Naval Power in the Pacific: China vs. The United States

There’s been much discussion lately surrounding the changing power balances in the Pacific – specifically the dynamics between the US and China. Sure, China has numbers, but would you rather have 25 kayaks equipped with BB guns or five speedboats mounted with mini-guns?

That’s pretty much the whole story between these two powers – quality over quantity. That’s before we look at the fun new toys that the US is introducing, which will only bolster their strategic advantage in places like Midway and Guam.

With the Biden administration taking a firmer stance on security measures, I expect the United States’ strategic advantage over China to grow. However, that doesn’t mean we should completely disregard the Chinese navy just yet.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

TranscripT

Hey everybody. Peter Zeihan here coming to you from Colorado where we’re about to get a big dump of snow. So I figured I’d get out and hike while I could. Today we’re going to talk about some of the changing power balances in the Pacific Ocean, specifically as it relates to the United States versus the Chinese. Now, everyone seems to be all paranoid, almost a little defeatist about the concept that the Chinese have more ships in the water than the United States has.

Based on how you count those ships have got between 370 and 620. And on the American side, again, based on how you count the ships, somewhere between 250 and 300. So, you know, obviously there’s more there. But the bigger concern from my point of view, isn’t so much the number of ships, it’s the range of the weapon systems.

So most Chinese vessels are very small. In fact, just a couple thousand tons. Things that the United States, as a rule, doesn’t even bother fielding because they’re too vulnerable in their ranges to limited. So only about 10% of China’s ships can actually go more than a thousand miles. And very few of them have a strike capability that’s more than a couple thousand miles.

Obviously, America’s super carriers are fully blue water capable and with their aircraft can strike things considerable distance away, especially if they’re using standoff missiles. So I’ve never considered this a fair conversation or a fair fight in the first place. But let’s say that I was concerned that say that with the Chinese expansion of intermediate range missiles, kind of in the 500 kilometer or 5000 range, that they could really hold back US naval forces.

Well, if that is your concern, never really was mine. But look, if that is your concern, you can have whoa, slick. All of a sudden you can rest easy because there have been a couple of new developments in the Pacific that are going to be fully manifested by the end of next calendar year. The United States is going to be deploying two new types of weapon systems.

The first is a land based intermediate range missile, something that until recently was illegal in the United States during the late Cold War. The first big arms control treaty was called the Intermediate Range Forces or INF Treaty, and it barred any sort of land based missile with a range between 500 kilometers and 5500 kilometers. The idea is that if you remove those from the equation, then Europe is relatively immune from a blitzkrieg nuclear strike from the Soviet Union and vice versa.

The land based systems in Europe wouldn’t be able to hit the western parts of the former Soviet Union, where the bulk of the Soviet population lived. Well, two things led to that treaty’s demise in 2019. First, the Russians just started ignoring it and deploying their own weapons systems. And second, the Chinese, who were never a signatory, started implementing these things in mass.

So rather than work with the United States to expand the arms control regimen to give themselves greater security, they just decided that everybody else sucked and they do it anyway. And apparently they believed that everyone else was just too dumb to follow suit. Well, so if you think about how fast this has happened, the treaty was abrogated in 2019.

First discussions on these new weapons systems would have happened within the next year. It’s only 2023 and they’re to be implemented by 2024. So he notes, that’s pretty quick for weapons development system. The Pentagon’s been pretty tight lipped about the range of the new systems, but they’re making it very clear that at the moment they’re not going to Japan or the Philippines.

They’re only going to U.S. territories like Midway and Guam. And of course, the Australians are there and they’re going to pick me, pick me. So they’ll probably be some in Darwin as well. And that basically allows the United States, with the flick of a few buttons to launch cruise missiles with ranges in the thousands of kilometers to basically intersect any shipping route and any naval patrol that the Chinese are currently putting out, although these are mostly land based.

So it’s going to be more about wind tech for the most part. Which brings us to the second piece. There’s another new weapon system that is going out primarily to the subs, and that is a version of the Tomahawk cruise missile, which will now be able to target maritime targets. So for those of you who remember back to the Gulf War in 1992, we’re going to break here for a minute.

Sorry about that fire mitigation crew. Kind of noisy anyway. Sea launched Tomahawks, which will be able to target maritime targets. Now, for those of you who remember back to 1992 in the Gulf War, you’ll recall that they were the first of our smart weapons basically systems. They could follow a GPS map and target things from over a thousand miles away with a warhead that has about a half a ton.

Now, you throw something like that against a vessel. There aren’t a lot of vessels that can take more than one hit from something like that. The problem, of course, has been targeting remotely. Now you can use reason GPS information to target your missiles. The Chinese do some version of that with their ballistic missiles, which are designed to take out U.S. naval targets.

The problem with that strategy and one of the reasons why I’ve never been overly impressed with Chinese weaponry is unless you have active eyes on your missiles blind, it can’t adjust on its own. So you can program in a path kind of like what the Shaheed drones are being used for in the Ukraine, where the Russians, they basically program in a specific point in space.

So when they hit a school or apartment complex, they’re specifically aiming for it. They’re kind of dumb weapons, even if they do have some degree of guidance. But ships move and that doesn’t work. So the Chinese rely on satellite recon in order to provide placement. But the Chinese don’t have a satellite warfare system like the United States has had for 30 years.

So if you remember back to our Chinese, it’s been a while, 15 years ago, maybe there’s an eight. I think there was all this hubbub blue when the Chinese destroyed their first satellite and created that debris field that took out a lot of stuff. Well, very quietly over the course of the next day, the United States, just to underline to the Chinese, how far behind they were, took out a half a dozen of our old satellites using a half a dozen different weapons programs to show to the Chinese that, like, look, you may think you’ve got a gun that can target our Navy, but if we ever get into a hot war, the first thing

that’s going down is your entire satellite network. So stop it. Of course, China only became more narcissistic nationalists after that, but they haven’t fixed the underlying problem the U.S., however, has. We all talk about artificial intelligence and how the Chinese have 1.5 billion people and all the coders they want and all the data they want. That’s true. But they very tightly control the type of A.I. that can be developed because they don’t want independent decision making, and they certainly don’t want anything that’s going to give people an independent means of existence independent of the state.

So a lot of the things we’re seeing here are things like church liberty. They’re just not allowed there because they could be used for political purposes. And that means the United States has a much more well-rounded approach to A.I., including in its weapons systems, whereas the Chinese are precisely focused on social monitoring to keep their population under control.

Well, that technology is undoubtedly in play with this new version of the Tomahawk that can target surface ships because ships move. So you now have the quite a subs in the world with the greatest range in the world and in addition to their normal weapons outlay. By the end of next year they’ll also be packing tomahawk hawks that can target naval vessels.

So in the case of a hot war, you put two or three American missile submarines out there and you know, the Chinese don’t have a long reach navy because you use those systems to hit the ships that do have range and nothing else can leave far beyond sight of the coast. So, you know, done and done. Now, there is unfortunately a political component to this, because if you’re looking at these technologies, I mean, medium range cruise missiles are things we stopped working on back in the late eighties because of the INF Treaty.

And the Tomahawk is a weapon that was first debuted in 1992. So none of these are new. So the question is, with the Chinese becoming more jerk like and the Russians becoming more jerk like day by day, why haven’t these things happened faster? Well, some of this is explainable, so go all the way back to the Clinton administration.

It was the early post-Cold War days. We were all trying to be friends. Why would you develop a weapons system to specifically target your hopefully, friends? That makes sense. Second, the W Bush administration was when relations with the Russians and the Chinese started to turn. But the W Bush administration was more than a little occupied with things in the Islamic world, and especially when it came to the operations in Afghanistan, The more reliable partner for us in getting equipment to our troops in Afghanistan was Russia, much more so than Pakistan.

So I can understand why it was backburner then. But by the time you got to the Obama administration, the Russians had started invading people again. The Chinese were just shamelessly stealing everything that they could and starting to hack into government databases. But President Obama couldn’t be bothered to have a meeting with anyone. So nothing happened for eight years.

He also kind of unofficially thought of the U.S. military as an enemy and didn’t want to imbue it with any more power than he had to. Well, let me get to the Trump administration. Will, you know, updates to the strategic doctrine, a new weapon, systems that doesn’t work by tweet. And so we basically got some strategic incompetence, two administrations in a row lasting 12 years during the period while the Russians and the Chinese were starting to feel out how they could expand their influence.

So it wasn’t until Joe Biden that we actually got firm decision making on the development and deployment of these things. So there’s a lot of reasons I don’t like Joe Biden, but one of the advantages of having a president that’s been around for 170 kajillion years is back in the eighties when he was a full grown great grandpa, he remembered these systems.

He remembered the dawn of the tomahawk, He remembered the weapons we were working on when the IAF treaty was adopted. For him, the context that was necessary to develop in order to make the political decisions to order these developments was already there. And so as long as he’s not a drooling mess, we’re getting a lot more robust security decision making, especially forward looking decision making than we have had since at least George Herbert Walker Bush in 1991.

Is it enough? We’ll see. But if you were the the Chinese or the Russians and you were counting on the general incompetence of Obama and Trump to be the new norm for American politics, I can happily report to you that you were flat out fucking wrong and now you have to deal with.

 

Russia and China Gang Up on Finland

The schoolyard bullies are back at it again. Russia is funneling waves of migrants into the Finnish border, and China has wreaked havoc on the Gulf of Finland by dragging an anchor across the sea floor.

These are clearly intentional and deliberate actions, but what do they signify? In all likelihood, these indicate potential cooperation between Russia and China in different global theaters – challenging the ability of the US to focus on multiple fronts.

We’ve discussed this in the past, and I’m not too worried about the United States’ ability to handle both Russia and China simultaneously. Click below for a refresher:

Besides Russia (once again) underestimating Finland’s support network, these actions will likely spark some changes in naval patrol patterns for the US.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

TranscripT

Hey everybody. Peter Zeihan here coming to you from Phenix, where I’m on my last business trip of the year. Very exciting. Today we’re going to talk about something that the Russians and the Chinese are doing against Finland, of all places. We’ve had two big events over the course of the last few weeks. Number one, the Russians started funneling illegal migrants from Central Asia and South Asia into the Finnish border.

Clearly, this was intentional, clearly that it was premeditated because you don’t go from having less than one person a day to almost a thousand in an area that the Russians consider a security zone. Second, the this one, Solaris the Chinese in with the container ship new new polar bear. Makes more sense in Mandarin dropped their anchor in the Gulf of Finland between Finland and Estonia and then proceeded to drag the anchor on the seabed for about 20 miles until they suffered a telecommunications cable and damaged pipeline or sorry, it was an electricity transmission and make them some cable damaged pipeline.

Again, that’s not something that happens by accident. And in both cases, the Russians, the Chinese are kind of going like, what do you do about it? And it’s not clear exactly what anyone is going to do about it, because it’s one of those definitely less than war scenarios. So we’ve got three things going on here. First is this is practice for the Russians and the Chinese.

They’ve never really functionally cooperated before. They’ve certainly never coordinated their actions. But in doing two things in different theaters versus the same country that has managed to displease the Russians of late by joining Dito, this is practice for kind of a larger scale. Well, the U.S. does not consider itself capable of being involved in two major military operations at the same time, even though one would be naval and China and one would be on the land in Ukraine.

But, you know, putting that to the side. So anything that forces the United States to look in two directions at once is kind of a win in above itself, even if nothing comes from it. Second, there is the issue of implications for action. And we’re already seeing NATO countries changing their naval patrol patterns to look out for things like the Chinese.

Because, you know, when you’re dragging your anchor for 20 miles, it’s not like that is a normal bit of operation. Oh, by the way, they found sea anchor. They matched it to the vessel in question. So the Chinese are, you know, doing their normal association and lying thing. But the Finns and the Estonians really have no doubt as to what went down here.

But then there’s the third issue, and that’s the target choice. Now, until recently, Finland was officially a neutral country because it was terrified of facing the Soviet Union. And then eventually the Russians. It’s not that they think they’re weak. It’s that they know that they’re outnumbered. So if you go back to World War Two, the Finnish chapter of that conflict was called the Winter War.

And when Stalin’s troops came in, they were massacred in the winter conflict, looking at 2241 casualty ratios throughout the winter. But when the snows finally went away and the advantage of just being able to ski through the Russian forces went away. The Finns were forced to sue for peace and accept a deal that gave up territory on which about a quarter of their population prewar lived.

It’s something the Finns have never really forgotten. And so ever since then, the Finnish military has basically prepared for one fight. What happens when the Russians finally come? But this is a creative country that has shown that it can punch well, well, well, well above its weight. It arguably has the most effective military in terms of per capita in natto.

And they’re starting to trade with nature now that they’re members. And they just kicked everybody’s ass in the biathlon competition last winter, which, you know, they’re terrifying because that’s one of the reasons why the casualty ratios were so high, because these are all natural sharpshooters and these are all natural ski folks anyway. Also, when the Finns are involved, it’s not just the Finns.

They’ve got their kind of little brothers, if you will, Estonia, Latvia and Lithuania. But more importantly, they get along excellently with their other Scandinavian cousins in Denmark and Sweden and Norway. You know, the Vikings, not to mention excellent relations with the United Kingdom and now the United States. So basically what the Russians have done is pick someone that they thought was on the fringe they thought was alone.

But primitive is representative of the fact that Russian decision making at the diplomatic and security level has really broken down. They’ve kind of forgotten that even Stalin was a little bit scared of the Finns. And so they walked around and now they’re going to find out.

 

My Latest Interview on the NAIOP Podcast: Inside CRE

For those looking for some longer format content, here’s a recent interview from the NAIOP Podcast: Inside CRE.

I chatted with Christopher Ware about current U.S. demographic shifts, how the labor force is changing, and why now is the best time for businesses to hire and borrow. I also dive into China’s precipitous population decline, how the cost of manufactured goods will increase, and why we need to double the size of the industrial plant in North America.

I encourage you to tune in if you want a well-rounded, long-form discussion.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

China-US Relations: What Did Xi and Biden Discuss

Thank you to everyone who has already contributed to MedShare International over the past two weeks!

We have some exciting news to share today. Our matching donation – including our initial $40,000 and all subsequent matching donors – has now reached $100,000.

I’m humbled by the outpouring of support from this community and want to thank you all from the bottom of my heart. This is only possible through your generosity, so thank you to everyone who has donated.

If you haven’t donated already, we encourage you to click the link below and help us (and our other gracious donors) hit our match goals.

This week at the APEC summit in San Francisco, President Joe Biden and Chairman Xi Jinping sat down for a long overdue meeting.

One unexpected twist is that Xi expressed a desire for peace and cooperation between the two countries. There are only three scenarios for why I can see this happening: Xi has lost his edge, his cult of personality has cut off the flow of information, detaching Xi from reality, or he’s trying to play puppet master with the US.

Again, let’s not dive too far down that rabbit hole because Xi was more concerned about the flowers at the hotel than any of the APEC discussions. However, we won’t have to wait long before the truth reveals itself…

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Transcript

Hey everybody. Peter Zeihan here comes to you from Colorado. Great news. Our sponsorship of Medicare has done very well and we’ve had a number of you call in with matching donations. So our original match was for $40,000 for the month of November. Dollar for dollar for whatever anyone sends in. So even if just a buck or two, it makes a big difference.

But we’ve now had sponsors come in for to increase of 40000 to 100000. And to give you an idea of specifically what this sort of donation is going to go for. In modern warfare, explosions are, you know, part of the process. So there have been a huge number of cranial and spinal injuries in Ukraine and people might be able to get away from the front and survive, but then they’re not going to be able to function unless they can get additional medical assistance.

And so other donors have provided Medicare with implants and spinal surgery kits that are worth $20 million on the open market that were just given to them for free. And the question is, how do we get this to Ukraine where it can do the good? And that’s where our campaign comes in. So, again, the first $100,000 is matched.

No donation is too small. Thank you for everyone who has buzzed in so far, over 2000 of you have already donated. Thank you. Thank you. Thank you. Thank you. It’s really humbling to be part of this process and I look forward to seeing what the final number is at the end of the month. But until then, back to our regularly scheduled program.

Hey everybody, Peter Zeihan here coming to you from Colorado. It is the 16th of November and yesterday in San Francisco at the Asia-Pacific Economic Cooperation summit, Chairman Xi Jinping and U.S. President Joe Biden finally had that long awaited summit. It’s the first time that a real leader has met with Xi in something like four years, and it was really our first read on how he personally is doing, whether he’s lost his mind to senility or he’s just so drowned in his own propaganda that he can’t function.

The result was, by many measures, fairly surprising. She was basically all friendly talking about how he didn’t want competition. You want to be a of the United States if you want to challenge the United States. I mean, it was basically peace, love and recycle. He sounded like a teenage camp counselor. Three theories that come from this which are going to shake out real quick into the fact, number one, he really has lost his mojo, in which case we’re going to see increasing breakdowns in decision making across the Chinese system as he basically goes bipolar, which could be entertaining but a little bit dangerous.

The other two scenarios had to do with the cult personnel that has formed. Has destroyed all challengers to the throne. There’s no local leaders or regional leaders that have stuff anymore. He’s gone through the bureaucracy in academia and business, and he’s purged the bureaucracy as well. So part of the problem the Chinese have been having of late is that no one will bring him new.

So he really is broadly unaware of what’s going on in his own country and across the world. And so when he is thrust into something like the APEC summit, things get a little weird. All of his staff apparently focused on the location of the table savings and the types of silverware and what flowers would be in the hotel.

And, you know, of course, I didn’t get to see any protesters, but it was all on the atmospherics and the design as opposed to the substance. There was very little prep on the Chinese side as far as we’ve been able to tell for what the actual topics of the day happened to be in. You know, there’s a few things going on right now.

So that kind of puts us into one of two categories. Number one. G Exposed to the world via San Francisco for the first time in years is like, Oh my God, what have I done? My country’s in demographic collapse. Our trade situation is dangerous. We are looking at national de dissolution over the next decade of stuff unless something just dramatically changes.

And every theoretical solution involves the United States in some way. We have to have their market. We have to have the security of our Navy grants, our maritime shipments. We have to have access to their finance markets, U.S., U.S., U.S., U.S. It has to be the U.S. And if he’s come to that realization, then a complete 180, from what we’ve seen over the last five years, makes a lot of sense.

The question is whether the cult came. They’ll push that down into the bureaucracy in the Chinese system when there are very few competent people left in that system. We will know the answer to that in a matter of weeks because the Chinese will stop being a bag of dicks like they have been for the last five years or things will change.

There’s it’s really pretty binary. The second issue is that it’s all lies, that this is all just part of Jesus internal play in order to wall the Americans in the false sense of security. Considering that the Biden administration has taken many more anti-China actions than the Trump administration has and has, unlike the Trump administration, codified them into law so they’ll outlast him.

That is a bit of a stretch to think that the Chinese could be that stupid. But considering the Chinese inability to function in most international forums of late and the destruction of the information transfer system within the Chinese system by Xi, it’s entirely possible that they are really that dumb and we will know the answer to that real soon too.

So one way or another, here we come.

Why The US Needs Mexico: Replacing Chinese Manufacturing

If you’re an American considering picking up a new language and have narrowed it down to Chinese or Spanish – it should be a no-brainer. As China slips into utter collapse, our southern neighbors will pick up the slack and “hola” will get you much farther than “nǐ hǎo”.

As the US pulls manufacturing from China, we’ll look to Mexico City to fill that void. This region not only holds over half of Mexico’s population but also represents the largest untapped workforce globally. So, the workforce is there, but we’re still missing a couple of pieces of the puzzle.

A massive industrial buildout will have to happen for this transition to work – and quick, too. I’m talking about new rail and border infrastructure, beefing up the I-35 corridor and improving connections within the US manufacturing industry.

If the US and Mexico can execute this buildout within the next five years, finding an alternative to Chinese manufacturing will be much easier. However, if the two amigos don’t get aggressive soon, we might have to throw a couple more languages into the curriculum.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Transcript

Hey everybody. Peter Zeihan here coming to you from Mexico City. And for those of you back in the States, this is a town you’re going to all have to get used to get to know very well, because it’s the solution to a lot of the upcoming problems. Now, for those of you guys who have been following me for a while, you know that I have been very concerned that the Chinese system is breaking, the demographic situation is terminal.

The government itself seems to be incapable of making decisions now. And Chairman Xi is basically purge the entire system of anyone with a positive IQ. Which means that all of the manufacturing industrial base that exists in China is something going to have to get by without very, very soon. The question is whether that’s one year from now, four years from now or ten years from now, but certainly no more than that, which means if we still want stuff, we’re going have to make it differently.

And that’s where Mexico comes in. Now, a lot of folks point to the nexus between Texas and northern Mexico as being a very successful model. And I agree. Over the last 35 years, the industrial plant that’s built up there has made itself all by itself the third or fourth largest on the planet next to China ink, of course, and the German system in Europe.

But that is not probably something that we can pull off. Again, I mean, yes, there are ways to improve that with infrastructure, with labor, with capital. Tech. I agree with all of that. We should do all of that. But the bottom line is that Texas has run out of people and it has now had to recruit from the rest of the United States just to expand its footprint from where it is now.

And Northern Mexico has run out of people because they’re all already working in that Texas Mexico synergy. And it’s great and it’s wonderful and it’s not done, but it can’t double or triple. And that’s exactly the scale of what we need to do. The solution is to integrate the rest of the United States with the rest of Mexico, specifically the Greater Mexico City region, which is home to over half of Mexico’s population.

And it’s the largest untapped workforce in the world at the moment. That means massively expanding the infrastructure that connects the two countries. Today, about 80% of the traffic and manufacturing between Texas and northern Mexico is by truck, which is among the least efficient ways that you can move things. But it does allow for a lot of small connections with small and medium sized enterprises on both sides of the border, contributing to very complicated supply chains, particularly in automotive.

We need to think bigger. We need a better transport system to take things at bulk so there’s not necessarily less integration between the various stuffs on both sides of the border. But the value add can really explode because we can do things at scale. And for that, we need rail. We need a rail system that connects areas beyond the Texas Triangle to the Mexico City core.

Right now, there’s only one multimodal rail system at all that comes south from the border, as far south as the very edge of the Mexico City complex. We need to expand that system by at least a factor of four in the not too distant future. In addition to expanding the border infrastructure, in addition to expanding America’s I-35 corridor, in addition to expanding the Texas Triangle’s connections to the rest of the manufacturing zones in the United States.

If we pull this off in the next five years, we’re going to be in great shape. And if we don’t, well, then we’re going to have to figure out what sort of stuff we don’t actually want. No pressure.

The Chinese Collapse: A Housing Overbuild

Trying to predict what the Chinese system will look like as it collapses would be a fool’s errand, but exploring China’s housing market in this context could be fruitful.

China has an investment-based economic model, which means resources and capital go towards infrastructure development and construction. As Japan and Korea have shown us, this economic model isn’t sustainable; diminishing returns will settle in, and the economy will grow stagnant.

Japan and Korea had private enterprises to help the economy balance out, in addition to international investment opportunities. In the case of China, capital flight is restricted, so citizens look to speculative bubbles for investment opportunities…and housing is the most problematic of the bubbles.

And so Chinese citizens dumped their life savings into housing, generating the world’s most massive overbuild. As China collapses and people’s money is tied up in this useless real estate, it doesn’t take much to imagine what happens next. Let’s just say Xi might be losing some of his fan base.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Transcript

Hey everybody. Peter Zeihan here comes to you from Colorado. A lot of you have been writing in and asking for scenarios of what the Chinese system will look like as it collapses. And Chinese history is rich with how it’s all going to hell. So putting my finger on one specific scenario I don’t think is very useful, but a lot of you have also written in asking about the Chinese housing market, and I think kind of exploring these two things hand in hand is worth a little bit of time.

So the Chinese follow a capital intensive investment model. There are there’s three types of economic growth. You’ve got consumption. Like you go out and you buy a home or you buy an iPod or whatever it happens to be. In the United States, that’s about 70% of total economic activity. Private consumption. Then you have exports. So, you know, you make something like Boeing and you sell it to the Indians.

Export led economic growth that is a system that is more popular in a place like, say, Korea or Germany. And then you have investment led economic growth, which is the building of stuff where regardless of where you get the capital, you get you build a road, you build a factory, something like that. And this has always been the method that has been favored in China and to a lesser degree, all of East Asia, because it’s something the government, for the most part, can control.

And it tends to be directed towards things that the government feels needs to be done. So roads, bridges, industrial plant and all of the East Asians have followed this pattern to a certain degree. The problem with this pattern and this type of growth is if you do it enough, you start to distort the economy and you absorb more and more capital and more and more labor and more and more resources.

And eventually you get to the point where there’s diminishing returns because you only need so many roads, you only need so many factories. In the case of Japan. They reached this point in the 1980s and they went from having stratospheric growth because this generates a lot of economic activity to just kind of a stall out. And they were left with a stack of loans worth about 50% of their GDP, $2 trillion at the time that was invested into assets that probably should have never been built in the first place.

And it took the Japanese system 30 years to churn through that, and that was 30 years of basically not having economic growth at all. Eventually, they realized the debt burden was so bad that they needed to focus what they could do on more productive stuff. And that turned out to be stuff that was not in Japan. And so we started this generation long outsourcing, the sourcing, whatever you want to call it, to countries that had better demographics and better debt profiles, most notably the United States.

And here we are now, 35 years after that process started. And the Japanese economy is more or less back in health. But it’s happened as the demographic situation has turned inside out. So consumption led growth in Japan will probably never happen again. They’re just too old. Something similar went down in Korea, but the Koreans attacked it with a fervor that the Japanese couldn’t muster, and they decided to deal with it by investing more, but going further and further up the value added chain.

And this could work in Korea because they were already among the most highly educated populations in the world, and they eventually generated things like the Samsung and the Daewoo and the Hyundai that we know today. It came at a cost. Extraordinary levels of turnover in the corporate world as entire chaebol, which are kind of giant industrial conglomerates, would go bust, which would generate a huge surge of unemployment and credit risk, which the government had to step in and assume the risk of itself in China.

It has done something similar to both of these as well as a third one. So first, building bridges to nowhere. The Chinese absolutely reached that level probably back in the early 20 tens. And most of the construction we’ve seen across China is of questionable economic use and the debt has been building up. Corporate debt has basically doubled since 2010 and it started at a level that was already in excess of American debt.

So, you know, we’re talking about a huge amount of money that has been put into things that probably are never going to have a return. They tried to follow the Korean model as well, but what they discovered is that their workforce was already fairly unproductive. And while overall productivity for the Chinese labor forces have gone up by 50 to 100% in the last 10 to 15 years, the debt load has gone up by a factor of five.

So from a cost benefit point of view, Chinese labor has actually decreased in terms of its overall productivity once you consider the cost, because in that time frame, the cost of Chinese labor has gone up by more than a factor of five or six. And then there’s a third model, unlike Japan, unlike Korea, which are, for the most part, private enterprise driven systems, the Chinese are absolutely state centric and in China and excuse me, in Korea, in Japan, the people always had options for where to put their own personal money to make their bets on their futures, prepare for their own retirements, expand their own wealth.

The Chinese don’t have that. Capital flight is strictly regulated, in many cases forbidden. And every time that the people find a new way to get money out, the Chinese government changes the law and so it all gets bottled up at home. Now, for the Chinese development model, this has proven successful at keeping the Chinese citizens money as part of the process that then funds all of that investment.

So whereas in Japan, it’s a mix of corporate and creates a mix of corporate and government. In China, the average citizen in many ways is being forced to help underwrite all this bad debt, and the Chinese citizens don’t really appreciate that, as you might expect. And so they’re always looking for outlets. Now, they can’t send their money abroad, so they looking for outlets at home.

And so China is famous for massive speculative bubbles that happen in commodities or gold or anything. And the one that has proven the most problematic and the one that has generated the most economic growth to this point has been housing. The government does allow you to own your own home. So people do that with gusto. And then they started buying apartments.

And second apartments and third apartments and fourth apartments. And basically we got an Enron style financial boom driven by growth in construction of the housing sector. Now, the new news that has come out in just the last few days that kind of crystallized this all for me was a dude in China by the name of he king, great name, who used to be an uppity up in the Chinese Statistics Bureau.

And his estimate now is that there are more there’s more housing units available that are unoccupied in China, so many available that they could house the entire Chinese population. So we’re talking an overbuild in excess of 100%. Do you kind of put that into perspective? The American subprime crisis at its peak had less than 5% overbuild because of subprime, probably closer to 3%.

And it was only because we bound up those mortgages with more healthy real estate investments and asset backed securities that it actually turned into the crisis. And we all know how that felt here. Ultimately, we had a financial crisis that lopped 5% off of GDP. If in China, you’re talking 100% overbuild in a country that is suffering from the advanced stages of terminal demographic decline and is already experiencing massive population losses against in the United States, where we had less than a 5% overbuilding, we still had population growth and inward migration.

The mind reels in coming up with a historical precedent here because there isn’t one in time. The Korean or the Japanese models were able to mostly recover from the overbuild, in part because private citizens were not wrapped up in the damage this time around in China. This specific aspect of the overbuild, which is the biggest in human history, isn’t even reflected in the debt data because a lot of Chinese have been able to pay for these apartments with cash and they now have invested for the most part, their total life savings in an asset that is probably worth at most a quarter of what they paid for it.

So in China excuse me, in Japan, in Korea, national coherence, public support for the very existence of the government was never damaged because people’s finances were only hit indirectly because of economic growth issues. But in China, you’re talking about a complete wipe out for what, for most Chinese citizens is their primary and maybe even only method of savings on top of a failure of the Korean style expansion to improve productivity on top of a failure of the Japanese style program to improve public infrastructure.

This is going to hit them from every possible angle when it breaks, and it’s going to do so by ripping the heart out of public support for the entire system and the CCP and the government in particular. So no, I am not particularly optimistic about how this is going to shake out. Quick addendum. I did a quick fact check before we went to print with this one print release, whatever on Mr. Hes data that he estimates that there are sufficient empty apartments to house the entirety of the Chinese population.

That was wrong. He says there’s sufficient spare housing to house twice the Chinese population. So everything I said before stands just underline most of it.

China’s “Diversionary” War with Taiwan: The Good, Bad and Ugly

China invading Taiwan isn’t a new topic, but would China ever use this war as a diversion or distraction? This is an unlikely scenario, but as long as Xi is in charge, we must consider every possibility.

Despite challenges to China’s political and economic system, with a leader like Xi, there isn’t a need to “rally support” for a war. In addition, capturing Taiwan wouldn’t provide China with a strategic advantage, and it would likely lead to hefty economic vulnerabilities.

The odds of a “diversionary” war happening are never zero, though. In a system like China, all it would take is a miscalculation on Xi Jinping’s part or some dark realizations setting in…

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Transcript

Hey everybody. Peter Zeihan here coming to you from Colorado. Now, last week, I released a video on why none of us should be really surprised if the Chinese system falls apart. We’ll leave the link here for those of you have not seen it. But the most common follow up question that I’ve received from viewers has been wouldn’t this justify in the Chinese mind a diversionary war or distraction war to increase public support?

I can’t rule it out, but I don’t think that’s going to go down for three reasons. Number one, this is not a democracy. This is an autocracy where the CCP has control of the public space is huge and their ability to shape public opinion is massive. And in that sort of an environment, you don’t get the same relative effects and you also don’t have the same in stability from economic problems that you might have in a more pluralistic society.

So I don’t want to say no, but the government’s ability to shape public opinion and to stir up nationalism is pretty robust. If anything, the government sometimes has a bit of a problem containing the nationalism, not not getting it going. So from a legitimacy point of view, I don’t think it’s really necessary. Second, anyone in China who can read a map and do math knows that if they launch a war for Taiwan, it will it will not end well, not the war itself, but what happens to the next day.

China is dependent upon the international community for roughly three quarters of their energy sources, and most of that comes from a continent away. On top of that, China is in terms of absolute volumes, the most dependent on imports and exports of any country in the world. And they import the vast, vast, vast majority of the materials that allow them to grow their own food.

So if you have even a moderate effort by a small number of countries to go after Chinese commerce in the aftermath or because of a war, this country will be facing a industrial collapse in just a matter of months and a famine that will kill half the population in a couple of years. And I have no doubt that at least several years ago that the Chinese leadership understood that.

And so they primarily used Taiwan as a rhetorical issue. And most of the threats that we’re seeing now are not necessarily coming from the decision makers. Well, a third let’s assume that the Chinese can capture Taiwan in a matter of weeks with minimal damage. That doesn’t really give them anything. I mean, yes, it technically is a break in the first island chain, but the Chinese are still dependent on the international system to get everything that they need, and they’re dependent on the U.S. Navy to patrol the global oceans so that their commercial cargo can come and go.

In fact, this would actually put their potential sea lanes by Taiwan in greater risk from the Japanese, who have a better, longer range navy than anything that the Chinese have. And then there’s talk of the semiconductor industry that the Chinese would be able to scoop. But the Chinese can’t operate their own semiconductor industry. It’s not just run with foreign equipment and software.

It’s run by foreign personnel. And the Taiwanese facilities are the most advanced in the world. And honestly, the Chinese wouldn’t know what to do with it. I don’t mean that as a slam to the Chinese. I don’t think any country that took them over would be able to operate them in anything less than a decade timeframe for the Chinese would take a lot longer than that.

So it really doesn’t check any boxes now saying that it wouldn’t work, saying that a diversionary war would be unwise and would achieve nothing for the Chinese is not the same as me saying. I don’t think it would happen, but the rationale would be very, very different. So two things. Number one, it could be a miscalculation, not in the traditional sense that, you know, we don’t think anyone will do anything but a miscalculation by JI.

Remember that JI has formed such a tight cult of personality that no one’s bringing him information. So he’s literally making information, making decisions in a box without any idea of the information that flows in or the reality of the world around him in that sort of decision making structure. Sure, he could pull the trigger, but it wouldn’t be because of any of the reasons that you would normally expect.

So whether it’s economic, strategic, political or whatever, whatever we would say, you know, this might force a country to pull the trigger. None of that applies to Xi because it’s all in his head. And it’s not something that we can really guess at because we don’t know what’s shaping his decision making, because we know he’s not being fed the information he needs to run the country.

The second reason is quite darker. If you’re like me and you believe that we’re looking at the end of the Chinese system over the next decade for demographic reasons alone. Forget politics, forget energy, forget vulnerability, forget the debt, forget trade wars, forget everything else. Then there’s something to be said for pulling the trigger. Because if the Chinese system is facing that same industrial collapse and that same population collapse for other reasons, and there’s nothing that the Chinese government can do to stop that, maybe buy a little bit of time, and that’s it.

Then pulling the trigger, choosing the time and the place of a war, even if you think you’re going to lose, even if you know it’s going to result in the death of half of your countrymen, if it allows you to command the narrative of the future. Well, that means that the CCP for the low, low price of half the country’s population might be able to rule into the next era of Chinese history.

And if you’re completely amoral about it, you got to admit that might be a compelling reason to launch a war that you know what will destroy you for dark. Not saying that’s happening, but we can’t rule it out at this point.

Don’t Be Surprised by China’s Collapse

It’s time to come out from under your rock and face the music – China is collapsing. If that comes as a shock to you, I have two recommendations. First, it might be time to refresh your news feed. Second, the Chinese have concealed this fairly well, so watch this video to get up to speed.

Whether you look at it from a domestic, international, heck, or even extraterrestrial point of view, the Chinese system is riddled with issues that are becoming increasingly apparent. Between economic issues, a crumbling political system, awful demographics, and a long list of other problems, China’s collapse should no longer surprise anyone.

Now that you’ve been warned, you need to ask yourself: are you ready? Between disruptions to global supply chains and a myriad of other issues, the world better be prepared to manage the fallout.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Transcript

Hey everybody. Peter Zeihan here. Coming to you from home in Colorado. And if you haven’t been blind and immune, be marginally aware of international news. You know that the information out of China these past few weeks through July and August and into September has just been atrocious. Consumer spending is down. Lending is down, which should never happen in a country that is just capitalist driven.

The Chinese basically force feed capital into everything, and so lending should always be going up. And it’s not. We’ve had the foreign minister go missing and then be dismissed, the same as now happening for the defense minister or the head of the missile forces. Information that’s coming out about youth unemployment is atrocious, so they just stop collecting the data altogether.

Information on bond transactions is gone. And if you’re going to try to get into a more sustainable economic structure, you obviously need a bond market. They’re not collecting information on patterns anymore. So supposedly the moving up, the value added scale that the Chinese been talking about for years is now not even part of the plan. It feels like we’re looking at a broad scale societal and economic and political breakdown, and we are.

The shock, though, is that this is all happening at once. And after years, if not decades, of the story of rising China and hearing that from Beijing and oftentimes from political parties in the United States and around the world, for it to all of a sudden go completely inverted due seems like quite a shock. But here’s the thing.

It hasn’t all been happening at once. It’s just that this is when we’re noticing it. If you look back on the last few years, things have been odd in all things China. So first, let’s deal with this from the outside point of view and then from the inside point of view. So outside think of what’s gone on the last few years.

We’ve got the Ukraine war. We’ve got the Iranians on the warpath. We had four years of the Trump administration and we had two years of a more internally focused situation. And the Biden administration, the Europeans were dealing with the tail end of their financial crisis. The Japanese have been preoccupied with the demilitarization program. Everyone has been dealing with their own stuff, and it’s only kind of now that the noise out of China has gotten so loud that we’re even noticing that it’s not good news anymore.

As for the Chinese. Two big things. Number one, COVID killed the COVID. COVID cozied for three years. It was nothing but COVID in any sort of statistical release or news out of China was always viewed through the eyes of COVID and even if there was bad news, you could always lay that at the altar of growth. IT consumption was down a quarter.

That’s COVID problems with supply chains. That’s clearly with COVID problems with linked in their industrial production to news in the wider world. That was because we adjusted our consumption because of COVID. And so we’re only now kind of getting our first good look after years of COVID and then also within the Chinese system, that had a significant shift.

But when Chairman Xi, he started a series of purges under the guise of the like corruption campaign. And in his first five years, he removed every regional power center so he could never rise to national prominence. And then he went through and gutted the two factions of the previous presidents, Hu Jintao and Jiang Zemin, that put them in power to make sure that they could never come back.

And then he spent the last couple of years gutting the bureaucrats and the private sector of anyone who might be able to rise to national prominence. As part of that, he’s removed certain sorts of data collection to make sure that they can’t assist anyone from rising. So, for example, college dissertation, the information is not published anymore. It’s probably not even collected anymore.

So no one can take the economic route to prominence. And political biographies are no longer put together by the state. So any sort of local politician or younger politician has no way to rise in the situation that might down the road and generate a potential rival. So we’ve seen this ever tightening information vacuum across the Chinese space. All of these things have been going on for five and six years.

And during that five and six year period, we had an inflection point that was absolutely the high point of the Chinese system, and that’s largely demographic. We still don’t have what I would consider to be truly accurate information. But the most recent full data to be released by the Chinese in the last two three months tell us that the birth rate has dropped in China by nearly 70% since 2017.

That’s the fastest drop in the historical record of China, of humanity throughout all of recorded history. And in that timeframe, if the Shanghai Academy of Sciences is right, they’ve all recounted their population made over 100 million people, all of whom would have been working age people under age 40, meaning that in the last five or six years they’ve had that just peak workforce and the last year peak workforce probably in the earlier part of that process.

And they just don’t have enough millennials to do consumption at all. And we’ve seen the cost of the workforce increase by a factor of 14 or 15 in the last 22 years. So in the last five or six years in China, if you could somehow have a crystal ball and have access to all the data, especially the supplement collecting anymore, we would see that they’ve already fallen off the cliff and it’s only in the last few months that it’s become so obvious that it’s cut through the clutter and the noise and the preoccupations we all have with everything else in our lives.

And now it’s obvious that this system is breaking down. The demographic collapse is not correctable. There are not enough people under age 40 for them to even try, even if they had the macroeconomy, the structures that allowed or encouraged people to have families of the role. And we’re seeing an ever increasing rate of decline in terms of their industrial competitiveness.

On top of that, we have the issues with the Ukraine, where with China’s starting to come into the crosshairs of sanctions. We have China being more and more exposed to energy and food insecurity because the Europeans have taken everything else that is proximate to them. So they don’t have to use Russia and the infrastructure between Russia and China is so thin that stuff has to go out west past Europe through the Suez War around Africa and around India and around Vietnam before getting there, making it the most exposed supply lines in the world.

So we’re going to see more disruptions moving forward based on what’s going on in China with demographics and political situation. And we’re all certainly going to see disruptions in their ability to access the wider world for trade, merchandise exports. And that before you consider that the Biden administration is the most protectionist administration the United States has had, at least in a century, far more so than Donald Trump.

So the Chinese are getting hit from every single angle and Chairman Xi is so purged the system that it’s an open question whether he can even become aware in a reasonable amount of time that something needs to be done, much less have the capability to come up with a coherent policy to deal with whatever the issue is as it arises.

So demographically speaking, we know that this is China’s final decade as a coherent economic power, but now we see exposure and political failure that absolutely can bring that date forward. And that assumes that no one in Washington or London or Japan or the rest put their fingers on the scale and push this forward. This has been coming for a long time, but because of all the noise, we missed a lot of the signals in the last five years of just how quickly it was coming and now it’s here.

The biggest risk in all of this is whether or not we have enough time to adapt. If things like construction spending for industrial projects in the United States have risen to a level we didn’t even see in World War Two, the pace of the industrial expansion and the reshoring trend really is huge. Should have hopefully started five years earlier by better late a mother.

The biggest concern I have now is that the information vacuum out of China is so complete and the decision making capacity in China has so collapsed and the pace of decline is now so steep. And the fact that we’re coming so late to the understanding of all of these things means that we might not all realize the China really is broken until the product simply stops arriving.

There’s a lot of industrial demand for product in this country for things like transmission towers and transformers and other industrial equipment that is necessary to build out the industrial plant here that’s still made in China that we’re still depending upon. And some of these things already have waitlists that are more than 36 months. But we might now be in a situation where it’s not obvious that this stuff is never coming until the shipments simply don’t arrive.

And at that point, we will be in a bit of a pickle because we will not build out our industrial plant fast enough in order to get by without the Chinese in the mid-term. That’s our biggest risk. Now, luckily, from an industrial growth point of view and an employment point of view, this is a good problem. But it does mean that the Chinese collapse is likely to cause a lot of follow on damage here because of shortage.

And the only way around that is to build more and make sure that we don’t need those products in the first place. Unfortunately, we need a lot of those products in the first place in order to get built or no real body around that except for to start yesterday.

Why Huawei’s 7nm Chip Isn’t a Big Chinese Breakthrough

The Chinese telecom firm Huawei (the same firm that was caught modifying equipment on behalf of the Chinese government) has released a new phone with a seven-nanometer chip.

After some digging, it appears that this breakthrough is not as significant as I initially thought – and it comes down to what the Chinese have access to. They are using a process called deep ultraviolet (DUV) lithography, and while it gets the job done, its days are numbered in the cutting-edge field. Further, the unofficially reported yield rate Huawei achieved is nowhere near the industry standard.

The other process of creating these chips – extreme ultraviolet (EUV) lithography – is still only accessible to the Chinese via subsidies, poaching, and theft. So, I won’t be classifying the release of this phone as a “significant” breakthrough.

If the Chinese head down this path, it’s quite illuminating as to how far they’re willing to go for the sake of saving face. Should China keep this up, it’s just one more way they risk harming their position on the global stage.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Transcript

Hey everybody. Peter Zeihan here coming to you from Phoenix, where it’s 180 bajillion degrees outside. So we’re into this one from inside. A lot of you have written in and honestly, I was pretty curious myself about something that’s going on in China with the telecommunications firm Huawei. Now, that is a firm that has stands accused or guilty early of trying to modify wireless equipment and cellular equipment for the wider world so that the Chinese government can have a cheap and easy inside.

And everyone’s communications. They got discovered by the Australians, the Australians basically, or everybody else. And now we’re dealing with widespread sanctions by led by the Americans, by participating by every major country in the world that does the production of cellular equipment. And it’s kind of course, their business model. Now, in the last month, they have released a new phone, which is the first in a while because it took them a while to do anything without the ability to import equipment from anywhere else.

And it has a seven nanometer chip in it. And for those of you who’ve been watching me for a while, I’ve said that there’s not a lot that the Chinese can do that’s better than 90 nanometers. That’s what they can do themselves without external help. And 28 nanometers because of sanctions is about the best they can hope for.

So seven obviously potentially a very big deal. So we took a little bit of time. We dug into the details. And the short version is I’m not as worried as I was when this first came out. And it has to do with what the Chinese have access to. There are two types of chipmaking styles. The first uses something called deep ultraviolet, and that’s what was used for this chip.

Now, this is an older technology that has a number of drawbacks. You basically have to customize your equipment and modify your equipment for each individual chip design. So every time you have a new design, you have to kind of overhaul your factory in your lithography system from the ground up. And the way that the Chinese have done this is basically pirating design details from TSMC and Taiwan and then hire you just a huge number of people to do some technology transfer.

And they basically, especially when sanctions kicked in, you just basically were told they have a bottomless budget to go out and build a SUB10 nanometer chip. And they did. And it cost them five times as much as it should have. And the chip that they end up making wasn’t that great because they couldn’t do the design, that information, those people, they weren’t able to hire away.

So it’s basically a crypto mining chip made with a little bit smaller etching, which means that for a phone it’s really not a great option. More importantly, you’ve probably, from the Dutch point of view, the Dutch are the ones who make this equipment is that this theft started well before the sanctions run, but sanctions have only been in place for two, maybe three years now.

This started five years ago. So it is the ultimate expression of what the Chinese can do with a bottomless supply of money and absolutely no business ethics and the ability to hire anyone they want, all of which is, you know, an under threat in the sanctions regime now. So, you know, kudos for being able to get something sub seven, but it’s only about as good as your average smart phone from maybe 2017 which which is not nothing, but it’s certainly not the breakthrough that some people seem to think it is.

The second sort of technology is called extreme ultraviolet, and that is what you do to do all the good chips and the leading edge chips. Now, especially the three in the five nanometers that most smartphone folks are wanting to put in their machines. This system is much more modular and you don’t have to redesign everything from the ground up.

So when it finally did come online, which which is just like four or maybe about four years ago, everyone was really excited because all of a sudden the time to target for bringing the design to production could be shrunk. Still talking months to years. But you don’t have to re fabricate everything within your facility every time you have a new chip design.

And so far it seems to be performing to snuff and it’s this sort of equipment that the Chinese can’t get at all, in fact, don’t have any of at all in the country. So the U.V., they were able to use the stuff that they had and buy stuff that was no longer restricted or that wasn’t restricted yet, combined with a huge amount of subsidies, combined with a lot of poaching.

And they were able to cobble together a phone that does use something that is technically sub10 millimeter, even though it doesn’t perform anywhere like that for a phone. The EUV is simply off the market for them and everyone else is moving forward. So from my point of view, this is really instructive. Think of it this way. Think of it like I had said, that the Chinese couldn’t build a television.

And I’m thinking of like those OLEDs that you hang on the wall that way, like £20 have a slight curve and the deep black and blah, blah, blah, blah. And the Chinese are like, Oh, we can totally built a TV. And they came out with like a 48 inch tube TV. It’s technically a TV. Technically, I was wrong, but under the terms of the technology, this is not something that really takes them forward.

If anything, this is a one off because they can’t use the stuff to advance because they don’t know how to make the better chips. And the reason that do you’ve was ultimately abandoned is by the time we get to about 15 nanometers, it was really skirting the edge of what you can do with physics because the wavelength for the light is wider than what you need to etch on the chip.

And they basically had to tweak the laws of physics to get down to seven, but that’s the upper threshold. But even doing something a little bit dumber than that, it’s not clear that the Chinese have the ability because they no longer have access to the expertize of the Dutch. So this is really, really illuminating to me for how far the Chinese are willing to go in order to say that they broke the sanctions, but they really did it.

There’s nothing about this that is home grown. There’s nothing about this that is replicable. In fact, there’s a possibility that may kind of fall into that category of stupid things that they’ve been doing lately in that you’ve got a number of people in the American Congress who are not interested in doing a week of research to figure out the details or just like, oh, always breaking sanctions.

Well, we’ll show them. We’ll just put it in front of the president, a bill that says that all technological transfers and sales to Huawei are now illegal. So not just the top, but stuff, everything. It’s Congress. Who knows how that’s ultimately going to shake out. But the Chinese are finding more and more ways to sacrifice their position on the altar of ego.

And it looks like this might be one more. All right, everyone, take care.

Chinese Leadership Concerns: Xi Ditches the G20 Summit

The announcement that Xi Jinping won’t be attending the upcoming G20 Summit is the equivalent of friends coming together for your intervention, and you turn around as soon as you see their cars parked down the road. With China facing economic slowdown, trade wars, and a slew of other things, an intervention (aka the G20 Summit) is exactly what Xi needs right now.

While some speculate that Xi is moving away from G20 in favor of BRICS, he didn’t even show up to the opening ceremony of the BRICS business forum. So, this announcement doesn’t indicate any political angle; it’s just a reminder of Chinese leadership’s ongoing and accelerating failure.

Xi has purged the Chinese political system of anyone who can form thoughts and potentially challenge his power, leaving him as the judge, jury, executioner, and everything else of importance in China. Even if Xi happened to be the smartest person in the world (which I won’t even comment on), he is still human.

Xi can only do so much alone, and the lack of competence across the Chinese system means that policy stalls wherever Xi is not. While Xi will send a replacement to the summit, concerns over China’s leadership capabilities are mounting, and the question remains – what is next for the Chinese people?

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Transcript

Hey everybody. Peter Zeihan here coming to you from Colorado. It’s Monday, the 4th of September. And the news out of China is that Chairman Xi Jinping will not be attending the upcoming G20 summit in India. There’s a lot going on in the world. I’m generally a big fan of the G20, but if you consider the Chinese economic slowdown, trade wars and all kinds of other things, it’s a good time for leaders to actually be meeting face to face, to do things.

Some people are saying that this is G spurning the G20 in favor of things like BRICS. But remember that he didn’t show up to the opening ceremony of the BRICS and the Business Forum, which is arguably the most important part of the BRICS forum as well. What we’re seeing here, instead of any political decision to favor or denigrate any particular forum or angle of policy, is instead the general ongoing and accelerating failure of the Chinese leadership system to cope with the situation they find themselves in over the course of the last 1213 years, Chairman G has basically progressively purged every part of the political system at his first five years.

He called it an anti-corruption push, and he went after all the regional power centers. And the next five years he went after the two factions that actually put him in power, that of his predecessors, Jiang Zemin and Hu Jintao. And the last couple of years, he’s going against anyone who has basically had an opinion or shown any competence who might be a theoretical successor.

And we’re now at a point where there’s no one left. So if something pops up that JI thinks needs to be dealt with, he is now the only one who can deal with it. So he sent his premier, Li Keqiang, who is got the personality and the competence of a block of wood to sit in for him, where he’ll basically just be reading policy papers and not acting to engaging in any sort of meaningful negotiation on anything while he does whatever it is he feels he needs to do.

And remember, he’s still a person, so this might not be policy related, it could be personal. But he is now found himself in a very similar situation to that of Donald Trump and Barack Obama, that he just doesn’t trust anyone to do anything. And so not a lot is going to get done that’s going to get done competently.

And even if he is the smartest person and the best manager on the planet, he can only be at one place at a time, doing one thing at a time. And as a result, Chinese policy in every other field at best stalls. Not a good sign. All right, that’s it.