China — The Dragon Sleeps Again
(This is the part 2 to “China — The Domino Begins to Sway” where I speculate how the situation in Shanghai might change geopolitics of the 21st century.)
If you are a Chinese real estate agent living in a city like New York or Los Angeles, there is a fair chance long forgotten friends from China have suddenly started ringing up your phone over the past month.
A growing number of lawyers, doctors, computer programmers, and the such are seeking to flee the country that has so irrevocably broken their trust. They may join the sunshine coasts of California, or head south to the beaches of Australia; wherever they go, they will not be staying in China.
When this happens, China will find itself losing its most important strategic resource to its international competitors.
A vibrant middle class is the foundation to any developed economy. They create the demand for the innovator’s inventions and the talent for the entrepreneur’s fledging startups; they discover new medicine as scientists and ensure people’s health as doctors. A shrinking middle class would be terrible enough for any ambitious country, but for that to be caused by a migration of your best talents to your most powerful global competitors?
Why, it is tantamount to pushing a growing bolder up a steepening hill while your muscles begin to atrophy.
An exodus of its middle class will unquestionably weaken China, just as it is intensifying its rivalry against the United States and her allies. While it is impossible to know all the nuances of how 21st geopolitics will play out, we know three big pieces on this chess board: India, Africa, and Southeast Asia.
Over the past decade, India and China forged a growing relationship, in some parts through diplomacy but largely through economic trade. Much of this work was undone in a few months when a boarder dispute between the two led to gunfire between their militaries, resulting in casualties. The stark reversal in India’s attitude towards the north is well illustrated by looking at Chinese tech billionaire and Xiaomi founder Lei Jun’s visit to India in 2017, when he was greeted with a cheering and excited audience, a far cry to today when the Xiaomi browser is banned as part of a nationwide boycott of Chinese products across India.
Southeast Asia also has a rocky relationship with China. Regardless of the validity of its claims, China’s increasingly aggressive stance on the South China Sea situation has created a lot of tension and unease in the minds of its southern neighbors. Centuries of tributary relations where countries like Vietnam were treated as inferiors to the Chinese likely did not help.
Fortunately for China, it has cultivated largely positive relations in Africa through funding massive projects in Nigeria, Uganda, Kenya, and other countries, building highspeed rails and essential infrastructure. Despite the occasional asset seizure due to defaults, most of these loans appear to have been made on fair terms, which combined with many African nations’ eagerness to replicate China’s rise to prominence has made China a relatively trustworthy partner.
The Western nations, however, have finally caught on. The EU recently announced its target of providing $300 billion to support Africa by 2027, surely the first of many ambitious programs that will present China its first real competition in courting the African region.
India, Southeast Asia, and Africa are all currently caught in a tug of war between the United States and China in a sequel to the first Cold War, and the aggressive approach to international relations recently adopted by the latter has already started to push many of them toward its rival. An internal weakening of China caused by an exodus of its all important middle class will only strengthen the United States’ appeal in the eyes of these rising star nations/regions.
If India and many Southeast Asian counties do end up pursing stronger ties with the United States, China will find itself internally weakened and externally surrounded by rivals all around its boarder. It does not take a Sun Tzu to see what this future looks like:
Checkmate.
Predicting world changing events is a nasty hobby that have made fools out of geniuses, and I know myself not to be one of them. The chain of logic listed out above is a rough guess at best, trying to extrapolate the far future knowing full well that there are a lot of butterflies flapping their pesky wings around.
The decline of the United States has been foretold for years now as China have risen. The trend has been so strong for so long that most people, even certifiable geniuses such as Ray Dalio of BridgeWater fame, have come to view China surpassing the United States as a near inevitability. However, no one anticipated the sheer anger and betrayal the Chinese middle class would feel in response to what unfolded in Shanghai.
To those who are still adamant on the United States’ decline, let me tell you a story:
In a far away place, there is a mystical place, a place called the Land of the Rising Sun. It had an industrious population with a terrific work ethic who labored away day and night, diligently making toys and cameras and all sorts of gadgets for the rest of the world. Soon, their cars were roaming every road and their music players were humming every song, and they had built up a big pile of money which they invested into making themselves even smarter and more productive. Before long, the people of this Rising Sun had become a powerful giant, poised to take over the world. However, drunk on their own success and drowning in cash, they spent and spent, buying everything they could see, including the land under their own feet. Soon they created a monstrous asset bubble, and when the monster roared, it bought devastating trouble. Its proud economy on lifeline and its industrious population on decline, the giant was put to rest, and the rising Sun was set.
People forget how certain Japan’s ascension to world domination seemed in the post WWII era, but it was not to be. While still a large presence on the world stage today, Japan is a shadow of its former self, a threat to no one.
China seems to be repeating Japan’s story page by page; using the wealth made through manufacturing it has modernized its nation into a formidable force, growing its economy into the second largest in the world, and right on cue, just as its about to overtake the United States, it created an internal crises threatening to undermine its own power.
The 21st century is still beginning, and it would be interesting to see how the next 80 years unfold. However, if the leadership of China do not act fast to regain the trust of its populous, the Dragon of the East might soon be returning to its slumber.
If Lady Fortuna has favorites, the United States is most certainly her dearest.
