The AI Race: U.S. vs. China

The letters "AI" on a blue cyber background

The AI race is in full swing. China is chasing digital sovereignty, but there’s a glaring hole in that plan…it doesn’t have the advanced manufacturing capabilities to achieve it. Here’s the real kicker: nobody does.

China might be a bit more flexible with its ethics and data manipulation, but that means nothing without the advanced chipmaking equipment. China can produce less efficient chips, but has incredibly low yields on leading-edge chips. To produce the highest-level chips, there are roughly 65 countries involved in a complex supply chain.

Which means that not even the U.S. could go out and do this on its own (unless it underwent a 20+ year tech ecosystem rebuild). America’s real advantage in the AI race comes from the broad coalition of allied countries all working together to produce high-end semiconductors.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from the top of little Castella, taking advantage of a break in the wind to answer a question from the Patreon crowd. Oh, by the way, that’s an ash mountain over there. And all of that is the Turner Ranch. Ted Turner, I guess, is a state, is a single largest landowner in the country. 

And that’s where he used to party. Anyway, the question is, is how is China’s artificial intelligence program coming along? They clearly don’t have any of the ethical restrictions that the United States has. And is that given them an edge? Is this something we need to worry about? Number one, I would argue that if you’re comparing the tech bro culture of Silicon Valley to China and the idea that one of them is morally superior, you need to do a little research. 

Silicon Valley, and especially the folks that are involved in AI, really don’t give a rat’s ass about your personal privacy and are perfectly willing to pillage your data in any possible form. In fact. Hey, I got a little visitor here. Hey, buddy. Yep. Never mind. He’s gone. Anyway, point being that if you are on Facebook or what is it now? Meta, whatever, any sort of social media whatsoever, all of your data is being mined actively in a way that the Chinese honestly sometimes have trouble keeping up with. And while the Chinese certainly do it with a little bit more flair, the AI Kings in the United States, the data kings in the United States have no problem getting all of the information that they need from you already. 

So the info influx really is not much of an issue. There used to be a moment when things had to be manually entered in, and the Chinese had an advantage of that for the numbers, but now AI has reached the point that it can self process. So again, that’s gone away too. So the structural issues really are not relevant. 

It really comes down to hardware. Now the Chinese are under export restrictions, so they cannot import the hardware that is necessary to make high end semiconductors, specifically the extreme ultraviolet machines that come from the Dutch company ASML. And without those, there’s no way they can make anything that’s really under seven nanometers reliably. That means that the reliant on importing chips and their export restrictions on anything coming out of the United States or Taiwan or Japan or Ireland, or any of the countries that make high end semiconductors, that limits them to approximately a 4 to 5 nanometer ceiling. Now, it’s not that those are bad chips at six nanometers. 

I mean, they’re fine, but if you want to do AI, it’s all about the number of computations you can crunch per chip and the power that takes per computation. And right now, in the rest of the world, the high end chips are in the 2 to 4 nanometer range, and we are now starting to get ships that were designed with coolant topography in mind. let me spell that out. What that means for an operational if you have a one gigawatt hyperscale data center, you probably have about a half a million GPUs on top of that. Lots of CPUs, lots of Dram, lots of Nand, different sorts of processing capacity, lots and lots of hardware. 

But the 500 GPUs or the core of it because large models. And when we’re talking about AI today, that’s what most people are discussing. Use those chips almost exclusively. And the better they are, the more computations, the more energy efficient per computation. The Chinese don’t have access to those 2 to 4 nanometer chips. Sometimes they can import some five and especially six nanometer chips. 

But they have made the decision that for sovereign control reasons, they don’t want to depend upon anyone’s imported chips. If they can make anything that’s even partially functional themselves really cool in. But there’s a middle ground. There’s a gray area because while the Chinese can’t import those high end chips in that high end equipment, they can still import a lot of equipment and a lot of gear. And they do that. They imported deep ultraviolet, DUV machines that are still pretty good and that are the basis for a lot more mature nodes. 

And they have used these to successfully make nodes as small as seven nanometers. Now I have to emphasize this. These chips kind of suck. They you generate about one third the computations per chip compared to what comes out of Asme and Taiwan. They generate about twice as much power, probably closer to three times as much power. Once you consider that the rest of the engineering of Chinese data centers, is that just that much worse? 

So you’re looking at overall one ninth efficiency compared to the leading edge stuff. On top of that, the yields for these seven nanometer chips is awful. It’s typically less than 30%. And as a rule, anywhere else in the world, any yield rate below 95% is something that wouldn’t be considered because it’s just such a massive waste of resources. 

China does the math differently, and they’re concerned with digital sovereignty and keeping them with the United States. But what it means is they need to build nine data centers for everyone in the United States in order to get an equal number of compute, and that is assuming the hardware can run the software that is required to do things like large language models. 

Bottom line, the Chinese are doing everything they can. They are sparing no horses, and they’re not even remotely close. They have tried over and over and over and over again for the last four years, to try to push past that seven nanometer limit, and they have succeeded in making a few emphasis on the word few chips, the meter level using technology. But it’s highly inefficient. And you’re talking about yields that are below 5%, nowhere near enough to supply a single data center, much less a raft of them. But before I laugh in their face, I have to say that the technology of AI is changing day by day, week by week, one by month, and the hardware is always two years behind. 

So I don’t want to rule it out there. Certainly motivated, if that’s the right phrase. But when it comes to the domestic manufacturing of the hardware that is required to do this, no, they’re just not even in the same game. Now, before anyone goes and toots America’s horn, the United States can’t make these chips either. Neither can Japan or Korea or Taiwan takes a team effort with 65 countries and 100,000 manufacturing supply chain steps and almost 10,000 companies. 

It really does take everyone. And if anyone is actually trying for real digital sovereignty, they’re going to fail unless they rebuild the entire tech ecosystem. And that is not something you do in less than 20 years. So are the Chinese going to fail at this by the rules of the game, as I understand them? Yeah. Are the Americans going to fail at this by my understanding of the rules of the game? 

Yeah, but the United States is part of a coalition of like minded countries that implement these technologies together. That’s how we do AI. And if the US decides to go it alone, it’ll be at best in China’s position.

China’s Hold on Congolese Cobalt

%) cobalt chips, electrolytically refined, as well as a high purity (99.8 % = 2N8) 1 cm3 cobalt cube for comparison | Photo by Wikimedia COmmons: https://en.wikipedia.org/wiki/Cobalt#/media/File:Kobalt_electrolytic_and_1cm3_cube.jpg

Cobalt is critical for modern batteries, but with over half of global production coming from the Democratic Republic of Congo, it represents one of the great geopolitical vulnerabilities.

China controls most of the Cobalt mining in the Congo through coercive labor systems, so if China’s system continues on its current path…Cobalt production will crash. Filling China’s shoes in Congo is no easy feat. Foreign stabilization and oversight are difficult and aren’t likely to come from Western governments. So, Cobalt supplies will collapse.

Either the world will find a way forward with less Cobalt, or we’ll get really good at recycling it. The scariest piece is that Cobalt isn’t the only critical material that’s vulnerable, so the era of easy tech advancement powered by cheap, abundant inputs is coming to an end.

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Transcript

Hey everybody. Peter Zeihan here comes from the Caribbean. Sorry about the sound quality. It’s a little breezy here. Today we’re taking a question from the Patreon page. Specifically, what do I think the future is going to be for cobalt? Out of Congo? Cobalt is a critical material that is used in batteries, primarily cell phones, things like that. 

And it’s really the only battery chemistry we have that has a decent, weight and size, ratio that allows it to be mass used. If you use lithium by itself, it’s not nearly as effective. It degrades a lot faster. You really do need the cobalt in order to stabilize the system. The problem is it really only comes from one place. 

Over half of the world’s production comes from the Democratic Republic of Congo. And the Chinese basically run it like a slave state. That actually makes the Belgian Imperials of old, blush. How it works is the Congolese basically go and dig out all the ore by hand, and the Chinese control the camps, they control the feed thrus, and they basically buy everything up at pennies on the dollar and then ship it abroad for processing back home. 

And so the Chinese control that entire network. You have about 5 to 10% from other places like Canada and the Philippines. little bit from the United States. But the real bulk, if we want to do anything with batteries, especially if your goal is to electrify anything, you have to have this one thing, and it really only comes from one place. 

So, what happens to China? Because we are nearing the point in a few years where the Chinese system is going to collapse for demographic reasons. That assumes there’s not a war, that’s assumes there’s not a trade war, all of which could bring the end date faster. What happens to the structure? Because it’s something that most countries in the world just find morally repugnant. It’s modern day slavery, enforced with a gun. Well, it’s not going to be a pretty picture. Part of the problem is the nature of the Democratic Republic of Congo itself. Part of the issue here is that Congo doesn’t really have a functional port. 

Congo River is only navigable a few miles from the coast. Can Sasha, the capital, is near that head of navigation. But it has the capacity to handle large ships. So for a foreign force to come here and stabilize it, you basically have to come in skiff in and take over a city of a few million people. Can Sasha, and then somehow project power over a zone where there’s no navigable river, no real roads, largely by air, into a zone several hundred miles inland? 

That is hot jungle. And to be perfectly blunt, white people don’t do well in that sort of environment. The reason the Chinese do well is because they’ve cut a series of deal with all the warlords, whether they’re the former warlords who run the government or the ones who happen to be local. And they are really how shall I say this? 

Morally uncaring about the details in a post Chinese collapse scenario, it’s difficult to see a government in Europe or North America jumping into that role. So we would probably be talking about some sort of, arm’s length management system where you partner with consortia and you basically let them do the atrocities. That allows a degree of structure to be imposed. 

It’d be very, very, very, very, very ugly. More likely, we’re just not going to get nearly as much cobalt as we need. And that’s going to change the technological curve of where where you’re going. So if you’re into computers or cell phones or green tech, you have to re fabricate your products with significantly less cobalt and or redesign your products so that the cobalt at the end of the day is recyclable and you can break the system down and reuse it. 

One of those two options is pretty much how we have to go, because we’re not going to have the flows that we’re going to need. About the only good news here I have is that there aren’t a lot of materials in the world that hit that category, specifically micro materials that are critical. Unfortunately, one of the other ones is something called tantalum, which is used for similar purposes, which also is in Congo and is produced in almost exactly the same matter. 

So we’re going to lose a couple of things that are very important here. The third one is tungsten. And that primarily comes out of the Chinese border region of what, in the state of Myanmar. That’ll probably be a little bit better. Myanmar is been in and out of civil war now for these 50 years, almost. 

And the Chinese run war, well, they run the mines in WA more or less the same way that they do in Congo. But in a post Chinese environment, you’re probably going to have a stronger central government in Myanmar, whether or not you like what that looks like, it does suggest that there is a path for the tungsten to still come to the market, and there’s not nearly the market concentration for tungsten in Myanmar that there is for tantalum and cobalt in Congo, where it’s over half of the global total, tungsten is a little bit more varied. 

So so bottom line is that for a number of materials, including these three, we’re going to have to learn how to get by with less. Maybe that’s recycling. Maybe that’s if we get lucky new sources. But more likely the business as usual of tech advancement that we’ve become used to is simply not going to fly, and we’re going to have to get by with less.

Why a Russian-Chinese Pipeline Won’t Happen

An oil pipeline closeup

If China and Russia are so buddy-buddy now, why don’t they build pipelines across Siberia to bypass the Persian Gulf?

There are more issues than I can cover in this video, but here are a couple. Their recent cooperation is less of a friendship and more of a “the-enemy-of-my-enemy-is-my-friend” situation. Geography is the bigger problem, though, with thousands of miles separating Russian energy sources and Chinese population centers.

Even if a pipeline plan was put in place, neither side would want to pay for it, and Russia wouldn’t have the technical expertise to develop it. So, unless maritime shipping goes completely offline, this pipeline isn’t happening.

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Transcript

Hey everybody, Peter Zeihan here, coming to you from Middle Chain Lake in southeastern Yosemite. This is one of my favorite places in the national park system. We’re just going to pan around from time to time as I’m doing this video. Have it all to myself. Anyway. 

Today we’re taking a question from the Patreon crowd. Specifically, if China and Russia love each other so much, why don’t they just build a pipeline or cluster of pipelines connecting them to one another and not have to worry about the Persian Gulf at all? 

Great question. Let’s start by saying that the Chinese and the Russians do not love each other very much. They are arguably two of the most racist cultures in the world, and the culture that they’re most racist against is one another. The Chinese see the Russians as backwards barbarians, and the Russians see the Chinese as peasants. So any sort of collaboration they have is in reaction to other things, not because they actually like one another. That’s part one. 

Part two. It’s simple geography. It’s a distance issue. The population of Russia, for the most part, is hard up on the European boundary, and the bulk of the Chinese population is within spitting distance of the Pacific coast, which leaves something like 7 to 8000 miles of great wide open empty in between. Now, if you want to have a pipe, you’re going to have pumping stations, and that’s already a very long way to go. So if you go in from European Russia to Asiatic China, you’re already talking about pumping costs that are well over $80 a gallon. Most likely, that’s on top of the tens of billions of dollars that it would take to actually build the pipeline. That’s number two. 

Number three, the oil and natural gas that the Russians have is, for the most part, in the wrong place. It’s almost all in northwestern Siberia, which is actually further from China than European Russia. So it’s easier to do, say, a rail line going to China than it is a pipeline. And so the eastern and Western networks for the Russian energy distribution system just don’t connect. There’s like one spot and it’s pretty small. So whenever the Russians go, oh, we’re just going to send our oil and gas somewhere else and not to Europe, it’s mostly bullshit because they just don’t have the capacity to do so in large volumes. 

That brings us to the final point, is that there are a few fields going out into Asiatic Siberia, places like Kovykta which is just to the northeast of Kazakhstan, and places like Sakhalin Island, which is just to the north of Japan. These are places where the conversation isn’t silly. The distance is only, you know, a thousand miles or so, as opposed to going all the way across the continent.   

The problem here is that the Russians don’t have the technical skill that’s necessary to tap these fields. And so in the case of Kovykta, that was a BP project. And when BP was basically shown the door a few years ago, it stalled. And in the case of Sakhalin, not only did the Japanese kind of call dibs on that output, but it takes super majors like Exxon or BP or Japanese firms, most of which are now gone because of the war, in order to keep the output going. So it just doesn’t justify anything. 

Whenever Putin and Xi get together, the conversation always is, hey, let’s do a pipeline. And they both always say, yeah, hey, that sounds great. And then they both point at the other one, say, and you pay for it. The Chinese see no reason to pay for infrastructure that is going to cost so much to operate. And the Russians see no point in paying for infrastructure that will benefit the Chinese. So we just get these stalled statements and no real motion. And this is how it’s been going for the better part of the last 30 years now.  

Now, if you change the circumstances, if you remove maritime transport altogether, then all of a sudden we’re having a different conversation. But that doesn’t make the project any cheaper. So you’re still talking about tens of billions of dollars to get the infrastructure in the ground, and then a transit costs that is about the same as prices are right now. So you’re talking about a very nasty change in circumstances if that’s how you want to go. All right. That’s it for me for today. Take care.

China’s Real Estate System Is Failing

Image of Chinese home and real estate

You know what happens when you do exactly what the Chinese government tells you to do? You get sentenced to life in prison. That just happened to Evergrande’s former chairman, and it tells you everything you need to know about China’s failing real estate system.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. The news today is that the Chinese government just sentenced the former chairman of the real estate company Evergrande to life imprisonment. Because that’s what happens when you do exactly what the government tells you to do, when it doesn’t work out. Very, very short version of the history. There aren’t a lot of investment options for Chinese citizens. Foreign investment is sharply restricted because the Chinese know that their own system provides very, very, very poor returns. And if they opened their accounts to the world that the money would just flow out in the tens of trillions. And at home, everything is driven by throughput and employment rather than profitability. So if you invest in a specific company, your chances of actually getting a return are minimal because those companies are able to access subsidized loans from the government at negative real interest rates. And if you’re an investor, you get a negative real return. So local governments had for the last 20 years, basically encouraged property companies to come in and buy land from them, which is where they got over half of their income; the state governments, local governments got over half their income. And then take money from individual citizens to build condos. And the result, because we had widespread urbanization going in China at the same time, remember, this is the same time the Chinese are going through their industrialization pulse. The thought was that this would just go on forever. So prices would rise, you’d build more homes, there would be more demand, blah, blah, blah. And on and on and on and on. There are two problems with that theory.  

Number one, eventually you created more housing than China needed by a factor of 4 or 5 by some measures. And then second, nobody was being born. The Chinese demographic bust probably started, data’s a little sketchy, but probably started back in the early 90s. That’s when we now know, according to official Chinese statistics, that the Chinese birth rate dropped below the American birth rate 35 years ago. Anyway, nobody gets born for 35 years. All of a sudden, the demand for the housing goes down. And eventually this bubble popped in the early 20s, which is when Evergrande went bust with something like $300 billion of losses, which even by Chinese standards, that’s a pretty big number. Anyway, people who invested in Evergrande directly or indirectly by having Evergrande build them an apartment basically lost their shirts. And now we’ve had this complete collapse in the system. New construction in China is down by 75% in just the last five years since this went down. And that’s data as of the end of 2025, which is the most recent we have best estimates, is that there’s going to be another 20% collapse this year. And to put it from the point of view of the individuals, the people who are buying these homes, to give you an idea of how screwed they are. In inflation index terms, and keep in mind the Chinese doctor their data so their inflation does not look as bad as it is according to the official statistics. Homes today are worth less than they were at the start of the boom in 2005. So in the United States, when we had the adjustment with the great financial crisis in 2007 to 2009, and home prices dropped back to like 2005 levels, and we all kind of lost our mind. Can you imagine a 20 to 25 year loss in appreciation and the impact that has on the mindset of the average Chinese? Now, this hasn’t translated into a stock route because the Chinese regulate that on one hand. But more importantly, the Chinese citizens know that investing in the stock market in China is a fool’s errand. Again, Chinese companies have access to below market prices, below inflation prices, real negative prices for loans. So any investment there honestly is a fool’s errand. And if you happen to invest in Chinese equities, I also have a bridge that I would like to sell you that I think you’ll really, really like. 

Anyway, bottom line is that the Chinese government is now trying to get this money somewhere else. We have something like 22 trillion US equivalent in deposit accounts. It’s just Chinese citizens who don’t know what to do with their money, because they don’t want to put in the stock market. They now know that housing is a trap. So it’s just sitting in a deposit account in their local bank. And so the Chinese state has reduced deposit rates to below 1%. So this money isn’t really earning anything. And they’re trying to force the Chinese citizens to invest in the stock markets. But the Chinese citizens at the moment are smart enough to realize that that is a fool’s errand. The only other possible way for it to go would be out of the country and go somewhere else where it could be more productive and be, you know, safer. But the Chinese keep that locked down. So I always find it very amusing of the people who want to get their money into China to make money, when the people who are in China are desperate for any way to get the money out. Anyway, that’s it for now. See you next time.

The Limits of China’s Military Reach

Chinese soldiers in camouflage fatigues

Despite China’s growing military, it remains constrained by geography and dependent upon U.S. secured trade routes.

Even if China manages to expand its Navy to the point where it can break through the First Island Chain, it still needs to find a way to replace the U.S.-maintained international system. And that’s no easy feat. The Chinese proved they could adapt and buy themselves some time during the Iran War, but it could not avoid the pitfalls associated with being the world’s largest oil importer.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from Yosemite National Park. This is Royal Arch Lake. This is the very first place I ever went camping when I came to Yosemite years ago. So it’s kind of cool to be back almost by accident. Anyway, taking a question from the Patreon page today specifically, why don’t I see the Chinese going all bonsai in their neighborhood? 

Why are they not being more militaristic? I would argue that until eight years ago, when chairman G. Jinping got rid of his last real advisors, he had a very accurate understanding of the world about how China was arguably the country in world history, most dependent upon international trade, and how China utterly lacked the military means in order to protect that trade, even within sight of its own shore. 

Trying to basically faces three layers of problems. Number one, their chief sources of demand, primarily the United States, but to a slightly lesser degree, the European Union are on the other side of continents from them, and they’re broadly hostile. That means unless they can find a consumption source to absorb their goods, their current economic model won’t work at all. 

And since their own demographics are so totally horrid, they know that that consumption boost can’t happen at home and the developing world, writ large, has less than half the consumption power of the United States, and much less the US and the EU put together. So there is no option for China except to maintain some version of the current system. 

And the United States is the one that has a global Navy. That’s problem one. Problem two even if the Chinese could float a navy that was equal to the United States, and right now we outgunned them roughly 15 to 1, they still need to get through the first island chain that is Japan, Taiwan, the Philippines, Indonesia, Malaysia and Singapore. 

It’s not so much that those countries are de facto US allies. In most cases, it’s that if the Chinese are going to project power to the wider world, they have to get past these islands regardless of who controls them. And it’s much, much, much, much, much easier to sink ships, especially commercial ships in a straight than it is to dominate an archipelago. 

You’re talking about a combined population in the zone. That is, Indonesia has 250 million people by itself, so well over half a billion. I don’t think I’ve ever done that math before. Taiwan has about 30. Philippines I think is 70 these days. Lots of people. Well, well, well beyond the capacity of the People’s Liberation Army Navy. That’s what they actually call their navy, as well as the People’s Liberation Army. 

The Chinese Army is not designed to project power and hold territory. It’s mostly for domestic control, which is something that does pretty well. Anyway, so that’s problem two. Problem three. Let’s assume that they can outrun the US Navy and dominate the first island chain. And those are some wishful thinking there that doesn’t solve their problem. 

They still have to get to North America to dominate that commercial base. So have to get to Europe to dominate the commercial base. They still have to get to the Middle East to have energy. The Chinese system, from a strategic point of view, has always been in a bind. And so I’ve always found it hilarious that the official stance of CCP is that the United States. 

Should patrol the world and secure the ceilings on behalf of China. Their official plan is that we can’t do it, so you should do it for us. So no no no no, not a lot has changed. We have had a little bit of color that has come in because of the Iran war, in that the United States bungled everything. 

And the Chinese, I don’t want to say that they bungled or that they had a a home run. It was somewhere in between. It exposed just how vulnerable they were to energy disruptions. And they did showcase through switching for petrochemical inputs and for using EVs, that they could reduce their demands by about 2 million barrels per day, maybe not even quite that much. 

But, you know, that’s a significant volume to reduce your crude by. That’s like, geez. United Kingdom uses about that much, but that’s it. So even after all the fuel switching, even after going over to electric vehicles, even after shutting down some of their refineries, they were still far and away the world’s largest oil importer from all the same places as before. 

Nothing really changed. If I was going to highlight one thing that may be pointed the other way, it’s not so much that the Chinese have more flexibility, it’s that we found out just how dependent other countries were on them. Now, we understand in the United States how much were dependent on the Chinese for manufactured goods. But over the course of this conflict, Korea, Taiwan, Vietnam, Australia, the Philippines all discovered how much they were dependent upon Chinese refined product. 

So, yes, the math really hasn’t changed for China in terms of any sort of major conflict. But we now know that if they do go down, they’re going to be taking the fuel systems of a half a dozen countries that the United States cares a fair amount as a side effect. And the only way to fix that is for these countries to secure their own energy and specifically to develop their own refining base, which for some of these countries is something they gave up on decades ago. 

So it’s not so much that we know that China is in a stronger place. They’re not. So they may have just tethered themselves to a few countries in the meantime.

Chinese Marriage Data Confirms Demographic Crisis

A chinese woman in a bridal dress walking down the aisle with her father and onlookers taking photos

Most of the data coming out of China isn’t worth the paper it’s printed on, but there are a handful of metrics that aren’t based on estimates. Today, we’ll be looking at marriage registrations and what the 6% decline from last year means.

This echoes a decades-long decline in marriage registrations and reflects the broader demographic decline facing China. Since an overwhelming number of Chinese births occur within marriage, the population decline may be even worse than previously forecasted.

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Transcript

Hey all, Peter Zeihan here coming to you from…where am I? Termoli In Italy? And today we’re going to talk about some Chinese statistics that just popped out in the last couple of weeks that look really bad even by Chinese standards. So backdrop that you need to know this way is that Chinese data is awful. Part of that is just the nature of the beast. 

China really only started its industrialization process in 1978, and so the techniques that a lot of Western countries have been using for the better part of a century are new. And computerization really is only the last 20 years. And it’s a huge place. So getting the locals and the center to agree on what is normal statistics is a little hit and miss at times, and part of it is unfortunately by a degree of design, the central government sense quotas for everything and so lo and behold, the locals meet the quotas or maybe expand upon them. 

And then on top of that, you’ve got punishment issues. And where if a data point comes out, the Chairman Jinping doesn’t like the person who presents it to them, may have their job and or life forfeit. And so the people who do the data collection just stop collecting that data point, whatever it happens to be. So we have really poor data on Chinese demographics and financial issues and bonds and all these other things these days, especially health anyway. 

But there are some that are seen as not politicized. And so data for those is good. And the one we’re going to talk about today is marriage registrations. According to the new data that’s come out in the first half of the year. Those are down by roughly 6% in just the last 12 months. And that is on top of year and year declines that go back the better part of 30 years. 

This is data that has been collected since 1978. And it’s not an estimate like a lot of data. It’s actual registrations. People have actually gone to the equivalent of city hall and registered the marriages. So it’s something we relate to or it’s something that we can relatively rely upon. Now, the reason why this matters is if family formation is down, the birth rate is down, and if the birth rate is down, China’s hollowing out. 

Now, this is something we’ve been looking at at any number of angles for quite some time. What is interesting here, from my point of view, is that the marriage rate drop has been dropping much, much, much faster, two and three times faster than the. Suppose it had declined in the number of 20 and 30 somethings, where usually the people get married. 

So it gives us a little bit more accurate view of just how bad the demographic crisis is. And it was already really, really bad. Basically, we no longer have enough people under age 50 in China to even theoretically repopulate a country of 400 million people, much less supposedly the 1.2 billion that China says it has. And in internal conversations, the Shanghai Academy of Sciences is now debating how many hundred million people under age 40 they’ve over counted. 

They know it’s at least 100 million. And this year, the number 500 million popped up for the first time as a possibility. They just don’t know. And they don’t believe they have the capacity to go out and do get the information, because too many people are concerned with getting the wrong ancer anyway. It’s a tiny little window into the crisis that the Chinese are facing these days, and to be perfectly blunt, there’s no coming back from this without marriages. 

There are no children or very few. But more importantly, there are now no longer enough people to even theoretically get married in order to attempt repopulation. So it’s just a question of timing, whether it’s in single or double digits of years, of course, matters to all of us because we’re all living in the now. 

But it looks pretty rough and this isn’t going to last much longer. All right. That’s it for me for today. Till next time.

China No Longer Controls North Korea

Monument of hammers raised in North Korea

To simply call North Korea a Chinese puppet state doesn’t capture the complexity of that relationship. To fully understand it, we must look back at three generations of the Kim dynasty, the current partnerships with other powers, and Kim Jong Un’s aspirations.

However, the biggest takeaway from Xi’s meeting in Pyongyang is that North Korea is becoming more of a geopolitical wild card. China and the rest of the region must now deal with greater uncertainty from a nuclear power right at the doorstep.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. Today is the 8th of June. And the big news is that chairman, XI Jinping of the People’s Republic of China is in the Democratic People’s Republic of North Korea. Who summits. Fun stuff. Anyway, I thought it might be useful to give you the rundown of what’s brought us to this point and what the status of Chinese North Korean relations are, because it’s not what most people think. 

If you go back in time to the early Cold War years, we had a guy by the name of Kim IL sung who was kind of the grandfather, well, literally the grandfather of the current Kim who’s in charge, and Pyongyang. Anyway, Kim IL Sung is the guy who founded North Korea as a state. He fought the Japanese during World War two, had lots of gravitas, good military leader. 

But then he ran this hermit kingdom, as people like to call it, with a ideology called, which basically translates into self-reliance. And so while the entire world advanced into the industrial age, North Korea just kind of stalled, really famously. Pyongyang is really the only city in the country until recently that has even had electricity. And if you were an affiliate of the Kim dynasty, you got food. 

And if you weren’t, life kind of sucked. That continued on until the Cold War ended and when the Soviet Union collapsed. Kim IL sung realized the writing was on the wall, and that the Jewish ideology just wasn’t going to work in a world that was globalizing. Without the ongoing payments that came in from the Soviets. So, according to the best collective guesses of the world’s intelligence agencies, and by that I mean American, Japanese, Chinese, South Korean, British, French and others. 

Kim IL sung had invited himself to Seoul to meet with the then South Korean leader, Another Kim, and to talk about reunification in a practical sense, as the story goes. Within a couple of days, the generals who had fought with Kim IL sung back during World War Two killed him. And because they knew that in any version of a reunified Korea, their jobs would be gone. 

Because if you’re not fighting the South and the Army doesn’t need to be as big, and if the South and north and integrate, you don’t need as many generals. And the southern generals certainly had more military expertise with better equipment. So they off the guy. And that left Kim IL Sung sun, Kim Jong IL. He’s the crazy one. 

The one always looks like this. Yeah. Left him in charge and Kim Jong IL was best way to phrase this. Well, he was batshit crazy. He had been educated in North Korea, grew up drinking the Kool-Aid in the ideology, and didn’t really understand how the rest of the world worked. So he’s most infamous for leading a series of agricultural reforms that ended up triggering mass famine and killing 2 million people and gutting what little hydropower of the country had. 

And as the story goes, the generals who had offed his dad were like, oh shit, that’s totally not what we meant to happen. We’ve got to make sure that the next generation isn’t like this. So they sent the third generation of kids who were only now teenagers, out into the wider world to learn how the world actually works. 

And Kim Jong UN, who is the current leader, the son of Kim Jong IL and the grandson of Kim IL sung, was actually in Switzerland in middle school and high school. 

Any who Kim Jong IL, the crazy one, deliberately got bad medical care on the orders of the military and eventually died relatively young, which meant that Kim Jong un, at the tender age of I think it was 23 or 26 at the time, got recalled from his studies to basically run the country. 

And that set up a really interesting power dynamic. On the one hand, you had these generals who knew that modernization was inevitable. Some degree of openness with the South was inevitable. They just didn’t want it to happen on their watch, because they didn’t want to lose their prospects and their wealth and their position. And then you had Kim Jong un, whose father had been killed by these guys and who’s or mistreated from his point of view, and whose grandfather had been killed by these guys. 

He was like, I really hate these guys. So you had this interesting situation where the crazies of the second generation were still around, and the iron clad dictators of the first generation were still around, and then you had this kid alone who suddenly was the nominal leader. And so what happened over the next decade is Kim Jong UN. 

He’s the chubby guy, learned how the system worked, and whenever he had an opportunity, he offed one of his father’s generation. So we had a guy in Singapore who got hit with some sort poisonous nerve agent. My personal favorite are the Minister of Railways, who got run over by a train, and a defense attache who accidentally got shot by an anti-aircraft gun. I mean, you just imagine the mechanics of that. Anyway, thinning out the crazy generation and waiting for the first generation to die. Well, folks, it’s been 80 years since World War two. Anyone who fought with Kim IL Sung in World War II is now long gone. And the generation that rose to power in the 50s, 60s and 70s are mostly gone as well. 

So it’s just Kim Jong UN now. Now, let’s bring that from ten years ago to roughly the present. Most people assume that North Korea is just the yippie and rabid Chihuahua on the end of a leash, controlled by Beijing and under Kim Jong IL, the crazy one. There was something to that, but that’s not the case anymore. North Korea has an independent streak and is looking for, and has been looking under Kim Jong UN for any sort of leverage, not just to strengthen his personal power and that of his family and entrench the regime in North Korea. 

But more importantly, to make sure that Beijing can’t just dictate 

So if you go back to 2017, 2018, 2019. That’s when Kim Jong UN started expressing a degree of independence that Beijing really didn’t like. There was a series of bilateral meetings between chairman G. And China and Kim Jong un. Most of these meetings happened in Beijing. 

And basically, to sum it up, it was chairman G who’s a short dude standing or sitting with a boost so he could lecture down to Kim Jong un and lecture the wayward province about how things were supposed to be. And the Chinese citizenship ate that up because it made China look important, but it just infuriated Kim Jong un. 

And after one of those summits, he’s basically on his train coming back. He doesn’t fly coming back to North Korea. And he directs his staff to call up Donald Trump, who had been using about maybe having a summit. And he basically said, Call Donald Trump, tell him the summits on. never going to talk to these fuckers again. 

And over the course of the next few months, we had two summits between the younger Kim and Donald Trump, one in Singapore and one in Vietnam. Now, that’s from the American point of view, where it ended. Trump didn’t really read the briefing materials, as we know now that the State Department and the CIA provided to him. And after the second meeting, which I believe was in 2019, he basically just moved on to other topics. 

And from the point of Kim Jong UN, who felt that he had really put his neck out, there, he was. He was pissed. And so not that American North Korean relations have ever been great, but if there was a chance for a break, that was the moment in the moment past, which meant Kim Jong UN in North Korea all of a sudden were kind of out of luck if the Americans were not paying enough attention to cut a deal, and he was still worried about whatever was going on in China and them dominating North Korea, there really wasn’t anybody else left because the Russians had fallen so far. 

Enter the Ukraine war, because all of a sudden in 2022, the Russians found themselves just as isolated from international markets as North Korea was. And all of a sudden, Kim Jong UN was like, hey, there’s an opportunity here for us. And if you fast forward another year, suddenly we’ve got over 10,000 North Koreans at a time, fighting in places like Kursk, in the Russian Ukrainian borderlands and ultimately in Ukraine itself. 

And we have decades of built up supply, stockpiles of North Korean artillery that is being sent by the trainload to the Russian front with Ukraine. And at one point it’s not that way anymore. But at one point, well over one third of the artillery shots that the Russians were using were sourced from North Korea. And that partnership has continued to a degree. 

There’s still North Korean troops. There’s still North Korean weapons. And then exchange. The North Koreans are getting Russian technology, most notably intercontinental ballistic missiles. Because remember, Russia, even in its weakened state, is still a space power. And so you could argue that while they haven’t tested it, the North Koreans could easily launch an ICBM and strike anywhere in the continental United States. 

Now, that’s all water under the bridge anyway. Bottom line is that Kim Jong UN and North Korea found their out in Moscow. And while being friends with Moscow these days doesn’t get you a whole lot. It certainly is an interesting piece of leverage to use against Beijing. Which brings us to today, chairman G is in Pyongyang meeting with the younger Kim for only the second time that he’s actually been to North Korea. 

And the entire topic of the talks is China’s effort to rake North Korea back into the Chinese sphere instead of being in the Russian sphere. The North Koreans, Kim Jong un, specifically, have long been just as allergenic about cutting deals with the Chinese as they have with the Americans and everyone else. So if G is going to actually get this, he’s going to have to offer quite a bit, especially when you consider that the normal goalposts for bilateral relations economic aid, technological aid, money, energy, the North Koreans are really getting everything they could need right now from the Russians. 

So for China to get back into the position where they’re the dominant external power in North Korea, it’s not just that that it would have to offer a lot more, but they’d have to offer it without strings. And from China’s point of view, that kind of defeats the point. Because China wants a regime, it can control that. All of that is kind of piece one. 

Piece two is that Kim Jong UN has done more to change the strategic position of North Korea just this year than any leader in North Korea has done since its formation at the end of the Korean War, beginning of the Korean War. He’s changed the Constitution so that North Korea now defines itself as an independent state that is not seeking reunification with the South. 

One of the polite fictions slash aspirational goals of both Pyongyang and Seoul has been that the division of the Korean peninsula was imposed by outsiders, namely the Soviet Union and the United States. And at some point, they would really like to be reunified into a single entity. Now there’s a billion details as to how that might happen, and nobody agrees on any of it, because you know who’s in charge, for example. 

I mean, the South Korean population is twice the size of the North, that it’s a first world technocracy. Much of North Korea is still pre-industrial. If it was a straight up merger, it’s obvious who would be in charge. And if there’s one thing that Kim Dynasty cares about, it’s regime preservation because that’s their power. Anyway, the official position of North Korea now has shifted that reunification is completely off the agenda. 

It’s an independent state. It does not seek union still hostile to the South, still hostile to Japan and the United States. But it’s no longer even rhetorically aiming for state merger, which means it really has come of age as a wild card in international affairs. It’s playing the Russians and getting a lot of really advanced tech from their point of view, that low cost of just a few thousand troops that just get massacred. 

The Chinese see it as an unknown that they can’t manage, which I personally find delightful. It’s got fairly reliable short and medium range ballistic missiles and a fairly advanced nuclear program for a state that has under 30 million people. And all of South Korea and all of Japan are in the easy hit zone. And now, courtesy of their alliance with the Russians, it probably could nuke the United States or at least send the missile whether we could intercept it or not as an open question. 

So it’s a different North Korea now than what we’ve been dealing with before. And the first world leader to go there and get a taste of it is Chairman Ji of China. And he’s there right now. And from what few communiques have been released so far, reading between the lines, it’s clear that she is not having a good time of it, which I also find delightful, but with the one caution that if an authoritarian madman like she doesn’t care for the new North Korea, imagine what everybody else is going to think. 

So this is a good for drama and good for shaking up the strategic map, but it is something that is gestating at the edge of Asia, in the heart of some of the most dynamic economies in the world, in a way that’s going to cause a lot of pain in the not too distant future.

Taking Naval Options Away from China

A Chinese Naval chip in harbor

There were some recent tests in the Philippines involving the Japanese Type-88 anti-ship missile system and the U.S. Typhon launcher. These truck-mounted systems can move throughout the islands, rather than relying on fixed bases.

Deploying these systems across the first island chain would limit China’s naval access to the wider Pacific. We’re also seeing Japan step into a new era of defense policy, reflected by a broader regional effort to contain Chinese naval power.

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Transcript

Hey all. Peter Zeihan here, coming to you from Queta in Umbria in Italy today. We’re talking about a couple of events that happened in the Asian rim in the Philippines specifically last week. We had two test fires of weapon systems. First, the Japanese launch something called a type 88 anti-ship missile. And the United States launched something from what’s called a typhoon. 

Excuse me, typhoon launcher, which is basically a tomahawk, those long range cruise missiles the US is famous or infamous for, based on whether you’re target or not. Both of them launched from the Philippines. Both of these are truck mounted systems. The Chinese threw a bit of a shit fit, but there’s really not a lot they can do about them. 

The issue is two things. Number one, the first island chain, which is the line of islands including Japan, the Philippines, Taiwan, Malaysia and Indonesia, they’re all at least nominal US allies. But more to the point, they block the Chinese from accessing the wider world unless these nations allow it. What are the things that has held up during the Cold War? 

The post-Cold War era is that the United States has not reinforced the first island chain, because during the Cold War, China was an ally against the Soviet Union. And it’s only in the last couple of decades that that has really changed in the last few years, where they’ve become outright hostile, which means that we are now in the early stages of fortifying the island chain, not just the United States, but the countries in question. 

Because if you can install weapons systems that can hit ships, then the Chinese are permanently locked into the lake that is the west side of the the island chain. And now that is happening. Second, like I say, we have three things. Second, the weapon systems involved are truck launched. So you don’t even need a fixed installation. The Typhon Tomahawk launcher, you know, has the range of a normal tomahawk, which can be pushing 1500 miles. 

And the type 88 is shorter. It’s actually an older system that only has a rate of about 100 miles. But they have newer systems that they haven’t just put into place in the area right now. But you take the Philippines, which is one of the most erratic, probably the best word countries in the region with the lowest military capability. 

You have a bunch of trucks running around, some driven by the Japanese, some driven by US Marines, and all of a sudden everything within several hundred miles of the archipelago is completely no go for Chinese vessels. And that’s before you consider more capable states such as, say, Taiwan. So these two weapon systems are basically enough to completely castrate the entire Chinese military position. 

So of course the Chinese are kind of losing their minds. Third thing, this is the first time that Japan has tested an offensive weapon system outside of home islands since World War two. 

Japanese were forced by the United States in the aftermath of the war to have permanent neutrality, and that is now rapidly eroding away. And if you take a country that has the second most capable navy in the planet, you allow them to start stationing military assets outside of their country. And it doesn’t matter, really, what the relationship with the United States happens to be. The Chinese aren’t going anywhere. So we’ve now had a very, very clear example of what can happen with these new systems or even old systems. 

Something to keep in mind. There are a number of countries in the world that, operating all by themselves, that have the ability to completely destroy the Chinese economy because they can interfere with any sort of corporate shipping. China is the most dependent country in the world on globalization because they import a lot of their food, they import the inputs they need to grow their own food. 

They import the raw materials they need to make their manufactured goods, and then they have to export the manufactured goods to pay for it all. You interrupt the sea lanes and it all falls apart. So Japan and the United States obviously have the direct naval power to do that whenever they want to. Singapore, Malaysia, Indonesia do, because they control the straits that allow the Chinese access Middle Eastern crude and European end markets. 

The Australians have weapon systems that can reach that entire zone as well. And now the freaking Philippines has a bunch of dudes running around on trucks that are getting weapons systems so that they can do it to the degree to which the Chinese are in a box here is immense. So it really doesn’t matter from my point of view, what happens with demographics or relations with the United States or globalization in general? 

Every time you look at this from a fresh angle, the Chinese are screwed and the state media really realizes that, which is why they’re having such an outrage rejection of what’s going on right now. And the Japanese side, this is barely even talked about. They’re just kind of sneaking in the background. Anyway, that’s it for me for today. Until next time.

Is Now a Good Time for China to Invade Taiwan?

Taiwan flag is shown in an open matchbox, which is filled with matches and lies on a large flag | Licensed by Envato Elements

With the U.S. distracted (and depleted) by the Iran War, should China seize this opportunity to invade Taiwan?

While it appears the stars are aligning for China to make its move on Taiwan, there’s one big issue: energy. Sure, the U.S. military is stretched thin, munitions stocks are running low, and power projection in Asia is weakened, but China still needs the oil to make it all happen. Since China imports most of its oil, primarily from the Gulf, the U.S. could cut off energy imports at any time.

While China may have a short-term military advantage, the strategic vulnerability and risk of losing imported energy just isn’t worth it.

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Transcript

Hey everybody. Peter Zeihan here coming to you from Colorado, where the snow is back. Today we’re taking a question from the Patreon crowd specifically. Do I think now would be a great time for China to attack Taiwan? What would the United States distracted in Iran? On the surface, it sounds like it would be a great time, doesn’t it? The United States is basically completely all in in the Iran war and is not doing well. 

The strait has been closed for weeks, and we’re now starting to see these cavitation and cumulative failures in global energy markets, which as we get into June and especially July, are just going to be catastrophic for any number of countries. And at some level, the United States is going to have to address that without solving the military question in the Persian Gulf. 

In addition, the United States, for safety reasons, chose to fight this war not in the Persian Gulf. most of the sea craft that were involved were either over in the Red sea or deep in the Arabian, firing things that are on from beyond any theoretical retaliation. And in doing so, the United States used up half roughly of its deployable long range munitions. 

It’s going to take 5 to 10 years reset those stocks, even assuming we don’t launch any attacks during the entire time. So the United States is really out of the game when it comes to the type of long range strike capability that would be necessary to deal with China in a way that wouldn’t have horrendous casualties in a lot of ship failures. 

So on the surface, seems like, yeah, now’s the time. But the United States has the greatest concentration of naval forces. It has had in Middle Eastern region right now, just off the Persian Gulf, and with a few ships now going in and out as part of convoy efforts, which aren’t working very well, but that’s a different topic. 

In addition, the United States has kind of riled up and has more ships coming to and from the region. And guess where China gets most of its crude oil? China imports about 80% of the crude that it uses, and about 75% of that comes from the Persian Gulf. And now the US Navy is right there. So if we got into a scenario where the Chinese decided to make a move on Taiwan, maybe from a tactical local military point of view, the Chinese would find it a lot easier to do. 

The US is out of position, and a lot of the preferred weapons that we have designed specifically for that scenario just aren’t available in the numbers they would need to be, then the United States would shut off energy flows to China, and within a year, China would fall into a post-apocalyptic wasteland, complete with famine that kills half of their population. So on the surface, short term, yeah. Now’s a good time. But none of this has changed anything about China’s overall vulnerabilities. And actually, the United States is standing on the energy flow right now in a way that would guarantee the end of the People’s Republic, should there be a war. 

The only scenario where it might work is if the United States decides, you know what, we didn’t really need Taiwan anyway and decides to not get involved at all. That would be strategically idiotic for the United States, but it wouldn’t be the first time this year that we’ve done something like that, so I can’t rule it out.

China Tries to Build Sand Bases, Again

A desert full of sand

China is out building sand castles again in the South China Sea, and I bet you can guess how it’s going to end.

They’re trying to do something that has already failed. These new sand-based structures will suffer from the same structural problems as last time, so runways will crack and infrastructure will become unstable.

The Chinese are surely assertive and persistent, but larger sand islands just mean a larger failure. Chalk this one up as a costly mistake rather than a serious military threat.

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Transcript

Hey, all. Peter Zeihan here. Coming to you from Colorado. some of you have written into the Patreon page asking about China’s new base building thing in the South China Sea. For those of you who haven’t been following, South China Sea is a disputed waterway that is east of Vietnam, west of the Philippines, and south of China. 

Lots of different countries claim it. China has a particularly insane claim where they claim all of it, even though there’s no historical geographic basis for that. But, you know, bygones. Anyway, in bits and pieces over the last 30 odd years, the Chinese have been building artificial islands in this zone and stationing military equipment On them. 

This stopped several years ago. I think it’s been seven years since the last one. And now, as of this week, they’re starting on a newer, larger island in the paracels. So should we care? Short version is. Yes, but usually out of entertainment on this topic. So a few things to keep in mind. South China Sea is not particularly deep to sandy bottom. 

And so what the Chinese do is they bring dredge ships in and pump the sand, and the core will break it up and then pump it into a pile. And that pile becomes an artificial island, and they build infrastructure on it. And I don’t know if any of you ever played with sand as a kid, but this stuff isn’t all that stable. 

And so what happened within 48 months? Most cases within 12 is all of these structures that they built started to settle. And so after a couple of years, after five years, for sure, all the runways they built were useless. Planes couldn’t land on them. And the reinforced hangars they built just started to crack open. And so about seven years ago, they stopped. 

So what’s changed? Well, seven years ago is where Chairman Ji got rid of his last real advisors. And so the advisors who were willing to tell him that. Hey, boss, this is a really stupid plan that is wasting a lot of money. And anyone who knows anything about military tech is laughing at us and hoping we do more of it, so maybe we shouldn’t. 

And they stopped. But seven years ago, that last person who was willing to speak truth to Ji was let go. And in the last seven years, she has been imbibing nothing but his own rancid propaganda. Does this sound like anyone you know? Anyway, so we’re back at it again. And the Chinese seem to think that it. Well, if a small island made out of sand, it was going to sink and crack and be useless. 

I bet a big one will work. And yes, it will work differently. It’ll sink bigger, it’ll crack bigger. It’ll be even a bigger disaster. And I really hope that they make some mid-term military plans based on this, because it’ll be a delightful disaster when the rubber hits the road in any meaningful way. So, am I worried? No, but I have bought some more popcorn.