By Alan
Caruba
For two
days there was the usual news and analysis about President Obama’s summit
meeting with Chinese President Xi Jinping. We are going to hear that China will
bump the U.S. from first place among the great economies of the world,
challenge us in Asia, and will be the next great global power.
Secretary
of State John Kerry recently said that “the U.S.-China relationship is the most
consequential in the world today and it will do much to determine the shape of
the 21st century.” When a nation has 1.35 billion people it is going
to get a fair amount of attention, but that does not mean the current
predictions will come true. The reason? Those 1.35 billion people.
There is
no denying that China’s rise to become the largest exporter over the past three
decades has been impressive. It is expected to become the largest economy and
militarily powerful as well, but Peter Zeihan is a geopolitical consultant and
author of “The Accidental Superpower” (the U.S., not China) reminds us that the
“China mythos is ingrained nowhere more deeply than in the American psyche—the
same psyche that was recently convinced of the ‘obvious and inevitable’ rise of
the Soviet Union and Japan.”
Both the
former Soviet Union—now the Russian Federation—and Japan are in decline for a
variety of reasons, but demography, the
age of their population, plays a major role. When a nation’s population
becomes top heavy with elderly people, but does not have an expanding younger
generation, its economy begins to shrink for lack of a labor force.
The other
factor that determines a nation’s success is its geography. Zeihan reminds us
that “China is a land of failed empires and shattered hopes” and part of its
problems stem from the fact that it is really three very distinct geographies in
the north, the central region, and the south. They could be separate nations in
themselves.
I have
always thought that the supreme irony of China is that it adopted a capitalist
economic system while remaining politically communist. Why? Because communism
doesn’t work and the collapse of the former Soviet Union will be China’s fate
as well.
As
President Obama meets with President Jinping, both will be doing so with
significant domestic problems. Obama’s include the midterm elections that
returned power in the Senate, along with the House, to the Republican Party. It
is widely interpreted as a massive rejection of the U.S. President, leaving
him weakened in the eyes of the world.
As for President Jinping, Zeihan notes
that “Even once a Chinese leader succeeds in rising to the top of his local
heap—or even commanding the entirety of China—he then must begin the even
longer and more painful slop of purging all those who have visions that clash
with his own.”
A look at
the map and a thought about its huge population would make anyone think it was an
economic colossus immune to problems, but the numbers tell another story. “The
real surprise of China is that the north, central and south account for just
half of China’s 1.35 billion people. North, center, and south are China’s
lowland and coastal regions; the rest of the Chinese actually live in the
interior.”
Its two
major rivers, the Yangtze and the Yellow, though lengthy are only navigable for
short stretches in terms of any ocean-going vessel. The result is that
historically the Chinese have been “remarkably non-naval.”
As Zeihan
describes it, “northern China is the stable-as-glass political core, central
China (is) the nationally disinterested economic core, and southern China (is)
the potentially secessionist territory and the interior being largely ignored—holds
to the present day.”
“Even
contemporary China’s political system reflects it: all of the critical military
branches of government are headquartered in the north, the north and central
regions trade off the premiership every decade in order to balance security and
trade interests, while the south is not even represented on the Politburo.”
Compare
that to the national unity of the United States whose economy not only serves
all its population’s needs, but exports extensively to the world. As for that
world, the U.S. is its financial center, the safest place in which to invest
and safe-keep one’s funds. By contrast, China’s banking system is in under the
control of its government and it limits what citizens can do with their savings.
“Private savings are instead funneled to state goals.”
Since
China’s goal is maximum possible employment its banks make “loans available for
everything” and the “result is an ever-rising mountain of loans gone bad and
ever less efficient firms, held together by nothing more than the system’s
bottomless supply of cheap labor and cheap credit.” That’s a recipe for a
financial disaster because “total financing (is) at around $5 trillion for an
economy only worth about $8 trillion.”
And then
there is demography. “China is aging far more quickly than it is getting rich.”
Specifically, “simple aging has already reduced China’s pool of young, mobile
workers by 40 million during the past decade. And because of the baby bust,
that decline is about to accelerate greatly.”
As Zeihan
points out, “The burden of having to financially support their elderly has a
catastrophic impact on young workers’ professional and financial development,
reducing educational opportunities, gutting consumption, and all but making
savings impossible.”
Despite
its efforts to intimidate its neighbor nations, China is at a military
disadvantage to them. “They all have air forces and cruise missile assets that
in many cases could destroy Chinese maritime assets that get too close.” In
general, China’s behavior has created neighbors that are broadly hostile to it.
China is
big, but its size and population are its biggest problem.
© Alan
Caruba, 2014
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