China's Take On (or Takes On) the US

Graham’s note: the following is an excerpt from my latest issue of The Phoenix World Views Digest my monthly newsletter devoted to presenting the REAL situation in the world from a socio-economic-political perspective.

Already Phoenix World Views Digest subscribers have found out the fundamental flaw with the US’s industrial food chain (which explains obesity, Diabetes and 40% of the types of cancer in our country), the REAL powers that control the Federal Reserve system in the US, and why oil prices are heading higher no matter what happens in the next five years (hint: it’s peak oil with a political spin). 

There are times in life when one witnesses something so outside the scope of one’s normal experience, that one simply ignores it.

Captain Cook’s diaries tell us that upon first seeing his ships offshore in Australia, the aborigines expressed neither “neither surprize [sic] nor concern.” Cook notes that it was not until he and his men approached the shore in smaller, more familiar vessels that the villagers reacted, arming themselves as “the sight of men in small boats was comprehensible to them: it meant invasion.”

This phenomenon is related to “change blindness,” a psychological trait in which subjects fail to notice dramatic changes in their environment. Lest you believe this only pertains to indigenous cultures, consider that Harvard psychologists have performed experiments revealing that 75% of subjects fail to notice when the person they were speaking to was replaced by a second individual who not only looked different from the first person, but was wearing different colored clothing.

This phenomenon can also play out on a national stage.

Indeed, the US, like all crumbling empires, is so caught up in its self-centered notions of superiority and “bread and circus” entertainment (in today’s world McDonald’s hamburgers and garbage TV like Jersey Shore) that it is TOTALLY “change blind” to the fact that China has not only ascended from a communist backwater to THE key player in the world’s global economic balance (more on this in a moment)… but is now holding MOST if not ALL of the trump cards from a global monetary/ economic standpoint.

Ask most Americans what they know about China and the focus is usually on social issues. Indeed, the average American’s perspective of China has transitioned over the last 50 years from “Red commies,” to a fascist regime that runs over students with tanks, to the producer of low-quality goods/ sweatshop hellhole where multi-national corporations outsource our jobs.

At best, Americans might have some understanding that China owns a lot of our debt (courtesy of a Saturday Night Live skit, not the news) but that’s about as far as their understanding of China’s economic import extends.

It’s not particularly surprising when you consider the coverage the mainstream media allocates to China. Take, for instance, the below headline from a Washington Post article dated October 6, 2009 (a time when China’s economy had already turned around and was dramatically outpacing the US).
Can China Lead a Recovery?

When Zizheng wheeled his shopping cart down one of the aisles at the Carrefour store near his house and paused in front of the bottles of Remy Martin, Johnnie Walker and Hennessy, each selling for an amount about equal to the annual salary he earned when he was a young government employee.

But those days were about 30 years ago, around the time Deng Xiaoping launched China on a path of economic reform and opening up. Now China's thriving economy has made it possible for people like Chen, a 67-year-old semi-retired aerospace industry official, to plop down 1,168 yuan, or $170, for a bottle of liquor at a branch of a French "hypermarket" chain.

"It's not that expensive for ordinary Chinese people now," he said, adding that he planned to serve Johnnie Walker Green Label to guests he was expecting to share moon cakes with during last weekend's mid-autumn festival.

"As Chinese society has developed and opened up, people have a better appreciation of imported liquor," said Chen, who used to buy the traditional Chinese stiff drink known as maotai. "When you choose a gift, other people will look at it and if it is brand stuff they will feel respected because you chose it for them."

While the article’s headline and content appears innocuous enough at first glance, their subtext is all too clear: China’s economic growth is important not because it is ascending to superpower status and will soon be butting heads directly with the US, but because the Chinese are SO keen to consume just like us Americans that they’re going to literally SHOP until the world economy is back on track.

In metaphoric terms, China’s economy is portrayed as a kind of tugboat that will help pull the larger, slower vessel that is the US economy back on track. China is a helper, not a threat. After all, the Chinese want nothing more than to make money so they can go buy liquor and shop for brand names just like us Americans.

After all, how could China, a COMMUNIST country, POSSIBLY overtake the US?

Well, it’s already starting to. The mainstream media with its “western ethnocentric” mentality doesn’t mean to report on this, but if you read between the lines, you can see a notable shift in tone regarding our biggest creditor nation.

Consider the below headlines taken from the period 2009-2010. Note the subtle shift in dynamic even though almost all of the sources are Western-centric media outlets.

Clinton: US and China can “help lead world recovery”
Euronews 2/21/2009

China's Economic Recovery Gathers Steam

Recovery Picks Up in China as U.S. Still Ails
NY Times

IMF: China Has Key Role In Global Recovery

IMF calls on China to lead coordinated rise in Asian currencies to reconfigure economies
San Francisco Examiner

China Poised to Lead World in Patent Filings
New York Times

What we see here is a gradual, but clear transition from China as underling meant to drag the developed world (US) to safety, to China as economic leader/ standalone power in its own right.

Indeed, nothing indicates China’s new might like its recent tussle with Japan over a fishing accident in which China was at fault and yet came out on top.

On September 7th, a Chinese fishing vessel crashed into not one, but two, Japanese coast guard ships off the coast of the Diaoyu Islands: a group of eight islands that have been a point of international tension between China, Taiwan, AND Japan for years as all three countries claim ownership of the islands.

Japan responded to the incident by arresting the fishing crew and its captain. China responded to this by ENDING exports of rare earth minerals to Japan.

In order to comprehend the significance of this move, you must first know that rare earth minerals are used in the production of virtually EVERY electronic device. China controls 93% of the global production of these minerals. And Japan’s economy, which is heavily reliant on electronics manufacturing and exports, NEEDS them in order to operate.

And China simply CUT. ALL. EXPORTS. TO. JAPAN.

In vernacular terms, this is what you call a “head shot”: a fatal move your opponent can neither respond, nor refute, nor survive from. It’s the economic equivalent of China saying, “this conversation is over, either you give us what we want or you perish.”

Japan responded by immediately releasing the fishing crew and captain. But even that was not enough for China which then demanded (not asked) for both compensation AND a formal apology for the incident.

Remember, the Chinese fishing boat crashed into the Japanese coast guard vessels. And here’s China DEMANDING, at the point of an economically loaded gun, a formal apology from Japan for arresting the boat’s captain and crew. 

To date, Japan has issued no formal apology and the issue appears to have reached something of a stalemate (China has renewed rare earth exports to Japan). However, it stands as a major warning of how China will conduct its foreign affairs going forward.

In plain terms, China is not, in any way, afraid to throw its weight around when it comes to its interests. Consider that by all counts this fishing boat issue was largely symbolic in nature and having absolutely NO real relevance to China’s economy. And yet, China was willing to completely cripple its opponent to get what it wanted.

If you’re living in the US, this story should give you a shudder as it is an obvious prelude to China’s eventual confrontation over monetary policy with the US. That confrontation may occur in five years or it may occur sooner. But whenever it does, you should know that when push comes to shove, China’s more than capable of playing its trump cards.

Good Investing!

Graham Summers