The Biden administration has issued its first wave of investment bans on the Chinese tech space – things like AI or tech with military applications. However, money isn’t the problem for the Chinese; the real kicker is losing access to American know-how.
This is only the first wave of capital restrictions placed on the Chinese, but they won’t be hurting for cash. For the last 30 years, the Chinese have restricted capital from flowing abroad, ensuring a bottomless supply of money at home. That’s why China has seen explosive growth over the past few decades.
The one thing they do lack is ACCESS. Without the know-how and connections American investment gave them, all those doors will slam shut in their face. Innovation will be stifled, and economic growth will come to a halt.
This is only the first wave of capital restrictions placed on the Chinese, but the long-term effects will be devastating. And to kick Xi while he’s down, he’ll just have to sit back and watch the tech sectors of the countries around him surge to the top.
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If you’re thinking, “There’s no way China’s situation could possibly get worse,” you may need to talk to mother nature about the rains and typhoons causing flooding in northern China.
To understand the problem, we need to rewind about 2500 years. The Chinese crop of choice was and still is rice (although corn and wheat would have been quite productive given the Yellow River’s sediment makeup and the region’s arid climate). To produce rice, you must precisely control when and how much water is introduced throughout the growth cycle.
They needed extensive government oversight and the physical infrastructure to control the flows of a river as big as the Yellow. This meant that the Chinese needed to develop a dike system. Fast forward to the present day, and you’ll see a system of massive and unfinished dikes throughout northern China.
This dike system prevents the silt and sediment from the Yellow River from spreading and dispersing naturally, which means it has had over two millennia to build up. As the Yellow River takes on water from the extensive rains and seasonal typhoons, these dikes are being pushed to their limits.
I’m not saying they will break this year, but it’s only a matter of time before they do. When that happens, you can expect catastrophic flooding that will destroy critical infrastructure and many people. But hey, that still doesn’t top the list of things China should be worrying about.
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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.
Hey everybody. Peter Zeihan here coming to you from the Golden Banner trail above Cannes Coral, which is a suburb of the Denver Metroplex. Today, we’re going to talk about water or specifically all the water that northern China has gotten of late, that heavy spring and summer rains. And they just got hit by a typhoon. And so there’s significant flooding through Beijing.
It’s already killed a few dozen people.
The key thing to remember about China is a lot of its government structures are a direct outcome of its geography. So the North China plain, where the Han ethnicity basically has its core of power, is a big, wide open area that is both drought and flood prone. The drought is normal climatic stuff. This is a semi-arid region, maybe roughly akin to a cooler version of Central Texas or maybe central Nebraska.
But instead of having kind of braided rivers that flow through it, it’s got one single mighty river, the yellow that originates significantly upstream. A couple thousand miles away that drains an absolutely massive watershed in an area that is soil type called the West, which is wind driven soils, very fine particulates. And that means with when this dry zone, a lot of it’s actually desert does get rain, most of it runs off, it carries a lot of silt with it.
And that’s why the Yellow River has its name. The salt is yellow by the time you get downstream to where everyone lives in the North China plain, it’s a raging torrent, but it’s a raging torrent with lots and lots and lots of sediment. Now, if you can capture that sentiment and kind of like the flood drive that you had in, say, Egypt or the American Midwest, you get incredibly productive farmland.
But that requires you growing things like corn, wheat and the rest. China’s rice country. Water management is very important. Rice has to have very specific watering conditions at every stage of its production. Otherwise, the crop is lost. Now, northern China, they don’t grow rice anymore. But after 2500 years of growing rice, that has set certain things into motion.
Specifically, they have to be able to control the river, otherwise the water will come or be not there at the time of its choosing, rather than the Chinese people’s choosing. And that requires a lot more organization at the state level, which tends to generate a stronger hand in terms of government and a requirement that you have everybody under a single house politically.
Otherwise, various factions will just attack the water works and destroy whatever the hostile power happens to be. Fast forward that 2500 years, wrestling the river into shape means basically building ginormous dikes down the entirety of its length for the entirety of civilized northern China. That means the silt has nowhere to go. So in the Midwest, one of the problems that we’ve seen after just 150 years of trying to do this strategy on the Mississippi is you get silt on the bottom of the riverbed.
That raises the level of water so that when one of those dikes does break, it floods an entire area. So a big thing that the Army Corps of Engineers have been doing over the last decade is leveling some of those dikes and turning some of the land to wetlands just to absorb the flood flows. This is at least two orders of magnitude more significant, the case of China, because you’re talking about the most dense human population footprint in the country.
And we’re going to rotate a little since you like this, so much so that shot over there or there. That is Red Rocks, Ampitheater. So if you ever want to see a good show in Denver, go there. I got a great view of downtown, the sunsets. Anyway, what this means now is that in China, you’ve got two and a half millennia of sediment.
And so every time there’s a flood, it threatens the entire dike system. And if you have a break somewhere, it’s much more big of a problem than you have in Mississippi, because after two and a half millennia of heavy sediment, the floor of the river, in many cases now above the ground level, surprising of the surrounding lands, meaning those dikes are two, maybe even three stories above the city’s.
And if they break the entire course of the river, you know, river goes by the path of least resistance crashes down into the populated zones. Now, that hasn’t happened this year. I’m not saying it’s going to. I’m saying that the Chinese really didn’t finish their dike system to the current level of absurdity until just about ten, 15 years ago.
They used to have floods regularly. They would kill hundreds of thousands of people. And in today’s environment, where the Chinese were facing every possible problem under the sun with their finance, their economy and their demographics, this is just one more thing you have to factor in, because when this breaks and physics tells us in time it will, they’re going to lose significant portions of some of their most advanced infrastructure, not to mention lots and lots and lots of people.
So whenever you see it raining West of Beijing, pay attention because it matters a very great deal. All right. Take care.
The current Chinese system has been staring down the barrel of a number of serious challenges for quite a while now, and this new economic data just took the safety off that gun.
Between the demographic bomb that went off a few years ago and the lack of a post-COVID recovery, it’s no surprise that China is facing an economic funk. However, years and years of compressed economic damage are on the brink of bursting out and wreaking havoc on the entire Chinese system.
That’s right; we’re talking about deflation. This is only one month of data, so I don’t want to blow this up quite yet…but consumption has plummeted, there are ongoing trade wars, an oversupply of goods and undersupply of demand in both domestic and foreign markets, and that’s not even the whole picture.
We saw deflation take over Japan in the 90s, and it took them nearly 25 years to pull themselves out of it. The Japanese situation was leaps and bounds better than China’s current situation, so if this data is even partially indicative of China’s economic future, we could be looking at the beginning of the end.
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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.
Hey everybody. Peter Zeihan here coming to you from Colorado. And the new news out of China is they’re facing a kind of a triple economic funk. For those of you who’ve been following China for a while, you know that they’ve never really recovered from COVID, whereas nearly every other country in the world, once the opening finally happened and the end of the epidemic was declared, we saw an explosion in consumption as people tried to get back to some version of their life, which generated a lot of inflation.
We’ve not seen that in China. Growth is actually lower now than it was over the course of the last two years when they were supposedly under complete lockdown. Consumption is down. Imports and exports both dropped in July compared to a year earlier by double digits. A percentage is normally the sort of stuff you only see out of a country like, say, Ukraine or Russia.
When a war starts and this is happening, when the Chinese are supposedly getting back to normal. Now, a lot has gone down since the opening chapters of COVID in China, which date back to the fourth quarter of 2019. But something to remember is that we saw a demographic bomb go off in China before COVID going back to as early as 2017.
The demographics really turned negative from 2017 to 2021. The birth rate dropped by about 40%. And even in the months before COVID, we saw new car sales, which are kind of a quintessential indication that your population is kind of up and coming and feels confident about its future and spent a lot of money going negative. And they’ve never really recovered.
So now after COVID, we’ve had all of these trends with four or five, six years behind them. And as they’re manifesting in a more normal environment, the numbers are really, really, really bad. Now, for folks who are not familiar with demographics, this is probably a little bit of news. For those of you who are familiar, not too much of a surprise, but the very, very short version is that most of the consumption of the modern system happens when you’re in your twenties or your thirties, when you’re buying cars and raising kids and building homes.
Well, because the one child policy Chinese don’t have much of a generation in that block at all. And since the one child policy is now over 40 years old, we’ve now had a full generation of people to not have kids. And that is manifesting in the data as well. Anyway, that’s kind of problem. One problem to her boy, deflation.
Now in the United States, in Europe, in most of the developing world where there’s India, Brazil, Indonesia, the rest, the opening of COVID was accompanied by a huge burst of inflation. People were trying to consume again to get back to some version of their normal lives. And over the last 2 to 3 years, their consumption patterns had changed.
Instead of buying cars or homes, they were buying computers and phones in order to adapt to the new reality. Well, now they’re shifting back and supply chains take about 18 months to catch up. Now, in the United States, it has been 18 months now since the last state to reopen California did so. And so we’re seeing inflation incrementally drop, as it has been for the last year.
This is broadly what you should expect. In China, things are going the opposite direction. The consumption boom never happened. So supply chains never had to adjust. What has happened is people are less confident in their futures. So the consuming less. And we’re seeing mounting trade wars out of Europe, Japan, the United States and increasingly secondary states like the Koreans are joining in.
And that means the Chinese have fewer places to send stuff to. So what’s happening is product that was normally produced for export from China is now being locked up within the Chinese system at the same time that the population is purchasing less. You have an oversupply of good of goods and under demand, both at home and abroad. With all those extra goods, prices go down and you get deflation.
Now, short bursts of deflation are no big deal. So I don’t want to overstate what’s happening here. It’s only one month of data at present, but this is what you would expect when you’re at the beginning of a deflationary spiral that’s caused by a fundamental mismatch between supply and demand, which is where we are going with globalization and the Chinese demographic trends, which are now well past the point of no return.
The last country to face a major deflation burst was Japan started in the late 1990s, lasted for 2025 years. You could argue that it might be over now because of their COVID reassertion of demand. That might be overoptimistic, but the issue is once those prices start to drop because of that mismatch between supply and demand, it’s devilishly hard to adjust because normally you would do one of two things.
Number one, you could reduce supply, but that means closing productive capacity, which means people lose their jobs, which means they spend less, which means that mismatch persists. Or you can increase demand, usually with government stimulus. This might not work in China and not just because of the huge demographic bomb that’s going off. The Chinese economic system isn’t really based on exports or consumption.
It’s based on invest mint. The idea that the state fosters mass borrowing in order to build industrial plant infrastructure in the rest that based on whose numbers you’re using, are somewhere between 40 and 70% of the entirety of the Chinese economy, and it’s generated the vast majority of economic growth going back 40 years. Well, you can only do that for so long.
Eventually. You don’t need any more bridges or any more factories. And I would argue the Chinese reached that point before COVID. And so, again, there’s been this three, four year lag between reality and the data. Finally manifesting. The point is, more spending probably isn’t going to help the marginal outcome. The amount of growth they get for every yuan spent has been dropping steadily for 40 years, and now it’s in far less than 1 to 1.
So it really doesn’t matter how much more fuel and how much cheap capital the Chinese pump into the system. It’s never going to generate more economic activity than what it cost to put it in the first place. This is what happened in Japan in the late 1990s. In the early 2000s, they had reached the point where their economic model couldn’t run any longer.
They were getting basically negative income on their investments and they had then 20 to 25 years of deflation. The advantage that the Japanese had going into this is they already had a global supply chain, they already had global allies. They had an option for offshoring some of their manufacturing incrementally. They had strong demand out of the United States.
They had a good political relationship with the United States. And most of all, they were already rich. The average Chinese citizen today in inflation index terms, compared to the average Japanese citizen in the year 2000, has an income that something like a quarter or a fifth what it is in China. They’re getting old and they’re getting into a permanent recession and a deflationary spiral long before they got rich.
And this can end in any number of horrible ways. So, again, one month of data, I do not want to overplay this, but I’ve been watching for something like this for several years now. And in the post-COVID environment, we’re seeing the data belatedly match up with where demographics and geopolitical trends suggest that it should have been years ago.
If this proves to be the actual story, as opposed to a blip in the data, you’re going to see this get significantly worse in a relatively short period of time because we have years of compressed damage that is now bursting out all at once. And because the political system in China is basically down to one man cult of personality, the capacity of the Chinese state to come up with a creative solution is almost zero.
And even in Japan, where they were willing to talk about this publicly, it still took a generation to pull out of this. And alliances and the Chinese don’t have either. All right. That’s it for me. Take care.
Coming to you from Colorado’s very own Stonehenge out in the Lost Wilderness. Today’s new factoid is that youth unemployment in China is higher than in Italy (in percentage terms).
For context, Italy had the worst economic profile in Europe and has averaged negative economic growth for decades. If China’s unemployment resembles Italy’s, it is a very, very bad sign. Let’s break this down in the context of manufacturing.
Phase 1. Everyone is reshoring and pulling investments from China. Young people are pursuing IT jobs instead of manufacturing jobs. The problem is that China is a closed system that sucks at all things tech.
Phase 2. Xi’s cult of personality has ensured that China’s labor force won’t be able to develop into a value-add or tech-based system. Meaning everything will get significantly worse, and there’s not much hope of it getting better.
Phase 3. Remember the last time something like this happened in the Chinese system? We ended up with the Tiananmen Square protests. While that triggered the change in the political system we see today, Xi’s wiped away any opportunity for such change to happen now.
When a disconnect like this happens in the employment system, it inevitably translates over to the economic system. I’m not suggesting that this is the end, but this is how ends begin…
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.
We’re continuing our conversation on China’s inability to govern itself, and this is the cherry on top of it all…China restricting the export of metals used in greentech and semiconductor tech to the United States.
If you’ve followed along for a while, you know that the US doesn’t have to worry about rare earths, but Germanium and Gallium don’t fall into that category. Spoiler alert – I’m not too worried about these either.
While the Chinese may dominate the production of these metals, it can be attributed to subsidies and no one else wanting to do the ‘dirty’ work. There’s nothing uber challenging about the process; it just requires someone that’s willing to get their hands dirty.
As the bilateral relationship with China grows more hostile by the day, knee-jerk reactions like this material export ban will do nothing but encourage Americans of all political stripes to cut ties. Ironically, China has become the biggest promoter of the US moving as fast and far away from Chinese dependency as possible.
If the Chinese really want to start a material input war, they might as well start the countdown sequence because they would be f****d.
Prefer to read the transcript of the video?Click here
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.
Hey, everybody. Peter Zaillian here. Coming to you from extremely foggy, Colorado. We are continuing kind of a two part one here and something that’s going on with the Chinese and their inability to govern or enter in negotiations. So the new news from the 5th of July is that the Chinese are restricting exports of a couple of materials to the United States, materials that are used in green technologies and semiconductor industry, specifically germanium and gallium.
Now, for those of you who’ve been following me for a while, you know that when it comes to things like rare earths, I’m really not concerned because all we have to do is kind of turn on the processing, the capacity that we’ve already built. And then within a few months, the Chinese suppliers don’t matter at all. This doesn’t fall into that category. Gallium and germanium are not rare earths. They’re co-produced with other or so. It’s not that the extraction is particularly difficult, but this is something where we would have to build up the processing capacity first before we can get around this being a problem. I still don’t think it’s a major problem for two reasons. Number one, for people who are willing to admit something that’s becoming increasingly obvious, the bilateral relationship between the United States and China is hostile.
It’s becoming more hostile by the second and the incapacity of the Chinese system to even enter into meaningful negotiations means it’s only going to get worse. You know, part of the issue is that Chairman Ji has so purged the system that China is not even capable any longer having good faith negotiations. And even if it was capable of good faith, it couldn’t handle the technical details because Chairman, she would have to do it personally and they would have to implement it personally because he’s purged the system throughout China of anyone who is even marginally competent. So the capacity of China to even act as an actor, much less a good faith actor, is pretty much fallen away. Which leaves us with things like this germanium and gallium band, because this is like knee jerk grade D-minus, not even freshman level economic coercion. The Chinese said flat out that this was a hostile move designed to punish the United States and that more was coming.
But when you look at what’s going on, you’ll see that it’s not something to be all that worried about. Now, Germany and gallium, the Chinese, based on whose numbers you’re using, produce between 50 and 80% of those two materials. And yes, the United States does have a weakness in terms of processing and access, but a few things to keep in mind. First of all, germanium is a byproduct of zinc mining and zinc refining, and zinc production globally is pretty robust. Yes, the Chinese are the biggest player, but they’re also the biggest user. So if you were simply to add some processing capacity at a half a dozen places around the world, maybe a couple of the United States would be nice. That would solve itself. Gallium is a byproduct of aluminum production, specifically the first stop of aluminum production where you turn bauxite into alumina. That is also done in a number of places. The reason that the Chinese dominate the production of these two micro materials is that it’s a little dirty. And so the Chinese have to subsidize the production about specific sets. There’s nothing expensive or technologically competent or even particularly time consuming about building replacement capacity. And so we might have some pressure for a few weeks to a few months as people kind of sink in how serious the Chinese are or not about these bans. But replacing those materials is not particularly hard. Second, I would argue that this is a good thing that the Chinese are using a complete lowball flunky, incompetent measure of intimidation because, you know, Americans are going to blow this out of proportion. Things like the IRA and the CHIPS Act were rare. And for a third one that is specifically about strategic materials production, and this plays right into that political drama. You’ll have Democrats and Republicans falling over each other in order to put the money forward and put in regulations to encourage these productions within the North American system of the Chinese have really proven to be very helpful in that. And third, and most importantly, if the Chinese really are serious about an input war, oh my God, they are fucked because 90% of the world’s semiconductor sector capable silicon comes from North freakin Carolina. And so if we’re really talking about a materials war as part of the struggle for the digital age, they’re not going to have computers because they can’t get access to the raw materials that are necessary in mass to make the most basic technologies that make air run, and that’s semiconductors.
So this is not something where the Chinese have any more than a passing advantage on a couple of micro materials that are easily to produce in other places. And by doing this in this way, in this in-your-face wolf warrior way for something that ultimately is easily replaceable, is probably the most effective way that I can think of, of getting the United States past dependency on the Chinese in general and honestly destroying the tech sector in its entirety.
Now, there’s some political decisions that have to be made in the United States on both sides of the aisle, on Capitol Hill, in the White House, and on and on and on. But the United States is in the mood for this, the competence discussion now that we’re entering political season for the next election cycle, is who can be most anti-Chinese? It’s just a question of whether or not you’re going for hopefully or were derisking or reinforcing. I mean, everyone has their own preferred term, but the bottom line for almost everyone is how to end the dependency. And the Chinese are really being very helpful in encouraging us to move that forward.
The news of the day is that the Chinese have canceled their upcoming summit with EU foreign minister Borrell. You all know I’m less than pessimistic about China’s leadership as of late, and this is just icing on the cake…we’ll talk about the cherry on top tomorrow.
As most countries have discovered over the past few years, reading China is incredibly difficult from the outside. The US got a pulse check on Xi and his government when Secretary Blinken visited a few weeks back. Unfortunately, the EU won’t be getting a behind-the-scenes look.
This summit was an attempt by the Europeans to rework their relationship with the Chinese, but Xi’s cult of personality makes navigating that conversation nearly impossible…especially with how many layers make up the European bureaucratic system.
Regardless of the EU’s goal with this summit, no meaningful conversation would be had. So given a choice between a wall of hostility or canceling the meeting…cancelation was probably the best option.
Prefer to read the transcript of the video?Click here
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.
Hey, everybody. Peter Zeihan here. Coming to you from a place in Colorado that it doesn’t really matter where I am because you can’t see the damn thing anyway. Today is the 5th of July, and within the last few hours the Chinese have flat out canceled the upcoming summit with the EU Foreign Minister Borrell. For those of you who have been following me for a while, you know that I’m not very impressed by the quality of China’s leadership of late Chairman Xi Jinping has established such a cult of personality that no one will bring him any information.
He’s shot the messenger so many times and purged the system so thoroughly that anyone across the entire country who is capable of independent thought and is willing to share independent thoughts is dead, imprisoned, exiled or worse. And as a result, the government has become a one man show. If she doesn’t say that it’s going to happen, it doesn’t happen.
And that means whenever there’s any sort of adjustment that is necessary for the ship of state at any level, everything gets frozen, either in a cult of personality where it just becomes this apologetic, scream of blind, idiotic Chinese nationalism or things just don’t happen at all. And that’s exactly what’s happening with the EU summit. And I think the best way to compare this is to what happened to the Blinken summit.
Now Tony Blinken is the American secretary of state and a couple of weeks back he went to China and it was the first meeting of anyone of substance in the United States with anyone of substance in the Chinese system. Since before COVID, the Chinese have been in lockdown for most of that time. And during that time, he completed his cult of personality and his purges and removed everyone who’s capable within the entire system.
So it was really hard for the United States to get any sort of read on what was actually going on in the country, because no one in China would say anything, because no one in China knew anything or had any instructions. So it was worth Blinken going to China just to kind of take the temperature of the regime and reading the tea leaves.
And from what I’ve heard from folks in Washington, what happened was just there’s a complete stall in government policymaking right up to and including the foreign minister. And knowing that is really useful for the United States if China is completely incapable of governance, then you should expect to see a mounting series of ever more serious foreign policy and internal policy disruptions, mistakes and collapses.
We’re seeing some of that. We’ll talk about another one of those with the next video as regards to economic issues. But back to the Europeans, the Europeans are in the process of trying to rejigger the relationship with China and they’re trying to find a third way. The first way is what they’ve been doing so far, where they just kind of roll over, let the Chinese do whatever they want.
The second one is the more American style, which is a little bit more in-your-face and more direct and confrontational, but trying to find something in the middle and it’s not clear that there is a path there. But, you know, the European thing is to try for a third way on everything anyway. Now Borrell, like the European Foreign Minister, doesn’t go anywhere alone.
There is a number of representatives of the Commission, there’s representatives of the national government. There’s a small fleet of bureaucrats. One of the things that most foreign powers find really problematic and frustrated about the Europeans is everything is about the EU bureaucracy and going through layers of approval that involves the French and the Germans and everybody else, and that’s before independent countries put intelligence agents as part of the delegation, especially in the case of Germany and France and Sweden and the Netherlands and Denmark and Romania and Belgium.
And I’m sure forgetting a few of the high points that Europeans are pretty good at this. But mostly you’re talking about a small army of bureaucrats there to renegotiate every possible bit of minutia that makes up the relationship. This is what makes Europe go, the bureaucratic minutia that allows them to kind of act as a sovereign country, like a single country, but mostly is about creating a web work of relationships and inter linking bureaucratic regulations in order to stabilize the relationship.
If you’re not European, this is frustrating as hell. If you are European, this is how we make the system work. And there is nothing about that system that works with a cult of personality where only one person can make the decisions. So regardless of what the goal of the Europeans was here, there was no way that the Chinese system was capable of engaging with Europe competently, because there’s no way that one person could manage this sort of interaction.
And in the case of the Europeans, they were going to bring everything into. The case of the Chinese, they could negotiate nothing, too. So the Chinese were left with a very simple choice face. The Europeans with an American style wall of just hostility or cancel the meeting. And so they canceled the meeting, and that’s probably never going to have another one again, because for the Europeans, this is how they normally operate.
And for the Chinese, they are now completely capable of carrying out complex negotiations of any sort. And as long as that is the case, there’s no point in meeting in the first place. So we’ll be up to the Europeans, either talking with the Americans or other foreign powers or among themselves to figure out what happens to the bilateral relationship with the Chinese when the Chinese are not capable of engaging at all.
That’s going to be a topic for another day. But anyway, next topic we’ll talk about some of the economic things that the Chinese are doing in this mood of a cult of personality. All right. But.
Today we’re breaking down the new demographic data from the Chinese space. This will allow us to make some much-needed updates to an already bleak assessment…and spoiler alert, it’s going to get a lot worse.
The first graph shows us the demographic picture before any of this new data were released. You’ll notice China already has an incredibly fast-aging population. The number of people entering the workforce can’t keep up with retirees, so even when using the old data, labor costs were increasing faster than any country in history.
The second graph shows us what the new data are saying. The number of children under age five has collapsed, leaving China with nearly half the amount of five-year-olds as fifteen-year-olds. This happened well before COVID drove down birth rates and increased death rates. Even though this is the “official” Chinese data, it’s likely overly optimistic.
So that brings us to our internal extrapolation of the data as seen in graph three. Again this is our interpretation, but it gives you a better look at the Chinese predicament. Leaks out of China suggest the yellow bars don’t even exist; this means China isn’t a country in demographic decay…its a country in the advanced stages of demographic collapse.
China is entering its final decade of operating as a modern industrialized nation. For any foreign business still in China, those sunk costs on factories can only keep you there for so long…and it will only get worse from here on out.
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Hey everybody. Peter Zeihan here coming to you from Marshalltown, Iowa. My mom was a little upset that the videos I did earlier did not have a flower garden in the background. So we. Topic today is Chinese demographics. We’ve gotten some new data out of the Chinese that has made it way to the U.N. and so the updates have allowed us to update our assessment and oh, my God, it’s bad.
Okay. So let’s start with this first graphic to show you where the official data have us. As of a year and two years ago, this narrowing for the bottom seven blocks is the fastest aging workforce in the world and arguably the fastest one in human history. This indicates that the number of new workers coming in is so small compared to the number that are retiring, that you’re having massive increase in labor costs and from adjacent numbers that we do trust.
I mean, Chinese data is always a little touch and go, but from the numbers that we do have that we do trust, which is labor costs, Chinese labor is increasing at the fastest pace of any country in any era at any time in history, including during the Black Death itself. Since 2000, the cost of Chinese labor has gone up by about a factor of 15, while the size of the Chinese economy has only expanded by a factor of but roughly 3.5 to 4.
So really, really bad. The Chinese are only in industrial power today under this data because of the sunk cost of the industrial plant that it took to build everything that’s there in the first place. Now, that’s not nothing that is huge. That’s, you know, trillions of dollars, tens of trillions of dollars. And it’s highly relevant. But most industries and most subsectors that have decided to relocate to other countries have discovered that they’ve got shorter, simpler supply chains where there are a lot less of a political headache.
Okay. Here is the new data. And as you can see, that the number of children who are under age five has just collapsed. And there are now roughly twice as many that are age 15 as there are age five. What happened back in 2017, well before COVID, is that we had a sudden collapse in the birth rate roughly 40% over the next five years.
Among the Chinese, the ethnic Han population and more than 50% among a lot of the minorities, and that is before COVID, which saw anecdotally the birth rate dropped considerably more and before COVID, which probably raised the death rate considerably. What we’re never going to get good data on death rate, or at least not anytime soon, because the Chinese, when they did the reopening, they just stopped collecting the data on deaths and COVID and everything because they didn’t want the world to know how many Chinese died.
So they don’t know. With this data, this snapshot in time, this is official state data. It’s still probably not wildly accurate. We still have the Shanghai Academy of Sciences, which is like the kind of the biggest nerd group you’ve got in the in the country, saying that the country has over counted their population under age 45 by over 100 million people in the aftermath of the one child policy.
And so really, what we need to consider is that that official data and at the very bottom, you need to play that up. And this last graphic kind of shows you our internal estimate of where that is. Now, this is not official, but those yellow bars probably don’t exist. But that is not what the official data is saying.
This is an extrapolation from the from what? The Shanghai Academy of Sciences is saying. Anyway, some version of this is probably the truth, which means that China aged past the point of demographic, no return over 20 years ago. And it wasn’t just this year that India became the world’s most populous country. That probably happened roughly a decade ago.
And it was it in 2018 that the average Chinese aged passed the average American. That was probably roughly in 2007 or 2008. So this is not a country that is in demographic decay. This is a country that is in the advanced stages of demographic collapse. And this is going to be the final decade that China can exist as a modern, industrialized nation state because it simply isn’t going to have the people to even try.
So for those of you who have business in China, you’re becoming more and more aware of the political system. You’re becoming aware that it’s becoming illegal for foreigners to even access data, data that in most countries is publicly available. You now have on top of that to figure out that not only is the labor force never recovered and the labor costs you’re having now are as low as they’re ever going to be, consumption is as high as it’s ever going to be.
So even before you consider the political complications or issues with operating environment or energy access or geopolitical risk or reputational risk, the numbers just aren’t there anymore. So you have to ask yourself why you’re still there. Sunk costs of industrial warfare. That’s a reasonable answer, but it becomes less relevant with every passing year as everything else catches up.
The news of a “new” Chinese listening post in Cuba sparks the question: why is Cuba so important to the US? No, we’re not talking about cigars. We’re talking about Cuba’s role in American strategic planning.
With control of the Florida Straits and the Straits of Yucatán, Cuba commands access to the Gulf of Mexico. For those who need a refresher, the gulf is critical to American power, capital generation, agriculture, and energy, second only to the Mississippi system. Hence the whole Cuban Missile Crisis back in the day.
Now I’m not worried about China playing any significant role in Cuba because they’ve had this post for years and China cannot command power at a distance. However, this doesn’t mean things won’t get interesting with Cuba. There are only a few ways that I could see this playing out.
Option one is the diplomatic route of bringing Cuba into the North American family or even NAFTA. Option two is the military route, which would involve America’s favorite pastime of overthrowing the government and/or occupation. OR Cuba and the US can meet somewhere in the middle and play a good ole fashion game of economic warfare.
In all reality, the US will probably just wait this out…unless a real threat to American security decides to try its luck.
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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.
Hey, everyone. Peter Zeihan here. Coming to you from the slightly less smoky Okanagan. Today we’re going to talk a little bit about Cuba. Specifically, there is news recently that the Chinese are maintaining a new listening post. That’s pretty much bullshit. It’s been there for years. In fact, the Biden administration came out a few days after the initial report said, yeah, it’s been there at least since 2019. Probably been there a little bit earlier.
Now, Cuba will always figure hot and heavy in American strategic planning because it controls the Straits of Florida in the Yucatan Straits, which command access to the Gulf of Mexico. And if, for whatever reason, the Greater Mississippi system could not trade with the rest of the world, that is the core of American power, capital generation and agriculture and energy. So kind of a big deal. And this is the reason why JFK almost got us into a nuclear war over the Cuban missile crisis back in the sixties because the Soviets were militarizing Cuba. Cuba itself certainly doesn’t have the military capacity to challenge the United States or to close the straits. But it could be a base for a hostile power from another hemisphere.
Of course, the conversation now is whether or not the Chinese are in that role. Not yet and probably not ever. The Chinese don’t have the ability to project power that sort of distance without, ironically, American assistance. So the only Chinese military base abroad, anywhere in the world is in Djibouti and it is only able to function there because the Americans basically indirectly help out with logistics and naval patrol.
So I’m not worried about that right now. That doesn’t mean that things with Cuba aren’t going to get interesting in the post-Cold War environment with the Russians no longer a significant factor in Havana. The question has been how long can Cuba last in this sort of environment? And there’s really two big paths that this could go. Number one is a diplomatic solution to the embargo and relations between the two. This is something that Barack Obama attempted sloppily and sophomorically, and ultimately was shot down by Congress. But the idea of bringing Cuba into the North American family, perhaps even into NAFTA, makes a lot of sense because the workers in Cuba are probably about a third as productive as Americans, but they work for 1/10 the cost. So it’d be a really good complement to what the Mexicans really need to industrialize more of their system right now. It would be a huge value add. Not to mention the boosts in agriculture and tourism. So some sort of negotiated deal makes a lot of sense, but we’d probably need a better negotiating team than what we had under Obama. But is literally every other president we’ve ever had. So, you know, don’t rule it out. It’s a political question on both sides. There just has to be willingness to work on it again. The second option is a more direct military option, which would include overthrowing the government or occupying it. And we’ve done that in the past, too, although not recently at the moment that is off the table. It would take a lot more provocation from the Cubans than hosting a listening post. They would have to actually accept more advanced military assistance and have a base. And the Chinese are simply not the power to do that. And the Russians no longer have the capacity either. So it would only happen if the United States president just woke up one day and said, you know what, let’s conquer Cuba. I don’t find that likely. And then between those two extremes, you get economic warfare. One of the things that we’ve discovered in a system that is as dysfunctional politically and economically as Cuba is, there are a lot of weak points. Probably the single biggest one is food. And that’s one of the reasons why when we had that proto deal with the Obama administration, that the United States used its agricultural surpluses as a way to induce the Cubans into making concessions. And it worked. The other one would be energy. The Cubans get almost all of their fuels from Venezuela. And so if you have a break in the Venezuelan system, all of a sudden the Cubans are high and dry and without fuel, diesel or power. So there’s a lot of ways that the Cuban system can kind of collapse under its own weight.
And as with everything with the United States, there is a belief in Washington accurately that we can outwait this problem. And unless we have some sort of acute challenge to American security, that’s just kind of the safest thing to do. It’s probably a good bet, but that doesn’t mean it’s going to last forever.
Secretary of State Antony Blinken is heading to China to attempt to reset relations. He’s getting flack from both sides, and I won’t talk about that, but I do want to bring up three things…
China has descended into a cult of personality thanks to Xi Jinping. He’s ridded the government of anyone capable of conscious thought, so whatever he says = law. In a situation like this (where one man is trying to do EVERYTHING), it’s impossible to have meaningful diplomatic relations.
We have a dying super-power on our hands, and if America’s mitigation plan is to ignore them…there will be no options to manage the fallout. Blinken’s visit, at the very least, is a step towards figuring out what those options might be.
At its core, Blinken’s visit is about intelligence gathering. When you have a leader like Xi (who doesn’t talk to or trust anyone), it’s incredibly difficult to get information. So the only decent way to get info is through a trip like this.
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.
As countries across the globe peeled back COVID restrictions, many of those economies saw huge (and much-needed) bumps. With China approaching six months since lifting its lockdown, the question on everyone’s mind is why hasn’t the world’s second-largest economy seen an economic bump?
I won’t hold my breath, and the Chinese shouldn’t, either. There is simply too much going on in the Chinese system for reopening to fix everything magically. Between countries pulling their manufacturing needs from China in favor of reshoring, a growing anti-China sentiment, and a terminal demographic situation…China isn’t looking so hot.
It shouldn’t come as a surprise to anyone that China isn’t going to be getting a post-COVID bump. In all likelihood, they are probably going to experience an economic slump.
Prefer to read the transcript of the video?Click here
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.
Hey everyone. Peter Zeihan here, still in Monterey. That’s my plane right there. We just got delayed for another hour. Anyway, on the topic of waiting, where is this ridiculous idea of a COVID recovery for the Chinese? I mean, come on, it’s been six months. I would argue that you really shouldn’t wait for it any longer. There’s a number of things that are going on that are structural for the Chinese system, that aren’t going to be fixed by anything as minor as reopening.
Most Chinese economic growth has been caused over the years by either investment in industrial plant to serve external markets or the production of goods to serve those external markets. So basically, think of offshoring onshore. That has been a lot of the growth story and especially the technological advance for these past 20 years that has probably peaked.A few things…
Number one, the world and especially the United States, has turned sharply anti-Chinese when it comes to investments. And so there’s a lot more effort to do things with friends or at home or at least nearby. Biggest beneficiaries of that so far have not just been the United States, but Mexico and Vietnam. Nothing’s changed there.
Second, the production costs in the United States system in terms of energy and labor productivity. Everything is lower than they are in China. So there are very, very few industries that have tried to move out of China back to the United States and discovered that it’s been anything other than a wondrous experience.
And third, there’s a personal, personal angle here where you’re going to drop $1,000,000,000 in a country in order to do a big investment. You know, you kind of go and scouted around first. And because of COVID, no American CEOs went to the country for the entirety of calendar year 2020, 2021 or 2022. If they did, they were subjected to the joys of literally an Eagle probe to check them for COVID. We like to call this an economic parlance, a non-tariff barrier. Well, the average turnover for an American CEO is five years. And if for, three-three and a half years, you couldn’t even get there. Well, the personal connection where CEOs would link their personal performance professionally to some sort of activity in China, well, that’s that’s all gone. And so we’ve seen interest at the corporate level drop as well.
On top of that, it’s turning out that the Chinese demographic picture is significantly worse than anyone thought. Worse than the Chinese thought. And it’s not so much that the Chinese population became older than the average American in 2018 and was passed by by the Indian population in 2022. But those milestones probably happened a decade ago. If you look at the new data that’s coming out of the Chinese, so the economic case isn’t there.
The personal case isn’t there, the investment case is it there? And that’s before you consider the Chinese have kind of become a bag of dicks in international diplomacy, this whole wolf warrior approach has soured a lot of people and made it less likely for Chinese tourists to be welcomed and less likely for countries to be interested in seeking that at all.
So when you look at flights in and out of China to other countries, the global average is only about 40 to 50% of pre-pandemic levels. So there hasn’t been that kind of burst of revenge tourism that we’ve seen in a lot of places and flights to and from the United States where the business has done. That’s only 6% of pre-COVID levels.
So we’ve had a significant shift of mindsets on all sides. And with the demographic collapse, meaning that consumption led growth was never possible again in China at bulk. Anyway, it really shouldn’t be a surprise that the Chinese are proving unable to have a post-COVID bump, which means we’re very close to a post-COVID slide, assuming nothing else goes wrong and a lot of other things are going wrong.
All right. See if I have another delay here…
Finally boarded. Oh, yeah. One more thing. We don’t know how many people, all right? We don’t know how many people died in China’s COVID experience. So I’m assuming that the anti-vaxxers are right. And this has never been worse than a common cold. That was a million people dead. People don’t spend money.
People who survived dead people tend to be kind of down in the dumps for a little bit of time. So the idea that there was ever going to be a big economic boom with China opened kind of throws in the face of, you know, logic and emotion, demographics and trade and a few other things. Anyway, I’m finally moving now from home by.
