George Friedman: China’s dilemma

The Nov. 12 issue of WORLD Magazine includes an interview with George Friedman, founder and chairman of Geopolitical Futures, a publication dedicated to explaining what happens around the world and predicting what’s next. That interview includes Friedman’s predictions concerning the Soviet Union, but he also discussed the present and future problems of China.

The Chinese economy seems to be in a significant decline. What’s the problem? Like Germany, China depends on Walmart to buy its products—and Chinese products have become more expensive than products produced in Mexico, for example. President Xi has options: allow regionalism so the wealthy coast doesn’t have to pay taxes to the interior, or impose a dictatorship. He has an economy that depends on exports. He has a region that doesn’t want to be taxed to support poor people and poor people who want more goodies.

If Xi has to choose between decentralization and dictatorship, will he choose dictatorship? Remember that in China decentralization also means civil war. After the British came, China broke apart and you had 100 years of civil war. In 1947, Mao imposed a dictatorship and ended the civil war, but 30 years later Deng Xiaoping opened up the economy, and 30 years after that China is facing a choice again. They can’t simply say, “I don’t want either of these, I want something else.”

Are you saying they can’t be successful? We all want the same thing. We want to have a satisfactory outcome at no cost—and that doesn’t exist. In this case just about every choice that China has is the same choice as in 1850. At that time they chose to weaken the emperor and wound up in 100 years of chaos and civil war. The Chinese seem unable to move away from the choice between dictatorship and chaos. Policies are what you like to have. Reality is what you get.

Dictatorship or civil war? The wealth that the eastern part of China has accumulated has not helped the rest of China. Over a billion Chinese have a standard of living equivalent to people in Bolivia. Unless you can persuade people in the coastal region to transfer wealth to the interior, it becomes very difficult to force them to pay their taxes, especially when the local party committees are on the side of the constituents. So you start arresting people around the country who are threatening chaos. That’s what they’re doing in China now to stabilize the situation. You wind up with a dictatorship, or you simply let them go their own way, in which case the heartland of China plunges even deeper into catastrophic poverty.

A grim forecast. China historically has fluctuated between chaos and dictatorship. When the emperor is strong, China is united but not necessarily prosperous. When the emperor is weak, there are battles. This is where China is. Really, it’s a pretty grim description of the situation in Eurasia. When we go look at Europe, we look at Russia. We look at the Middle East. We look at China. We are looking at very serious failure.

The United States, for all our problems, is in better shape. One of the reasons: We are such poor exporters. The United States exports only about 15 percent of its GDP compared to 50 percent for Germany. Of that, 40 percent goes to NAFTA countries. So the U.S. exposure to bad economic decisions overseas is minimal and the United States is cutting back imports of goods from overseas because it is getting better and more efficient at industrial production compared to these other countries. The United States is pretty much isolated from these other countries. What we see here is a massive dysfunction in the Eurasian landmass, and we are a relatively peaceful and prosperous North American island.