Xi + Putin = new world order?

The greatest, potentially most dangerous Macro economic trend could be a tectonic shift in the world order of Great Powers. This has happened several times in the past 500 years.

The western alliance of the U.S. + EU + Japan has dominated the world economy and maintained peace since World War 2. But China has been rising as all METARs know. President Xi has underlined his determination of establishing an Asian-based world order of China + Russia.

The current terrorist attack on Israel by Hamas and Israel’s predictable response is a tempest in a teapot compared with the potential conflict between these massive Great Power configurations. Economic alignments might be dramatically affected over time.

With Putin by His Side, Xi Outlines His Vision of a New World Order

China’s close ties with Russia in countering American dominance point to a geopolitical rift that could shape the conflict between Israel and Hamas.

By David Pierson, Anatoly Kurmanaev and Tiffany May, The New York Times, Oct. 18, 2023

The leaders of China and Russia hailed each other as “old” and “dear” friends. They took swipes at the United States and depicted themselves as building a “fairer, multipolar world.” And they marveled at their countries’ “deepening” trust.

China’s top leader, Xi Jinping, used a Beijing-led conference of leaders from mostly developing countries on Wednesday to showcase his ambitions to reshape the global order, as the world grapples with a war in Ukraine and a crisis in Gaza. He cast his country as an alternative to the leadership of the United States. And he gave a prominent role to President Vladimir V. Putin of Russia, underscoring how central their relationship is to Mr. Xi’s vision… [end quote]

China’s Xi Doubles Down on Belt and Road as Path to New World Order

Chinese and Russian leaders tout trillion-dollar initiative as a model for international cooperation at summit in Beijing, but Western leaders weren’t there to hear it

By Brian Spegele and Wenxin Fan, The Wall Street Journal, Updated Oct. 18, 2023

During a keynote speech inside Beijing’s Great Hall of the People on Wednesday, Xi positioned China as a leader of a new, more inclusive global order and promised that his country’s rise would benefit any that wanted to participate.

“We don’t do ideological confrontation, we don’t do geopolitical rivalry and we don’t do bloc politics,” he said, taking aim at unilateral sanctions, economic decoupling and other tools that Beijing accuses the U.S. of exploiting to contain its rivals. “What has been achieved in the past 10 years demonstrates that Belt and Road cooperation is on the right side of history.”…

There was no immediate word of a breakthrough on long-running negotiations for a new natural gas pipeline linking Russia and China, dubbed the Power of Siberia 2. The pipeline would traverse Mongolia and bolster Russian gas sales to China, further reorienting Russia’s energy industry toward Asia and away from its traditional reliance on Europe… [end quote]

The vast majority of U.S. financial aid to foreign countries is in the form of grants (no expectation of repayment). The vast majority of Chinese Belt and Road investments are in the form of loans, with repayment expected. Massive loans for white elephant infrastructure projects (such as big airport terminals) have burdened low income countries. According to the WSJ, B&R now appears to be shifting toward smaller, more commercially-oriented projects, as well as giving priority to clean development and bolstering digital connectivity among its members.

China has been a Great Power and the center of the world in its own estimation since the Chinese empire was founded in 228 BCE. Despite tremendous ups and downs (mostly caused by internal problems of bad leadership), China has influence the entire east Asian region for millennia. It’s hard to say whether their current real estate sector financial problems will cause an economic setback.

Amazingly, ancient writings about mercury in the tomb of the first emperor have been corroborated by soil testing.

The Chinese have been “thinking big” for 2,000 years. Don’t be surprised that they have returned to that mode since they have finally gathered significant resources.

Wendy

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I think that Putin is more afraid of China stirring up trouble in Eastern Russia which China has traditional ties with and historic claims to:

Russians have been leaving this area since the fall of communism and have been replaced by Chinese:

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I would be surprised because I don’t think China has the resources.

China is estimated to have lent out a trillion USD in Belt and Road Initiative (BRI) loans. Today, about 60% of those loans are to countries considered to be economically distressed. That’s roughly $600B USD in Evergrande-quality debt being held by Chinese banks. Yikes!

At some point China is going to have spend enormous sums to support its rapidly growing elderly demographic during a time when its GDP growth rate is slowing.

My crystal ball says China will be in crisis mode rescuing what it can of the BRI while turning its attention inward to deal with some serious domestic issues.

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Yes, it’s all going wrong for the Belt & Braces project that has been mired in corruption and mismanagement. I think of these projects as a mirror for China’s housing problem - unfinished and in need of a lot more money:

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Yeah, all roads lead to Rome but then the foreign armies can get into the city center as well.

For now, Xi is using Putin to probe for softness. Xi just lies in waiting. Putin and Russia are expendable to Xi.

@Divitias At first the debt is not an issue. It can pile up. We see that in the US. In the long run Xi faces a growing problem of a crippled RMB because the Chinese population is so hungry for resources. The RMB will slide. The peg to the USD is a building disaster for Xi. There is no recovery for China when the dam bursts and the peg becomes a complete liability. Xi is still on the surface making declarations as if the peg will fip when China is bigger economically than the US but the water is not there for China to ever accomplish that.

I might be watching too much Ziehen lately, but between the real estate implosion and demographics problem, China’s future power might well be declining not increasing.

By the way, cool video below showing changes in the largest GDPs (by PPP) from 1800 to 2040. China has been dominant for a big portion of that period.

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From 2021 onward that video is wrong.

Talk is easy. This is the reality of China’s economic boom

The buildings went BOOM!!!

The Captain

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Add that the US and the West is no longer making China the Most Favored Nation - remember that from the mid 1990s to 2017 or so - and indeed imposing ‘sanctions’ to actively restrict Chinese technological growth.

China complains that ‘sanctions’ are ‘wrong’.

As the US and West shift to other sources of manufactured goods, China will lose that economic power of those markets.
Will the countries that are being courted with the Belt and Road be enough to replace the lost ‘markets’ of the West?

?:-?
ralph

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No not at all. The assets per capita are between $500 and $5000.

The US is shifting to an older Cold War trading block but this time the US has the demand side position for 30 to 40 years. The nation of India is being given a top place at the table by the West. SK, AU, and some of Eastern Europe will have better positions. Ireland will have a much better position this time around. The UK and Japan will do better as well and for longer.

We should have zero patience for dictatorships.

I have heard a line of thought that these poor quality loans are a deliberate way to expand China’s influence over a wider area.

The claim is that when these loans go bad, China will take over operation of whatever assets are securing the loan. So they will end up owning all sorts of various and sundry bits of infrastructure all along the new Silk Road and have control of that trade route.

I’m not sure if I actually believe this theory. But it at least sounds plausible to me.

—Peter

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I have heard the same thing and I think something like this has already happened. Sri Lanka ports comes to mind but I’m not remembering the details. I’ll await certification by Dr Bob!

JimA

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Okay, I couldn’t wait any long for the good Dr - so I went looking myself.

I pay for the NYTimes (as should everyone), so I don’t know if you can read the article.

The start:
Every time Sri Lanka’s president, Mahinda Rajapaksa, turned to his Chinese allies for loans and assistance with an ambitious port project, the answer was yes.

JimA

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Why?
9 8 7 6 5 4 3 2 1 0

The Captain

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I’ve had a busy two weeks upgrading the Covered Call Selector. The hardest part was figuring out the code one wrote four years ago.

Even at METaR I don’t think people understand what Capitalism really is and how it works. The reason is putting the political cart in front of the economic horse. Karl Marx had a lot to do with it by focusing on the people instead of on the engine that feeds them. Analyze the titles:

Capitalism: About capital
Communism: About communes

Xi’s China is economically doomed because it is not letting capital do its job. The video clip I posted is a graphic illustration of the failure, how to destroy capital.

One of the mightiest economic turns of humanity resulted from the creation of the Joint Stock Laws that allowed everyone to become an investor, a capitalist, instead of just the rich who had large private piles of capital.

Capitalism is a positive feedback loop that feeds surplus back into the production machinery. making it grow organically. Surplus was one of the great evils according to Karl Marx because, it was robbing the worker of his rightful deserts. Taking surplus out of the feedback loop kills the engine that drives capitalism. What Marx ignored was that the Joint Stock Laws allow everyone to become a capitalist, even the working man. As long as savings are not stashed under the mattress, they are fed back into the economy creating the positive feedback loop that powers it.

China never created the environment for this feedback loop to function effectively. The Chinese people “invested” their savings in real estate which was one of the few avenues open to them. Real estate grew way past its usefulness and the demolitions are the graphic display of how capital is being destroyed, the savings of the Chinese people being destroyed.

China is destroying the economy that could have overpowered the West. China is shooting itself in the foot by not allowing the capitalist positive feedback loop to function.

A good book on the subject is The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando De Soto

The Captain

When I started my business in Silicon Valley I got a parking ticket because the time ran out on the parking meter because it took over an hour to get the sales tax paperwork done.

In Venezuela the comparable paperwork takes weeks or longer. In my last Venezuelan business it never got done because the fire department never came to inspect the fire extinguishers. It ‘prevented’ us from paying taxes. Oh well…

Hernando De Soto documents it in great detail.

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And critically, sanctions on chip technology. And we haven’t really talked much about the CHIPS Act. The US will invest $280 billion in chips and technology over the next ten years, plus tax breaks worth many tens of billions on top of that.

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I’m thinking you’re about 30 years behind. Private capital is welcomed in China, they have a stock market, three actually: Beijing, Shenzhen, and Shanghai. Companies are listed. Anyone can invest in them. Dividends are paid. Stocks are available in A and B shares. Bonds are available. There are mutual funds and proto-ETFs.

That does not mean it is “the same” as the US exchanges, but then neither are those in Japan or Germany. In China there is heavy party involvement, benefits to friends, and corruption, well, starting to sound like it is here :wink:

And yet it often takes the dreaded heavy hand of government here to 1) make the market function, 2) to provide research, 3) to build incentives for new industries, 4) to cushion economic downturns, 5) to invest in things others won’t or can’t.

  1. Securities regulations which stop rampant fraud, corners, and the like. Not perfect but better than before it existed.

  2. NASA, DARPA, medical research, Manhattan Project, DOE and fusion research, NRC with nuclear power, etc.

  3. Solar energy, microprocessor, satellite deployment, land colleges, and so much more.

  4. Unemployment insurance is the most obvious. But add recent things like pandemic payments to keep businesses open, bailouts for auto manufacturers after 2008, FDIC and so on.

  5. Infrastructure, notably roads, railroads, airports. Dredging the Mississippi. Bridges. Water and electrical.

It’s a heroic and utterly false myth that the market achieves all of this all by itself. It’s the kind of non-history believed by people who don’t - or won’t - admit to history.

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…and Adam Smith went into some detail about the crucial role of government in establishing what he named a “free market”. Which was not a market without rules, but rather an always open semblance of the ancient faire markets that operated only under the rules and protection of the crown.

david fb
(big fan of capitalism and free markets, but not of cronyism, false weights and measures, and secret dealings of oligopolies.)

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To be well-informed and to read extremely well-written content.

The cost is very low.

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If Coke puts a plant upstream it would dredge the Mississippi or clean your pipes. Especially if you are in Venezuela.

The abstracts of Karl Marx versus the US economy make about as much sense. The VZ mess makes far less sense. How is the US economy is compared to VZ three times a month? Is it old home week?