Xi’s Big Mistake

We are so inured to it that President Xi’s “wall of steel” speech at the 100th birthday party almost seems banal. We know what the party thinks. The Fifth Plenum text setting out China’s strategy until 2035 revives the term “prepare for war” (备战), not used for over half a century.

“Prepare for War” is an exaggeration, at least I hope, but it is growing less unthinkable. When you have two great powers whose systems are irreconcilable, and neither is willing to change, the options list shrinks.

Sleepwalking to Confrontation

Not everyone thinks disengagement and confrontation is inevitable. Ian Bremmer outlined the issues in his last letter, reaching a different conclusion.

Ian pointed out that unlike the US-USSR Cold War, the US and China are highly interdependent. He broke it down into three components:

Hostility (where both countries want the other to fail): This includes mostly the national security issues like Taiwan and the South China Sea, plus issues both countries see as core principles, like China’s treatment of Hong Kong, the Uighurs, and Tibet.

Competition (each wants to outperform, but not destroy the other): These are the economic issues, like international trade and investment, technology, and domestic political stability. Both countries are the other’s supplier as well as customer. Each wants to win, but also needs the other.

Cooperation (both want to work together for mutual gain): This includes the global challenges like climate change, terrorism, etc. They agree on the goals but lack of trust makes cooperation difficult.

We naturally focus on the areas of conflict, but Ian thinks the full US-China relationship is actually working pretty well. It changes with time, of course. Ian rates the relationship as currently 20% hostility, 70% competition, and 10% cooperation. But he also says much of the competition is becoming hostility.

Ian takes as given that neither country will do anything that would be perceived as “weakness.” But if no one will blink, how do you avoid coming to blows? Ian thinks it is possible.

More likely, a change in policy comes from internal failures of the present trajectory. How would that happen?

In China: Xi leans into more state control of strategic sectors, high-performing talent starts to leave, productivity dives, and growth stalls and debt spirals… giving technocratic Chinese political leaders more space to nudge Beijing policymaking back towards more interdependence.

In the United States: Domestic divisions make industrial policy half-hearted, the private sector retains capture of the regulatory environment, the post-Biden administration renders strategic reorientation of the US economy incoherent and affords allies more space to direct their own course.

Historians tell us the dangers of sleepwalking into confrontation. But in the US-China relationship, domestic incoherence and lack of ability to effectively implement long-term strategy makes cold war less likely… precisely because it allows existing forces of interdependence to persist unmolested.

I hope Ian is right. From my perch, I’m not sure much of this is feasible. I think Xi has made a giant mistake with recent business crackdowns. He may have calculated he can do without Western companies. But without them, what will happen to the Chinese businesses that still turn to the US and Europe for capital, customers, expertise, and technology?

Moreover, can the Chinese miracle continue if millions of small entrepreneurs stop believing the government will let them succeed? I don’t mean big companies. I’m talking about restaurant owners, drivers, shopkeepers—all those who keep the economy moving.

Cai Xia, who was in a position to know, has an even more chilling outlook.

Cai Xia’s contention is that the Communist regime is more brittle than it looks, like the Soviet regime before the end. “I recommend that the US be fully prepared for the possible sudden disintegration of the [Chinese Communist Party],” she said.

Imagining what such a “sudden disintegration” would look like, I suspect it wouldn’t be pretty, even if good in the long run. Economically, it could make 2008 or even the COVID pandemic look mild.

China Problems and Big Brother

China is facing large problems, some obvious and others more subtle. But I think problem number one is Xi has made a giant mistake with recent business crackdowns.

China is the ultimate Orwellian Big Brother state. Especially within the cities, the government can literally watch everything you do and track everything you buy, from your noodles to your clothes, who you talk to, what websites you visit. All of the data Chinese corporations gather is available to the CCP, who use it to create China’s “social credit system.” If you Google that, the first thing that pops up says this:

View single page >> |

Disclaimer:The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Patrick Cox’s Tech Digest, Outside the Box, Over My Shoulder, World Money Analyst, Street Freak, Just One ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
William K. 3 months ago Member's comment

Keep in mind that China IS a Police State, as all communist countries must be in order to stay communist. And the police state has lots of power, And understand also that power corrupts, and absolute power corrupts absolutely. That is both unfortunate and totally true.

Worse yet, the Police State government does not make many mistakes, and those that it does make, it has the power to force on people anyway. And even worse, that Police State has the skill and resources to win the war even without bullets. Stealth and deceit are far less damaging to valuable infrastructure than bombs and bullets. The future will certainly be "interesting."

Rob Contano 3 months ago Member's comment

Why did we list $DIDI again since we are going to delist $BABA?