For the past 20 years or so, much of the heated commentary in the West about the rise of China, focused breathlessly on the idea that the Communist Party of China (CPC) wants to replace the US dollar with the reminbi/yuan. There are quite a few things wrong with this entire view of China, starting with the notion that the CPC wants to become the kind of world-spanning hegemon that the FUSA has become. There is NO evidence whatsoever that the Chinese want to do so.
Do not mistake me – China has serious structural problems. But a desire for global domination and empire is not one of them. In fact, if you look through the past three thousand years or so of history, China is simply returning to its past position as, essentially, one of the pre-eminent centres of global trade, commerce, diplomacy, and culture – if not THE centre. The Chinese have historically thought of themselves as the “Middle Kingdom”, between Heaven and Earth, and have generally turned up their short non-existent noses at the rest of us.
And, again, if you look at their history, they had good reason to behave like that. They may be the world’s biggest racists – but then again, civilisation is racism, and historically speaking, the Chinese were among the most civilised peoples on Earth.
The best counterargument against the idea of a future Chinese global hegemony, though, has to do with what it would take to make that happen.
If China really wants to become THE global military, political, and economic hegemon, bossing everyone else around and telling them what to do, then it MUST have the world’s reserve currency.
That is precisely what the Chinese DO NOT WANT TO DO, and with EXTREMELY good reason.
The reason has to do with what it means to have a reserve currency.
As Stanislav Krapivnik has explained several times, and quite cogently – see his latest video below, for instance – taking on the mantle of the world’s reserve currency requires the host country to exchange its currency for goods and services.
This is much more insidious than it sounds. If you have the world’s standard of exchange and commerce, then everyone else needs your currency to make things happen. World trade cannot possibly take place without ready access to that currency. So, they need to buy your currency from you. The only way to do that, is to sell you things YOU want, for which YOU are willing to hand over YOUR currency.
Here is the problem:
What happens when you have an extremely large and powerful manufacturing base, that allows you to produce everything you could possibly want and need?
The answer, of course, is that you have to dismantle that manufacturing base and replace it with financial services.
And that is exactly what has happened with the two great trading empires of the past several hundred years.
The British Empire was the first to industrialise. This was why it was able to gear up for wars quickly and efficiently, at a scale and speed and with a level of technological sophistication that no other European power could match (at least, up until Imperial Germany came along). This is also why they were able to defeat the Qing Dynasty in China so handily during the Opium Wars – because, despite its VASTLY larger population, the Chinese never bothered to industrialise. They were not interested in the idea, and left it far too late, until they were already conquered, and had to endure their “Century of Humiliation”.
Britain rapidly industrialised because it built up a huge manufacturing base – especially given its population and lack of resources. It leveraged the territories under its control to extract raw materials and resources to fuel its factories. But, because of its policies of (relative) free trade, which permitted the British people to acquire goods and services from around the world, the British manufacturing base slowly eroded away, and was slowly replaced by an over-large financial sector.
After WWI and then WWII finally shattered the British Empire, the American Empire quickly and almost seamlessly replaced it. The FUSA came out of WWII with the world’s largest manufacturing and industrial base, BY FAR, and over time instituted an effective policy of free trade to acquire the goods and services from other countries that it wanted and needed.
This process accelerated in the 1990s, during the era of globalisation and neoliberalism. Most notoriously, the FUSA gave China entry into the World Trade Organisation, and lowered tariffs on Chinese goods. The result was a Devil’s Bargain that has long since hollowed out America’s manufacturing base.
How?
Because the rest of the world needed US dollars – and sold America what it needed, in the form of oil and finished goods, in exchange for those dollars.
And as the US allowed those dollars to leave its country and go overseas, the goods that flooded back in return, wiped out much of its manufacturing sector.
China today has a manufacturing sector that is one to two orders of magnitude larger than America’s. They absolutely will not permit it to be eroded away. Russia, too, has a huge manufacturing sector – and similarly will not allow it to be eroded through free trade.
This is why both countries have actually imposed significant capital controls. The Chinese do not allow their currency to float freely – instead, they control its exchange rate, and do not allow free convertibility and cross-border movement of the yuan. The Russians have had capital controls imposed upon them, and have benefitted immensely as a result of the West’s incredibly stupid policies.
Indeed, if the West truly wished to destroy Russia, the absolute best way to do it, would be to allow complete free trade with it, by bringing Russia into the European Union. That is actually the punchline of a joke in Russia these days.
Similarly, with China, the single fastest way to destroy the Chinese economy, would be to bring it into a full free trade arrangement with the rest of the world – particularly with lower-cost manufacturing centres, like Vietnam and Thailand. It is a common misconception that China is the world’s sweatshop for cheap manufactured goods – this is no longer true. China is actually quite a bit more expensive than certain Southeast Asian nations for low-end manufacturing, nowadays.
That, in a nutshell, is why China will not displace the FUSA as the world’s economic engine – not fully. It does not want to do so. The Chinese leadership is keenly aware of how the FUSA destroyed the greatest manufacturing base in Western history through wrong-headed free trade policies, exchanging its currency for goods and services, and permitting free movement of capital. They will not repeat those mistakes. Instead, they will carefully and methodically continue to build out their economy – while deleveraging and downsizing the still-outsized financial sector – and will continue to secure raw materials and resources from their periphery and their partners, most especially Russia.
This, by the way, is what happens when you have far-sighted and sensible economic policies, put in place by leaders who, for all their flaws, have actual skin in the game. It is the polar opposite of what you get with dumbocracy.
One might not like or want to live within the Chinese autocratic system. I sure as hell do not. But one does not have to like it, to appreciate that it does have its good points and sensible policies.
1 Comment
completely off-topic, but how can music + super deep penetrators ( phrasing! ) be wrong on this blog?
https://www.youtube.com/shorts/brqUCVEyHRw