump is starting a movement to move manufacturing back home to individual states to hollow-out the Chinese economy.
Why is the Chinese stock market collapsing?
China is now suffering from mini-shocks triggered by a trade war. But the deeper problems are that investors are now concerned about risks associated with shares pledged for loans, the margin lending where major investors in companies borrow by pledging their shares. Note the risk here while the stock market is falling fast. More than 637 billion shares worth 4.44 trillion yuan ($638 billion) were pledged for loans as of October 12, figures supplied by Chinese officials. And we cannot ignore that by 2060, 500 million Chinese will be in the 55 to 95 year age group – that cohort is 50 percent of the projected population. Imagine the amount of debt burden placed on the Chinese government in the next 20 to 40 years. In sum, the demographic implosion in China, combined with an aging population could devastate the economy.
China is starting to feel threatened and is building a blue water Navy, space weapons and global systems that mirror the US – even a parallel internet, an alternative to the US dollar and new trade routes to avoid US power. It is building a 21st Century Maritime Silk Road and a One Belt, One Road for future commerce and transportation, connecting Europe and blocking out US power.
It is very clear that China and the US will be facing off in the future on everything from trade to cyber wars. Welcome to the world of chaos and a second super power. China is here.