Chinese power is approaching its zenith

Via The Guardian yesterday:

Australia does not “fully know” how an increasingly assertive China will use its power, Penny Wong has warned in a speech pledging to safeguard Australia’s sovereignty while accepting China as a global player.

The defence and security communities must be “on the lookout for threats” as government and business expand the trade relationship with China, the Labor foreign affairs spokeswoman told the Australian Institute of International Affairs in Canberra on Monday.

But Wong warned that discussion about China was “vulnerable … to infection with undertones of race and alienation”, citing One Nation’s “dystopian rhetoric” as an example.

Wong said Australia must “understand China, its motives and its mindsets” because “we don’t yet know how its pursuit of a more ambitious agenda will play out globally” nor “how China intends to condition its use of power”.

“China is becoming more assertive, and more inclined not only to demand a place at the table, but also a say in which table and what design,” she said.

“China is becoming more assertive, and more inclined not only to demand a place at the table, but also a say in which table and what design,” she said.

Wong said that Australia should work with China “to encourage it to play the positive role it is capable of in supporting and furthering regional stability and security”.

Wong said Australia must afford China the “priority it merits”, including by not remaining “defiantly monolingual”, instead committing to ramp up study of Mandarin.

Wong encouraged greater integration of economic and security policy, noting that China’s belt and road initiative was an example where assessment purely on strategic implications could see Australia “missing out on its potential” but a “purely economic approach ignores our own strategic interests”.

Sensible enough stuff. I am beginning to feel a little more comfortable with China’s power trajectory. It’s not that is appears any less nationalistic, it has become more so. It is what underlies that that I now see as the determining factor in the future of Chinese power projection. From Willy Lam via Goldman:

Interview with Willy Lam

Willy Lam is an adjunct professor at the Center for China Studies and the Department of History at the Chinese University of Hong Kong. He is also a senior fellow at the Jamestown Foundation in Washington, DC. Dr. Lam has spent 40 years researching and writing on China’s politics, public administration, and reforms. He has held senior editorial positions at media organizations including the South China Morning Post and CNN’s Asia-Pacific  headquarters. Lam is the author of six books on China, including “Chinese Politics in the Era of Xi Jinping” (2015). He is the editor of the just-published “Routledge Handbook of the Chinese Communist Party.” Below, he  discusses Xi Jinping’s consolidation of power over the last five years and gives his predictions for the composition of the new Politburo Standing Committee, China’s senior-most leadership.

Allison Nathan: You have published six books on China’s leadership, most recently about Xi Jinping. How would you describe Xi and his goals?

Willy Lam: Xi Jinping is a charismatic and authoritarian leader, significantly more so than his two predecessors, Presidents Hu Jintao and Jiang Zemin. As a “princeling,” a descendant of a prominent official, Xi has always had confidence to act authoritatively and to take risks. This has likely contributed to his persona as a strongman with a Machiavellian streak.

Xi is also a nationalist. His most famous slogan, the “Chinese Dream,” conveys the idea of China rising up after one and a half centuries of Western colonialism. His goal is for China to close the development gap with the US, and to restore its rightful position in the world as the Middle Kingdom of the 21st century. This emphasis on nationalism is understandable given that the so-called Chinese economic miracle—annual GDP growth rates of 9-11%—ended several years ago, even before Xi took power. With the economic outlook less rosy than before, nationalism has become a key pillar of the party’s legitimacy.

Finally, Xi is a Maoist. He firmly believes that power and national resources should remain concentrated in the Chinese Communist Party (CCP); indeed, he views this monopoly as critical to the party’s survival. For example, the lesson Xi draws from the demise of the USSR is that criticism of party founders weakened and eventually undermined the Soviet regime. So Xi believes that for the CCP to survive into the 21st century, there should be no criticism of Maoist norms and practices.

Allison Nathan: Many observers have noted Xi’s consolidation of power. What evidence is there of this consolidation?

Willy Lam: There are many examples of Xi’s consolidation of power. In just five years, he has built his faction into the most powerful one within the CCP, which in itself is a testament to his influence. This faction consists of Xi’s former associates and protégés in Fujian and Zhejiang provinces, where he worked earlier in his career, as well as officials who have worked in his home province of Shaanxi and some of his classmates and early acquaintances. Xi is also personally  involved in policy decisions to a greater extent than many of his predecessors. For example, the CCP has had a long tradition of granting authority over economic matters to the premier. Buttoday, the ultimate arbiter of financial and economic policy is Xi himself. In addition, Xi has secured a firm grip on the army, the police, and the overall security apparatus by promoting his protégés to senior positions across these entities. Whoever controls the military in China effectively controls the party and the state, so this leaves Xi’s power unchallenged. Finally, the effectiveness of Xi’s anti-corruption campaign has both demonstrated and enhanced his power. The Central Commission for Disciplinary Inspection, the official institution in charge of this drive, has been effective at rooting out not only corruption but also political adversaries.

Allison Nathan: What outcomes of the 19th Party Congress would indicate whether Xi has consolidated his power further?

Willy Lam: There is a broad expectation that this Party Congress will cement Xi Jinping’s absolute authority. For example, it is very likely that the Congress will decide to change the CCP Constitution to include Xi Jinping  Thought as a supreme guiding philosophy for the party and state. In CCP ideology, “thought” is far superior to “theory,” and the former has previously applied to the ideas of only one leader—Mao Zedong. Formalizing Xi Jinping Thought would therefore elevate Xi to the status of Mao’s 21st-century equivalent.

Some analysts have also speculated that the Politburo Standing Committee (PSC), China’s highest ruling council, could shrink to five from seven members, which in their view would reflect further consolidation of power by Xi. I think the number of members will remain seven because Xi will still feel the need to give two or three seats to representatives of other factions. But this has no bearing on his level of influence. There is no doubt that Xi has overriding authority regarding the composition of the new leadership and that he will dominate the new committee regardless of its size.

Finally, there is considerable focus on the fortunes of two individuals. The first is Wang Qishan, the current head of the anti-corruption campaign and a close ally of Xi who is widely regarded as China’s second most powerful leader. Wang is 69 years old, one year above the age at which most PSC members retire. But some analysts believe that he could stay on, interpreting Wang’s recent high-profile meetings with foreign officials and public figures as a sign that his political fortunes are rising. However, there is a good possibility that Wang will retire, largely because his anti-corruption drive has put him at odds with non-Xi-dominated power blocs in the CCP, including the Communist Youth League faction led by Hu Jintao and the Shanghai faction led by Jiang Zemin. Letting Wang retire could therefore allow Xi to obtain more concessions from these factions. It would also help Xi manage two other issues: Wang’s own power-grabbing tendencies, and corruption allegations against him.

The second official in focus is Premier Li Keqiang, who is a member of the Communist Youth League faction I just mentioned. There is speculation that Li could lose his premiership and be relegated to the less powerful post of Chairman of the National People’s Congress, China’s parliament. I believe he will remain premier, but that Xi will continue to be far more influential in setting economic policy, given that Li’s own policymaking capacity has beensubstantially diminished under Xi’s dominant rule.

Allison Nathan: What do you expect the new composition of the Standing Committee to be?

Willy Lam: Beyond Xi and Li keeping their seats, I would group potential PSC inductees into three tiers according to their chances of joining the committee. In the first tier, I believe the most likely candidate is Li Zhanshu, Xi’s most trusted advisor. Li is already a Politburo member, and there seems to be a high  probability that he replaces Wang Qishan as the anti-corruption tsar. The next most likely candidate is Zhao Leji, who is another very close associate of Xi and the director of the Organization Department, the head of personnel within the CCP.

In the second tier, I would place Xi Jinping’s key advisor on both domestic and foreign policy, Wang Huning. Wang is a former professor from Shanghai who has served three Chinese presidents: Jiang Zemin, Hu Jintao, and now  Xi Jinping. But there is no precedent for a policy advisor advancing to the PSC, which limits his chances. Also in the second tier are two potential inductees whose odds depend on the extent to which Xi appeases other factions. One is Han Zheng, the longstanding party secretary of Shanghai who has professed allegiance to Xi Jinping but has some ties to the Shanghai faction. The other is Wang Yang, vice premier of the State Council, who represented China in the Comprehensive Economic Dialogue with the US and is a senior member of the rival Communist Youth League faction.

The third tier consists of rising stars from the so-called sixth generation, the politicians born from the late 1950s to the late 1960s. The two most talked-about names are Hu Chunhua, the party secretary of Guandong province, who is already a Politburo member but is a protégé of Hu Jintao, and Chen Min’er, the newly-promoted party secretary of Chongqing and a protégé of Xi Jinping.

Allison Nathan: Will Xi pick a successor? And is he attempting to lay the groundwork for a third term?

Willy Lam: A big question mark remains as to whether Xi wants to tap a successor anytime soon. He has long-term ambitions for China; the “Chinese Dream” is for China to become a full-fledged superpower by 2049, the centenary of the establishment of the People’s Republic. In the eyes of Xi Jinping, these long-standing goals require that he stay in power as long as possible. If Xi were committed to serving just two five-year terms like his predecessors, he would have promoted dozens of officials from the seventh generation—the cadres born in the 1970s—by now. Instead, only four members of that generation occupy senior positions today. In my opinion, Xi islikely to remain supreme leader for at least fifteen years, until the 21st Party Congress in 2027. If that is indeed the case, he is in no hurry to pick a successor.

Allison Nathan: Will Xi use his power to propel economic reform?

Willy Lam: In my view, only to a very limited extent. China’s  economic report card under Xi has been mixed. He has continued some of the economic reforms first initiated by Deng Xiaoping. And there have been achievements across various parts of the economy. China now owns more miles of highspeed railway than the rest of the world combined, for example. And it has made advancements in artificial intelligence, robotics, green technology, and so forth. But this innovation has been largely state-sponsored, and there has not been much progress with regard to the long-standing goal of restructuring the economy in terms of breaking its dependency on government investments and developing consumer spending and services.

Xi’s priority is preserving the CCP’s monopoly on power. Therefore, the party will not tolerate any mistake or adopt any policy—no matter now brilliant—that could jeopardize its control. Xi made this clear in a speech in which he compared China to the Titanic, saying that if China starts to sink, “it will go down just like that.” So he is keenly aware of avoiding any possible threat to party stability. What this means in practice is that China will remain a mixed economy, partially integrated into the international marketplace, but still with a dominant party-state apparatus in sectors such as defense, finance, insurance, oil and gas, and telecommunications. Indeed, Xi is a firm believer in state capitalism and there is no indication that he will relax control over China’s state-owned conglomerates. Having come to understand his view of the world, it is clear to me that he is more Maoist than he is reformist.

I initially thought that Xi was an economic reformer. That seems naive in retrospect. He is a power man, born and bred Party. That comes with one very large and unavoidable corollary.

The debt-dependent Chinese economy is headed for one of two outcomes.  First, the model is driven full bore until it breaks and debt crisis ensues.  Second, reform steps in and the debt-soaked state owned enterprises that dominate resource allocation are broken up one way or another. That drops growth but accelerates it shortly afterwards in a flowering of decentralisation.

But there is a third option and it appears that is one that China has chosen. It is the Japanese way, to drive the debt model to its logical conclusion and then drive it some more, not letting it go bust by retaining centralisation. This is “extend and pretend” with occasional bouts of reform punctuated by more debt booms that are literally forced into the economy by public-owned and policy banks.

This path leads to Japanese-style economic stagnation as  SOE’s choked with debt dominate resource allocation over market efficiencies.  That is going to keep growth higher in the short term but guarantees its slows permanently in the long.

There is one more parallel with Japan that we should mention at this point and it is the reality is that China’s demographic trends will compliment this great bogging down nicely.

Interestingly, China’s dependency ratio profile – i.e. the ratio of the non-working population, both children (< 20 years old) and the elderly (> 65 years old), to the working age population – is also very similar to Japan’s in the 1990s (see next chart).

ScreenHunter_10855 Dec. 10 09.58

In turn, the profiles of the number of working age people per dependent are very similar in the two countries:

ScreenHunter_10856 Dec. 10 10.00

Chinese economic stagnation is ahead. It’s not imminent but it is now the base case over the long term.

Such a trajectory for Chinese wealth is not consistent with growing power projection, at least not seriously so in terms of regional hegemony. As Willy Lam says, nationalism will grow to replace advancing prosperity as the fulcrum of Communist Party legitimacy but without the economic dynamism to back it up Chinese power will follow its economy into relative stagnation.

If the Chinese sphere of influence is already approaching its widest circumference then all of the attendant tensions in regional ideas, power structures and economic ties and will contract with it, and Labor’s notion of the Asian Century with China at its centre is more likely a tale of fading glory that global domination.

David Llewellyn-Smith
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  1. I read that Mr Xi is stupid or at least what the state newspapers publish about him is stupid (almost as bad as North Korea saying Mr Kim got 11 holes in one during a round of golf).

    he often proves to be his worst enemy by lying too stupidly like “when I was young I used to shoulder 100kg wheat and walk 30km to the granary – without changing shoulders (this is the punch line isn’t it?)”.

  2. “If the Chinese sphere of influence is already approaching its widest circumference then all of the attendant tensions in regional ideas, power structures and economic ties”

    This is dangerously naive. What do you think OBOR is about? In fact China is currently pursuing an aggressive outbound “soft power” campaign through its commercial enterprises (the SOEs). Xi has moved to control these ever more tightly, and increase their dominance by diverting private capital into them . Despite many having a 15-20% float on a stock exchange, they now all have to defer to a Communist Party committee on key decisions. They are not public companies as we know them, though our business community and regulators tend to treat them as such. How do you explain that Communist Party controlled entities like John Holland are able to build and operate critical infrastructure -even prisons -without a skerrick of interest from our regulators or media? Wait until they start rolling out facial recognition.

    The United Front Work Department activities within China’s rapidly growing diaspora also needs to be carefully watched. There are no signs that any of this is benign. Look closely, and despite the absence of military hardware, we are under a form of assault from China.

    “Under CCP General Secretary Xi Jinping, foreign influence activities have gone into turbo drive. CCP United Front officials and their agents follow a longstanding policy of developing relationships with foreign and overseas-Chinese personages (the more noteworthy the better) to influence, subvert, and, if necessary, bypass the policies of the local government and promote the interests of the CCP.”

    • Meh, you’re missing my point. Greater Chinese centralisation means its power projection will diminish more quickly as it’s economy stagnates.

      OBOR is giant piss into the world most ungovernable pot.

      • China has already occupied the heart of our biggest cities, its doing the same in New Zealand, Thailand, Malaysia, Canada, and soon Central and South East Asia. It just needs to keep control over its expanding diaspora, and its overseas commercial operations.

      • “OBOR is giant piss into the world most ungovernable pot.”

        That is true – if the endgame is to turn these countries into functioning efficient 1st world countries. But I don’t think China really cares to much about the sandpit and Africa.

        Chinese “soft power” (including OBOR) is really about getting goodwill and cooperation from numerous small countries.

        Votes at the UN. Or votes at the International Olympic Committee (where major countries have long competed for the support of small countries). Or fishing rights.

        Or local authorities looking the other way when you want to do something “unusual.” Like fly in a couple of aircraft filled with Chinese Police to round up and extradite 77 Chinese nationals (who had mistakenly believed they were safely beyond Chinese influence) back to China (great photo on plane)

        The groundwork for this sort of operation was laid several years ago. Foreign aid to Fiji. And a bilateral extradition treaty that China wanted.

        China plays a long slow hand. And OBOR is an important part of this.

      • It can only do that as long as it remains economically powerful and it can only remain economically powerful if it can finance its debts.

        Since it’s now close to the limits of debt sustainability where unacknowledged bad debts begin, unavoidably, to poison economic growth, China will not remain as economically powerful as it has become for long.

        Once that is true, it simply becomes another overpopulated country.

      • China will remain a powerful global economy even if just because of the size of its population An old paper but worth a read.

        For centuries there was a relationship between the size of a countries population and the size of its economy. 500 years ago, China and India were global economic powers. This nexus broke down around the time of the Industrial Revolution, and when European powers were colonising Asia and the Pacific. And China made a decision to isolate itself from the world. But this is a relatively short period of time (only a few hundred years or so).

        This “Great Divergence” has been attributed to many factors. But the Industrial Revolution is seen by many as a major (or even the major) factor.

        So power moved to Europe, and then to USA.

        Now this natural order is being restored.

        Both countries face enormous challenges of course. And there will be problems along the way. But China isn’t going anywhere. And it is in the process of shoring up plenty of support from many small countries.

        It is difficult to see another Great Divergence. Countries are too linked, and information transfer is too efficient. Of course if there was another Great Divergence, there is no guarantee the west would be on the “right” side of this.

        For Australia, our history post-Brisitsh colonisation has all occurred within this Great Divergence. Our short term view of history means we tend to think of this being a normal state. In fact, it has all been very abnormal,. Now the longer term order is being re-established.

      • China’s main, if not sole, competitive advantage is its sheer number of people. It makes sense that it’s power wanes as the number of working age people diminishes, and the dependency ratio worsens.

        China has already occupied the heart of our biggest cities, its doing the same in New Zealand, Thailand, Malaysia, Canada, and soon Central and South East Asia.

        Its occupation strategy is basically to send out heaps of people into the world, not even in a particularly focused way. This is not a strategy that will survive its population beginning to contract, as once the number of Chinese born people on the planet begins to decline, the number of Chinese born people in pretty much every place in the world will soon after also decline.

      • “China’s main, if not sole, competitive advantage is its sheer number of people. It makes sense that it’s power wanes as the number of working age people diminishes, and the dependency ratio worsens.”

        A bit like saying the energy produced by a nuclear bomb will start to drop as the plutonium becomes depleted. While mathematically true, this is not much comfort to those standing nearby at the time.

        Anyway I think all our projections and forecasts (mine included) are just guesses. We are in uncharted waters.

        What happens when a country comprising 20% of the worlds population emerges from self-imposed isolation and starts to exert itself on the global stage? Don’t know as its never happened before.

        What happens when a country comprising 20% of the worlds population dramatically boosts its standard of living and GDP per capita? Don’t know as its never happened before.

        All we can say now is that China’s economy is growing at a phenomenal rate. At the same time, China is exerting itself militarily, seeks to project global power, and has effectively taken over the South China sea – other neighbours bordering the South China sea are keeping quiet (even though the Phillipines won its international court case, it is not pressing its claim). China is projecting global soft power, is gaining influence in the domestic affairs of other countries (including Aust). And China is securing agriculture and other strategic resources.

        But we will have to wait and see what happens next.

      • What happens when a country comprising 20% of the worlds population emerges from self-imposed isolation and starts to exert itself on the global stage? Don’t know as its never happened before.

        What happens when a country comprising 20% of the worlds population dramatically boosts its standard of living and GDP per capita? Don’t know as its never happened before.

        Both of those things already happened, so we already found out. The biggest standard per capita GDP increases, especially, are already in the rear view mirror, probably by a decade. In the mean time, China is no longer 20% of the world’s population, and its share of the world population shrinks with each passing year.

        EDIT: The size of the working age population for the next 15-20 years is not actually a forecast or a projection, as everyone who will be counted towards that population is already here. Likewise, there isn’t much wiggle room wrt the future shrinkage of China’s total population given reduction of annual births from above 25 million to 15-17 million over the last 40 years.
        When the people born at the peak births get close to China’s life expectancy, the population will shrink, barring a massive boost to TFR, to somewhere beyond 3.0, something no one whose TFR has fallen below 2.0 has ever done before.

        Here’s a more interesting question – what changes when for the first time in recorded history China is not the most populous country in the world?

      • “In the mean time, China is no longer 20% of the world’s population, and its share of the world population shrinks with each passing year.”

        OK if you need to split hairs. It is currently 19%. It was 22% in 1990, 22% in 1995, 21% in 2000, 20% in 2005, 20% in 2010, 19% in 2015. So fallen from 22% to 19% in 37 years. That compares to 4-5% for USA (this figure is also decreasing).

        However this relative decrease in global population is really due to an increase in many African countries which don’t have much clout on the world stage. The stat that really matters is China’s population as a % of the population of other global powers, and this percentage is relatively constant.

        As far as China becoming the largest economy, that has only just happened (2014) or will happen (2018) depending on what measure you chose.

        As far as projecting global power, that is only starting to happen. Until recently, China had an official policy of non-interference in the domestic affairs of other countries. That is changing, and China is demanding a bigger say (as identified by Penny Wong). It is just starting to build up its military. It has just finished occupying the South China sea. And it is also using soft power on those countries most susceptible to this (i.e. biggest bang for smallest yuan). That includes Africa, Pacific Islands, and parts of Asia / Middle East.

        So these events are not in the rear vision mirror at all. They are all unfolding as we speak.

        Over history, the rise of great powers has generally been at the expense of other countries. Based on these historical comparisons, the USA can be seen as a relatively benign exception to this general rule. There were exceptions with US policy of course, but in general the USA sought to dominate by economy, technology and popular culture (backed up by military).

        It remains to be seen if China will be as benign.

      • So fallen from 22% to 19% in 37 years.

        I remember what I was doing in 1990, so I really hope it was only 27 years ago, and equally I don’t think that is at all a long time for the size of change. And given you say China wants to project power into Africa, Pacific Islands, and parts of Asia / Middle East. it seems that it’s precisely the ratio of population growth between China and high population growth regions such as Africa that matters.

        As far as China becoming the largest economy, that has only just happened (2014) or will happen (2018) depending on what measure you chose.

        You didn’t refer to this event originally – the event you referred to was a massive increase in per capita GDP , which occurred most quickly in the mid 90s to about 2010, and has now given way to much lower per capita GDP growth, so we’ve had quite a while to see the effects of China’s economic power at its height.

      • Thats fine Robert.

        Correct it was only 27 years.

        As GDP per capita increases (dramatically), further increases have to become smaller – in relative terms. You can’t compound up at a large constant % each year.

        But GDP per capita is still increasing, and increasing quickly in absolute terms.

        Otherwise lets agree to disagree

  3. “…But there is a third option and it appears that is one that China has chosen. It is the Japanese way, to drive the debt model to its logical conclusion and then drive it some more, not letting it go bust by retaining centralisation. This is “extend and pretend” with occasional bouts of reform punctuated by more debt booms that are literally forced into the economy by public-owned and policy banks….”

    I distinction needs to be drawn between Japan pre 1980s and post 1980s. After the 1980s the Japanese usage of credit regulation to drive productive investment was largely abandoned in favour of the #FakeInvestment models promoted by Wall Street. The ones that we adopted in the mid 1990s.

    Credit creation regulation in China is a tool for resource allocation.

    At the moment China is most like pre 1980s Japan with credit creation regulation heavily directed to encouraging productive investment. Certainly regulation might ultimately encourage less productive investment but even now in China there are so many productive opportunities for investment that the dud projects are relatively minor.

    Don’t get too excited about debts owed by the Chinese government to the Chinese government.

    That is just accounting.

    The government can easily write them off or bury them any time it chooses.

    What matters is what projects were built with the allocated credit / resources.

    Roads, housing, trains, freight, systems, sewerage, power etc.

    As we know many of the real benefits of infrastructure projects are not captured by accounting.

    The Chinese government seem to still understand this.

      • China is allocating vast amounts of capital to infrastructure, some will be mis-allocated but not sure that our crony capitalist system is doing any better.

        In NSW we are mis-allocating tens of billions to ill conceived infrastructure projects for the benefit of “mates” (some of whom now Chinese government owned) while the regions have been left languishing for decades. Spending and planning is based on the desires of “mates”, to gain electoral advantage in marginal seats, political donations, and at state and council level its occasionally pure corruption.

      • Misallocating to what?

        For every empty tower block there are hundreds that get filled. There are apparently still a lot of people in China who are keen to move into new housing in Tier 1, 2, 3 and 4 cities.

        They are still massively short on roads, freight rail, retail space you name it.

        Compared to our levels of #FakeInvestment they are doing quite well.

        Plus they can always get stuck into the #FakeInvestment if they really want to go now where fast.

        The Chinese bubble is another bubble that has taken 10 years to not pop.

        There is a reason for that and it involves the monetary system.

      • “…Driven by need to increase freight capacity, the railway network has expanded with the country budgeting $130.4 billion for railway investment in 2014, and has a long term plan to expand the network to 274,000 km (170,000 mi) by 2050. China built 9,000 km of new railway in 2015.[9]..”

        With 121,000 km currently and building about 10,000 km per year that is a lot to keep them busy for a while.

        In Sydney we are struggling to build 12 km of tram track… be nice it is 24 km as it is double track.

        When you are not directing resources to #FakeInvestment you can get a lot done.

        An uncollectable debt that resulted in the construction of something useful is in a completely different class.

      • …[plans to] expand the network to 274,000 km… With 121,000 km currently and building about 10,000 km per year that is a lot to keep them busy for a while.

        150,000km at 10,000 km/year looks a lot like 15 years, which isn’t that long in the scheme of things. When they finish their rail expansion based on that timeline the Chinese population will have been shrinking for a few years already, so it’s likely that from that point onwards the need for expansion will diminish.

  4. Extending beyond the 10 year limitation will be the critical issue. If Xi doesn’t go, other people won’t go either, and you’ll have this cascading effect on government officials being stuck in the pipeline with no where to promote. ‘Seven up eight down’ (go into politburo at 70, retire at 80) has been the rule since 1982. Overturning this will have huge consequences.

  5. Depends on how widely used the Yuan becomes. If it gets wider and wider adoption, China can just live off the credit card underwritten by the rest of the world the same way the USA does.

  6. “instead committing to ramp up study of Mandarin”
    Its more practical for the Chinese to learn English instead of Australians learning Mandarin. The majority of the business world already uses English.

  7. Mr SquiggleMEMBER

    If you had asked me this morning “What does Penny Wong do”, i would have said she is an ALP front bencher…and then I would have realised that I do not know what portfolio she is shadow for.

    Does she have a shadow portfolio at all? I think Penny is being overshadowed

  8. China’s competitive advantage is actually its ‘Centralised Technology Based Planning’. The sole purpose of which is to aggressively acquire technology (and resources) globally to enhance and then sustain China’s ‘competitive’ position. The rolling national plans represent this and are driving national targets (like creating over 4m STEM graduates) to put in place a raft of new industries. Our system of ‘free market’ hope and prey will be thoroughly outclassed and it is not just China that places such a strong emphasis on technology – the Germans, Japanese, South Koreans, etc. also have this focus.

    China’s strategy includes/has included: inducing companies worldwide to manufacture in China with stipulation to transfer technology (rail tech for instance), aggressively ‘securing’ technology worldwide (securing patents), attracting over 1,200 corporate R&D centers to China, recruiting other countries’ top engineering and science graduates, graduating over 800,000 engineers/year (US graduates 29,000 US engineers/year), etc.

    Our politicians are thorough naïve and do not understand the extent and reach of China’s soft power which is in effect a ‘soft war’ driven by technology acquisition. This is a war that we are going to lose badly as our ‘leaders’ don’t know how to counter China’s technology based approach. China is a long way from their zenith given their trajectory. Further success depends though on them successfully managing the transition from ‘smoke stack’ industries to new industries.

    • (US graduates 29,000 US engineers/year)

      Actually, more like 85,000 engineers/ year

      83k Bachelor’s degrees in engineering in 2012:

      85k Bachelor’s Degrees in Engineering awarded in 2015:

      This may understate the numbers slightly if some part of the 40k odd Master’s degrees in Engineering awarded annually are awarded to people with undergraduate majors outside engineering, such as in science (physic or maths, for example).

    • Exactly.

      Chinese policy is not determined by the free market – which is really individuals or small groups advocating for what is best for them. It is centrally planned and rigidly controlled. The population lose some independence and autonomy and freedom in this process. But it has worked very efficiently until now.

      Most of the population have little choice but to adhere to this philosophy. A small proportion of wealthy Chinese are trying to get their money out of China (property in UK, Aust, USA, Canada etc), but the Chinese are implementing tough measures to limit this.

      Will the population get sick of this philosophy and start to demand more freedom and autonomy? Or will their patriotism and nationalism and belief that “it is China’s time” be sufficiently powerful to prevent this?