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FTR#1312 Update on the Destabilization of China, Part 1

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FTR#1312 This pro­gram was record­ed in one, 60-minute seg­ment.

Intro­duc­tion: This pro­gram updates the ongo­ing desta­bi­liza­tion of Chi­na.

Key Points of Analy­sis and Dis­cus­sion Include:

1a.–Presidential emer­gency dec­la­ra­tions have made it legal for the U.S. to test chem­i­cal and bio­log­i­cal weapons on the Amer­i­can peo­ple.

1b.–The impor­ta­tion of solar pan­els has been made more dif­fi­cult and opaque by virtue of the “Uighur genocide/human rights vio­la­tions’ meme.

1c.–A recent op-ed piece in The New York Times rein­forced the Uighur geno­cide meme.

2.–An expert opin­ion on the Biden admin­is­tra­tion ban on chips summed up the essence of the ban: “ . . . . Though deliv­ered in the unas­sum­ing form of updat­ed export rules, the Oct. 7 con­trols essen­tial­ly seek to erad­i­cate, root and branch, China’s entire ecosys­tem of advanced tech­nol­o­gy. ‘The new pol­i­cy embod­ied in Oct. 7 is : Not only are we not going to allow Chi­na to progress any fur­ther tech­no­log­i­cal­ly, we are going to active­ly reverse their cur­rent state of the art,’ Allen says. C.J. muse, a senior semi­con­duc­tor ana­lyst at Ever­core ISI, put it this way: “If you’d told me about these rules five years ago, I would’ve told you that’s an act of war—we’d have to be at war.’. . .”

3.–The U.N. report on alleged human rights vio­la­tions in Xin­jiang was fun­da­men­tal­ly flawed: “ . . . .It is well known but worth not­ing, that no Islam­ic coun­try has crit­i­cized Chi­na for human rights abus­es and, despite many vis­its, none have alleged crimes against human­i­ty by Chi­na . . . . opti­mism was dashed by this report being released around mid­night on her last day in office and with­out any sig­na­ture or com­men­tary from her inter­est­ing­ly, it is not signed by any­one, let alone any­one in author­i­ty; the authors, like many of the wit­ness­es, remain anony­mous. . . .”

4.–Despite sanc­tions, Huawei has devel­oped a new 7nm chip for its lat­est mobile phone.

5.–With char­ac­ter­is­ti­cal­ly pro­pa­gan­dized cov­er­age, the U.S. MSM feeds the pub­lic a steady mes­sage of doom and gloom over Chi­na.

6.–Qualcomm will be par­tic­u­lar­ly hard hit by the new Huawei chips/phones.

7.–The doom and gloom over Chi­na has been sound­ed in the past and proved to be fal­la­cious.

1a. “DC Uni­par­ty kills House res­o­lu­tions to end US Emer­gency pow­ers in Iraq, Syr­ia, Libya and Yemen” by Alexan­der Rubin­stein; The Gray Zone; 7/20/2023.

. . . . These same emer­gency pow­ers give the Pres­i­dent the pow­er to lift the bans on test­ing bio­log­i­cal weapons on US cit­i­zens. . . . Yet anoth­er emer­gency dec­la­ra­tion pro­vides the author­i­ty for the US gov­ern­ment to test bio­log­i­cal weapons on Amer­i­can cit­i­zens. . . . US code allows the pres­i­dent to sus­pend exist­ing law on bio­log­i­cal and chem­i­cal war­fare in the event of a declared nation­al emer­gency. . . .

1b. “Solar Sec­tor Ever Murki­er on Its Ties With Chi­na” by Ana Swan­son and Ivan Penn; The New York Times; 08/02/2023; p. B1 [West­ern Print Edi­tion].

1c. “Let Our Tragedy Be a Les­son” by Tahir Hamut Izgil; The New York Times; 07/30/2023; p. 6; [West­ern Print Edi­tion].

2. “The Sil­i­con Block­ade” by Alex W. Palmer; New York Times Mag­a­zine; 7/16/2023.

  . . . . Though deliv­ered in the unas­sum­ing form of updat­ed export rules, the Oct. 7 con­trols essen­tial­ly seek to erad­i­cate, root and branch, China’s entire ecosys­tem of advanced tech­nol­o­gy. ‘The new pol­i­cy embod­ied in Oct. 7 is : Not only are we not going to allow Chi­na to progress any fur­ther tech­no­log­i­cal­ly, we are going to active­ly reverse their cur­rent state of the art,’ Allen says. C.J. muse, a senior semi­con­duc­tor ana­lyst at Ever­core ISI, put it this way: “If you’d told me about these rules five years ago, I would’ve told you that’s an act of war—we’d have to be at war.’. . .

3. “OHCHR ‘politi­cised’ to make anti-Chi­na claims on Xin­jiang: New Report” by Jer­ry Grey; Pearls and Irri­ta­tions; 7/21/2923.

 . . . . It is well known but worth not­ing, that no Islam­ic coun­try has crit­i­cized Chi­na for human rights abus­es and, despite many vis­its, none have alleged crimes against human­i­ty by Chi­na . . . . opti­mism was dashed by this report being released around mid­night on her last day in office and with­out any sig­na­ture or com­men­tary from her inter­est­ing­ly, it is not signed by any­one, let alone any­one in author­i­ty; the authors, like many of the wit­ness­es, remain anony­mous. . . .

4. “How Sanc­tions Failed To Hin­der Chi­na’s Devel­op­ment;” Moon of Alaba­ma; 09/04/2023.

These head­lines relat­ed to Chi­na are demon­strat­ing a very fast his­toric devel­op­ment:

From the last link:

The Pen­ta­gon com­mit­ted on Mon­day to field­ing thou­sands of attri­ta­ble, autonomous sys­tems across mul­ti­ple domains with­in the next two years as part of a new ini­tia­tive to bet­ter com­pete with Chi­na.

The pro­gram, dubbed Repli­ca­tor, was announced by Deputy Defense Sec­re­tary Kath­leen Hicks, speak­ing at the Nation­al Defense Indus­tri­al Association’s Emerg­ing Tech­nolo­gies con­fer­ence here.

“Repli­ca­tor will gal­va­nize progress in the too-slow shift of U.S. mil­i­tary inno­va­tion to lever­age plat­forms that are small, smart, cheap and many,” Hicks said.

Chi­na’s indus­try devel­oped by copy­ing designs from oth­er pro­duc­ers. But it only took a few years until it start­ed to pro­duce bet­ter or new prod­ucts for new mar­kets. His­tor­i­cal­ly this is noth­ing new. Ger­many’s indus­tri­al devel­op­ment hap­pened by rip­ping off British man­u­fac­tur­ing process­es and prod­ucts. A few years lat­er indus­tri­al Ger­man prod­ucts could com­pete with British ones and the Brits start­ed to copy Ger­many tech­nol­o­gy.

In 2018 Chi­na demon­strat­ed large swarms of coor­di­nat­ed drones that could draw mov­ing pic­tures into the sky.

Now the Pen­ta­gon wants to repli­cate such capa­bil­i­ties.

repli­cate: verb — If you repli­cate some­one’s exper­i­ment, work, or research, you do it your­self in exact­ly the same way.

I have been giv­en a DJI drone as a gift. It is an excel­lent prod­uct. It is light enough to stay with­in legal lim­its. It has good flight char­ac­ter­is­tics, with excel­lent design and usabil­i­ty of hard­ware and soft­ware. It is reli­able and comes at a rea­son­able price. Even the pack­ag­ing was very well designed and under­lined the val­ue of the prod­uct.

Asides from way too expen­sive Apple prod­ucts I am not aware of many U.S. or Euro­pean mass mar­ket prod­ucts that come near to its over­all qual­i­ty lev­el.

If Chi­na’s mil­i­tary gets drones of the qual­i­ty that Chi­nese com­pa­nies pro­duce for con­sumers it is like­ly a gen­er­a­tion ahead of every­one else.

It is doubt­ful that the Pen­ta­gon, with its lengthy pro­cure­ment process­es sub­ject to Con­gres­sion­al graft, will ever catch up with that.

In 2019, when Trump sanc­tioned Huawei by deny­ing it access to mod­ern chips, I wrote:

Huawei cur­rent­ly uses U.S. made chips in many of its smart­phones and net­work­ing prod­ucts. But it has long expect­ed the U.S. move and dili­gent­ly pre­pared for it:
Soon U.S. chip com­pa­nies will have lost all their sales to the sec­ond largest smart­phone pro­duc­er of the world. That loss will not be just tem­porar­i­ly, it will become per­ma­nent.

The moment of reck­on­ing has come.

Last week Huawei pre­sent­ed its new cell phone Mate 60 Pro. Since the sanc­tions were imple­ment­ed the com­pa­ny has devel­oped gen­uine­ly new CPUs for cell phones as well as for oth­er equip­ment. Bloomberg reports of the tear­down and pre­lim­i­nary analy­sis of the proces­sor by a U.S. com­pa­ny. It is fair­ly com­pli­cate sys­tem-on-a-chip that is to 100% made in Chi­na:

tphuang @tphuang — 2:25 UTC · Sep 4, 2023

Kirin 9000S tear­down so sur­pris­ing

Includes CPU, GPU, 5G modem, ISP, DSP + NPU (w/ Ascend lite/tiny cores + TPU)

All this squeezed into 110 mm² die w/o stack­ing
Oh, 9000S in teardown/testing showed bet­ter over­all CPU per­for­mance & pow­er con­sump­tion than 9000 & SD 888 + had bet­ter peak CPU per­for­mance than SD 8 Gen 1 all this w/o advanced pack­ag­ing.

Huawei could do this because it is an extra­or­di­nary com­pa­ny that was cre­at­ed by an extra­or­di­nary man:

Ren Zhengfei, founder and CEO of Chi­nese tele­coms equip­ment mak­er Huawei Tech­nolo­gies, urged the US-sanc­tioned tech giant to main­tain its tech­no­log­i­cal lead in spe­cif­ic areas and focus on devel­op­ing inter­nal tal­ent, accord­ing to his lat­est speech pub­lished on the company’s employ­ee web­site on Mon­day.

“Huawei will save tal­ent, not US dol­lars,” Ren said in the speech, which he deliv­ered on July 28. “We will try hard to lead in some busi­ness aspects glob­al­ly, not all aspects. For our prod­ucts, the bound­ary can be rel­a­tive­ly nar­row, but our research bound­ary can be wider.”

In his July speech, Ren said the best moti­va­tion for tal­ent­ed work­ers is pas­sion.

“I think the mate­r­i­al reward is not that impor­tant,” he said. “The first thing is that [the work­er] finds a posi­tion he has pas­sion for … If he can work on some­thing he is inter­est­ed in, he will have no regrets.”

Ren added that no one is good at all aspects of a busi­ness from day one and that it takes time for peo­ple to grow their tal­ents beyond a sin­gle spe­cialised field. “[In time], you will see who becomes a leader. It’s a nat­ur­al process,” he said.

That sounds like a com­pa­ny I would like to work for. Huawei’s response to U.S. sanc­tions was not to give up but to hire more peo­ple:

Tal­ent recruit­ment has long been impor­tant for Huawei. Ren ini­ti­at­ed a pro­gramme known as “Top Minds” in 2019, just months after the com­pa­ny was black­list­ed by the US gov­ern­ment. That recruit­ment dri­ve, lat­er dubbed the “Genius Youth” pro­gramme, gave pri­or­i­ty to can­di­dates whose research had pro­duced “tan­gi­ble and impact­ful” results and win­ners of top research hon­ours, accord­ing to an adver­tise­ment post­ed by Huawei on Wei­bo at the time.

Huawei has 207,000 employ­ees glob­al­ly, accord­ing to its web­site, and 55.6 per cent are research and devel­op­ment per­son­nel. This is up from the end of 2021, when the com­pa­ny said it employed 195,000 peo­ple, with 54.8 per cent of them in R&D.

That is an extreme­ly large research and devel­op­ment com­pa­ny to which a small­er pro­duc­tion and sales arm is attached. West­ern finance and busi­ness atti­tude would nev­er allow for some­thing like it.

That is just one rea­son why the U.S. is los­ing the tech war with Chi­na:

West­ern media, for the most part, has ignored a remark­able array of Chi­nese pilot prod­ucts in indus­tri­al automa­tion, exe­cut­ed pri­mar­i­ly by Huawei, the world’s largest mak­er of telecom­mu­ni­ca­tions infra­struc­ture and the tar­get of a glob­al sup­pres­sion cam­paign by the Unit­ed States. Ful­ly auto­mat­ed fac­to­ries, mines, ports, and ware­hous­es already are in oper­a­tion, and the first com­mer­cial autonomous taxi ser­vice is start­ing up in Bei­jing. Huawei offi­cials say the com­pa­ny has 10,000 con­tracts for pri­vate 5G net­works in Chi­na, includ­ing 6,000 in fac­to­ries. Huawei’s cloud divi­sion has just launched a soft­ware plat­form designed to help Chi­nese busi­ness­es build pro­pri­etary AI sys­tems using their own data.

This again proves that sanc­tions can not end devel­op­ment when a cer­tain base is already there:

Restric­tions on tech­nol­o­gy exports to Chi­na at best are a stop­gap. Even­tu­al­ly, Chi­na, which grad­u­ates more engi­neers each year than the rest of the world com­bined, will devel­op its own sub­sti­tutes, as ASML, the world’s pre­mier mak­er of chip lith­o­g­ra­phy equip­ment, avers. Even as a stop­gap, though, the con­trols are fail­ing. They impose high costs on Chi­na in sev­er­al ways but have not imped­ed the Fourth Indus­tri­al Rev­o­lu­tion. On the con­trary: the lim­it­ed adop­tion of Fourth Indus­tri­al Rev­o­lu­tion tech­nolo­gies by Amer­i­can indus­try is con­cen­trat­ed in firms that have major com­mit­ments to Chi­na.
To main­tain a tech­no­log­i­cal edge over Chi­na, we will have to spend an addi­tion­al sev­er­al hun­dred bil­lions of dol­lars, train a high­ly-skilled work­force, edu­cate or import more sci­en­tists and engi­neers, and pro­vide broad­er incen­tives to man­u­fac­tur­ing. It is sim­ply too late to try to sup­press Chi­na. That is no longer with­in our pow­er. What remains with­in our pow­er is to restore Amer­i­can pre-emi­nence.

Well, good luck with attempt­ing that.

5. “Media Say ... Gloom And Doom In Chi­na;” Moon of Alaba­ma; 09/06/2023.

The New York Times, and oth­er west­ern media, are run­ning a ‘doom and gloom in Xi’s econ­o­my’ cam­paign.

The lat­est entry is this piece:

China’s Eco­nom­ic Pain Is a Test of Xi’s Fix­a­tion With Con­trol

The core claim is this:

Con­sumers are gloomy. Pri­vate invest­ment is slug­gish. A big prop­er­ty firm is near col­lapse. Local gov­ern­ments face crip­pling debt. Youth unem­ploy­ment has con­tin­ued to rise. The eco­nom­ic set­backs are erod­ing Mr. Xi’s image of impe­ri­ous com­mand, and emerg­ing as per­haps the most sus­tained and thorny chal­lenge to his agen­da in over a decade in pow­er.

But lets look at the sources the author quotes to make up ‘evi­dence’ for his claims:

  • Neil Thomas, a fel­low at the Asia Society’s Cen­ter for Chi­na Analy­sis, said in an inter­view
  • Some experts say ...
  • not all observers believe that China’s econ­o­my is in a sharp down­ward spi­ral. But ...
  • Chi­nese inter­net users cir­cu­lat­ed an essay by a retired Hong Kong busi­ness­man, Lew Mon-hung ...
  • Liu Shi­jin, a retired senior Chi­nese gov­ern­ment econ­o­mist, said ...
  • said Ali­cia Gar­cía Her­rero, the chief econ­o­mist for Asia-Pacif­ic at Natix­is
  • said Bert Hof­man, direc­tor of the East Asian Insti­tute at Nation­al Uni­ver­si­ty of Sin­ga­pore
  • said Ms. Gar­cía Her­rero, the econ­o­mist
  • Some Chi­nese econ­o­mists and for­mer offi­cials have warned
  • Lou Jiwei, a for­mer min­is­ter of finance said in a recent video inter­view with Caix­in

The author of the gloom and doom piece is:

Chris Buck­ley, the Times’s chief cor­re­spon­dent in Chi­na, where he has lived for most of the past 30 years

If Chris Buck­ley lives in Chi­na why does­n’t he quote even one per­son who is real­ly involved in Chi­na’s econ­o­my or pol­i­cy mak­ing? Isn’t there any active Chi­nese politi­cian or Chi­nese CEO or Chi­nese econ­o­mist or Chi­nese work­er he could quote?

Why is he quot­ing an Asia Soci­ety fel­low?

Found­ed in 1956 by John D. Rock­e­feller 3rd, Asia Soci­ety is a non­par­ti­san, non­prof­it insti­tu­tion with major cen­ters and pub­lic build­ings in New York, Hong Kong, and Hous­ton, and addi­tion­al loca­tions in Los Ange­les, Mani­la, Mel­bourne, Mum­bai, New Del­hi, Paris, San Fran­cis­co, Seat­tle, Seoul, Syd­ney, Tokyo, Wash­ing­ton, D.C., and Zurich.

Why is he men­tion­ing the dis­graced Lew Mon-hung?

In 2016, he was found guilty and impris­oned after being found guilty of per­vert­ing the course of jus­tice by ask­ing Leung, in let­ters and emails, to stop the Inde­pen­dent Com­mis­sion Against Cor­rup­tion (ICAC) from inves­ti­gat­ing him.

Why is he quot­ing the Vice-some­thing pro­fes­sor of this or that Liu Shi­jin?

For­mer Vice-Pres­i­dent (Vice-Min­is­ter), Devel­op­ment Research Cen­ter. Cur­rent­ly, Vice-Chair­man, Chi­na Devel­op­ment Research Foun­da­tion.

Why Bert Hof­man, the Dutch ‘expert’ of the EU financed Mer­ca­tor lob­by?

Why ask a Span­ish ‘econ­o­mist’ from a French invest­ment bank?

Natix­is is a French cor­po­rate and invest­ment bank cre­at­ed in Novem­ber 2006 from the merg­er of the asset man­age­ment and invest­ment bank­ing oper­a­tions of Natex­is Ban­ques Pop­u­laires (Banque Pop­u­laire group) and IXIS (Groupe Caisse d’Epargne).

Natix­is pro­vides finan­cial data for the ‘Mar­kets’ sec­tion on the news chan­nel, Euronews. On Octo­ber 26, 2010, Natix­is Invest­ment Man­agers (NIM) has acquired a major­i­ty stake in asset man­age­ment start-up ‘Ossi­am’.

Why use some oth­er out­lets inter­view with the retired Lou Jiwei with­out giv­ing this (2019) con­text?:

Lou Jiwei, who has long been seen as a lib­er­al­iz­ing force in Chi­na, an advo­cate of mar­ket reform and inter­na­tion­al open­ness. He served as finance min­is­ter, ran the country’s mas­sive sov­er­eign wealth fund, and has palled around with west­ern econ­o­mists since the 1980s. But recent­ly he made a pre­dic­tion that con­tained a star­tling phrase: At a forum in Bei­jing, accord­ing to report­ing in the South Chi­na Morn­ing Post, he said: “The next step in the fric­tions between Chi­na and the Unit­ed States is a finan­cial war (jin­rong zhan). The U.S. has been hijacked by nation­al­ism and pop­ulism, so will do every­thing in its pow­er to use bul­ly­ing mea­sures [and] long-arm juris­dic­tion.”

In this finan­cial war, he con­tin­ued, the U.S. will exploit its dom­i­nance of the inter­na­tion­al finan­cial sys­tem to hurt China—and Chi­na will fight back.

Now back to what mat­ters:

God­free Roberts @GodfreeTrh — 11:17 UTC · Sep 3, 2023

REALITY: Only four economies have ever grown by $1.5 tril­lion in a year, and 2023 will see the fifth. All five boom years are Chi­nese, of course. Its econ­o­my is boom­ing and so are wages: 4.7% nom­i­nal rise last year, 4.2% after infla­tion. Bwa­ha­hah.

FT: China’s eco­nom­ic slow­down rever­ber­ates across Asia https://ft.com/content/...

But it’s all gloom and doom in Chi­na. The NYT says so.

6. “Here’s why Qual­comm is the “main los­er” after Huawei revealed its 7nm 5G Kirin chip” by Alan Fried­man; 9/06/2023.

With its backs to the wall, Huawei was forced to pow­er its 2022 Mate 50 flag­ship line and its ear­ly 2023 P60 flag­ship line with the 4nm Snap­drag­on 8+ Gen 1 SoC. How­ev­er, in order to obtain the license the man­u­fac­tur­er would need to buy these chips, they had to be tweaked not to sup­port 5G. For the recent­ly intro­duced Mate 60 Pro flag­ship mod­el, Huawei sur­prised every­one by equip­ping the phone with its home­grown Kirin 9000s SoC built by SMIC (Chi­na’s largest foundry) using its 7nm process node.


This was a sur­prise because, as far as any­one knew, SMIC did­n’t have the equip­ment to build smart­phone-qual­i­ty 7nm chipsets. For exam­ple, Chi­na is banned from receiv­ing ship­ments of extreme ultra­vi­o­let lith­o­g­ra­phy (EUV) machines. These expen­sive and big machines have an impor­tant job. They etch the extreme­ly thin cir­cuit­ry pat­terns onto a sil­i­con wafer. These lines are a frac­tion of the width of a human hair and allow bil­lions of tran­sis­tors to fit inside a chip.


Only one com­pa­ny in the world makes these machines, Dutch com­pa­ny ASML, and it is fol­low­ing the U.S. gov­ern­men­t’s desire to keep these $150 mil­lion machines out of Chi­na. While the U.S. is con­cerned enough to inves­ti­gate how Huawei and SMIC were able to build the Kirin 9000s, one U.S. com­pa­ny that faces an impact is Qual­comm. Accord­ing to TF Inter­na­tion­al’s super­star ana­lyst Ming-Chi Kuo, Qual­comm is the “big los­er” from Huawei’s abil­i­ty to have its home­grown Kirin chips pro­duced.

The just unveiled Huawei Mate 60 Mate Pro is the first Huawei phone in three years pow­ered by a 5G Kirin chipset

Accord­ing to Kuo, last year Huawei pur­chased 23 mil­lion to 25 mil­lion chipsets from Qual­comm with that num­ber ris­ing to 40 mil­lion to 42 mil­lion this year. As Huawei con­tin­ues to use its Kirin chips next year, Qual­comm will not only lose all of the busi­ness it was get­ting from Huawei, but it also will lose busi­ness from non-Huawei Chi­nese phone man­u­fac­tur­ers who will ship few­er phones due to tougher com­pe­ti­tion from Huawei.

Kuo says that Qual­com­m’s SoC ship­ments to Chi­na next year (2024) will be 50 mil­lion-60 mil­lion units low­er than this year and will keep drop­ping every year. The ana­lyst says that his sur­vey fore­casts that as soon as the fourth quar­ter of this year (which starts next month), Qual­comm will start a price war in Chi­na in order to regain mar­ket share. How­ev­er, this will result in low­er prof­its.

Qual­comm has two oth­er issues it needs to wor­ry about, accord­ing to Kuo. One is a high­er-than-expect­ed mar­ket share for the Sam­sung Exynos 2400, a deca-core chipset that Sam­sung is expect­ed to use on some Galaxy S24 series phones next year instead of the Snap­drag­on 8 Gen 3. The oth­er issue is that Apple will be using its own home­grown 5G modem chip replac­ing Qual­com­m’s in 2025.

7. “Fore­cast­ing Chi­na?” by Nathan Sper­ber; New Left Review; 09/08/2023.

Nobel Prize-win­ning econ­o­mist Paul Krug­man does not mince his words:

the signs are now unmis­tak­able: Chi­na is in big trou­ble. We’re not talk­ing about some minor set­back along the way, but some­thing more fun­da­men­tal. The country’s whole way of doing busi­ness, the eco­nom­ic sys­tem that has dri­ven three decades of incred­i­ble growth, has reached its lim­its. You could say that the Chi­nese mod­el is about to hit its Great Wall, and the only ques­tion now is just how bad the crash will be.

That was in the sum­mer of 2013. China’s GDP grew by 7.8 per cent that year. In the decade since, its econ­o­my has expand­ed by 70 per cent in real terms, com­pared to 21 per cent for the Unit­ed States. Chi­na has not had a reces­sion this cen­tu­ry – by con­ven­tion, two con­sec­u­tive quar­ters of neg­a­tive growth – let alone a ‘crash’. Yet every few years, the Anglo­phone finan­cial media and its trail of investors, ana­lysts and think-tankers are gripped by the belief that the Chi­nese econ­o­my is about to crater.

The con­vic­tion reared its head in the ear­ly 2000s, when run­away invest­ment was thought to be ‘over­heat­ing’ the econ­o­my; in the late 2000s, when exports con­tract­ed in the wake of the glob­al finan­cial cri­sis; and in the mid-2010s, when it was feared that a buildup of local gov­ern­ment debt, under-reg­u­lat­ed shad­ow bank­ing and cap­i­tal out­flows threat­ened China’s entire eco­nom­ic edi­fice. Today, dire pre­dic­tions are out in force again, this time trig­gered by under­whelm­ing growth fig­ures for the sec­ond quar­ter of 2023. Exports have declined from the heights they reached dur­ing the pan­dem­ic while con­sumer spend­ing has soft­ened. Cor­po­rate trou­bles in the prop­er­ty sec­tor and high youth unem­ploy­ment appear to add to China’s woes. Against this back­drop, West­ern com­men­ta­tors are cast­ing doubt on the PRC’s abil­i­ty to con­tin­ue to churn out GDP units, or fret­ting in grander terms about the country’s eco­nom­ic future (‘whith­er Chi­na?’, asks Adam Tooze by way of Yang Xiguang). Adam Posen, pres­i­dent of the Wash­ing­ton-based Peter­son Insti­tute, has diag­nosed a case of ‘eco­nom­ic long Covid’. Gloom about China’s eco­nom­ic prospects has once again tak­en hold.

That there are struc­tur­al weak­ness­es in the Chi­nese econ­o­my is not in dis­pute. After two waves of dra­mat­ic insti­tu­tion­al reform in the 1980s and 1990s respec­tive­ly, China’s eco­nom­ic land­scape has set­tled into a durable pat­tern of high sav­ings and low con­sump­tion. With house­hold spend­ing sub­dued, GDP growth, slow­ing over the past decade, is sus­tained by dri­ving up invest­ment, enabled in turn by grow­ing cor­po­rate indebt­ed­ness. But despite this slow­down, the cur­rent bout of doom­say­ing in the Eng­lish-lan­guage busi­ness press, half investor Angst, half pro-West­ern Schaden­freude, is not an accu­rate reflec­tion of the for­tunes of China’s econ­o­my – plod­ding, but still expand­ing, with 3 points of GDP added over the first six months of 2023. It is rather an expres­sion of an intel­lec­tu­al impasse, and of the flawed con­di­tions in which knowl­edge about the Chi­nese econ­o­my is pro­duced and cir­cu­lat­ed with­in the West­ern pub­lic sphere.

The essen­tial thing to bear in mind about West­ern cov­er­age of the Chi­nese econ­o­my is that the bulk of it responds to the needs of the ‘investor com­mu­ni­ty’. For every inter­ven­tion by a pub­lic-mind­ed aca­d­e­m­ic like Ho-fung Hung, there are dozens of spe­cial­ist brief­in­gs, reports, news arti­cles and social media posts whose tar­get audi­ence is indi­vid­u­als and firms with vary­ing degrees of expo­sure to China’s mar­ket, as well as, increas­ing­ly, the for­eign pol­i­cy and secu­ri­ty estab­lish­ments of West­ern states. Most analy­sis of Chi­na strives to be of a direct­ly use­ful and even ‘action­able’ kind. The stream of prof­it- and pol­i­cy-ori­ent­ed inter­ven­tions, aimed at a small sec­tion of the pop­u­la­tion, shapes the ‘con­ver­sa­tion’ on the Chi­nese econ­o­my more than any­thing else.

Two fur­ther fea­tures fol­low from this. First, the most salient pre­oc­cu­pa­tions of West­ern com­men­ta­tors reflect the skewed dis­tri­b­u­tion of for­eign-owned cap­i­tal with­in the Chi­nese econ­o­my. China’s econ­o­my is high­ly glob­al­ized in terms of trade in goods but not in terms of finance: Beijing’s cap­i­tal con­trols to a large degree insu­late the domes­tic finan­cial sec­tor from glob­al finan­cial mar­kets. Over­seas finan­cial cap­i­tal has only a hand­ful of access points to China’s mar­kets, mean­ing inter­na­tion­al expo­sure is uneven. Chi­na-based com­pa­nies with for­eign investors, off­shore debt or list­ings on stock mar­kets out­side of the main­land (that is, free of China’s cap­i­tal con­trols) gen­er­ate atten­tion pre­cise­ly in pro­por­tion to their over­seas entan­gle­ments. Thus count­less news arti­cles over the past two years have been devot­ed to the default­ing saga of real estate giant Ever­grande – a Hong Kong-list­ed firm that has relied on dol­lar-denom­i­nat­ed debt. Jour­nal­ists and com­men­ta­tors may be gear­ing up to give the same high-vis­i­bil­i­ty treat­ment to Coun­try Gar­den, anoth­er trou­bled prop­er­ty devel­op­er with a Hong Kong list­ing and off­shore debt. By con­trast, the Wall Street Jour­nal or New York Times sub­scriber will be for­giv­en for not remem­ber­ing the last time they read an arti­cle about State Grid (the world’s largest elec­tric­i­ty provider) or Chi­na State Con­struc­tion Engi­neer­ing (the world’s largest con­struc­tion firm) – two com­pa­nies less depen­dent on glob­al finance and over which inter­na­tion­al investors are unlike­ly to lose any sleep.

The sec­ond fea­ture relates to the finan­cial industry’s reliance on the art of polit­i­cal-eco­nom­ic sto­ry­telling to sell invest­ment options. Clients with mon­ey to invest want more than an analyst’s pro­jec­tion about the like­ly rate of return on a giv­en invest­ment prod­uct; they want a sense of how that prod­uct fits into the ‘big­ger pic­ture’ – into an over­ar­ch­ing tale of oppor­tu­ni­ty, inno­va­tion or tran­si­tion in one part of the mar­ket, in con­trast to vul­ner­a­bil­i­ty, decline or clo­sure else­where. Dis­cus­sion of the Chi­nese econ­o­my is reg­u­lar­ly inflect­ed by nar­ra­tive arcs of this mar­ketable vari­ety, whether ‘bull­ish’ or ‘bear­ish’. These have includ­ed, for instance: the the­o­ry of Xi Jin­ping ush­er­ing in a third wave of insti­tu­tion­al reform – ‘Reform 3.0’ – at the Cen­tral Committee’s third plenum in Novem­ber 2013 (noth­ing of the sort hap­pened); fears of a ‘hard land­ing’ if not a ‘Lehman moment’ dur­ing China’s finan­cial volatil­i­ty of 2015 and 2016 (GDP growth remained close to 7 per cent); and belief in the inevitabil­i­ty of Chi­na ‘rebal­anc­ing’ from invest­ment to con­sump­tion through the 2010s (the invest­ment share of GDP has remained above 40 per cent since 2003). Such nar­ra­tives, which seem to be craft­ed in response to the sto­ry­telling needs of West­ern investors and finan­cial inter­me­di­aries, become mag­nets for pub­lic debate. The ‘rebal­anc­ing’ sto­ry, for exam­ple, served as a com­pelling induce­ment to invest in con­sumer-fac­ing sec­tors of the Chi­nese econ­o­my – until it grad­u­al­ly lost cred­i­bil­i­ty. Some mon­ey was made along the way, and some lost, and in that sense the sto­ry was part­ly suc­cess­ful on the industry’s own terms even though it was a poor reflec­tion of eco­nom­ic fact.

That so much of the dis­course on China’s econ­o­my takes shape in response to investor inter­ests may also explain its sus­cep­ti­bil­i­ty to short-term rever­sals of sen­ti­ment. As a rule, the per­for­mance of finan­cial mar­kets is more volatile than that of the real econ­o­my, and in China’s case it is most­ly the for­mer – to which over­seas investors are most exposed, if uneven­ly – that dri­ves per­cep­tions of the lat­ter. Hence the sharp mood swings from bull­ish to bear­ish and back, from one finan­cial cycle to the next. In part fluc­tu­at­ing with the vagaries of mar­ket sen­ti­ment, Anglo­phone com­men­tary also lacks con­sis­tent, cred­i­ble cri­te­ria with which to assess China’s eco­nom­ic per­for­mance. How much growth is enough? What kind of eco­nom­ic expan­sion would it take for Chi­na not to be in a ‘cri­sis’? In 2009, as the Chi­nese gov­ern­ment was unleash­ing a spec­tac­u­lar wave of bank lend­ing to stim­u­late activ­i­ty in the after­math of the glob­al finan­cial cri­sis, it was wide­ly believed that grow­ing the econ­o­my by 8 per cent was nec­es­sary to avert mass unem­ploy­ment and social insta­bil­i­ty. That bench­mark has now con­ve­nient­ly van­ished from view; nobody in the West today would dream of say­ing Chi­na should aim to grow by 8 per cent per year. And is GDP growth itself an ade­quate met­ric of eco­nom­ic strength? The sig­nif­i­cance that Chi­nese author­i­ties attribute to GDP per­for­mance has declined. The offi­cial tar­get for 2023 is an approx­i­mate one – ‘around 5 per cent’ – afford­ing a mea­sure of lee­way, mean­while the Four­teenth Five-Year Plan (2021–2025) dis­pens­es with an over­all GDP tar­get alto­geth­er.

In addi­tion to pro­tean stan­dards for eval­u­at­ing per­for­mance, there is also a degree of con­fu­sion about how to inter­pret major devel­op­ments with­in the Chi­nese econ­o­my, espe­cial­ly in rela­tion to the inten­tions of pol­i­cy­mak­ers. The tra­vails of the real estate sec­tor are a case in point. The slow-motion col­lapse of over-indebt­ed Ever­grande has repeat­ed­ly been por­trayed in the West­ern media as a calami­ty in wait­ing for the entire Chi­nese econ­o­my, in yet anoth­er iter­a­tion of the ‘Lehman moment’ trope. This elides the fact that the Chi­nese gov­ern­ment delib­er­ate­ly pre­vent­ed high­ly indebt­ed prop­er­ty devel­op­ers, includ­ing Ever­grande, from access­ing easy cred­it in the sum­mer of 2020 – a mea­sure since referred to as the ‘three red lines’ pol­i­cy. Of course, no large-scale cor­po­rate default and restruc­tur­ing is desir­able per se. But it appears that fail­ures like Evergrande’s have been treat­ed by Chi­nese author­i­ties as the price of dis­ci­plin­ing the prop­er­ty sec­tor as a whole and reduc­ing its weight in the broad­er econ­o­my. Although the real estate down­turn, with invest­ment declin­ing sharply in 2022, has weighed neg­a­tive­ly on China’s over­all growth per­for­mance, this seems to be the con­se­quence of a con­cert­ed attempt to ‘rec­ti­fy’ the sec­tor – whose shrink­ing share of total eco­nom­ic out­put, even at the cost of GDP growth, might well be described as a pos­i­tive devel­op­ment.

A start­ing-point for a more lev­el-head­ed approach to the Chi­nese econ­o­my is to put the cur­rent moment in a longer-term per­spec­tive. China’s econ­o­my was com­pre­hen­sive­ly trans­formed in the 1980s and 1990s. As a result of the waves of reform that defined those decades, agri­cul­tur­al pro­duc­tion passed from the col­lec­tive to the house­hold; state indus­tries were con­vert­ed into for-prof­it enter­pris­es; the allo­ca­tion of goods, ser­vices and labour was thor­ough­ly mar­ke­tized; and a pow­er­ful pri­vate sec­tor was born, expand­ed rapid­ly and was con­sol­i­dat­ed. Since this era of intense insti­tu­tion­al restruc­tur­ing end­ed in the ear­ly 2000s, China’s GDP has more than quadru­pled in real terms but the country’s fun­da­men­tal eco­nom­ic struc­ture has remained sta­ble, in terms of both the bal­ance between state-owned enter­pris­es and pri­vate cap­i­tal, and the prece­dence of invest­ment over con­sump­tion. In this con­text, instances of sig­nif­i­cant change – tech­no­log­i­cal upgrad­ing, the expan­sion of cap­i­tal mar­kets – have been slow-mov­ing. The decline of GDP growth is itself a pro­tract­ed affair, and the essen­tials of the present con­fig­u­ra­tion are like­ly to endure for some time. China’s econ­o­my is nei­ther a ‘tick­ing time bomb’, as Joe Biden dar­ing­ly opined last month, nor – an overused expres­sion – ‘at a cross­roads’. The Chi­na bulls of the West may well con­tin­ue to morph into Chi­na bears and vice ver­sa in the com­ing years, while the Chi­nese econ­o­my indif­fer­ent­ly trudges on.

8. “The News Is Full of Head­lines about ‘Chi­na’s Eco­nom­ic Col­lapse” by John Ross; Learn­ing from Chi­na.

Once again, the West­ern media Estab­lish­ment, and sad­ly some on the left, are talk­ing up an impend­ing eco­nom­ic dis­as­ter in Chi­na, when the truth is quite the oppo­site, shows John Ross

IN THE last four years, cov­er­ing the peri­od of the Covid pan­dem­ic, China’s econ­o­my has grown two-and-a-half times as fast as the US, 15 times as fast as France, 23 times as fast as Japan, 45 times as fast as Ger­many, and 480 times as fast as Britain.

To add in small­er G7 coun­tries, Chi­na has grown four times as fast as Cana­da, and 11 times as fast as Italy.

China’s out­per­for­mance of advanced cap­i­tal­ist coun­tries is even greater in per capi­ta terms — a still bet­ter mea­sure of pro­duc­tiv­i­ty changes and poten­tial for increas­ing liv­ing stan­dards.

China’s per capi­ta GDP grew three times as fast as the US, five times as fast as Italy, 44 times as fast as Japan or France, and 260 times as fast as Britain — while per capi­ta GDP fell in Ger­many and Cana­da.

China’s out­per­for­mance of devel­op­ing cap­i­tal­ist coun­tries shows the same pat­tern — China’s per capi­ta 4.4 per cent GDP annu­al aver­age growth com­pares to 2.6 per cent in India, 1.3 per cent in Brazil, or 0.9 per cent in South Africa.

What is impor­tant about such eco­nom­ic growth, of course, is not abstract sta­tis­tics but its mean­ing for the real lives of ordi­nary peo­ple.

The Inter­na­tion­al Labour Organ­i­sa­tion data on real, infla­tion-adjust­ed, wages shows that up to the lat­est avail­able data — for most coun­tries to 2022, and for India to 2021 — China’s annu­al real wage growth was 4.7 per cent.

For Britain it was 0.1 per cent, for the US it was 0.3 per cent, in France it was minus 0.4 per cent, in Ger­many minus 0.7 per cent and in India minus 1.3 per cent.

Giv­en this enor­mous eco­nom­ic out­per­for­mance by Chi­na of cap­i­tal­ist coun­tries, any ratio­nal dis­cus­sion that should be tak­ing place in West­ern main­stream media about the inter­na­tion­al eco­nom­ic sit­u­a­tion would be, “why is China’s econ­o­my huge­ly out­per­form­ing the US and the rest of the cap­i­tal­ist West?” and, “what lessons are to be learned from China’s social­ist econ­o­my that is so out­per­form­ing the West?”

For the left, the issue that needs to be assessed and pub­li­cised is, “Why are real wages ris­ing 18 times as fast in Chi­na as in the US, 44 times as fast as in Britain, while in France, Ger­many or India real wages are falling?”

Indeed, the present author would argue that much greater stress should be placed on the lat­ter point. The inter­na­tion­al left has begun to absorb that Chi­na has lift­ed more than 850 mil­lion peo­ple out of World Bank-defined pover­ty in 40 years — by far the great­est pover­ty reduc­tion achieve­ment in human his­to­ry.

But it has not yet inter­nalised how rapid­ly not only the poor­est but aver­age liv­ing stan­dards are ris­ing in Chi­na — far faster than in any West­ern coun­try.

But, of course, this real eco­nom­ic sit­u­a­tion can’t be dis­cussed in the main­stream media, because its con­clu­sions would be too dam­ag­ing for the cap­i­tal­ist West.

Instead, a type of mad dis­cus­sion is unfold­ing, with US claims about China’s econ­o­my becom­ing increas­ing­ly bizarre — one might say deranged — as they get fur­ther and fur­ther out of touch with real­i­ty.

Pres­i­dent Joe Biden, for exam­ple, recent­ly made a speech claim­ing China’s eco­nom­ic growth rate is “around 2 per cent,” when it was 5.5 per cent in the first half of this year and, as already not­ed, China’s econ­o­my is grow­ing two-and-a-half times as fast as the US.

Biden bizarrely claimed that in Chi­na “the num­ber of peo­ple who are of retire­ment age is larg­er than the num­ber of peo­ple of work­ing age” — entire­ly false, and inac­cu­rate by a fig­ure of many hun­dreds of mil­lions of peo­ple.

Dis­cus­sion in the US finan­cial media equal­ly refus­es to face real facts. Because I am an econ­o­mist, every morn­ing, after the over­all news, I switch on Bloomberg TV to catch up on the lat­est eco­nom­ic data. Dis­cus­sion there is like Alice Through the Look­ing Glass — the book the prin­ci­ple of which is that every­thing is reversed com­pared to the real world.

Appar­ent­ly, accord­ing to Bloomberg’s analy­sis, China’s annu­al aver­age of 4.5 per cent a year growth in the last four years is an econ­o­my in severe cri­sis, where­as the US’s 1.8 per cent is alleged­ly strong growth — not to speak of Britain’s 0.1 per cent. Sim­i­lar rhetoric, out of all con­tact with fac­tu­al real­i­ty, per­vades the Finan­cial Times, The Econ­o­mist, or the Wall Street Jour­nal.

The left is well used to such US polit­i­cal lying — the com­plete­ly fake claim that North Viet­namese ships attacked US naval ves­sels on August 4 1964 in the Gulf of Tonkin, used to launch the Viet­nam war, or the equal­ly untrue claim that Iraq had weapons of mass destruc­tion to jus­ti­fy the US inva­sion, were clas­sic exam­ples.

Today, the US sys­tem­at­i­cal­ly lies about the state of Chi­na and its own econ­o­my because it is cru­cial for US cap­i­tal­ism to pre­vent its own cit­i­zens, and close allies, from under­stand­ing the real eco­nom­ic trends.

It is fur­ther proof, if one were need­ed, of the truth that if the real world and a the­o­ry do not coin­cide only one of two things can be done. One is to aban­don the the­o­ry, the oth­er is to aban­don the real world.

In this case, the the­o­ry is that the US, because it is cap­i­tal­ist, should out­per­form social­ist Chi­na. The real world is actu­al eco­nom­ic per­for­mance — in which Chi­na con­tin­ues to out­per­form the US and oth­er cap­i­tal­ist coun­tries by an enor­mous mar­gin.

Unable to aban­don its the­o­ry the US is there­fore forced to aban­don the real world — hence the dement­ed denial of com­par­a­tive eco­nom­ic per­for­mance not­ed at the begin­ning of this arti­cle.

While the left should expect lies from cap­i­tal­ism what is rather shame­ful is that some sec­tions of the left repeat such non­sense — appar­ent­ly believ­ing that if they put in a few left phras­es into an analy­sis tak­en from the West­ern press this con­sti­tutes “social­ist” com­men­tary.

For exam­ple, an arti­cle in the New Left Review’s Side­car called Chi­na a “zom­bie econ­o­my.” Some “zom­bie” when China’s econ­o­my is grow­ing any­where between two-and-a-half times and 480 times as fast as any major cap­i­tal­ist econ­o­my.

The real data shows the real­i­ty is sim­ple. Chi­na has far out­grown any West­ern cap­i­tal­ist econ­o­my for more than 40 years. It con­tin­ues to do so.

The result in Chi­na is by far the world’s most rapid rise in liv­ing stan­dards — not only for the poor­est but for the whole aver­age pop­u­la­tion. It is known as the prac­ti­cal advan­tage of social­ism. It is fact. We know why the US has to make up big lies about it. There is no jus­ti­fi­ca­tion for sec­tions of the left echo­ing them.

This arti­cle was orig­i­nal­ly pub­lished by the Morn­ing Star.

John Ross Senior Fel­low at Chongyang Insti­tute at Ren­min Uni­ver­si­ty of Chi­na and the win­ner of China’s top book award for for­eign writ­ers on Chi­na.



One comment for “FTR#1312 Update on the Destabilization of China, Part 1”

  1. Thanks. I’ve rec­og­nized since 2020 that COVID-19 was/is a U.S. bioweapon attack on Chi­na. The fol­low­ing arti­cle, which appeared ear­ly in 2020, gives a good state­ment of the basic evi­dence:


    Today is the first time I came across your web­site. Extreme­ly inter­est­ing mate­r­i­al. I hope to lis­ten to many of these lec­tures, and will order a copy of your 32 GB flash dri­ve.

    Posted by Peter Gilbert | October 15, 2023, 2:48 pm

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