US-China Tech War Intensifies While Europe Watches, Russia? – Trustnodes

US-China Tech War Intensifies While Europe Watches, Russia?

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An app just listed on US stock exchanges gets removed from app stores in China. A new executive order by US President Joe Biden adds another 20 companies to a blacklist, with stock indices responding by removing now a total of 59 Chinese companies.

An estimated $2 trillion sell off in Chinese stocks has commentators shouting you need to account for political risks, with it unclear where this two trillion went because everything fell during that period, except bonds.

America has announced new accounting rules for US listed Chinese companies. The Chinese Communist Party (CCP) now seemingly wants to have the final say on whether a Chinese company can list in US at all, with Didi so apparently made an example.

It’s all about control of the data, or the internet, or the economy, or the world – depending on who you ask.

Europe just watches for now when it comes to this pretty direct confrontation. They’re instead going for a more indirect approach in trying to set up a European Belt and Roads competitor or in trying to get supply chains closer to home, especially for electric car batteries.

The rest are caught in the middle as the trade war continues with tech and its dominance being the biggest prize.

However, the question is whether China will be the new Russia economically. Whether in a decade we’ll see a chart like this where there was huge economic growth above 10%, then at around 6%, and then barely growing at 2% with contractions:

Russia GDP growth 2021
Russia GDP growth 2021

“There are at most a few years to act before growth runs out. If China’s leaders wait until the last minute, it will be too late,” says Atlantic Council nonresident senior fellow Daniel Rosen, who is also a Rhodium Group founding partner.

He argues that China’s President Xi Jinping failed to enact reforms. He attempted to carry out quite a few of them, including loosening foreign investment rules, but reserves dwindled so capital controls were reimposed.

That failure to continue on the path of reforms marks a change of direction, according to Rosen, who further says:

“With business and household debt levels already extremely high, China can scrape out perhaps two or three more years of economic stability by piling on further loans, as long as global capital flows and supply chains do not dry up.”

China's GDP 2021
China’s GDP 2021

There hasn’t been a recession in China, defined as a contraction for two quarters, since data began in the 90s with even 2020 seeing only one quarter of contraction.

China has instead only experienced growth, something of an anomaly for any major economy, but that 90s peace dividend has given way to a slower rate of growth since 2010 with it seemingly headed only in one direction.

This chart can bolster Rosen’s argument. Xi failed to reform, thus Xi did not deliver on growth at the same level as his predecessors.

It is that failure to reform which arguably gave rise to the trade war. Foreign investors wanted more access to the market and more equal access, but China responded by closing down crypto exchanges after it had banned Google, Facebook and plenty others, including French cheese and Australian wine.

So investors asked for property rights and a rule of law. That was responded by a senior Chinese judge stating earlier this year we should stay away from such ideas like an independent judiciary or checks and balances.

In failing to reform, they’re seemingly going for bullying. So copying Putin’s rulebook, who as the economy contracted in 2008 thought to invade little Georgia.

Earlier this year, China was spatting with all its neighbors after it sent a fleet of ostensibly fishing boats guarded by navy ships.

The similarity continues with both Xi Jinping and Vladimir Putin effectively declaring themselves ruler for life by removing term limits.

Xi’s term is up for renewal next year with commentators speaking as if it’s a done deal, with decade long purges perhaps ensuring as much as China risks forgetting the benefits of a peaceful transition of power.

China, the New Russia?

In an interesting recounting of the founding of CCP, the Economist points out there were Russian secret agents at the first gathering of the communist party led by Mao Zedong in 1921.

The British and the French and the capitalists in Shanghai were oblivious to the meeting but were wondering what the communists were up to.

Russia won in the end, with China falling under communist rule in 1949. A Sino-Soviet split in the 70s led to the long road of reforms. Now the capitalists are again wondering what the communists are up to, says the Economist. We’d wonder whether Russia is winning in China again to kick out the Americans and Brits under a fairly seductive narrative that worked while Russia was growing, but now is losing its persuasive power.

Russia claims the west wants to turn it into a colony and wants to turn China into a colony subject to ‘globalists’ without national sovereignty.

It’s the same tune they play to the far right in Europe. A scapegoating of ‘globalists’ and liberalism to argue for nationalism and unexplicitly to also argue for effectively a one man rule over the entire economy.

The scapegoating and dogma over liberalism has the intention of providing the alternative governance model where the economy is not free, but under the chains of the state.

The recent reprimanding of tech giants by Xi echoes the reprimanding of oligarchs by Putin in 2000s.

That’s because however much Xi might want to say they are following the model of communism with Chinese characteristics, it appears they are following more the model of Pjutinism.

The communist model with Chinese characteristics has reforms, has a liberalization of the economy, a partnership with the west and economic integration in a win win. Xi is currently doing the opposite, failing to reform, failing to open up the market, regressing on property rights, while strengthening the CCP apparatus within private companies to expand control over the economy.

China therefore has once more chosen Russia over Europe and America, and if we were as inclined as Russia to propaganda, one can even call them a Russian colony because they are being fooled by them to see the west through a confrontational lense instead of as a model that has provided the longest period of prosperity and general well being in history.

Russia and China are different however, and what works for Russia due to its somewhat harsh geography, does not necessarily work for China.

So they’ll probably once again figure out their mistake eventually, just as they did after their great leap forward starvation in the 60s and ensuing liberalization in the 70s.

But that such big scale mistakes can be made and can continue for so long is a failure of governance which will be exacerbated by the removal of term limits to the detriment of the Chinese people who if this continue must worry where will they find themselves once the transition of power inevitably comes.

$45 Trillion Up For Grabs

From an investment perspective, concerns over Chinese stocks due to political capriciousness makes one wonder where will the money go, where will investors send funds that were destined for China.

According to an analysis by the Rhodium Group and the Atlantic Council, China is to miss out on as much as $45 trillion in new capital flows over this decade if the party were unwilling to pursue serious reform.

China to miss out on $45 trillion?
China to miss out on $45 trillion?

That’s as much as twice America’s GDP, a serious amount of money that may go into the American and European economy as well as perhaps India and other Asian countries instead of China.

Some of the more speculative investment may well go into bitcoin or other cryptos, with China likely the loser because America’s capital markets are far more advanced.

America in addition was doing great in the 60s and suffered from China’s opening up through experiencing stagflation in the 70s, so a tit for tat would be more to China’s loss.

But, if Pjutinism has hijacked their thinking, it’s not very clear they care much about the economy or prosperity with a 19th century ideology instead blinding them to their own mistakes.

So America probably has no choice but to do what it is doing as you can’t have economic integration when half of the economy does not have property rights.

The choice is instead China’s and for now they appear to be choosing bullying with it unclear what their end goal is unless delusion has really reached such levels to the point they honestly think they are the new America without any of what makes America great, when all this will only lead to China being the new Russia.

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