Why yes, this is relevant to my interests!
Nicholas Moran, AKA The Chieftain, reviews various movie tank scenes for technical accuracy. Fury and Saving Private Ryan both rank pretty high.
He also has good things to say about The Beast and Kelly’s Heroes, both of which are on our Saturday Night Movie Group to-watch list.
Remember the bank runs in China story after all those bank accounts in Hunan were frozen? I’ve been looking for signs of wider contagion amidst the Chinese banking sector, and mostly haven’t seen it. But I have seen a lot of other cracks appear in China’s overall economic system, so here’s a roundup.
A large crowd of angry Chinese bank depositors faced off with police Sunday in the city of Zhengzhou, and many were injured as they were taken away, amid the freezing of their deposits by some rural-based banks.
The banks froze millions of dollars worth of deposits in April, telling customers they were upgrading their internal systems. The banks have not issued any communication on the matter since, depositors said.
According to Chinese media the frozen deposits across the various local banks could be worth up to $1.5 billion and authorities are investigating the three banks.
On Sunday, about 1,000 people gathered outside the Zhengzhou branch of China’s central bank on Sunday to demand action; they held up banners and chanted slogans on the wide steps of the entrance to a branch of China’s central bank in the city of Zhengzhou in Henan province, about 620 kilometers (380 miles) southwest of Beijing.
(Plus more on the property slump.)
A rapidly increasing number of “disgruntled Chinese homebuyers” are refusing to pay mortgages for unfinished construction projects, exacerbating the country’s real estate woes and stoking fears that the crisis will spread to the wider financial system as countless mortgages default.
According to researcher China Real Estate Information, homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, up from 58 projects on Tuesday and only 28 on Monday, according to Jefferies Financial Group Inc. analysts including Shujin Chen.
And that was over a week ago.
According to Citi analysts, average selling prices of properties in nearby projects in 2022 were on average 15% lower than purchase costs in the past three years. Meanwhile, it’s only getting worse as China’s home prices fell for a ninth month in May, with June figures set for release Friday.
The crisis engulfing Chinese developers is reaching a new phase, with a debt selloff expanding to firms once deemed safe from the cash crunch, including investment-grade names such as Country Garden Holdings, the largest builder by sales.
The payment refusals, which come at a time when China’s economy is set to post what may be a negative GDP print due to the latest economic shutdown over Xi’s catastrophic zero covid policies, underscore how the storm engulfing China’s property sector is now affecting hundreds of thousands of average citizens, posing a threat to social stability ahead of a Communist Party Congress later this year. Chinese banks already grappling with challenges from liquidity stress among developers now also have to brace for homebuyer defaults.
As a result of the unprecedented push for a debt jubilee, shares of China’s banks extended their recent decline Thursday, with the CSI 300 Banks Index falling as much as 3.3% before closing down 2.2%. A Bloomberg Intelligence index of Chinese developer stocks slid as much as 2.7%, even though Chinese lenders were quick to try and dispel fears that the movement could crash the economy: according to Bank of Communications, its outstanding balance of overdue mortgage loans linked to housing projects with risks of delayed delivery is 99.8 million yuan, accounting for 0.0067% of its domestic housing mortgage balance. The bank added that its housing mortgage loan quality is stable and risks are controllable, the Shanghai-based lender says in an exchange filing. At the same time, Postal Savings Bank of China says its overdue mortgage loans linked to halted housing projects is 127m yuan, and risks are controllable. Of course, it’s not like Chinese banks would ever lie, now is it?
The Great Debt Jubilee is picking up speed: China’s homebuyer mortgage boycott, which prompted Beijing to scramble to avoid a potentially devastating crash in what is the world’s biggest asset is spreading, and according to Bloomberg, some suppliers to Chinese real estate developers are now also refusing to repay bank loans because of unpaid bills owed to them, a sign that the loan boycott that started with homebuyers is starting to spread.
In a jarring case study of what happens when a ponzi scheme goes into reverse, hundreds of contractors to the property industry complained that they can no longer afford to pay their own bills because developers including China Evergrande Group still owe them money, Caixin reported, citing a statement it received from a supplier Tuesday.
Similar to homebuyers who have taken a stand and refuse to pay for properties that remain uncompleted, one group of small businesses and suppliers circulated a letter online saying they will stop repaying debts after Evergrande’s cash crisis left them out of pocket.
“We decided to stop paying all loans and arrears, and advise our peers to decline any requests to be paid on credit or commercial bill,” the group said in the letter dated July 15, which was sent to the developer’s Hubei office. “Evergrande should be held responsible for any consequence that follows because of the chain reaction of the supply-chain crisis.”
As Bloomberg oh so perceptively puts it, “the payments protest is the latest sign of how a movement by homebuyers to boycott mortgages on unfinished homes in China is spreading to affect other sectors in the economy.”
Yes it is, and it’s also why Beijing should be freaking out (if it isn’t), because what is taking place in China is far worse than what took place in March 2020 when the global credit machinery ground to a halt, only back then it’s because there was no other option, now it’s a voluntary development and not even fears of reprisals from China’s ruthless, authoritarian, Lebron-beloved dictatorship is stopping millions of people from calling for a systemic boycott, one which can topple China’s entire $60 trillion financial system in moments.
Probably an overstatement, just because it takes a whole lot to overcome the inertia of the average Chinese citizen just wanting to keep their head down and not be the nail that sticks up.
Embattled Chinese real estate giant Evergrande is expected to deliver a preliminary restructuring plan this week, following the exit of two bosses.
The firm says its chief executive and finance head have resigned, after an internal probe found that they misused around $2bn (£1.7bn) in loans.
Chinese businessmen misusing funds? Try to contain your shock.
Evergrande has more than $300bn in liabilities and defaulted on its debts late last year.
The crisis has spooked traders who fear contagion in China’s property sector.
On Friday, Evergrande said it found that chief executive Xia Haijun and chief financial officer Pan Darong were involved in diverting 13.4bn yuan ($2bn; £1.7bn) in loans secured by its property services unit to the wider group.
The firm said in a filing to the Hong Kong Stock Exchange that Mr Xia and Mr Pan had resigned because of their “involvement in the arrangement of the pledges”.
Getting caught trying to cook the books even after it’s hit the fan. Classic Chinese management.
The U.S. Securities and Exchange Commission has started the process, compelled by a 2020 law, and investors have started to pay attention. So has China, which moved to potentially clear a big hurdle that stymied U.S. regulators for years.
1. Why does the U.S. want access to audits?
The 2002 Sarbanes-Oxley Act, enacted in the wake of the Enron Corp. accounting scandal, required that all public companies have their audits inspected by the U.S. Public Company Accounting Oversight Board. According to the SEC, more than 50 jurisdictions work with the board to allow the required inspections, while two historically have not: China and Hong Kong. The long-simmering issue morphed into a political one as tensions between Washington and Beijing ratcheted up during the administration of President Donald Trump. The Chinese chain Luckin Coffee Inc., which was listed on Nasdaq, was found to have intentionally fabricated a chunk of its 2019 revenue. The following year, in a rare bipartisan move, Congress moved to force action.
2. Where does it stand?
As required by the law, known as the Holding Foreign Companies Accountable Act or HFCAA, the SEC in March started publishing its “provisional list” of companies identified as running afoul of the requirements. While the move had long been telegraphed, the first batch of names fueled a sharp decline in U.S. shares of companies based in China and Hong Kong as it dashed hopes for some kind of compromise. In all, the PCAOB has said it’s blocked from reviewing the audits of more than 200 of those businesses. The companies say Chinese national security law prohibits them from turning over audit papers to U.S. regulators. SEC Chair Gary Gensler said in late March that the Chinese authorities faced “a hard set of choices.” Days later, China announced it would modify a 2009 rule that restricted the sharing of financial data by offshore-listed firms, potentially clearing one obstacle.
3. What is China changing?
The China Securities Regulatory Commission said the requirement that on-site inspections should be mainly conducted by Chinese regulatory agencies or rely on their inspection results would be removed. It said it would provide assistance for cooperation with foreign regulators. The CSRC said it’s rare in practice that companies need to provide documents containing confidential and sensitive information. However, if required during the auditing process, they must obtain approvals in accordance with related laws and regulations.
4. What’s the broader issue?
Critics say Chinese companies enjoy the trading privileges of a market economy — including access to U.S. stock exchanges — while receiving government support and operating in an opaque system. In addition to inspecting audits, the HFCAA requires foreign companies to disclose if they’re controlled by a government. The SEC is also demanding that investors receive more information about the structure and risks associated with shell companies — known as variable interest entities, or VIEs — that Chinese companies use to list shares in New York. Since July 2021, the SEC has refused to greenlight new listings. Gensler has said more than 250 companies already trading will face similar requirements.
5. How soon could Chinese companies be delisted?
Nothing is going to happen this year or even in 2023, which explains why markets initially took the possibility in their stride. Under the HFCAA, a company would be delisted only after three consecutive years of non-compliance with audit inspections. It could return by certifying that it had retained a registered public accounting firm approved by the SEC.
6. How many companies will be affected?
There’s not much discretion. If a company from China or Hong Kong trades in the U.S. and files an annual report, it will soon find itself on the SEC’s list simply because those have been identified as non-compliant jurisdictions. In the March interview, Gensler pointed out that the law focuses on non-compliant countries, rather than specific companies.
“Demographically they’re in collapse…China’s not even going to survive this decade. They don’t even have the numbers to try…China doesn’t have the naval capacity to secure markets and resources….Xi Jinping has enacted a cult of personality that is tighter than anything that has existed through Chinese history. It’s gotten so tight that no one wants to bring him information about anything…This is how countries die.” Plus: China doesn’t know how to store grain.
The widely acclaimed globalization of the post-Cold War era is now running in reverse. A protracted slowdown in global trade has been reinforced by persistent pandemic-related supply-chain disruptions, ongoing pressures of the US-China trade war, and efforts to align cross-border economic ties with geostrategic alliances (“friend-shoring”). These developments tighten the noose on China, arguably the country that has been the greatest beneficiary of modern globalization.
Of the many metrics of globalization, including financial, information, and labor flows, the cross-border exchange of goods and services is most closely tied to economic growth. Largely for that reason, the slowdown in global trade, which commenced in the aftermath of the 2008-09 global financial crisis and intensified in the COVID-19 era, points to a sea change in globalization. While global exports went from 19% of world GDP in 1990 to a peak of 31% in 2008, in the thirteen years that followed (2009-21), global exports have averaged just 28.7% of world GDP. Had world exports expanded on a 6.4% trajectory – halfway between the blistering 9.4% pace of 1990-2008 and the subdued post-2008 rate of 3.3% – the export share of global GDP would have soared to 46% by 2021, far above the actual share of 29%.
China’s gains from the globalization of trade have been extraordinary. In the decade prior to China’s 2001 accession to the World Trade Organization, Chinese exports averaged just 2% of total world exports. By 2008, that share had risen nearly fourfold, to 7.5%. China had timed its WTO membership bid perfectly, just when the global trade cycle was on a major upswing. While the financial crisis took a brief toll on Chinese export momentum, the interruption was short-lived. By 2021, Chinese exports had surged to 12.7% of world exports, well above the pre-2008 peak.
China is unlikely to maintain this performance. Overall growth of global trade is slowing, and China’s slice of the trade pie is under mounting pressure.
The ongoing trade war with the United States is especially problematic. During the first phase of China’s export-led growth surge in the aftermath of WTO accession, the US was consistently China’s largest source of external demand. Largely due to former US President Donald Trump’s tariffs, that is no longer the case. By 2020, US imports of Chinese goods and services had fallen 19% below the peak levels of 2018. Despite rebounding sharply on the heels of the US economy’s post-pandemic snapback, in 2021, US imports from China remained 5% below the 2018 peak. Partial tariff rollbacks for selected consumer products, which President Joe Biden’s administration is apparently considering as an anti-inflation gambit, are unlikely to jump-start bilateral trade.
At the same time, enduring pandemic-related supply-chain disruptions are likely to take a sharp toll on China and the rest of the world.Over the six months ending in April, a “global supply chain pressures index” constructed by researchers at the Federal Reserve Bank of New York averaged 3.6, well above the 2.3 reading in the first 21 months following the February 2020 onset of pandemic-related lockdowns, and sharply higher than the “zero” reading associated with the absence of supply-chain disruptions.
This is a big deal for a world connected by supply chains. Global value chains accounted for more than 70% of the cumulative growth in overall global trade from 1993 to 2013, and China has enjoyed an outsize share of this GVC-enabled expansion. As supply-chain disruptions persist, exacerbated by China’s zero-COVID policies, pressures on Chinese and global economic activity are likely to remain intense.
Mounting geostrategic tensions are the wild card in deglobalization, especially their implications for China. “Friend-shoring” in effect turns Ricardo’s efficiency calculus of cross-border trade into an assessment of the security benefits that come from strategic alliances with like-minded countries. China’s new unlimited partnership with Russia looms especially relevant in this regard. With China edging closer to crossing the line by providing support to Russian military efforts in Ukraine, the US has recently moved to impose sanctions on five more Chinese companies through its so-called Entity List.
No doubt I’ve missed many other examples of cracks in China’s economic edifice. Feel free to share them in the comments below.
The title overstates the case, but this story of the red-tape cutting, round-the clock efforts to field a bunker busting bomb during the Gulf War is fascinating stuff.
(Today has been a bear for a variety of uninteresting reasons, so no LinkSwarm today. Hopefully tomorrow…)
In an attempt to subvert the Supreme Court’s clear directions in the Bruen decision, California’s gun grabbing Democrats have actually made their case weaker through their own arguments. Armed Scholar Anthony Miranda:
Some takeaways:
It would be nice if the citizens of California could enjoy the Second Amendment rights enjoyed by American citizens in the overwhelming majority of the other 49 states…
Enough links have filtered into the semiconductor bucket to be worth doing a roundup. This one touches on China and the corruption of our political elites.
The Biden administration is laser-focused on sending Ukraine billions of dollars in weapons, including the latest round of anti-ship systems, artillery rockets, and rounds of 105 mm ammo for howitzer cannons that it has entirely lost focus on reshoring efforts to boost semiconductor production Stateside.
Multiple manufacturers of semiconductor wafers have announced plans for new multi-billion dollar factories across the U.S. but are contingent on Congress allocating funds to aid in building facilities under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act.
Congress passed the CHIPS Act in January 2021 as part of last year’s National Defense Authorization Act, which proposed $52 billion in funding for increasing the domestic capacity of chip production, though the House and Senate have come to a standstill over disagreements on certain parts of the bill that have sparked so much uncertainty among companies set to build new factories.
In a letter on June 15, dozens of technology executives from IBM, Intel, Microsoft, Analog Devices, Micron, Amazon, and Alphabet called on Congress to move quickly on the CHIPS Act. They wrote, “the rest of the world is not waiting for the U.S. to act,” and funding for new chip factories must be achieved immediately.
Taiwan’s GlobalWafers announced a new $5 billion factory in the U.S. on Monday, but contingent on subsidies from the federal government.
“This investment that they’re making is contingent upon Congress passing the CHIPS Act. The [GlobalWafers] CEO told me that herself, and they reiterated that today,” U.S. Commerce Secretary Gina Raimondo told CNBC, the same day GlobalWafers announced its development plan.
Notes:
So of the companies mentioned, Intel could suck up government funding to build a fab they were going to build anyway, I’m sure Analog Devices would build a fab with government money, but chances of them running an under 10nm process in said theoretical fab is extremely slim, none of the other mentioned copies are going to build a fab, and none of that government money is going to alleviate the main problem that the overwhelming majority of cutting edge chip designs have to flow through TSMC fabs in Taiwan. What will solve that problem is TSMC opening a state-of-the art fab in Arizona in 2024. No amount of U.S. taxpayer money will make that already-under-construction fab start producing chips any quicker.
As I’ve mentioned previously, semiconductor subsidies are the wrong solution to the wrong problem.
$250 billion in taxpayer subsidies wouldn’t get you a single additional wafer start this year, and probably would accomplish little more than channeling money to politically connected firms and sticky pockets in a state (New York) that no one wants to build fabs in any more because of high costs, high taxes and union rule requirements.
I bet you would.
This past week it hit the terminal that House Speaker Pelosi was doing a little portfolio re-jiggering, including exercising $8 million of call options in Nvidia and selling Apple and Visa calls. The data was per CongressTrading.com and was reported on by Bloomberg.
The Nvidia LEAPS were bought June 3, 2021 with $100 strikes, set to expire June 17, 2022 and the position appeared to be disclosed on Thursday morning for the first time. $8 million trades seem a little odd for members of Congress to begin with, but who are we to judge?
But then, what did Speaker Pelosi do just hours after disclosing the trade, on Friday?
She threw her weight behind a stalled $50 billion CHIPS PLUS bill that “would provide $52 billion in funding for semiconductor manufacturing grants and investment tax credits for the chip industry.”
We tend to discuss leading-edge nodes and the most advanced chips made using them, but there are thousands of chip designs developed years ago that are made using what are now mature process technologies that are still widely employed by the industry. On the execution side of matters, those chips still do their jobs as perfectly as the day the first chip was fabbed which is why product manufacturers keep building more and more using them. But on the manufacturing side of matters there’s a hard bottleneck to further growth: all of the capacity for old nodes that will ever be built has been built – and they won’t be building any more.
Not strictly true. Remember, Bosch just finished building a 65nm fab.
As a result, TSMC has recently begun strongly encouraging its customers on its oldest (and least dense) nodes to migrate some of their mature designs to its 28 nm-class process technologies.
Nowadays TSMC earns around 25% of its revenue by making hundreds of millions of chips using 40 nm and larger nodes. For other foundries, the share of revenue earned on mature process technologies is higher: UMC gets 80% of its revenue on 40 nm higher nodes, whereas 81.4% of SMIC’s revenue come from outdated processes.
That’s because UMC has fallen woefully far behind TSMC, and no one trusts them because they let Chinese spies walk out the door with other company’s IP. SMIC is on Mainland China, sucks even more, and is trusted even less.
Mature nodes are cheap, have high yields, and offer sufficient performance for simplistic devices like power management ICs (PMICs). But the cheap wafer prices for these nodes comes from the fact that they were once, long ago, leading-edge nodes themselves, and that their construction costs were paid off by the high prices that a cutting-edge process can fetch. Which is to say that there isn’t the profitability (or even the equipment) to build new capacity for such old nodes.
This is why TSMC’s plan to expand production capacity for mature and specialized nodes by 50% is focused on 28nm-capable fabs. As the final (viable) generation of TSMC’s classic, pre-FinFET manufacturing processes, 28nm is being positioned as the new sweet spot for producing simple, low-cost chips. And, in an effort to consolidate production of these chips around fewer and more widely available/expandable production lines, TSMC would like to get customers using old nodes on to the 28nm generation.
“We are not currently [expanding capacity for] the 40 nm node” said Kevin Zhang, senior vice president of business development at TSMC. “You build a fab, fab will not come online [until] two year or three years from now. So, you really need to think about where the future product is going, not where the product is today.”
Obviously, they already produce some of their own chips, but the video covers most of the issues China has with fabbing more complex chips that I’ve already discussed here and here. They’re still dependent on the same three leading fab companies (TSMC, Intel and Samsung) everyone else is for sub 10nm feature chips, and are overwhelmingly dependent on both foreign talent and foreign semiconductor equipment manufacturers like ASML and Applied Materials.
Following the Russian capture of Severodonetsk, the Russo-Ukranian War seems to have gone into an operational pause. Ukraine has now received and fielded its first HIMARS multiple rocket launch systems from the U.S. This video makes the case that that’s very bad news for Russian logistics.
Some takeaways:
All well and good, but I have some caveats with the contention that HIMARS can drive the enemy before it and hear the lamentations of their women.
While HIMARS help? Yes. Will they completely destroy Russian command and logistics? Color me very skeptical.
Thus far I have seen no signs of any real Ukrainian counter-offensive in the last month. Until that changes, we still look to be in for a long, bloody stalemate.
First up: Scottish commentator Neil Oliver wonders about all the questions we’re not allowed to ask about Flu Manchu.
Daily Mail online carried a headline on the 8th of June: Healthy young people are dying suddenly and unexpectedly from a mysterious syndrome – as doctors seek answers through a new national register.
This is SADS – an acronym that stands for Sudden Adult Death Syndrome – and according to the Royal Australian College of GPs, it occurs most commonly in people under 40. This is properly scary; I don’t mind telling you. Healthy young people are going to their beds of an evening and not waking up ever again, or otherwise going about their everyday business and dropping dead, for no identifiable medical reason.
The best anyone in the health professions can apparently do is describe it as mysterious, baffling even, that there are people under 40 dropping in their traces for no known cause. At the same time, around the world, there have been reports of many hundreds of sports men and women dying suddenly and unexpectedly in the past year – super fit individuals uniquely focused on their own health – keeling over dead, often on the field of play.
Here at home we have had updated information campaigns about how important it is to be aware of the incidence of heart attacks and strokes. It has been deemed appropriate to remind us as well that heart attacks are not unknown in children. It’s almost as if we’re not to be unduly alarmed by the sight of passers-by dropping to their knees and clutching at their chests. Elsewhere there is a poster campaign about a rise in the number of cases of shingles. The small print on the posters mentions shingles may strike people with lowered immune systems. Fancy that.
Deaths have been attributed by coroners to the Covid vaccines. The numbers are disputed, but people have died on account of the jabs. That much at least is undeniable. Around the world there are millions of cases of alleged adverse reactions to the jabs – lives severely compromised in some cases. I won’t get into the numbers, because those are always disputed too – but the facts remain. People are dying.
The elephant in the room here is the Covid-19 vaccines – and again I make no apology at all about banging on about this topic week after week. The push to move on, to leave all talk of Covid and pandemic behind us, is palpable and, I would say, downright sinister. I am nowhere near ready to move on – not while there is still so much we do not know, so much we are not allowed to say, think and ask.
We are told all about Covid 19 – and all manner of ways in which it might affect health long after a person has recovered from the initial infection. But as well as the pandemic, the other momentous arrival among us – indeed in just the past year and a half – is the biggest mass vaccination campaign in the history of the world – vaccination with products that had emergency approval, but in my opinion are experimental and for which no long-term data is available – on account of their being brand new and just out of the box.
Billions of people around the world have submitted to the procedure. In a coercive and bullying atmosphere created by politicians and the media, that was mandatory in feel, if not in fact, unknown and unknowable numbers of people did so simply to keep their jobs, to get on a plane and go on holiday or to a gig – and yet in the midst of one report after another of otherwise unexplained sudden deaths in the past 18 months or so, the only emergent variable, the only new thing in the world that we are not allowed to discuss, absolutely not allowed to discuss far less point accusatory fingers at, is the mass vaccination programme.
Again, I ask the question I posed at the top of this piece – are we stupid? Or are we just being treated as if we’re stupid? Which is it?
Next: Oliver notes how mass protests and even open revolt against the green globalist/Build Back Better agenda are being downplayed or ignored by the media:
Sri Lanka was a product of that government following, you know, the the madness of [World Economic Forum] inspired policies: Net Zero, the stripping of fertilizers, and all the rest of it…wholesale strife, collapsing crops and all the rest of it. You would think in a sane world the politicians in each of the countries would respond to the people, but I suspect they won’t. We saw something similar in Canada with the trucker’s freedom convoys, but look what happened there. Obviously Justin Trudeau was was told to get a grip of that situation. He clamped down on it violently, arrested bank accounts and took away the funding for that movement.
Bit on Sri Lanka skipped.
I think what you’re looking at in The Netherlands, for example, is the deliberate dismantling of the land owning class. 85% percent of the of the land in The Netherlands is held by farmers, and has been for generations, and that’s an inconvenient situation for globalist leftist politicians who’ve got other ideas for the land, which is specifically to build houses to cope with the with the levels of immigration that are going on. They’ve empowered themselves the politicians to help themselves to 30 percent of the Dutch farmer’s land, and surprise, surprise! Just as I suspect you would or I would, if the government came into our homes and said they were taking 30% everything we had we owned and had worked for, the farmers have said no…It’s a blatant land grab.
It gets harder and harder to ignore the intent by by leftist globalist governments to return us to some form of feudalism. All these people like us owning property, owning homes, living lives independent of the state. You know what the intention is there, to take people’s independence away. Take away their property, take away the land, and if you control the farmland, you control the food. And if you control the food, you control the people. So you can plainly see what the agenda is.
One need not agree with every one of Oliver’s conclusions to agree that the pattern he deduces, of elites acting against the best interests of the countries they govern and the people they ostensibly serve, seems very real.
(Hat tip: Director Blue.)
With Russia shutting down the NordStream gas pipeline for maintenance, Peter Zeihan wonders if the end of Germany’s vaunted economic engine is nigh.
Some takeaways:
Their economic model it is based on access to large volumes of cheap Russian energy, both in terms of for electricity, and as industrial inputs to power the entire German manufacturing model. So that all by itself could kill the German system almost overnight. Well, not overnight, but within a year.
His conclusion:
All of this put together suggests that the manufacturing model that has sustained Germany, that has provided the tax base, that has provided economic growth, that has made the population relatively happy with their situation, it’s gone. And it’s going to vanish within the next year. And a Europe that does not have a German motor at its heart is a Europe that all of a sudden needs to find a very very different way to function.
As with a lot of Zeihan’s observations, he has a lot of fundamentals right but his conclusions seem overstated. Germany has the resources to abandon their green delusions and restart coal and nuclear plants, assuming they have the political will. And the degree to which globalization is breaking down is the significant subtraction of China and Russia from it. There’s still a lot of U.S./EU trade to be had, even if it does get a bit more expensive. And Germany, so high up on the value-added foodchain, is well-position to survive.
The labor shortage is a trickier problem to solve, and probably was one of the main reasons Angela Merkel was so intent on raking in Islamic “refugees.” But maybe real refugees from the Russo-Ukrainian War might provide an opportunity. It would be pretty ironic if Ukrainians were to find their lebensraum in the bosom of Germany…