geopolitics

Too Big to Contain – How China Reached Escape Velocity

There is a good reason why the U.S. is hell-bent on stopping China: the Middle Kingdom is the only country standing in the way of America’s global primacy for the next century. Look at the GDP list of the Top 11 countries — China is the only “peer competitor.”

All the others are too small to ever catch up with the USA; and, except Russia, they are all “allies” and vassals. This is why China presents an unprecedented threat to American hegemony.

Since WW2, America successfully vanquished two big competitors — USSR and Japan. But they were very different stories, compared to China. Let’s see how.

Soviet Union

Although the Soviet Union was made into an extraordinary bogeyman, it was never really a serious economic competitor. At the highest point, in 1975, the USSR’s economy was only 58% as big as the U.S. economy (according to declassified CIA document).

After that, the USSR’s GDP growth on the average was only about 2.3% until it collapsed in 1991. Russia was good at some things like military, but never had a holistic approach to economy, trade, technology, and geopolitics.

Japan

Japan was the China of the 1980’s, even though Japan was occupied and controlled by the US. Japan’s economy was also dependent on exports to the US. Thus, in the early 1980s, the U.S. forced Japan to sign the Plaza Accord. This unfair treaty crushed Japanese semiconductor companies, weakened car manufacturers, forced Yen to appreciate significantly, and devastated the Japanese economy.

In 1995, Japan’s economy achieved the maximum size of 72% relative to the US. Then, shockingly, the economy crumbled the next year and stayed flat for the next 25 years!

Japan’s GDP in 2020 will be 10% smaller than its GDP in 1995 (in US dollars)!

China

In American psyche, China is a combo of the USSR and Japan — a communist country that triggers Cold War paranoia and is also an Asian power that threatens America’s economic might. However, unlike the USSR, the Chinese economy has been outperforming the U.S. every single year for the last 40 years. Here’s a chart of GDP growth rate of China versus USA since the fall of the USSR. This ain’t your average communist/socialist country, but most Americans cannot come to grips with this reality.

GDP Growth Rate of China v. United States, 1991-2019

China in 2020 is precisely where Japan was in 1995. With a $15 trillion GDP, China will be 72% as big as the US ($20.5 trillion). However, China is facing a promising near-term future. Its GDP is expected to grow at least 8% in 2021, and the Yuan is expected to strengthen 8% as well. If both of those happened, China’s GDP will be more than $18 trillion next year. That would be about 85% as big as US GDP.

In other words, China will be only 15% smaller than the US next year. Here’s why that’s significant:

The US GDP is 15% fake. Really! The fake numbers that boost US GDP — as the US government openly admits — are called imputations. These are “what if” scenarios. They involve tricks like, when a person buys a home, the US government says, “If he hadn’t bought the house, he would have spent $X on rent,” and then adds the non-existent rent to the GDP. Subtract this fake 15% of imputed GDP, and China would catch up with the U.S. next year!

Of course, the U.S would be waging intense hybrid wars on China next year — sanctions on Chinese tech companies, stirring up trouble in Xinjiang and Tibet, trying to convince Europe and others to join the anti-China crusade, and so on.

However, with most of the world struggling with the pandemic and probably dependent on Chinese vaccines, the U.S. chances of assembling an anti-China coalition look slim. Also, don’t forget that China is the world’s largest importer of commodities, which means that everyone from the Middle East to Africa and Latin America have vested interests in seeing a robust growth in Chinese economy. EU is also on the verge of signing up an investment deal with China.

While most countries are worried about what a world dominated by China would look like, they are not ready to kill the golden goose. And, let’s face it, the U.S. has bullied, sanctioned, and bombed numerous countries over the decades, and many of them would love to watch American ego take a beating.

Conclusion

Historians will look back and point to two crises that catapulted China forward: the 2008 financial crisis and the 2020 COVID-19 pandemic. The West shot itself in the foot and let China catch up. Twice. Hopefully, there are some people in the deep state, who will be reflecting upon the mistakes the US has done in the last few decades.

P.S. The preview chart of this article is from Ray Dalio’s analysis of empires.

Related blog post: The Math of How China surpasses the US by 2023 (not a typo)