0:03 Thank you very much. It's really a great
0:06 honor to be here. We're often told that
0:09 we're living in an Asian century that's
0:11 going to revolve around a forever rising
0:14 China. But I think when the history
0:17 books about the 2020s are written,
0:19 they're going to say that this was the
0:21 decade that China's epic rise finally
0:24 came to an end. And that changed
0:27 everything. It's what took us fully from
0:30 a postcold war globalized happy
0:33 international order to one of much more
0:36 intense security competition among rival
0:39 blocks. So I realize that's not the
0:41 conventional wisdom. So I'm going to
0:43 develop that in three key points. The
0:47 first is that China's rise is not just
0:48 slowing down. It's not just ending. It's
0:50 actually starting to reverse.
0:54 The second point is that uh the China
0:56 hangover is here and what I mean by that
0:58 is many countries tied their economic
1:01 wagons to China. They got rich selling
1:02 into the China market. They became
1:05 dependent on Chinese loans. But now the
1:08 slowdown in China's economy which lifted
1:10 up so many economies around the world is
1:12 going to drag more of them back down.
1:14 And already countries are starting to
1:16 point the finger at China which is
1:17 putting China in a much more difficult
1:20 geopolitical situation. at the same time
1:23 that its economy is slowing.
1:25 And then the third and final point I'll
1:27 make is I don't think China's going to
1:29 react particularly well to these
1:32 pressures. It's a classic peaking power,
1:35 meaning that it was once rising, but now
1:37 it's facing slowing growth and greater
1:39 geopolitical push back. And what we've
1:42 seen from past peaking powers in history
1:44 is that they don't just mellow out and
1:46 dial back their ambitions. They tend to
1:50 crack down on disscent at home and then
1:52 expand aggressively abroad. And I think
1:52 there's already evidence that
1:54 unfortunately China is starting to inch
1:56 its way down this ugly historical path.
1:58 So I'll get to all that fun wonderful
2:01 story in a little bit. Uh but first this
2:03 idea that China's rise is reversing. I
2:06 mean that literally. So this is China's
2:08 economy compared to that of the United
2:09 States. And you can see that China is
2:12 actually shrinking relative to the
2:14 United States. And this is using Chinese
2:16 government data. which we know
2:19 exaggerates the size as well as the
2:21 speed of China's GDP growth.
2:23 When these are the different growth
2:25 estimates for China, the red line is
2:27 what the Chinese government says the
2:29 Chinese economy is growing at. The other
2:31 lines are based on objectively
2:33 measurable data. Things like how much
2:35 electricity is being used at night that
2:38 you can see from outer space. If you use
2:40 those other estimates, then China's
2:42 economy is actually at least 20% smaller
2:45 than the graph I showed you before. And
2:47 when you dial down into other metrics,
2:49 you see a similar story. So this is
2:51 productivity. This is what you really
2:53 need to grow an economy. To grow an
2:56 economy, you can either add more workers
2:58 or you can spend more money or ideally
3:00 you can become more productive by
3:02 producing more at lower cost. And you
3:04 can see that with really the exception
3:07 of the 2021 that the reopening from zero
3:10 COVID productivity growth in China has
3:12 been negative for over a decade which
3:14 means that China is becoming less
3:15 efficient over time. And you see this
3:17 also reflected in the so-called capital
3:20 output ratios. So this is how much
3:24 capital or money do you have to spend to
3:27 produce every unit of GDP growth. You
3:28 can see that in recent years those has
3:30 skyrocketed which means that China is
3:32 spending more and more to produce less
3:35 and less and the natural outcome of this
3:38 is a huge explosion in debt. So in
3:40 recent years China has gone from you
3:42 know about an average developing country
3:45 level of debt similar to India to above
3:48 and beyond even the American fat cats in
3:50 terms of its debt with no end in sight.
3:52 If any of you have been traveling to
3:54 China recently, as I imagine some of you
3:55 have been, um, you know, a lot of people
3:57 come back and say there's a palpable
3:59 malaise in Chinese society that didn't
4:02 used to exist before. And you're seeing
4:05 that in public opinion surveys. So for
4:07 the first time really in more than a
4:09 generation, you're having more and more
4:11 Chinese citizens saying that their lives
4:14 are getting worse yearbyear.
4:16 You see this reflected in the so-called
4:19 lying flat generation. A lot of the
4:21 youth who can't find jobs commensurate
4:23 with their education level. You see it
4:25 in the capital flight, the wealthy who
4:27 are trying to get their kids and their
4:29 money out of the country as quickly as
4:31 possible. A whole host of indicators
4:33 suggest that all is not right with
4:35 China's economy. And you know, I think a
4:37 lot of people have been saying this this
4:40 slowdown in China's economy was entirely
4:42 predictable. A lot of people think that
4:45 the rise of China was the normal thing
4:46 that China would just rise forever.
4:49 that's just what it does and that anyone
4:51 who argues that it's going to slow down
4:52 doesn't know what they're talking about.
4:54 But in retrospect, we now know that
4:57 China's rise was the exceptional event.
4:59 It was the weird thing that usually does
5:01 not happen in the international system.
5:04 And it was propelled by a few fleeting
5:07 circumstances, a few fleeting tailwinds
5:08 that have now become headwinds that are
5:10 dragging China back down. So I just want
5:11 to walk you through some of these. The
5:13 first of these tailwinds turned
5:16 headwinds is just basic security. For
5:18 much of the last 40 years, China has had
5:21 the most secure geopolitical position of
5:23 any time in its modern history. And
5:25 that's really important because China,
5:26 as you know, is in a very rough
5:29 neighborhood. It's surrounded by 19
5:32 countries, most of which are powerful or
5:34 unstable or both.
5:36 Trying to, you know, if you play the
5:37 geopolitical board game Risk, you know
5:39 that trying to hang on to the territory
5:41 of China is damn near impossible. And
5:42 that's what China has to do every single
5:44 day. And for big parts of its modern
5:47 history, uh, China failed to do this. So
5:49 for a hundred years, from the first
5:52 opium war in 1839
5:53 until the end of the Chinese civil war
5:56 in 1949, China just gets ripped apart by
5:58 imperialist powers, it collapses into
6:01 two of the worst civil wars in history.
6:03 And then even after the Chinese
6:06 Communist Party unifies the country in
6:09 1949, China almost immediately becomes
6:11 the chief enemy of the United States
6:13 because of the Korean War and the direct
6:15 fighting between the two countries. And
6:17 then 10 years later, China's alliance
6:19 with the Soviet Union falls apart. And
6:22 so by the 1960s, China is the top enemy
6:24 of both Cold War superpowers. And not
6:27 surprisingly, it's isolated and impoverished.
6:28 impoverished.
6:31 So, it's not till 1971 and the opening
6:32 to the United States that China starts
6:35 to get some reprieve from this
6:37 geopolitical vice because now it has a
6:40 superpower on its side and the Americans
6:42 actually warn the Soviet Union on
6:44 multiple occasions. Do not attack China
6:45 otherwise we're going to have a problem
6:48 with that. The Americans also fasttrack
6:51 China's entry into Western markets and
6:54 the timing of China's opening up is
6:57 perfect. So, China starts to join the
6:59 global economy right as this period that
7:01 we now call hyper globalization kicks
7:05 in. So, this is the period where in 30
7:07 years, you know, from the 1970s to the
7:09 early 2000s, world trade and investment
7:13 surges six plus fold. China both propels
7:15 and rides this wave to become what we
7:17 know of it today, which is this dominant
7:19 workshop of the world, a huge
7:20 manufacturing power and a rising economy.
7:23 economy.
7:25 The second factor that China really
7:28 needed for its rise was decent
7:31 government. So in 1976, Mao dies and
7:33 China's leaders basically say, "Let's
7:35 not do another cultural revolution." And
7:38 so they start to reward lower level
7:40 Chinese leaders for good economic
7:42 performance, not just blind loyalty to
7:45 the Chinese Communist Party.
7:47 uh the actually ironically the cultural
7:50 revolution itself so destroyed the state
7:52 planning apparatus that there just
7:54 weren't as many Chinese bureaucrats
7:55 running around telling the peasants what
7:57 they could and couldn't do and so the
8:00 Chinese people were partially freed from
8:01 that rigid state plan and they basically
8:04 formed quasi private markets and
8:05 industries and started trading and you
8:07 had this big boom of economic activity
8:09 and the Chinese Communist Party
8:10 eventually started to begrudgingly
8:13 accept that and then expand the range of
8:14 quasi private markets around in the
8:16 country. So, China had the right
8:18 policies to capitalize on its new
8:21 opportunities at the right time.
8:23 A third crucial factor was the greatest
8:26 demographic dividend in human history.
8:28 So, for a big part of the last 35 years,
8:30 China had anywhere between 10 to 15
8:33 workers available to support every
8:35 elderly retiree. That's two to three
8:37 times the global average. And it's the
8:39 unre repeatable result of China's very
8:42 peculiar population history. Basically
8:45 in the 50s and 60s, Mao inherits this
8:47 country that has been decimated by
8:50 decades of war and strife and he wants
8:52 to turn China into a superpower. And so
8:53 he the Chinese government starts to
8:55 incentivize Chinese families to have
8:57 lots of children and they do. And so the
9:02 population explodes by 80% in 30 years.
9:04 But then the Communist Party starts to
9:06 worry about overcrowding and in the late
9:08 1970s they implement the one child
9:11 policy. And so for much of the last 35
9:12 years, you've had this baby boom
9:15 generation in the prime of their working
9:17 lives. They had relatively few parents
9:19 to take care of because so many of them
9:21 had died in the in the civil wars and
9:24 the the famines. And they had relatively
9:25 few children to take care of because
9:26 they weren't allowed to have them. So
9:29 this population was absolutely primed
9:31 for economic productivity. Demographers
9:33 think this demographic bubble alone
9:36 explains at least 25% of China's rapid
9:39 growth over the last 35 years. And then
9:41 the final factor that China had going
9:43 for it that was really crucial for its
9:46 rise was abundant natural resources. So
9:47 up until fairly recently, China was
9:49 almost self-sufficient in just basic
9:51 things like water, food, energy
9:53 resources, and this made growth very
9:54 cheap because raw materials were cheap.
9:57 You could just set up a factory, plow
9:59 through the raw materials, uh, and grow
10:02 very quickly. So really from the early
10:04 1970s up until I would say the early
10:07 2010s, China had these four factors
10:10 working for it uh to varying degrees.
10:13 But now each of these assets are
10:14 becoming liabilities that are starting
10:16 to drag China down. And this is why we
10:17 shouldn't expect a major turnaround in
10:20 the Chinese economy anytime soon. So for
10:21 starters, China is just running out of
10:25 resources. Half of its rivers are gone.
10:27 60% of its groundwater is so polluted
10:29 that the Chinese government has said
10:31 it's unfit for human contact. So you
10:33 can't touch the water. So that means you
10:35 can't use it even for agriculture or
10:37 industry, let alone to drink. Uh Beijing
10:39 has about as much water available per
10:42 capita as Saudi Arabia does. It's a
10:43 similar story in terms of energy
10:45 resources. So China's plowed through
10:47 most of its exploitable oil, even coal
10:49 is becoming scarce. So as a result,
10:51 China is now the top importer of energy
10:54 resources around the world. It's also
10:56 the top food importer in the world.
10:58 China can't feed itself anymore because
11:01 half of its farmland has either become
11:03 so polluted you can't use it or it's
11:05 just turned into desert. And so raw
11:08 material costs in China have gone up
11:10 substantially in recent years. And that
11:11 makes economic growth much more
11:13 expensive. It's more it's three times
11:16 more expensive to produce each unit of
11:19 GDP today than it was in the 2000s. And
11:21 that's rising.
11:22 At the same time, China's running out of
11:25 people. So that baby boom generation I
11:28 mentioned earlier is now retiring and
11:30 falling onto the backs of a tiny one
11:33 child generation. Just over the next 10
11:35 years, China's going to lose more than
11:38 70 million working age adults. It's
11:40 going to gain more than 130 million
11:42 senior citizens. That's like taking an
11:45 entire France of workers, consumers,
11:47 taxpayers out of the country and adding
11:50 an entire Japan of elderly pensioners.
11:52 And it's going to happen just in the
11:55 next 10 years. That 15 to1 ratio I
11:56 mentioned earlier of workers to
11:57 retirees, that's going to collapse to
12:00 2:1. Two workers available to support
12:04 every retiree uh by the late 2030s.
12:07 Now, managing these problems is going to
12:09 be increasingly difficult because China
12:12 is now run by a dictator who
12:14 consistently sacrifices economic
12:16 efficiency to enhance his political
12:18 power. the zerocoid lockdowns, the
12:19 crushing of Hong Kong. Those are just
12:22 the most obvious examples, the the
12:24 channeling of subsidies to state
12:27 connected firms, the anti-corruption
12:29 drive that has scared lower level
12:31 officials from engaging in any kind of
12:33 experimentation or entrepreneurship
12:34 because they don't want to ruffle the
12:36 wrong feathers, disrupt the wrong
12:37 patronage network, and end up the target
12:40 of an anti-corruption probe. The
12:42 censoring of negative economic news, so
12:44 youth unemployment data is going off the
12:46 charts, and then that's just eliminated.
12:48 All these things just make it harder to
12:50 course correct in the middle of an
12:52 economic downturn and don't bode well
12:54 for China's economy. And then finally,
12:56 China is starting to lose some of that
12:59 easy access it had to rich country
13:02 markets, technology, and capital. So the
13:03 United States obviously is waging a sort
13:07 of trade and tech war against China. The
13:09 European Union, Japan to varying degrees
13:11 are starting to follow suit. And so
13:12 China just faces thousands of new trade
13:15 and investment barriers every year that
13:16 it didn't face as recently as 10 years
13:18 ago. And at the same time, China's
13:20 security environment is also starting to
13:22 look a lot more dangerous. So this is a
13:24 map of US military bases that are
13:27 currently being expanded.
13:28 You don't need to be a strategic genius
13:30 or attend the World Knowledge Forum to
13:31 understand the basic story that's going
13:33 on here. This is what Xiinping calls
13:34 all-around encirclement by the United
13:38 States. So China's boom now is finally
13:40 coming to an end.
13:42 And unfortunately, it's having shock
13:45 waves for lots of other countries today
13:47 because so many economies tied their
13:51 fortunes to a rising China. Um, and for
13:52 good reason. And so to sketch this out,
13:54 I kind I want to take you back to the 2000s.
13:55 2000s.
13:57 Some of you are probably too young to
13:58 remember that, but for those of you that
14:00 do remember it, uh, you'll remember that
14:02 China was growing at double-digit rates.
14:04 You might also remember that the ri the
14:07 rise of China was the most read about
14:09 news story in the world by far. Nothing
14:11 else came close. It was the most
14:13 decisive event of the first two decades
14:15 of the 21st century. Way more than 9/11
14:17 or the the British royal wedding or
14:19 whatever other news story you want to
14:21 put out there. And for good reason. Uh
14:25 China generated more than 40% of global
14:27 economic growth in the 2000s, in the
14:31 '90s. Um some scholars compare it to the
14:33 industrial revolution or the Renaissance
14:34 in terms of its global impact. I don't
14:36 know if I'd go that far, but it
14:38 certainly was spectacular to see China
14:40 rise. And during this time, China
14:43 becomes a buying machine. It just starts
14:45 buying up everything around the world.
14:48 Soybeans, computer chips, cars,
14:50 pharmaceuticals, machine tools, whatever
14:52 it was, China was buying it. And so the
14:54 China market becomes a gold mine for
14:56 many countries around the world. You can
14:57 see that imports as a share of China's
15:00 economy rise substantially.
15:02 The Economist magazine even created an
15:04 entire index that they call the Sino
15:06 Dependency Index which just showed how
15:09 incredibly dependent other economies
15:13 became on China's economy. Even major
15:15 countries Germany, South Korea, Japan,
15:18 France had upwards of 10% or more of
15:20 their fortunes essentially tied up in
15:24 trade and investment with uh with China.
15:26 China's rise, its insatiable demand for
15:28 resources also just drove up the price
15:31 of commodities around the world. And so
15:34 this had the indirect effect of bringing
15:35 up countries that weren't even trading
15:37 directly with China. They just benefited
15:38 from the fact that the things they had
15:41 to sell were selling for a higher price.
15:44 Uh Russia for example, the rise of China
15:47 basically created massive demand for
15:49 everything that the Soviet Union used to
15:53 produce, whether it was weapons or uh
15:56 oil and gas or machine tools. And so
15:58 China's rise helped propel the
16:00 resurgence of Russia as well as do
16:01 dozens of other economies during this
16:04 time. At the same time, China wasn't
16:06 just buying stuff, it was also lending
16:07 money abroad. So as it accumulates
16:10 wealth, it then turns around and starts
16:13 lending out money so that mainly so
16:15 countries could employ Chinese companies
16:18 to build infrastructure, roads, bridges,
16:20 telecommunications networks, soccer
16:23 stadiums. Uh over the last 20 years, one
16:25 out of every three infrastructure
16:27 projects built in Africa was built by
16:30 China. Um and so China becomes this
16:34 dominant dispenser of of uh of loans.
16:37 But unfortunately that era is now over.
16:39 This era where really countries were
16:42 getting a triple win from China. A huge
16:44 market to sell their exports into. A
16:46 seemingly bottomless supply of loans to
16:48 finance all their development projects.
16:50 And then lots of experienced Chinese
16:51 companies that knew how to build pretty
16:55 much anything. That all has been going
16:57 away in recent years. Studies show that
16:59 every 1% decline in China's economic
17:01 growth rate reduces the economic growth
17:03 of its trading its main trading partners
17:06 by about the same amount. And one reason
17:08 for this is that China is just buying
17:11 less from the world than it used to. So
17:14 this is imports as a share of China's
17:17 already slowing economy. And as a
17:18 result, countries are seeing their
17:20 exports to China plummet. So South
17:22 Korea's exports to China dropped about
17:26 20% last year. Germany's dropped 9%.
17:29 Commodity producers like Australia,
17:31 Saudi Arabia, Brazil are starting to
17:33 feel the pinch.
17:35 At the same time, China's not loaning
17:38 money anymore. It wants that cash at
17:42 home. It's not offering debt relief to
17:44 other countries. It's demanding that its
17:46 partners now pay back the money with
17:48 interest. And as a result, lots of
17:50 economies are being pushed into debt
17:51 distress because of the massive loans
17:53 they took from China. You've seen just
17:56 in recent years, Venezuela, Laos, uh
17:58 Zambia, um lots of other countries are
18:00 starting to feel this. Pakistan um
18:02 because of the drying up of Chinese loans.
18:04 loans.
18:05 And at the same time, to make matters
18:08 worse, in order to save its own economy,
18:10 China is pumping up its companies with
18:12 subsidies, its manufacturing
18:13 enterprises, and then flooding global
18:15 markets with subsidized exports. You're
18:17 seeing this obviously in electric
18:19 vehicles, solar panels, a number of
18:22 other main manufacturing industries. And
18:25 so as a result, many countries trade
18:28 deficits with China have really surged
18:30 in recent years. And so this is now
18:33 creating a triple threat to a number of
18:35 economies because China's buying less of
18:38 their stuff. It's no longer giving them
18:41 easy loans. And now their markets are
18:43 being flooded with a wave of cheap
18:45 Chinese imports that are crowding out
18:49 domestic producers. So you're starting
18:51 to see this bite. And needless to say,
18:53 China's not making a lot of friends
18:54 during this time. So, China's
18:56 international favorability around the
18:59 world has fallen by more than half since
19:01 the 2000s. Anti-China sentiment around
19:03 the world has surged to levels we
19:06 haven't seen since the 1989 Tianan
19:08 Square massacre. And this really is a
19:10 sea change because when China's economy
19:12 was growing very rapidly, so many other
19:14 countries were curring favor with
19:17 Beijing to get access to its market. uh
19:19 you know the British hand back Hong
19:21 Kong, the Portugal hands back Macau, the
19:24 Taiwanese pursue engagement with China,
19:26 you have a dozen countries settle their
19:29 border disputes with China, you have the
19:31 United States shephering China into the
19:33 World Trade Organization and in fact
19:36 writing technology transfer uh protocols
19:38 into China's accession agreement. So
19:40 like please take take some of our
19:43 technology. But that now is flipping. As
19:46 as China's economy slows, as China
19:48 focuses on trying to save its own
19:50 economy and putting other economies at a
19:52 disadvantage, now more and more
19:56 countries are seeing China less as a
19:57 profitable economic partner and more as
20:00 a potential threat both economically as
20:02 well as in some cases geopolitically.
20:05 And so this now is putting China under a
20:06 lot of pressure because it's not only
20:09 dealing with a slowing economy, it's
20:11 starting to get more geopolitical push
20:13 back. And so this then begs the
20:16 question, how is China going to react to
20:18 these pressures? So I actually um
20:20 because I knew I needed to make slides,
20:23 I put my presentation notes into chat
20:25 GPT and just asked it to draw a picture
20:26 of what I was talking about and this is
20:28 what it came up with. Um so everything's
20:30 going to be fine. Don't worry about it.
20:33 Uh now look I don't want to be alarmist
20:36 uh but I am my my concern is that China
20:39 is becoming a classic peaking power
20:40 which historically have been the most
20:42 dangerous kind of countries in the
20:45 world. So for the past four decades this
20:48 rapid growth has pumped China up. It's
20:50 equipped it with the money and the
20:53 military muscle to really make big moves
20:54 on the international stage. It's also
20:57 just puffed up the ambitions of China's
20:59 leaders. you know, they think, hey, this
21:01 could be our century, uh, and we need to
21:03 move on it. But now, slowing economic
21:06 growth, greater international push back
21:08 is giving China the motive to move more
21:11 aggressively to achieve those lofty
21:13 ambitions. And when you look back at
21:15 history, a lot of these peing powers,
21:17 really none of them mellowed out and
21:19 dialed back their ambitions. Instead, as
21:21 I said, they cracked down on descent at
21:23 home and they expanded aggressively
21:26 abroad. a few even uh catalyzed massive
21:28 wars. So I I'll just give you a few
21:30 examples of these historical cases so
21:32 you can kind of see the range of
21:33 different outcomes and then I'll go back
21:36 to talking about China and how I worry
21:38 that it's starting to inch its way down
21:40 this well-worn historical path. So one
21:41 of these cases is actually the United
21:44 States in the late 19th century.
21:46 Basically after the US Civil War in the
21:49 1860s, there's this big economic boom in
21:51 the United States because they're no
21:52 longer the Americans are no longer
21:53 fighting each other. They were starting
21:55 to spread westward across the North
21:58 American continent. But then by the
21:59 1880s, you have a series of what were at
22:01 the time the worst depressions in
22:03 American history. And the Americans
22:05 started to freak out that the reason
22:07 their economy was doing so badly was the
22:10 frontier was closed. There was no more
22:12 open land to expand into. There were no
22:14 more green field investment
22:17 opportunities to exploit. And so the US
22:18 government did a couple of things.
22:20 First, it cracked down hard on organized
22:22 labor. So if you study US history, this
22:25 is the era of just brutal repression of
22:27 labor movements. Uh sending in police
22:29 forces to basically beat workers with
22:30 clubs. And then at the same time, the
22:32 Americans started to pump exports and
22:36 investment into Latin America and Asia.
22:39 Then the Americans built a giant navy to
22:40 protect those far-flung investments. And
22:41 then the United States just started
22:44 annexing territory overseas. So when
22:46 times got tough, the United States
22:48 really got moving in a big way. This is
22:50 the era of American imperialism,
22:52 fullthroated imperialism. Um, and it
22:54 comes right after the worst economic
22:55 crisis that the United States had
22:59 suffered up to that point. Uh, Russia
23:00 around the same time at the turn of the
23:03 20th century sees its economic boom
23:05 fizzle out and the zar responds by
23:07 putting 70% of the country under martial
23:10 law and then seizing assets and
23:14 resources in Manuria, moving into Korea
23:16 as well. Russia sends about 200,000
23:18 troops into East Asia to take over
23:20 resources and they don't stop expanding
23:22 there until the Japanese, as you can see
23:25 on the right side of that screen, uh
23:27 boot them out in the Russo-Japanese war.
23:29 Germany and Japan, we know this story
23:31 well, the Great Depression, they don't
23:33 react particularly well uh to that.
23:34 Japan in particular, as it's
23:36 experiencing these economic troubles,
23:37 also is feeling the pressure from the
23:40 United States. But more recently, you
23:42 know, people forget that Russia's
23:44 aggression today also has a peaking
23:47 power origin. So in the 2000s, Russia
23:50 was a resurgent economy. It was banging
23:52 out roughly 8% annual economic growth
23:53 rates largely because all those
23:56 commodity prices were very high. But
23:59 then after the 2008 financial crisis, a
24:00 lot of the prices for all the things
24:02 that Russia was selling go down. They
24:04 take down Russia's economy and Putin's
24:07 popularity with it. He responds first of
24:09 all by jailing more dissident and
24:11 dialing up anti-western propaganda. But
24:14 he also starts putting pressure on
24:17 former Soviet states to join the
24:19 Eurasian Economic Union, this customs
24:20 union, where he basically says, "I'm
24:22 going to put tariffs around all of you
24:23 so that it's harder for you to trade
24:25 with the rest of the world, but you have
24:27 to lower your tariffs with Russia and
24:30 basically become economic vassels of the
24:32 Kremlin." So needless to say, some
24:35 Ukrainians were not so excited about
24:36 that idea. they were much more
24:38 interested in getting a giant trade deal
24:39 with the European Union. And we know how
24:41 that tugofwar between Russia and the
24:43 West has ultimately played out. So you
24:46 see this pattern over and over again in
24:48 history. It's the the rapid rise
24:52 followed by the fear of a potential
24:54 decline if countries don't do something
24:55 that if you don't get moving, the
24:57 international balance of power may
24:59 eventually turn against you. And so when
25:01 I look at China today, I see China doing
25:03 three things that make me very
25:06 concerned. Uh, first of all, China has
25:09 been dialing up domestic repression. And
25:11 I actually I now use the term fascism.
25:13 And I don't use that lightly because I
25:15 know it's a loaded term, but if you look
25:17 at what's happening in China today, a
25:19 lot of the classic hallmarks of a
25:20 fascist regime are starting to show
25:22 themselves. So, first of all, you have
25:26 the worship of a central leader. If you
25:28 listen to Chinese propaganda today, they
25:30 celebrate Xiinping like he's the third
25:32 pillar of this holy trinity. So they say
25:35 under Mao, China stood up. Under Dong
25:37 Xiaoing, China got rich. And under
25:38 Xiinping, China is going to become
25:41 mighty again. Hujin Tao and Jang Zamin,
25:43 I guess, are just forgotten. They're not
25:45 even mentioned in this. But you see this
25:46 extreme warship and he is centralized
25:49 power of course as no leader has since
25:52 Mao. Another aspect is dialing up of
25:54 hyper nationalism and not just like our
25:57 country is great nationalism but this
26:01 this idea of taking revenge on hostile
26:03 foreign forces that disrupted the golden
26:06 age of the nation. This golden age that
26:08 the dear leader is going to eventually
26:10 restore. You see these themes of
26:12 national rejuvenation and recovering
26:14 from the century of humiliation
26:17 increasingly featuring in schools in
26:19 popular media as well as in government
26:21 documents. You also have the brutal
26:23 repression of ethnic minorities. So
26:25 Chinese documents increasingly describe
26:27 the weaguers other ethnic minorities as
26:30 a cancer that has to be cut out of the
26:32 system before it infects the rest of the
26:33 body politic. And you've seen the
26:36 extreme measures that China has gone to
26:37 in order to control these minority
26:39 populations. the re-education camps, the
26:42 bulldozing of uh traditional communities
26:45 and so on. You also have the development
26:47 of this Orwellian surveillance state
26:49 that can just track massive populations
26:51 and then discipline people instantly by
26:52 if you do something wrong, maybe getting
26:55 cut off from travel. Um and then if
26:57 worse comes to worse, you can just send
26:58 in the traditional authorities to crack
27:01 heads. And then finally, this worship of
27:04 military strength. And it's not just the
27:06 the parades and the gooststepping. It's
27:08 it's more subtle things like the civil
27:10 military fusion concept which is
27:12 explicitly designed to erase the
27:14 boundaries between civilian and military
27:16 life. Any organization, any company can
27:18 essentially be commandeered to serve the
27:20 nation in a geopolitical or military sense.
27:22 sense.
27:25 So at the same time um China also is
27:27 developing a new economic strategy and
27:30 it seems to be one that is prioritizing
27:34 leverage rather than just rapid growth.
27:36 So I think the basic idea is okay, our
27:38 economy is not going to grow as fast as
27:40 it did, but we can still get leverage
27:42 over our trade partners by dominating
27:44 what Chinese documents call the choke
27:46 points of the global economy. So these
27:47 are things that other countries can't
27:49 live without. Whether it's medical PPE
27:52 or rare earths or certain types of
27:54 computer chips or access to the South
27:56 China Sea, there are certain strategic
27:58 industries that China is looking to
28:00 dominate. And you see that China pairing
28:02 that with an increased willingness to
28:05 impose sanctions on other countries. So
28:08 for example, Australia calls for an
28:10 investigation into where COVID came from
28:12 and China uses its economic leverage to
28:14 basically wage a trade war against
28:16 Australia. Now the Australians in
28:17 typical Australian fashion kind of react
28:20 with good humor. they sponsor this uh
28:22 fight communism by buying Australian
28:25 wine campaign and then uh parliament
28:27 members and other western democracies
28:28 kind of pick this up and you know it's
28:31 this sort of patriotic thing um but it's
28:32 it shows that China is much more willing
28:35 to adopt a mercantalist strategy to flex
28:37 its muscles in reaction to the fact that
28:39 it can no longer just buy off other
28:41 countries through promises of rapid
28:44 growth um by partnering with China. And
28:45 then finally, what worries me the most
28:50 is this big military buildup. So, um,
28:52 China is engaged in the largest peaceime
28:54 military buildup of any country since
28:57 Nazi Germany. It's churning out warships
28:59 and ammunition at an extremely rapid
29:02 rate. You see that reflected in a huge
29:04 increase in the military budget. So,
29:06 China still claims it only spends about
29:10 $230 billion a year. American
29:12 intelligence suggests it it's uh almost
29:14 three times that amount. that's been
29:15 backed up by think tanks that basically
29:16 find things that other countries put in
29:18 their military budgets that China has
29:20 been leaving out to make its budget look
29:21 smaller. But when you factor those
29:23 things in, you see a major increase in
29:25 the budget. And you can also just see
29:27 the results of this military investment
29:28 with things that you can see with your
29:31 own eyes. So the number of warships that
29:33 are coming out of Chinese shipyards has
29:36 surged in recent years. uh China is
29:40 doubling the size of its nuclear arsenal
29:42 and increasingly China is deploying
29:44 these military assets in more aggressive
29:46 ways than it used to. And I think this
29:49 all reflects a basic calculation that
29:51 China can no longer rely on economic
29:53 carrots to get other countries to give
29:55 it concessions and so it's more willing
29:58 to start using military sticks to try to
30:00 coersse compliance. So in the Taiwanese
30:02 case, you know, China used to hope that
30:04 the Taiwanese would eventually just
30:06 unify with the mainland through trade
30:08 and investment links and tourism that
30:09 eventually the Taiwanese would come
30:11 back, but that has failed. And so now
30:14 China is sustaining um the the largest
30:16 military show of force in the Taiwan
30:18 Strait in more than a generation. To
30:20 really underscore that, China has built
30:23 full-scale models of Taiwanese and
30:25 American military bases out in the
30:26 desert, as well as full-scale models of
30:28 American aircraft carriers so that
30:30 Chinese forces can do practice bombing
30:34 raids on those uh on those uh mock
30:35 military vessels. You're seeing
30:36 something similar happening in the South
30:39 China Sea. So this is a heat map that
30:41 the New York Times put together that
30:43 shows just from 2021
30:48 to 2023 the increase in the density of
30:51 Chinese naval and maritime militia uh
30:53 operations. A lot of these are
30:55 concentrating around disputed features
30:57 in the South China Sea. And they're not
30:59 just increasing the presence. China's
31:00 just gotten much more aggressive in the
31:03 way that it uses these naval and
31:04 maritime militia vessels. So, especially
31:06 the Philippines has really come in for a
31:08 lot of coercion just over the last year
31:10 where China, you know, blasting Filipino
31:13 ships with water cannons and and lasers,
31:14 uh, you know, boarding Filipino ships
31:17 literally with knives drawn. And so,
31:18 you're just seeing a greater willingness
31:19 to court risk. And you're also seeing
31:21 something similar happening on the
31:22 border with India where you've had a
31:24 number of skirmishes, some of which have
31:26 actually killed several dozen troops.
31:28 So, it just seems like across the board,
31:31 China is much more willing to try to
31:34 extend its security perimeter, even
31:37 having to use force to shove its way to
31:39 carve out space for itself in what it
31:42 views as an increasingly hostile world.
31:44 Uh the the last part of this and and
31:46 what also worries me is just that China
31:48 in addition to building up its own
31:51 military has been working increasingly
31:54 with other autocratic uh revisionist
31:56 powers. uh most notably obviously
31:58 Putin's war on Ukraine sustaining that
32:00 by providing critical components. China
32:02 recently reaffirmed its alliance with
32:04 North Korea and then with Iran really
32:05 giving it an economic lifeline. There
32:08 was a massive infusion of Chinese
32:10 investment recently at the same time
32:12 that China sold Iran a bunch of weapons.
32:14 And so the again the strategy here seems
32:16 to be what political scientists call
32:18 external balancing. There's internal
32:19 balancing where you try to counter your
32:22 adversary by building up from within
32:24 your own military forces, your own
32:26 power. But if you can't catch up, then
32:28 what you can do is external balancing.
32:30 So I'm just going to get allies to help
32:32 me do some of that dirty work. And so it
32:34 seems like China by cultivating these
32:37 partners and helping them ferment
32:39 conflict at various points around
32:43 Eurasia is stretching Western forces
32:46 thin. Um it's also just gaining military
32:49 technology. So Russia is giving China um
32:51 quieting technology for its submarines,
32:53 stealth technology for its aircraft,
32:55 early warning systems, etc. So you've
32:57 seen these autocratic links. Some people
32:59 call it an axis. I think it gives it too
33:00 much credit. I don't think it's quite on
33:02 the level of like a full-fledged
33:04 military alliance, but certainly it's a
33:06 it's a beneficial partnership as far as
33:09 these guys are concerned. So naturally,
33:11 all of this is fueling conflict with the
33:15 United States. And unfortunately, I
33:16 think it's going to get worse before it
33:18 gets better. Part of that again is based
33:20 on history. So there's been over the
33:23 last 200 years, there's been 27 great
33:26 power rivalries. And these cases really
33:29 only wound down not with the two sides
33:30 talking their way out and kind of
33:31 figuring out how they're going to divide
33:34 up parts of the world, but only after
33:36 one side basically loses the ability to
33:38 compete. only after there's a major
33:41 shift in the balance of power that
33:43 forces one side to basically make major
33:44 concessions. And unfortunately, in the
33:46 vast majority of these cases, that just
33:47 comes through a massive war where one
33:49 side beats the other into submission.
33:51 There's like the Soviet case, the Cold
33:53 War, where the Soviets just run out of
33:56 gas and have to sell out through
33:59 peaceful exhaustion, but that's not the
34:01 norm. And when you look at the
34:03 fundamental problem is that um it's what
34:05 political scientists call a credible
34:07 commitment problem. Meaning making
34:09 concessions to the other side that are
34:12 big enough to reassure the other side
34:14 also give the other side a huge
34:17 advantage, strategic advantage that you
34:18 have no idea if they're going to exploit
34:19 it or not. And they can't really
34:21 credibly promise not to exploit it. So
34:23 like you look at something like Taiwan
34:26 and uh the Americans say, "China, lay
34:28 off Taiwan. Stop all that aggression." Chinese
34:30 Chinese
34:32 are probably going to drift further and
34:33 further towards them.
34:39 Taiwan, but the Americans say, "Okay,
34:41 yeah, if we do that, then the military
34:42 balance is going to shift more in your
34:44 favor, and that just makes an invasion
34:45 or a blockade even more likely." So,
34:47 there's lots of examples like that where
34:49 a lot of the main issues in USChina
34:51 relations are not what the Chinese call
34:54 win-win. They're essentially zero sum.
34:56 You know, you can either govern Taiwan
34:58 from Taipei or Beijing, not both. The
34:59 South China Sea can be Chinese
35:01 territorial waters or international
35:03 waters. Russia can be ground down or
35:04 propped back up and so on. So, it's just
35:09 very hard to walk all of this out. Now,
35:13 um I am cautiously optimistic that in 10
35:16 maybe 20 years, uh just based on the
35:18 trends I showed you now, there's a
35:20 possibility that China won't be able to
35:22 sustain the level of military investment
35:24 and international expansion that we're
35:27 currently seeing. I don't think Xiinping
35:29 would be willing to really dial back his
35:32 ambitions, but he's 71 years old.
35:33 Presumably, he'll move on at some point.
35:35 And I could see the next round of
35:37 China's leaders if they're faced with a
35:39 declining power ratio to the United
35:41 States and its allies having to come
35:43 back and rebargain essentially. And
35:45 there is a potential bargain I think
35:46 that could be had to resolve a lot of
35:48 the tension between the United States
35:50 and China really between the West and
35:52 China in general which is basically
35:54 peace and economic access. So you go
35:55 back to that bargain. That's really the
35:57 bargain that Germany, Japan, France,
35:59 United Kingdom, all these mighty empires
36:02 took, which is we're going to forego our
36:04 dreams of regional dominance and
36:06 territorial acquisition and in exchange
36:09 we get tremendous economic access to the
36:11 whole western network. We basically get
36:13 security guarantees and our people are
36:15 better off for it. So I could see
36:16 something like that happening between
36:18 the United States and China somewhere
36:19 down the line. But I think you're going
36:21 to have to have this shift in the
36:23 balance of power first. I think the most
36:25 likely scenario is that China runs out
36:26 of gas for all those economic reasons I
36:28 gave, but you know, it could be we just
36:29 had the debate. I didn't see how it went
36:31 between Harris and Trump. Uh but if the
36:33 United States tears itself apart uh and
36:35 just collapses, well then that's a shift
36:36 in the balance of power and maybe
36:38 that'll get resolved in China's favor.
36:39 The bottom line is something big is
36:40 going to have to happen for us to break
36:42 this deadlock. But in the good news is
36:45 in the meantime a cold war between the
36:47 United States and China doesn't have to
36:49 go hot. And there are in fact fringe
36:52 benefits to a cold war. You could have a
36:54 relatively tense but stable situation
36:56 where ironically the two sides in sort
36:59 of a space race dynamic push each other
37:02 to innovate faster and as a result
37:04 humans get better AI and better climate
37:06 reducing uh climate change reducing
37:07 technologies and all other kinds of good
37:09 things come out of this competitive
37:11 dynamic between two of the leading
37:14 states in the international system. So
37:16 we are going to have a cold war for now.
37:17 The bad news is I think we're entering a
37:19 moment of maximum danger just because of
37:21 where China is in its life cycle as a
37:23 great power. But if we can make it
37:26 through these terrible 20s, I think
37:27 there's we can be cautiously optimistic.
37:30 We'll get to a better place maybe in uh
37:32 10 years. Uh so on that happy note,
37:33 thank you so much and I hope to see you
37:35 all uh at the dinner later tonight.
