In trade relations, China is now effectively eating its seed corn
The CIA famously failed to predict the collapse of the Soviet Union in 1991. But in 1976, a French historian by the name of Emmanuel Todd did predict that collapse, based on his analysis of rising infant mortality rates, which betrayed the reality of a fundamentally sick and failing system. Thus, it is possible to divine great events from scraps and fragments of information.
For spies, and for people who trade with China, the big question of the moment is: “When will China attack?” And how can we tell when it's about to happen?
For decades China has announced an intention to start attacking Taiwan and killing a lot of Taiwanese in the process. There is no need to discuss their motives. As a lot of Americans will also die as a consequence of China’s attack, anybody trading with China is trading with the enemy. We had given these people an effective waiver because the trading was supposed to reform China from wanting to kill a lot of non-Chinese.
That didn’t work, and until China renounces the use of force, plans should be based on the fact that the attack is still coming. The only uncertainty is the timing. And anyone trading with China in the interim is trading with the enemy.
The world is playing a game of musical chairs because China’s war of choice will upend all our planning. So how much time do we have? Well, China’s lapdogs have started barking with Henry Kissinger saying that war between the U.S. and his paymasters will be catastrophic. So are the Chinese worried that their timetable might be brought forward? The fact that President Xi’s daughter has returned to Harvard suggests that the attack on Taiwan won’t be soon.
On the other hand, Chinese students in Taiwan have been instructed to leave the island before the elections scheduled for Jan. 11, 2020. Communists don’t like their citizens being exposed to democracy in action, but it is also possible that they don’t want their own citizens to join the defense of the island. A 2020 start date would be consistent Xi with Jinping’s instruction in November 2012 for the PLA to be ready to attack Taiwan by 2020.
Whatever the attack start date, in the meantime, it is sensible to disengage from China as much as possible, which is to completely disengage. Some people on our side think they might be able to make a few more dollars before the two economies decouple, but luckily, a big push to that end is now coming from the Chinese side.
Lawyer Dan Harris writes that Chinese companies are now acting very short-term in their dealings with foreign companies. The situation reminds him of Russia in the 1990s. The Russians then, straight out of communism, would sign a deal but then immediately renege and run off with the cash, foregoing a large future benefit for a much smaller immediate gain. They did so because they did not expect there to be a future.
Harris’s words:“I am writing about this now because China today is feeling a lot like Russia in the 1990s. I am getting the sense that many Chinese companies are pessimistic about their futures and they are acting accordingly.”
And: “On top of the economic issues, many Chinese companies have become both wary of and angry at the West, particularly the United States. This too makes things riskier for foreign companies. We are seeing the results of all this in many ways.
Practically every week, one of our China lawyers will get an email or a phone call from someone who bought product from China and received nothing in return or nothing even approaching what they actually ordered. This sending of ‘junk’ instead of real product has spread to pretty much every industry in China.”
Further from Harris: “Sinosure is China’s state-owned export insurance company that pays Chinese manufacturers that were stiffed by their foreign buyers and then seeks to collect from the foreign buyers that allegedly failed to pay. … We are now seeing Sinosure cases where the Chinese manufacturer has made what we think are fraudulent policy claims to Sinosure because they are desperate for cash and they don’t care about maintaining their relationship with their foreign buyer.”
Yet more: “Lastly, our China lawyers are dealing with an increasing number of situations where the Chinese side of a China joint venture has essentially taken over the joint venture and stops communicating with its foreign joint venture partner.”
So Chinese companies are burning their bridges and attempting to monetize the last scraps of goodwill left in the system. They are effectively eating their seed corn. The Chinese economic slowdown will turn to contraction, potentially saving the lives of a lot of good people.
David Archibald is the author of American Gripen: The Solution to the F-35 Nightmare