Calm down please re China

Spengler has a somewhat overheated piece with an odd title that we won’t quote:

Now that China’s tradeable stock market has risen by 43% during 2017 in US dollar terms (with the MSCI-based ETF as a benchmark), Western opinion is melting up. Bridgewater, the world’s largest hedge fund, is raising money for a China investment vehicle. Bank of America now predicts Asian stocks will double in the present bull run. “Hedge Funds Used to Love Shorting China. Now, Not So Much,” declared a Bloomberg headline Sept. 12.

The same applies to Western evaluation of China’s standing as a world power. Graham Allison’s The Thucydides Trap, a plea not to oppose China’s strategic challenge to the United States, now sits on the desk of every senior staffer at the National Security Council courtesy of President Trump’s national security adviser, Gen. H.R. McMasters.

Allison puts America in the position of the “established power,” like Sparta on the eve of the Peloponnesian war of 431-404 B.C.E., and China in the position of the “emerging power,” like Athens, arguing that the rise of China is inevitable. Allison’s book has many flaws, as I try to show in the forthcoming issue of Claremont Review of Books, but it depicts a vibrant, technologically-driven Chinese economy.

corporate America has been bullish on China all along. Chinese companies’ share of global electronics production, meanwhile, rose from 30% in 2012 to nearly 60% in 2016, and this share will rise to 87% by the end of the present year. China is the world’s largest market for electronic components and no American company can afford not to have a major presence there.

Allison warns: “In the three and a half decades since Ronald Reagan became president, by the best measurement of economic performance, China has soared from 10% the size of the US to 60% in 2007, 100% in 2014, and 115% today. If the current trend continues, China’s economy will be a full 50% larger than that of the US by 2023. By 2040 it could be nearly three times as large. That would mean a China with 3x America’s resources to use in influencing outcomes in international relations. Such gross economic, political, and military advantages would create a globe beyond anything American policymakers can now imagine.”

Western analysts in general dismissed China’s trillion-dollar Belt and Road Initiative (BRI). During the past year, though, new rail lines have lined China to Iran, Turkey and from there to Western Europe, drastically reducing the time and cost of shipping across the Eurasian continent. Two rail links to Iran are now in operation.

On September 6, the first train to Teheran departed from Yinchuan, capital of northwest China’s Ningxia Hui Autonomous Region, with a 15-day journey time to Iran’s capital, half as long as sea transport. The Baku-Tbilisi-Kars railway linking China with Turkey and the South Caucasus begins operations in October. China already is Turkey’s largest source of imports.

As a result, once-neglected areas of Western China have become the most dynamic zones in the China’s economy. According to a recent study by the Milken Institute, the fastest-growing city in China is Chengdu, a metropolis of 12.3 million people in Sichuan province. Few Westerners can find Chengdu on a map, but it exemplifies the initial success of BRI.

Turkey plans to become a cashless society by 2023, using the Chinese example and Chinese technology. China now makes 90% of the world’s smartphones. Its low-cost handset producers stand to dominate emerging markets. Google has just established a joint venture with China’s handset manufacturer Xiaomi to market mid-range, high-performance smartphones in India.

The point of the piece is that the US is or should be freaking out about China’s growth and influence. Calm down please. There’s no reason to overstate things. For example, Allison’s figures about China’s GDP relative to the US seem to be all PPP, an issue we addressed over a decade ago, since it can grossly overstate the size of economies with a lot of poor people. Moreover, China has the kind of emerging ideology issues that you’d expect to see when lots of its people begin traveling and living abroad and domestic internet access is highly regulated. China has other problems too, with the way it runs it’s SOE’s, but we’ll save that for another time. For now, take a deep breath and exhale slowly.

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