Sun Tzu: "To subdue the enemy without fighting is the acme of skill."

I expected some disagreement with my admittedly unconventional view - especially that of China. I was surprised, however, that no less a personage than Mr. Gave chose to do so. Through a number of John Mauldin's letters I'm familiar with Mr. Gave's new paradigm of the "platform company" and his "we think, they sweat" view of markets, trade, and profit distributions.

His example of Singapore as a model for future Chinese governmental development is instructive. Lee the Younger is Singapore's third PM (his father was its first, elected in '59); both come from the PAP (People's Action Party) which has never suffered an electoral setback. Singapore may well be the garden spot of the Chinese world. Press reports are almost unanimous in hawking this view. Those papers that disagree are quickly slapped, followed by lawsuits (which they win) followed by injunctions that prohibit further publication.

I confess to having a westernized view of things - I am a westerner. But it is possible, I admit, to adopt an Eastern view; I would suggest that most do, in fact, take Mr. Gave's view and see China as a new land (a new America some believe) rich in opportunity, resources, and labor. To date little of that promise has been realized. In that respect, China is little different from Russia.

In fact, the countries are remarkably similar in their courting of Western investment and technology, and equally remarkable in attempting to steal what cannot be purchased. Most seem to shrug this off as a "folkway" of the East and as acceptable as expense account padding is here. Demosthenes saw Philip of Macedonia doing the same thing to Greece and stated they had "conceded to him a right, which in former times has been the subject of…war.…The right of doing what he pleases, openly fleecing and pillaging.…"

I know it's considered woefully passé to label anyone or any country as Communist and worse still to use the phrase "communist conspiracy." But the idea that China is innocently toddling towards its own peaceful manifest destiny has some flaws. The Middle Kingdom has been inward looking for close to a millennium. Now they have a blue-water and a green-water navy, nuclear missiles, an army of 200 million, the ability to shoot down satellites hundreds of miles in space, and the ability and will to shoot down and hold in detention an American fighter plane and its crew. These developments lead me to believe they possess aspirations beyond their own borders.

Much of the Sino-Soviet relationship, its history, its structure, and its plans are laid out in detail in Anatoliy Golitsyn's New Lies For Old. book is unique in that it was written in '82 and in which he reveals the planned downfall of the Soviet state and its ultimate resurrection. It also reveals how phony splits were created between the two nations that lead the Western powers (chiefly the U.S.) hungry Unlike histories told by other ex-KGB agents, Golitsyn'sfor an ally, to help modernize Chinese armaments."Both in relation to the Soviets in the 1960s and to the Chinese in the 1970s and 1980s, the West has forgotten the error of the German General Staff in helping to rearm the Soviet Union after the Treaty of Rapallo in 1922. The Sino-Soviet scissors strategy has not been recognized for what it is."

And the strategy was ingenious. Why did Western politicians like Nixon, Thatcher, and Reagan seem to have a better rapport with the Chinese? Because making nice to the Left would have triggered an immediate negative response among conservatives. But it was the Right that feared the Soviets more, so they were the natural dupes for the rearmament pitch ("the enemy of my enemy is my friend"). The only thing that was essential was maintaining a fiction of friction. And they've done an admirable job.

Do we have a Sino/Soviet-American war in the future or can the Chinese accomplish the same thing by simply putting its trillion dollars worth of U.S. paper up for sale? The effect would be devastating and would accomplish exactly what bin-Laden has been promoting.

Sixteen years ago we thought the USSR was dead and a new day of freedom and "peace dividends" was upon us. Today Russia is once again run by a gang of thugs that can trace their lineage to the KGB, and Putin's replacement will have the same pedigree. Why should we expect China which, if anything, has been historically more repressive, to be any different?





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4 Comments so far

  1. Anonymous on March 9, 2007 11:12 pm

    To understand the future of China, take a closer look at the political development in Taiwan.

  2. Alex Forshaw on March 10, 2007 11:26 am

    I think most Western businessmen are whisked to Shanghai, Beijing, Shenyang, and maybe Shenzhen, and are left convinced that China equals Capitalism, the Almost-Known Ideal.

    I spent three months in China, and anybody who thinks China is The Next Superpower doesn’t know what s/he’s talking about.

    Yeah, the Pudong skyline is stupendous. But how many of those buildings are half-empty, kept afloat by cheap (if not free) debt? Does any Westerner care to find out? (Of course not.)

    Does anyone else find it odd that no Western economy has maintained real double-digit growth in GDP for more than about 12 years? France, the reigning champion, rode very high postwar marginal returns on capital (capital had been destroyed, whereas the population was much less affected), and an economy that borrowed from the future via dirigisme.

    China has had 30 years, exactly, of uninterrupted, double-digit real GDP growth. All of that is written off as “they started from a tiny base.” Yes, they did. 30 years ago.

    China is somewhat reminiscent of Russia. But the Russia of today is debt-free.

    China bears much closer resemblance to Japan. Japan was a “miracle” once. It also started from a base near zero. It had skyrocketing debts that, somehow, were impossible to track down. So rather than drill through the mysteriously opaque laws and customs of the keiretsu, Westerners bought it.

    Now consider: Japan, from the same conditions as China c. 1977, achieved real annual growth of about 10 percent from 1947-60, 5 percent in the 1960’s, and 4 percent thereafter, until 1991. (I think they had one recession in the late 50’s, but my memory is poor.)

    China has had about 11% annual growth for 30 years.

    Am I the only crank who sees a very unnerving parallel here?

    And what about this looming dollar splash and its negative impact on the US dollar? Anyone who has read Mauldin is at least a little worried about Chinese profit margins. If the value of the dollar falls 5% or so relative to the yuan, what happens to China’s exporters, many of whom are already horribly over-capitalized, losing money and bursting with debt?

  3. Anonymous on March 10, 2007 7:57 pm

    “To subdue the enemy without fighting is the acme of skill” or simply common sense, wrapped in a nice slogan in order to sell it to some aggressive king?

    Anyway, I don’t think you’ll find a specific Chinese, Russian, Arabic, American or whatever attitude to foreign policy. For instance, having read Richard Bonney scholarly book on Jihad, I was left with a clear impression that this was a concept used when convenient, much the same way politcians today appeal to higher ideals when launching wars…

  4. David Whitesel on March 11, 2007 10:36 am

    Jack Your post is Outstanding!

    Alex. you said; “But how many of those buildings are half-empty, kept afloat by cheap (if not free) debt? Does any Westerner care to find out? (Of course not.)”

    I’d be interested in knowing what the details are….I am westerner and do wish to know. Can you provide the details?

    Next point that interested me Alex, was this one; “If the value of the dollar falls 5% or so relative to the yuan, what happens to China’s exporters, many of whom are already horribly over-capitalized, losing money and bursting with debt? ”

    I cant seem to resolve the apparent contradiction posited therein. Can you explain? perhaps I’m misunderstanding you.

    On thing about China is its horde of dollars yet to be spent, me thinks that as or if, the dollar depreciates vs yuan, chinas buying power rises…..a catalyst for US exports and possibly a contributor to asset inflation, it is similar to the japanese resolving thier accumulation of dollars a couple of decades past. We should all remember how that played out.


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