I am writing from Hong Kong. A year ago I commented on one of Noah’s articles. The mood among the English literate Chinese middle class (my cohort) has turned to total despair. Noah was more right in 2021, our cohort got it wrong. X is worse than all of us thought. Those of us with the luxury to “run” are making back up plans to leave. Most cannot.
I was in China for 17 of the last 30 years and the times I was out of China,i was either doing graduate work, covering china from the USA or in HK. I worked in PE and VC and ran a start-up in the early days. One part that is glossed over is the disportionate treatment of the relationship treatment. In hindsight, while America looked to make money in China, China in some ways abused the relationship . This included forced technology transfer and the broad theft of corporate secrets. I had a long talk with a close friend who funded several deals and still lives in Shanghai. We both agree that this approach laid the groundwork for the current decoupling. Xi is also ushering in a different China that its citizens might not appreciate. Unlike the previous leaders, Xi is a pure politician and committed communist. China is now making it difficult to get or renew passports for its citizens. It has forced Zero Covid on its citizens because Xi cannot abide that China's domestic vaccines are weak and it would be embarrassing that a western/American vaccine would set the country back to work. China is running into somer serious economic headwinds that for years Chinese politicians have assumed that the country would never face- the middle income trap. This will cut down on economic growth. in addition, the CCP's plan to place communist party member into private company management will be a disaster. Part of the debt problem that the country faces is that politicians participated in loan decisions best left to the economics of banking. Now, imagine China's entire private sector now faced with the prospect that politics may enter into business decisions. Finally, China has an aging population which affects economic growth. This can be somewhat assuaged by immigration. However, China is making it very difficult for foreigners to live and work in China. According to a close Chinese friend, 5 years ago, Beijing had over 250,000 foreigners. Today, there are 25,000. It is an end of an era and I fear for my friends, both Chinese and foreigners, in China. 10 years ago, the Chinese I knew and met, students, investors, business people, laobaixin all looked forward to the array of opportunities in the future, better jobs, more money, travel. Increasingly, those rosy futures are dimming. China became a global power because of its economy. If it no longer has the same role in the world, what does it base its relevance on?
The removal of statistics show they are too bad to publish. The failures of the economy under persistent lockdown is no surprise. But hiding the numbers is to prevent disgrace for Xi and his version of the CCP and accompanying social unrest.
This is good but I’d suggest a couple of alternatives. More countries in Asia than you think might be likely to play both sides between China and the US. We’ve seen this already with India hedging between Russia and the US in the Ukraine conflict. In the long run, India is likely to be a great power. It has no reason to accept US hegemony. It can get more from the US by bargaining hard than by falling in line – because the US needs it to replace China as a source of cheap manufactures. Other countries in Asia see China as a large, near and rich market. They are not likely to want to decouple, although they will desire US protection if and when there is a more serious conflict. In short, the future might be more India versus China, with US playing a transitional role, than US versus China with India as a hanger on.
Very good piece. It was clear the Chimerica theme was over during Obama’s term when China excluded US tech firms and social media, militarized the South China Sea, started reining in HK , and greatly ramped up espionage on the US government and private companies. China changed the tone long before Trump did.
The good news is that US manufacturing still has the expertise and tech IP- they went to China for ease of doing business: scale, quick approvals, low costs etc. It is not as if they forgot how to run factories. 3M was making masks in China.
A factory site in China can be leveled and developed very quickly with the right backing and connections. In many US states it would take 10 years to get a simple warehouse type structure approved (like a Wal Mart). Permitting reform is an issue in the US, though more serious in Blue states.
As manufacturing becomes more automated, the importance of labor costs will shrink (though they will still be a differentiator). Electricity costs, land costs, rule or law/property rights and transport network will be key competitive advantages. US land costs are reasonable (relative to Europe, not EM), electricity costs are low and the freight rail network is excellent.
Workforce scale and quality is lacking in the US, for sure. I agree that the US should look to allies in Asia and neighbors in Latin America to build and integrate a global network. This already exists, though not yet on the scale to replace a China.
Ideally it would be Europe who would develop and integrate Africa (particularly N Africa) and the Mideast, which has energy resources and young workforces. Unfortunately, Europe takes a mercantilist/colonialist approach to trade and is too timid in foreign policy and military affairs. The US is likely going to have to focus on Egypt, Morocco, Nigeria,etc because Europe will not be as active as it should (except France in W Africa).
The era of low inflation and ever increasing consumption is likely over as costs increase due to reshoring. EM countries could grow more slowly without the tailwind of globalization, except those countries integrated into a cooperative trade network. I believe the US model (which has always been for the subsidiaries of multinationals to become local companies and local manufacturers- in part due to US corporate tax rules) will have an advantage over the mercantilist/exploitive/neocolonialist approach taken by China and Europe.
I hate to "like" this post, but it brings a great deal into focus in a coherent way. Thank you for providing clarity.
As someone who became involved with China during the Cultural Revolution, and who watched with great optimism as China emerged from Maoism, the past decade has felt increasingly alarming, and this past week feels as though we've moved past the alarm phase and into the world that the alarms were warning about. And I think in two more weeks the alarms are going to become more intense with regard to the US.
The history of the world since the industrial revolution is that the countries with the greatest manufacturing industries become major world powers, and as they grow they lose their industry (Germany partially excepted) because their capitalist classes want cheaper labour and commodities. Then, after a lag, they lose their power despite keeping their living standards.
The British empire/U.K. is an example. It once bestrode the world, and now is a very minor world power. That is true for most of Europe, most countries now having limited manufacturing and military power. Given this reality America is in likely long term decline, although being the reserve currency masks a lot of problems.
Which is why I bet that China is going to try and challenge that.
Man, I've been saying for months now that you're too optimistic about the rest of the world falling in line with the US when the momentum is clearly in China's favour. You've no idea how much people seem to love to hate on the US because most people haven't read history books or Cold War literature! I feel cursed to have grown up in India, Southeast Asia and China on a diet of Western literature and American pop culture because I feel like it's not safe to talk to anyone all around me including the HK folks who are disillusioned with the CCP. Give it a few years of continous economic growth and all of them will sing a different tune and accept Chinese hegemony. Heck, people who are sticking around are even trying to get their kids to learn Chinese instead of Cantonese.
You should travel to places where China is influential to really get an idea of how differently they're perceived. No amount of Western journalism is changing their minds.
Thanks, get the sense this essay will provoke a shift in how I, at least, view the world. Like Russian tanks on the way to Kiev did. My hope is you find a way to inject a version of this into European discourse.
Great article! Couldn't come at more perfect time either. China imo has just hit the fan with a lot of things. The lack of statistics, and the truthfulness of those released statistics, baffles me. I have to imagine the broad Chinese economy is hurting. Also fascinating to see how trade and direct investment has changed in the country.
Great article and I agree completely with the blueprint for the new world order. I do think getting India to go along with this will be tricky. They will need to be given a top seat at the table (with the US and EU) so they don’t feel like they are being colonized again. Also, there will need to be a military agreement to allow them to remove their dependence on Russia. Maybe bring India into NATO. Once organized, I hope it leads to a new era of innovation spurred on by competing with China to end the complacency and profit maximization we have seen after the Cold War ended.
Surprised to see you quote Gramsci there, though it is probably his most famous phrase. I dug into Prison Letters for a few weeks. He is an obvious genius but it’s a hard slog, especially if you are not already intimately familiar with Italian culture.
Noah, great article! Can you please touch on the smile curve chart by Meng. I noticed that Mexico is at the top right hand portion of the cuve. How does Mexico's position from a geographic and manufacturing capability standpoint factor into your equation going forward? Already the relationship between Juarez/El Paso is significant... do you see this increasing?
I am writing from Hong Kong. A year ago I commented on one of Noah’s articles. The mood among the English literate Chinese middle class (my cohort) has turned to total despair. Noah was more right in 2021, our cohort got it wrong. X is worse than all of us thought. Those of us with the luxury to “run” are making back up plans to leave. Most cannot.
I was in China for 17 of the last 30 years and the times I was out of China,i was either doing graduate work, covering china from the USA or in HK. I worked in PE and VC and ran a start-up in the early days. One part that is glossed over is the disportionate treatment of the relationship treatment. In hindsight, while America looked to make money in China, China in some ways abused the relationship . This included forced technology transfer and the broad theft of corporate secrets. I had a long talk with a close friend who funded several deals and still lives in Shanghai. We both agree that this approach laid the groundwork for the current decoupling. Xi is also ushering in a different China that its citizens might not appreciate. Unlike the previous leaders, Xi is a pure politician and committed communist. China is now making it difficult to get or renew passports for its citizens. It has forced Zero Covid on its citizens because Xi cannot abide that China's domestic vaccines are weak and it would be embarrassing that a western/American vaccine would set the country back to work. China is running into somer serious economic headwinds that for years Chinese politicians have assumed that the country would never face- the middle income trap. This will cut down on economic growth. in addition, the CCP's plan to place communist party member into private company management will be a disaster. Part of the debt problem that the country faces is that politicians participated in loan decisions best left to the economics of banking. Now, imagine China's entire private sector now faced with the prospect that politics may enter into business decisions. Finally, China has an aging population which affects economic growth. This can be somewhat assuaged by immigration. However, China is making it very difficult for foreigners to live and work in China. According to a close Chinese friend, 5 years ago, Beijing had over 250,000 foreigners. Today, there are 25,000. It is an end of an era and I fear for my friends, both Chinese and foreigners, in China. 10 years ago, the Chinese I knew and met, students, investors, business people, laobaixin all looked forward to the array of opportunities in the future, better jobs, more money, travel. Increasingly, those rosy futures are dimming. China became a global power because of its economy. If it no longer has the same role in the world, what does it base its relevance on?
The removal of statistics show they are too bad to publish. The failures of the economy under persistent lockdown is no surprise. But hiding the numbers is to prevent disgrace for Xi and his version of the CCP and accompanying social unrest.
This is good but I’d suggest a couple of alternatives. More countries in Asia than you think might be likely to play both sides between China and the US. We’ve seen this already with India hedging between Russia and the US in the Ukraine conflict. In the long run, India is likely to be a great power. It has no reason to accept US hegemony. It can get more from the US by bargaining hard than by falling in line – because the US needs it to replace China as a source of cheap manufactures. Other countries in Asia see China as a large, near and rich market. They are not likely to want to decouple, although they will desire US protection if and when there is a more serious conflict. In short, the future might be more India versus China, with US playing a transitional role, than US versus China with India as a hanger on.
Very good piece. It was clear the Chimerica theme was over during Obama’s term when China excluded US tech firms and social media, militarized the South China Sea, started reining in HK , and greatly ramped up espionage on the US government and private companies. China changed the tone long before Trump did.
The good news is that US manufacturing still has the expertise and tech IP- they went to China for ease of doing business: scale, quick approvals, low costs etc. It is not as if they forgot how to run factories. 3M was making masks in China.
A factory site in China can be leveled and developed very quickly with the right backing and connections. In many US states it would take 10 years to get a simple warehouse type structure approved (like a Wal Mart). Permitting reform is an issue in the US, though more serious in Blue states.
As manufacturing becomes more automated, the importance of labor costs will shrink (though they will still be a differentiator). Electricity costs, land costs, rule or law/property rights and transport network will be key competitive advantages. US land costs are reasonable (relative to Europe, not EM), electricity costs are low and the freight rail network is excellent.
Workforce scale and quality is lacking in the US, for sure. I agree that the US should look to allies in Asia and neighbors in Latin America to build and integrate a global network. This already exists, though not yet on the scale to replace a China.
Ideally it would be Europe who would develop and integrate Africa (particularly N Africa) and the Mideast, which has energy resources and young workforces. Unfortunately, Europe takes a mercantilist/colonialist approach to trade and is too timid in foreign policy and military affairs. The US is likely going to have to focus on Egypt, Morocco, Nigeria,etc because Europe will not be as active as it should (except France in W Africa).
The era of low inflation and ever increasing consumption is likely over as costs increase due to reshoring. EM countries could grow more slowly without the tailwind of globalization, except those countries integrated into a cooperative trade network. I believe the US model (which has always been for the subsidiaries of multinationals to become local companies and local manufacturers- in part due to US corporate tax rules) will have an advantage over the mercantilist/exploitive/neocolonialist approach taken by China and Europe.
We will see.
I hate to "like" this post, but it brings a great deal into focus in a coherent way. Thank you for providing clarity.
As someone who became involved with China during the Cultural Revolution, and who watched with great optimism as China emerged from Maoism, the past decade has felt increasingly alarming, and this past week feels as though we've moved past the alarm phase and into the world that the alarms were warning about. And I think in two more weeks the alarms are going to become more intense with regard to the US.
“ The U.S. was willing to tolerate the devastation of its manufacturing base, but not its relegation to a second-class power.”
The capitalists convinced themselves that they could destroy workers wages without consequence, that the “jobs are not coming back”
https://youtu.be/CKpso3vhZtw
The history of the world since the industrial revolution is that the countries with the greatest manufacturing industries become major world powers, and as they grow they lose their industry (Germany partially excepted) because their capitalist classes want cheaper labour and commodities. Then, after a lag, they lose their power despite keeping their living standards.
The British empire/U.K. is an example. It once bestrode the world, and now is a very minor world power. That is true for most of Europe, most countries now having limited manufacturing and military power. Given this reality America is in likely long term decline, although being the reserve currency masks a lot of problems.
Which is why I bet that China is going to try and challenge that.
What does everyone think about the possibility of nearshoring from China to Mexico?
Man, I've been saying for months now that you're too optimistic about the rest of the world falling in line with the US when the momentum is clearly in China's favour. You've no idea how much people seem to love to hate on the US because most people haven't read history books or Cold War literature! I feel cursed to have grown up in India, Southeast Asia and China on a diet of Western literature and American pop culture because I feel like it's not safe to talk to anyone all around me including the HK folks who are disillusioned with the CCP. Give it a few years of continous economic growth and all of them will sing a different tune and accept Chinese hegemony. Heck, people who are sticking around are even trying to get their kids to learn Chinese instead of Cantonese.
You should travel to places where China is influential to really get an idea of how differently they're perceived. No amount of Western journalism is changing their minds.
Thanks, get the sense this essay will provoke a shift in how I, at least, view the world. Like Russian tanks on the way to Kiev did. My hope is you find a way to inject a version of this into European discourse.
The end of the TPP is going to end up being seen as a disaster isn’t it
Great article! Couldn't come at more perfect time either. China imo has just hit the fan with a lot of things. The lack of statistics, and the truthfulness of those released statistics, baffles me. I have to imagine the broad Chinese economy is hurting. Also fascinating to see how trade and direct investment has changed in the country.
Great article and I agree completely with the blueprint for the new world order. I do think getting India to go along with this will be tricky. They will need to be given a top seat at the table (with the US and EU) so they don’t feel like they are being colonized again. Also, there will need to be a military agreement to allow them to remove their dependence on Russia. Maybe bring India into NATO. Once organized, I hope it leads to a new era of innovation spurred on by competing with China to end the complacency and profit maximization we have seen after the Cold War ended.
Surprised to see you quote Gramsci there, though it is probably his most famous phrase. I dug into Prison Letters for a few weeks. He is an obvious genius but it’s a hard slog, especially if you are not already intimately familiar with Italian culture.
Noah, great article! Can you please touch on the smile curve chart by Meng. I noticed that Mexico is at the top right hand portion of the cuve. How does Mexico's position from a geographic and manufacturing capability standpoint factor into your equation going forward? Already the relationship between Juarez/El Paso is significant... do you see this increasing?
Noah, you don't mention the climate change elephant in the room. How is it to be dealt with in your bipolar vision?