The China Syndrome

I was always curious what this meant after watching the movie many years ago.  Turns out it is just an expression for when the core components of a nuclear reactor burn through the containment vessel and figuratively cut through the earth's core to China.  As kids, my friends and I liked to joke when digging "fox holes" in the sand that we would dig all the way to China.  I guess nuclear engineers had the same sense of humor.

Today it could be used to describe the situation with China over Russia.  Thanks to the Sinophobia on Capitol Hill, we have boxed China into a corner.  The harsh rhetoric reached a crescendo during the Trump administration and hasn't died down since.  Politicians are scrambling to put together a bill that would ban TikTok nationwide out of fear that the Chinese Communist Party (to use Matt Gaetz's words) would be privy to all our inner thoughts.  Not like the US government can't tap into social media anytime it wants, but no matter China is the bad guy.

I agree we should be wary but I've long thought of our adversarial relationship with China being of an economic competitive nature, not a militaristic one.  Unlike Russia, China has diversified its economy and is now the second largest in the world.  It has closed the gap considerably on the US and it is a guessing game as to when China will supersede us.  Some say 2050.  Probably sooner.  A large part of this phenomenal growth has been Beijing's ability to maintain a unified economic policy and stay out of wars.  

Over the years, China has spent more on its military but I well imagine it is a paper tiger having had virtually no combat experience.  Instead, China has used its economic heft to pressure countries into its ever growing sphere of influence in its effort to box out Taiwan.  The latest country to give in is Honduras, which recently stated it will no longer recognize Taiwan and welcome Chinese investment.

For troubled developing countries this is a huge boon.  China is willing to underwrite infrastructure projects that the World Bank and Taiwan are not.  The only catch is that when a country falls short on its payments, it finds itself ceding the rights to the revenue from these infrastructure projects to Chinese investors and essentially no longer has any control over its shipping ports, railroads, airports and other key facilities.  

Even in the US this has happened when cities have unsuspectedly leased the rights of key municipal infrastructure to Chinese investment companies, usually through third party agencies.  This was the only way these cities could meet their budget shortfalls in the aftermath of the 2008 banking crisis, but they now find themselves losing badly needed revenue not just to China, but to UAE and other countries that picked up the leases at bargain basement rates.  Matt Taibbi wrote extensively on the subject in Griftopia.

A lot of hyperbole comes with these stories.  For years, it has been said that China owns Hawaii, but that "China wave" never quite materialized.  At least not on the scale everyone imagined.  China's middle class may be huge but what defines "middle class" in China is far less than in the US and Europe, so the vast majority of these persons don't have that kind of buying power.  It's not to say that China may one day be able to buy up vast amounts of foreign real estate, but for now they aren't going to buy out Hawaii or any other state.

Nevertheless, China is a threat.  We have only made matters worse by trying to box them out of the world economy.  This has led China to pursue other currency markets where it could increase the trading power of the Yuan.  Right now it is pretty low.  

The main effort is to create an economic union between Brazil, Russia, India, China and South Africa, or BRICS.  All are G20 countries, making them significant players.  There have also been talks of bringing Turkey and Saudi Arabia into the union.  If this were to happen it would represent a seismic shift in the world economy, as this union would be larger than the US or EU and significantly change the way we do business.

Past administrations have done their best to drive a wedge into this proposed union, maintaining economic ties with India, Brazil and South Africa, but these relations have been strained.  Oddly enough, Jim O'Neill is one of the guys championing BRICS, which he says would greatly reduce the dollar's dominance on the world market.  He's a former Goldman Sachs executive who sees more growth in developing countries than he does in Western countries and therefor greater investment opportunities.  

Maybe so, but do we really want the kind of centralized economy that China advocates?  They are not pitching a free market but rather another form of economic colonialism, much like the West had engaged in for centuries.  Perhaps even more rigid.  Just the same, China has attracted investors like Elon Musk who see this as the wave of the future.

I suppose this is why Vladimir Putin can't seem to wipe that grin off his face ever since negotiating another trade deal with China.  For the moment, his country remains solvent and will be able to continue to fund its war effort.  For Chairman Xi, this is a golden opportunity to buy out Russia and make it firmly a part of its sphere of influence.  China already exerts a tremendous amount of economic influence with an economy 17 times larger than Russia.  I don't think Russian nationalists are too happy about this, but I suppose will be swayed if Putin is able to hold onto its newly acquired territories in Ukraine.

It didn't have to be this way.  We had numerous opportunities to secure a broad trade deal with China but chose not to.  Instead, we tried to find ways to work around China.  The Trans-Pacific Partnership, or TPP, was one of these efforts during the Obama administration, but it was vilified by the left and right wings of the Democratic and Republican Parties and ultimately abandoned during the Trump administration.  The TPP still exists but without the US it doesn't have the economic heft to compete with China.

Many thought this was another NAFTA, sucking jobs out of America and into Asia-Pacific countries.  Not like we already do a tremendous amount of business there.  The aim was to move companies relying on Chinese labor to these other Asia-Pacific countries, thereby lessening our economic relationship with China.  Pretty good idea on the face of it, but with the lack of any unified economic policy doomed to failure when a new guy came into the Oval Office who didn't understand how this worked.  Trump was going to negotiate a great deal with China that never materialized.

So, Biden is left to pick up the pieces and figure out what to do next.  It is clear that China no longer sees the US as a reliable partner and vice-versa.  Unfortunately, we have made a whole lot of other enemies and "frenemies" along the way, allowing China to continue to consolidate its global assets unimpeded.  Not very smart.

Maybe if we hadn't been so hostile to China we could have at least driven a wedge in its relationship with Russia, allowing us to maintain the upper hand in this war in Ukraine.  Instead, Putin got the economic "off ramp" he was looking for and will be able to skirt sanctions and continue to fund his war effort indefinitely.  I don't think China will actually supply Russia with badly needed weapons but the Kremlin will be able to continue to buy much needed missiles, drones and other munitions from third party agents, turning this into a long war that nobody wanted.

Still, Russia needs victories on the battlefield, and so far all it has achieved is a trail of destruction with the body count soaring each day of fighting.  At some point, one would think Russians would say enough.  Until that day comes, the US has no choice but to up the ante as it has committed itself to victory in Ukraine.  It would have been a lot easier had we kept China out of the war.