Right now, there’s this strong narrative that China’s government can do no wrong. China is unstoppable juggernaut. This view is about eight years out of date. For the last eight years, it’s becoming more and more apparently true. In my experience there’s a big lag People were still saying Japan, country of the future in 1998 but by 2002 it was the country where people still use fax machines. Neither of these narratives is true, but it takes time to shift… With China, just at the point where everyone is starting to agree with the narrative China, a whole lot of stuff has gone wrong for China in a short amount of time.
That was Noah Smith on the Venture Stories podcast. He goes on to describe problems on the belt-and-road initiative, the real estate boom and now crash, demographic challenges, and lockdown troubles. The broader macroeconomic trend for a country starting at such a low base is a natural economic slowdown that will continue unless they take the next step and liberalize economically. Xi is taking the opposite stance where he is punishing consumer tech leaders and pushing for “real tech” like semiconductors and drones.
Noah seems to agree with the consensus that an economic slowdown in China can make the party more dangerous geopolitically:
Hu Jintao was an underrated guy. He based China’s greatness on wealth. That was the Hu era. Then Xi Jinping said growth is slowing, initially do to no fault of his own, and then later due to fault of his own, he said growth is slowing we’re going to have to base greatness on something else. We’re going to base it on becoming a great power and ass-kickery… Made in 2025, is somewhat about preserving growth, but a lot of it is just about war, potential war and geopolitical power.
Noah mentions that the United States must shore up supply chains and start gearing industry up for a potential war. He says that FDR started investing in heavy bombers and other materiel in 1936 after the Spanish Civil War. That lead-time was crucial to timely delivery in 1944 and 1945 of the equipment. He sees a parallel between the US reaction to the Spanish Civil War and the Russia-Ukraine war today. The United States doesn’t need to mobilize industry yet — that would be incredibly inefficient. Instead, preparation comes through proper investments and coordinating industry in advance.
Whether or not China turns out to be a “juggernaut,” there is still reason to manage risks:
… China doesn’t have to be hyper competent. America had to be hyper competent to dominate the world. Germany, Japan, and Russia would have had to be more competent that it would even be possible to be. China is so big, they are able to be mildly incompetent and still dominate the world. What you should worry about it China not becoming rich enough to become happy – and now we all play video games – instead becoming medium rich. Becoming 1/3rd of America’s GDP per capita. Which means their total GDP is still much higher than ours. The biggest economy in the world. A manufacturing economy unto itself. Can effectively war — economic, diplomatic, and actual war — against the rest of the world effectively
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