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Santa Clausewitz, a minor Chinese god
By Spengler

Santa Claus, were Christianity to disappear, would live on in China as a minor prosperity god. The Chinese love to shop and have naturalized the American symbol of Yuletide acquisitiveness. America's contribution to Chinese prosperity goes beyond symbols, though. The United States gave China precisely what it lacked, namely an open market for goods, access to financial markets, and a store of value for savings, among other things. Providing a global reserve currency has been America's decisive contribution to Chinese success. The result will be a Sino-US duopoly rather than a unipolar world.

If there were a minor god of strategy, though, we might call him Santa Clausewitz, after the 19th-century Prussian military theorist. He is a god not of prosperity but of creative destruction, and his sleigh bells are tinkling over the rooftops of Beijing. The Sino-US power duopoly constitutes the most disruptive force in world economic life since cheap British textiles crushed India's weaving industry at the outset of the 19th century. An impossibly high threshold confronts any other part of the world seeking economic success. Not in their wildest imaginings could American planners have invented a more effective way of projecting US power and suppressing prospective challengers.

Something like a folie a deux unites US neo-conservatives who fear China with America-haters who hope that China will undermine US world influence. Before radical Islam appeared on the radar, the likes of William Kristol and Robert Kagan warned in 1996 of the "emergence of China as a strong, determined, and potentially hostile power". As recently as December 13, Mark Helprin complained in opinionjournal.com that "China is now powerful and influential enough ... to make American world dominance inconceivable". Nonsense. It is China's success that is inconceivable without US world dominance. If US financial markets were to break up, China would go into a tailspin.

The neo-conservatives take exception to China's political system, which no one will mistake for Anglo-Saxon democracy. By the same token, the anti-imperialists claim that China offers an alternative to the US model, proof that economic success does not depend upon the Anglo-Saxon legal template. Ideology overwhelms reason in both arguments. China's success leans upon US financial markets, which cannot exist without Anglo-Saxon law. The Chinese are willing to take risks in China precisely because they can share local risk with international investors, while keeping their own savings safe in the United States.

The Chinese are famous for caution with respect to core savings, and just as famous for gambling with money they can afford to lose. No nation saves more of its income; if one believes the official numbers, Chinese salt away nearly half their earnings. The United States makes it possible for Chinese to take risks and stay safe at the same time.

China's half-trillion dollars of foreign-exchange reserves, according to the same critics, display China's strength and the United States' weakness. On the contrary: the reserves are there because the government of China knows that the Chinese trust US banks rather than Chinese ones, and wisely keep a hoard of rainy-day savings in US funds. China cannot invest its savings at home until such time as Chinese laws, regulations, and politics give rise to a banking system as strong as America's, that is, until China's legal system looks a lot more Anglo-Saxon.

War and revolution have destroyed the savings of generation after Chinese generation. It may seem disadvantageous for Chinese to sell goods to the US in return for paper assets, but beauty is in the eye of the bondholder. People who just have struggled up from poverty place great value on knowing that their children never will know what it is to be poor. Once they have made themselves secure, Chinese business people take risks on a scale that astonish their counterparts in other countries.

China is successful because Americans are willing to take the risk of letting foreigners break the rice-bowl of its own citizens. Chinese imports have wiped out entire industries in the United States, notably electronics, toys and textiles. The US has imposed upon its own citizens the risk of finding alternative employment. It allows foreign students to compete for places in its top universities on equal terms with natives, and protects foreign businessmen under the same laws.

It is hard to imagine what sort of geopolitical quarrel might arise between China and the United States, leaving aside the matter of Taiwan, an eminently manageable issue. On the contrary, Beijing and Washington agree about North Korea, and have a common interest in suppressing radical Islam. Where European leaders uniformly backed Senator John Kerry's failed bid for president, China's leaders quietly hoped for a victory for George W Bush, as Singapore's former leader Lee Kuan Yew observes in the upcoming issue of Forbes magazine.

With Bush's re-election, China is assured of continuity in US policies, especially those concerning Taiwan ... China, therefore, has reason to welcome this second Bush term ... Islamist terrorists are active in the southern Philippines and Indonesia ... Only when al-Qaeda and its Arab affiliates are seen to fail will their disciples in Asia lose heart.
Unintentional strategic collaboration between the United States and China, however, transcends the visible areas of agreement. By assisting the birth of China as an economic superpower, America has shut the door to prospective challengers. The more populous Muslim countries - eg Indonesia, Pakistan, Egypt and Iran - have missed the boat and will remain poor for at least another generation. In the Islamic world, Turkey alone has had export growth within an order of magnitude of China's.

A rising tide does not lift all boats. It swamps the ones that are anchored to the bottom. "Comparative advantage" in international trade sounds well enough, but not all countries have one. Asia controlled half of world manufacturing during the 17th century because of the skill of its weavers. When the industrial revolution in England cut the cost of making cotton fabric by a factor of 300, famine overcame formerly prosperous Bengal. The Indians turned to farming opium for sale to China, to the detriment of both countries but the enrichment of the British East India Company.

Chinese resentment at colonial exploitation never will fade, but it is offset by the delicious fact that it is China's turn to disrupt the world economy. In September, Spanish workers burned warehouses containing shoes imported from China in the center of Spain's shoemaking industry. That does not compare, of course, with the burning in Guangzhou of East India Company opium in 1838, but there is something of a parallel.

Europe has less to fear from Chinese competition than from the shrinkage of its own labor force, however. The biggest losers will be countries with young and growing populations that need light manufactures to absorb migrants from the countryside but cannot compete with Chinese efficiency. Two generations behind in building infrastructure, India should be worried. For the Middle East and North Africa, I fear, the train has departed.

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Dec 21, 2004
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