Is China Screwed?

Here are two videos where Peter Zeihan argues that China is screwed for many reasons, not least of which is demographics.

Takeaways:

  • One child per couple means that China is “the fastest aging society in human history, with the largest sex imbalance in human history.”
  • “They’ve run out of people of childbearing age.”
  • They were going shrink in half by 2100. “Then they realized that they had been overcounting people for some time.” Then new data moved the date moved up to 2070. And now they’re saying it will be 2050. “For that to be true, the Chinese would have overcounted the population by 100 million.” And all of those missing people are of childbearing age.
  • Their population actually peaked 15 years ago.
  • “We’ve seen a 12-fold increase in Chinese labor costs since 1991.”
  • “China isn’t getting rich, it’s getting old.” They’re facing demographic collapse within a decade.
  • Xi’s instituted a cult of personality, and silenced anyone capable of independent thought. “He knows that the country’s current economic model has failed. And he knows he can’t guarantee economic growth, and he knows he can’t keep the lights on, and he knows he can’t win a war with the Americans.”
  • Xi’s solution? “Naked, blatant, ultra nationalism. Ethnocentric ultranationalism of the Nazi style.”
  • At the top, they don’t care about keeping the lights on. “A third of the country is facing power rationing.”
  • “These are the sorts of things that you do if you know that the bottom’s falling out and there’s nothing you can do about it, and you have to shift the conversation to remain in power.”
  • “In China, money is a political good. It exists to serve the needs of the CCP.”
  • “All of the economic growth we have seen in China since 2006 is because of debt.”
  • Corporate debt is 350% of GDP, “making China the most indebted country in human history in both absolute and relative terms.” Every country that’s come within half of this has collapsed under the debt load.
  • I’m omitting discussion of how China is screwed on semiconductors (covered enough here), and also the possibility of invading Taiwan (this video was released late last year, before Russia invaded Ukraine).
  • “The Biden administration in bits and pieces is redefining strategic ambiguity, and it’s not clear to me what the endgame is here.” Well, there’s a whole lot that isn’t clear about the Biden Administration…
  • Zeihan thinks Biden might recognize Taiwan for a foreign policy win. Zeihan also thinks that both China and Russia are so weak we can wait them out. (Remember: Pre-Ukraine invasion.)
  • Zeihan dismissive of both Obama and Trump foreign policy.
  • “Joe Biden has been on the wrong side and the right side of every foreign policy decision the U.S. has made in the last 45 years, because he doesn’t have any core beliefs he tacks with the wind.”
  • Now let’s forward to March 24, where Russia’s colossal failure in Ukraine has actually made China even more screwed.

    Takeaways:

  • The biggest damage that we are seeing from the Ukraine war (outside of Ukraine, obviously) is in China. Because in one month the Russians have pulled back the blinders on what has been a 50-year strategic program, the idea that China can come to global power with American sponsorship, with American indifference, that it can take Taiwan, that it can intimidate Japan, that they can dominate all of east Asia and yet not suffer economically at all. It was always ridiculous, but now it’s been shown to just be absolutely stupid.

  • No one can escape the power of global markets because of trade.
  • “The yuan is only traded internally because it’s the most manipulated currency in history. The euro confiscates bank deposits to pay for bailouts.”
  • Russia is the world’s second largest oil exporter, and it can’t export more to China because the pipes that go east don’t interconnect with the ones that go west. “The rail lines are already beyond capacity.”
  • In the west: “One way or another, those pipes aren’t surviving this year.” (Not sure that’s correct, but I’ve long thought that we should be seeing more structure hits inside Russia than we’ve seen thus far.)
  • “The stuff that goes to the Black Sea is in a war zone, so insurance companies will not give the indemnification that is necessary for vessels to operate in that area. So the only way a ship can go and dock it overseas right now is if a country gives its sovereign indemnification and takes all the risk.”
  • Primorsk, on the Baltic, is open. However: “Ship captains for the most part are refusing to go, and European dock workers are refusing to unload the cargo when it arrives. So that is still in use but not nearly as much, maybe a quarter of what it used to be before the war started.”
  • To get more oil to China: “You would have to build a fundamentally new infrastructure from the fields in northwest Siberia to Chinese population centers that is greater than the distance from Miami to Anchorage, most of which is through virgin territory that is very rugged. That’s a 10-year program minimum even with the Chinese building it.”
  • “We’re looking at the single largest removal of crude from the market ever, and in proportional terms it’s going to have a shock somewhat similar to World War II.”
  • We have insurance companies not doing it, shipping companies not doing it, dock workers not doing it and now Halliburton, Baker Hughes and Schlumberger have pulled out, and they do the technical work that makes a lot of this possible. All the super majors are gone, and we even have a couple of major projects out in Sakhalin that are probably just going to die because the Russians can’t make those projects work by themselves. Most of the oil and gas out of that goes to China, so we’re actually looking at an environment where the Chinese see reduced flows rather than increased, as Russia is just melon-scooped out of the market.

  • When the Russians fell under sanctions, everything that the Chinese thought was true about their future was laid bare as, at best, wishful thinking and bad analysis. So they are now looking east to the United States and west to the Russians in a little bit of a panic, because they are being tied indirectly to what’s going on in Ukraine. And they have now found out not only does the west’s and specifically the United States’ financial tools work very well, they now know they would work much better against China than against Russia, because at its core Russia is a commodities exporter, most notably oil, natural gas and food. China imports all those things, so if an equivalent sanctions regime was done against the Chinese, you’d have 500 million dead Chinese in less than a year from starvation.

    Here I think he overstates the case, as there are a lot of emergency avenues a communist government could pursue to stave off starvation. Like invading Mongolia and turning it into emergency farmland. Which is not to so they wouldn’t have some starvation, especially in worse-case scenarios…

  • “The Chinese have always seen themselves as anti-American [well, the commies, anyway -LP], they’ve always seen themselves as anti-Western, anti-democracy and now they’re realizing that the mood of the man in the White House determines whether their country exists.”
  • As tight as the sanctions are, as big as they’re getting, they’re nothing compared to the corporate boycotts. Almost every single company that left Russia was under no legal requirement to do so, they just didn’t want to be associated with the war. And we’re talking about those ESG, social goody two-shoes mammoth companies like Exxon and Halliburton, who are now gone, and everyone else followed. So if that happened to China, you know that’s all of their investment that matters. That’s all of their technology transfers, that’s all of their end markets. This system, if it turned against China, would be far more damning than anything we’ve seen out of Russia so far.

  • I think Zeihan overstates the case a bit, and probably immanizes the timeline of crisis more than warranted, but the demographic and economic challenges China faces are very real.

    Also keep in mind that no one in 1988 expected the Soviet Union to collapse as quickly as it did, either…

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    35 Responses to “Is China Screwed?”

    1. Eric Raymond says:

      This is why an invasion of Taiwan isn’t going to happen. The Chinese don’t have the sealift capacity to pull it off, and by the time they can build the ships and train the crews they won’t have enough combat-capable bodies to do the ground fighting and the occupation.

    2. Kirk says:

      Let’s not forget that the Chinese have bought and paid for this presidency; they’ll get precisely what they want, particularly since they almost certainly hold enough blackmail evidence to put BidenCo. out of office.

      The real question is, do they understand the situation and American sentiments well enough to finesse the situation to their benefit? I’m not sure they do; the Russians certainly did not.

      The whole mess is going to end badly, and in unknown places. I suspect that Putin is now wishing he’d simply stopped at politics and blackmail, rather than committing his incompetent and incapable forces, which are very likely to do little more than forge a new and much stronger Ukrainian identity than anything Russia has had to face in the past. That’s not an insignificant issue, nor is the likelihood that an actual Chinese invasion of Taiwan would accomplish little else there, as well.

    3. Lawrence Person says:

      Indeed, that was the topic discussed here.

    4. Kirk says:

      @Eric Raymond,

      Similar calculations were made, about Russia and Russian intentions, back before the 24th of February. You can’t discount the impact of the combination of hubris, stupidity, and simple lack of self-knowledge about one’s own deficiencies when it comes to these things.

      I remember reading stuff about the state of the Austro-Hungarian armies before WWI; the consensus from many actual veterans of things like the Boer War that they looked really good on parade, and in set-piece exercises, but… Lacked what it would take to do the job. Kinda like modern Russia…

      And, as I recall, said Austro-Hungarians got their asses handed to them by the tiny little nation of Serbia. It took considerable efforts for them to get their act together enough to be much more than a heavily-armed joke, and in the end, it wasn’t enough. I suspect that the Russians have rather more in common with the Austro-Hungarian Empire or Ottoman Turks of that era than many realize.

      In other words, the Chinese may behave entirely irrationally by our ideas. Or, be entirely rational, from theirs–Choosing to gamble all on a Gotterdammerung, rather than risk the sure and certain dissolution of their criminal conspiracy masquerading as a government.

    5. Kirk says:

      Also… I don’t think enough of us looked at what was going on in Nagorno-Karabakh between the Armenians and the Azerbaijanians. I watched all that go down, and I was puzzled by the apparent failure of the Armenian forces. At the time, I thought “Huh… So… Putin must have some sort of deal, with Erdogan…? Is he writing off the Armenian investment, in favor of the Turks…?”.

      What I’m now wondering is if that was the best the Russians could do, and the Armenians just got screwed because they took Russian primacy for granted, thinking that “Of course, whatever Russia tells us must be accurate…”.

      In truth, what I think we may well be watching here is the final immolation of Russian imperialism, going through its final state of ridiculousness before collapsing into chaotic regionalized despotism under the pressures of economic and demographic collapse. Remains to be seen… Putin reminds me of a heretofore “successful” gambler, baffled at his supposed “losing streak”, doubling-down on the cards or the turn of the roulette wheel. I don’t think he’s going to pull out of the nosedive he’s in, and instead of a controlled landing from all this, we’re going to see an instance of “controlled flight into ground” with Mother Russia. Ugly days ahead, I think. This is going to get really, really messy.

    6. Subotai Bahadur says:

      “Like invading Mongolia and turning it into emergency farmland. Which is not to so they wouldn’t have some starvation, especially in worse-case scenarios…”

      As someone of Chinese ancestry, albeit with a Mongol nom d’ blog, I’d like to take issue with just the quoted section above of your piece. Why is the Great Wall where it is? Largely to protect from Mongols who were raiding Chinese farmers. Why did they raid China instead of farming themselves? Because their culture did not farm. Why did their culture not farm? Because the climate, soil, water supply, and terrain are such that farming is not really a good return on investment for the inputs.

      The Great Wall also marks the boundary between the area where a settled agricultural economy is possible, and where a nomadic herding economy was necessary. Conquering Mongolia would give them territory, but that territory would not be feasible with any effort they could manage as an increased supply of food for the Middle Kingdom.

      As far as the rest of the article, I find it interesting and will ponder it.

      Subotai Bahadur

    7. Richard D Patton says:

      Another problem that no one mentions is that China is running out of coal, which powers their economy. China had huge coal deposits, but they have mined most of them, and the rest are in places like Xingjian province, which is Uyghur territory. China was traditionally a coal exporter. Now it is the largest importer in the world.

    8. Kirk says:

      Do those conditions still hold true, with modern agriculture?

      The other question yet to be settled would be that of just how many Chinese are going to be left, when all this settles out. They may not need to import food past a certain point of demographic self-immolation.

      Which may well be the point of what their leadership class has been thinking. I don’t discount the utter idiocy of the Davos types, on our side–Thinking that they can safely slough off the “excess mouths”, and ride out the next turn of the wheel in luxury. The majority of the idiot class making decisions these days has no real idea how anything works, or what the various complications are within the necessarily complex and connected modern world. They no doubt think that they can sustain a modern economy with a lot fewer people that they can control–Failing to realize the actual effects of their machinations and planning, when actually carried out.

    9. Lawrence Person says:

      There’s a vast gulf between “the land is not a good investment for farming” and “the land will do in a pinch for emergency farmland to prevent starvation.”

      Mongolian land is probably at least as suitable as some of the land being used for agriculture in Siberia.

    10. TallDave says:

      “This is why an invasion of Taiwan isn’t going to happen. The Chinese don’t have the sealift capacity to pull it off, and by the time they can build the ships and train the crews they won’t have enough combat-capable bodies to do the ground fighting and the occupation.”

      It’s far worse that that. Ukraine has once again exposed Western tactical supremacy — any NATO military, even a tiny one, would chew those Russian columns to bits. MIT’s 2013 “10:1 defender advantage” dollar-for-dollar comparison actually understates the situation dramatically.

      China might bury a million soldiers in the strait and never touch Taiwanese soil. Given the number of missiles and mines the ROC can put in the air and sea, the free Chinese likely wouldn’t even have to hold out for the inevitable aid from modern militaries in South Korea, Japan, Australia — all of whom have far more at stake than we do — to say nothing of US carrier strike groups.

      And the CCP leadership knows full well they might not survive a failed invasion.

      But long before they PLA manages to stage the necessary forces, let alone fire a single shot, the West will have cut off their imports and the entire export-based economy will have collapsed — Venezuela writ large. Never mind the food imports, they won’t even be able to buy fertilizer.

    11. Rollory says:

      The Chinese will not invade Taiwan. The Taiwan strait is calm enough to make an amphibious crossing possible at two times in the year; April and October. We’re midway through April already and the Chinese haven’t budged. If they were going to, they’d have done it already – and if they were going to do it at all, they’d want to do it in conjunction with the Russian distraction in Europe, to present as big and as sudden a shock to the corrupt decadent feeble etc etc societies of the west as possible.

      They didn’t move at all. They saw Putin fall flat on his face, thought about the possibilities for similar things happening to them, and decided to pretend they were never thinking about it in the first place.

      The Chinese condemn recklessness, and consider this Ukraine move to be reckless. The opposite extreme of that is over-caution. They’re going to wait until they’re completely ready, and they’re never going to be completely ready.

      If they don’t do it now – with the biggest possible challenge to the western-dominated global system in play, with the weakest possible US president in position – they are never going to do it. And they didn’t do it.

    12. TallDave says:

      Great video, one other important note about the Chinese economy is the imposition of permanent, ever-tightening capital controls in response to the 2015-6 departure of a trillion dollars in forex reserves.

      To put the impact of that historic inflection point in perspective, China spent decades accumulating those reserves to keep its currency down and help build exports, then suddenly had to clamp down to prevent the already-weak currency from collapsing altogether when it became clear the growth party was over and capital suddenly wanted out from under CCP’s thumb.

      Why does capital want out? Over the last ten years, the S&P has returned roughly ten times the Chinese stock indexes, despite the latter country supposedly growing more than twice as fast. Go figure!

    13. John Courtade says:

      Zeihan makes a good case that China will necessarily reevaluate whether grabbing Taiwan is worth it after observing what united Western sanctions have done to Russia, but he gives short shrift to our dependencies on China. I think that I read that China was supplying 80 or 90% of our meds before the CCP plague. We could do ok without new toasters and can-openers for a while, but meds, rare earth minerals, electronics–not so much.

    14. […] Lawrence Person’s BattleSwarm Blog Presents a couple of videos of Peter Zeihan explaining why China is in far worse shape than we are. […]

    15. Big D says:

      Zeihan has pointed out elsewhere that China imports massive amounts of agricultural petrochemicals: diesel, fertilizers, herbicides, and pesticides. And that they have overused and in fact abused those chemicals to the extent that much of their soil is nigh useless without constant, extreme chemical augmentation. China is therefore massively vulnerable to any disruption of trade (and as Zeihan has also pointed out, a blockade can be implemented by a handful of warships in the Indian Ocean, outside of China’s effective ASBM range, and even just declaring one would shut down most commercial shipping with China via the commercial insurance markets).

      He’s not perfect–I suspect that he was the guy at Stratfor who predicted for years that the Europeans would never be foolish enough to keep a common currency once they realized it was hollowing out their economies (they were, and it did), and he is on record after 1/6 as repeating a claim that not only was Brian Sicknick beaten to death with a fire extinguisher, but that his body was then impaled with a flagpole (I’ve never seen him acknowledge the error, much less apologize for it). However, in the larger flow of history, his analysis on geography and demography has had some merit to it–he predicted the Russian invasion of Ukraine over ten years ago (and estimated it at the time to occur sometime between 2018-2022), and several of his other predictions are looking pretty good, as well. I think it’s largely a matter of keeping him in his lane, and recognizing that while geography and demography are very strong determinants, they do not portend an unavoidable fate (he, like everybody else, also predicted that Russia would perform to expectations and that Poland and the Baltic nations would be next).

    16. […] The YouTube that goes along with this has some shocking statistics. I am going to have look into this a little more. Is China Screwed? […]

    17. a reader says:

      PRC demographics do sound dire, but then I started wondering at the ethical distance between organ-harvesting and forced pregnancies. The Xinjiang camps started imprisoning Uighurs in 2017, so any hypothetical class of manufactured super-soldiers would still be ten years from maturity.

      Seems fantastic, but why *wouldn’t* the PRC try to take over the baby-making process?

      Another factor in “the bottom falling out” that is hard to see in the West is the after-effect of the late-night upstream dumping that saved the Three Gorges Dam last year, at cost of surrounding communities who found themselves deliberately flooded without warning. That loss-of-confidence may contribute to this week’s remarkable surge of Shanghai outrage breaking past the Great Firewall.

      (Taiwan is still as tough a target as before, and even tougher with recent global support, but Putin’s example also seems to make it a much harder sell within the CCP itself.)

    18. A.B Prosper says:

      TallDave

      Not being able to take out a nation one third your side with similar tech in a couple of months is no sign of anything really.

      The US wins its fights because they face inferior opponents. Its analogous to a high school karate expert beating up a 7th grade yellow belt and claiming to be a great fighter

      The closest comparable example the Falklands war took 10 weeks, sunk a lot of UK ships and Argentina didn’t have massive outside support flowing in .

      They got 1 Island , that’s it.

      Certainly the Russians underestimated the Ukrainians but thus far the war is going decently well for Russia.

      On the other hand no one thought NATO and the US can’t beat Russia at a cost. We can though without Chinese resupply things will be much harder . Th risk was always nukes which are controlled at a much lower level and thus more liable to be used.

    19. RonF says:

      So what happens to our addiction to cheap electronics and sneakers produced by Chinese labor when Chinese labor costs start to approach ours?

    20. A. Landmesser says:

      China invade Taiwan? Just as likely as Malta invading Italy. Taiwan has about 19 possible invasion beaches. And Taiwan has had 70 years to fortify them. I’ve seen the fortifications and nothing short of tactical nukes would make an impression. What did the Germans do to 60,000 US troops with 1,000 men at Omaha after about a year of work? Do a comparison of the Allies versus the Germans at Normandy and the PRC comes out a real loser. Worse the Germans were a capable enemy, the PRC’s military has got its butt beaten by Hanoi and Delhi whenever Beijing thinks they can get tough. Its equipment are copies of other people’s technology. Perhaps they will do better than the Russians. But that’s like saying the Chinese can give a more coherent speech than Biden.

    21. […] Lawrence Person’s BattleSwarm Blog Presents a couple of videos of Peter Zeihan explaining why China is in far worse shape than we are. […]

    22. Kirk says:

      “China invade Taiwan? Just as likely as Malta invading Italy. Taiwan has about 19 possible invasion beaches. And Taiwan has had 70 years to fortify them. I’ve seen the fortifications and nothing short of tactical nukes would make an impression.”

      I’m not going to flatly agree or disagree with you, but I think it rather… Ah, shall we term it “naive” to think that the PRC would simply do a copy/paste of Eisenhower’s D-Day plan when they invade Taiwan?

      My guess is that they’ll make their plans such that those beaches and fortifications are utterly irrelevant. Were I a PRC planner, I’d look at taking the Taiwanese ports and using those. Much easier. About all you would really need is some way of rapidly getting a lot of men and equipment to the port and unloading–Like, one of those multitudinous container ships going back-and-forth between Taiwan and the mainland. A little judicious bribery, some careful planning, and you’d have the same sort of coup-de-main operation going that the Germans used during the invasion of Norway, back when. Were I a PRC planner, the only thing I’d be using landing craft for would be staging diversionary operations to distract the Taiwanese military.

      If I were Taiwan, I’d be planting nukes in those harbors and planning on blowing them up along with the PRC forces that came visiting.

      I seriously doubt that there would be anything looking even remotely like D-Day. It would be more like the invasion of Norway, or some other such historical deal where they used subterfuge and clandestine operations to get inside Taiwan’s defenses.

    23. […] had no intention of posting another Peter Zeihan so quickly after Is China Screwed?, but it’s also been a good long while since I did a Texas vs. California update, so let’s tuck […]

    24. Jimmy McNulty says:

      So, if the media focused on it and beat a drum for a month, could we end slavery in China with corporate pressure?
      If so, why hasn’t it been done?

    25. Kirk says:

      “So, if the media focused on it and beat a drum for a month, could we end slavery in China with corporate pressure?
      If so, why hasn’t it been done?”

      Because the corporations and the wealthy that run them don’t care. Look at the NBA, and the spectacle of them rolling over.

      As well, slavery ain’t something the Chinese are going to give up because some silly foreigners think they should. Chinese interests and internal politics are behind that, and anyone who thinks it is amenable to mere “pressure” is mistaken.

      Engaging with the Chinese Communist Party at the end of the Vietnam War was huge mistake, over the long haul. China should have been left to its own devices, instead of foolishly sponsoring their entrance onto the world stage under the CCP. Communists are always gangsters; they ran the former Russian Empire into the ground, destroying its potential. Absent the inimical influence of the Communist ideology, Russia would likely have achieved even more economic growth and prosperity than the former Austro-Hungarians did. WWI was a disaster, on all fronts; imposition of Communism was even more of one. It turned Russia into a nation of kleptocratic thieves, constantly stealing from one another and the public fisc without remorse or restraint. Reforming that nation may well be impossible, at this point. Culturally, they’ve consistently preferred tyranny and “strong man” government to standing on their own two feet and making their own way as citizens. The Tsar, and then Communism did that to them, and it may not be effectively changeable.

    26. […] at Battleswarm blog they say China is toast […]

    27. […] The first installment in this series was popular. Well, there’s a lot more reasons why China is screwed. […]

    28. TallDave says:

      “Not being able to take out a nation one third your side with similar tech in a couple of months is no sign of anything really”

      Didn’t say it was. But anyone can see the Russian weaknesses relative to a NATO military.

      “The US wins its fights because they face inferior opponents. ”

      LOL the US lost Afghanistan to goat-herding religious fanatics. The Taiwanese are a modern military defending their homes from a position of enormous tactical superiority against reluctant Communist conscripts with inferior technology. You don’t want to be on that boat!

    29. […] video from geopolitical analyst Peter Zeihan. You can find a bullet point synopsis of it at the Battleswarm blog, of which the following three points are worth […]

    30. […] “China was already the fastest aging society in human history with the biggest sex imbalance. We already knew that their economic model would not match up with this demography this decade, we always knew that the economic collapse of China was coming.” And that was before we found China had over-counted their prime working age population by 100 million. […]

    31. […] I believe the first part of the first point is too speculative (“Rising Prices Mask Irreversible Deterioration in Long-Term Strategic Positioning”) and forward-looking to be worth examining. Russia isn’t worried about long-term positioning if it can use its gas pipeline leverage to crack the sanctions regime against it this year. The second “pivot to Asia difficulties” part is something I’ve covered here. […]

    32. […] Chinese woman: “It isn’t that I don’t want to have children. I can’t afford it. Housing is so stressful! Without a home, I’m afraid to get married. The cost of having a baby is high. There’s no money or time to raise them, and women’s work is easily affected by childbirth.” All things that help contribute to China’s disasterous demographics. […]

    33. […] covered Peter Zeihan videos on China’s crashing demographics before. We already knew China was “the fastest aging society in human history, with the largest sex […]

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