China’s Economic Crisis and Its Foreign Policy
George Friedman
Founder and Chairman at Geopolitical Futures, Senior Advisor at Gallup
China has reached a critical point that many countries often reach and that, however painful, is cleansing in the long term. Consider what happened to the mighty United States during the Great Depression. Tragic though it was, it cleared the way for a new economic and social model. The crisis started through optimism – a new economic dynamic emerged that was so successful it created the illusion that it was eternal. Eternity bred recklessness and thus created massive imbalances. The economy reached the limits of one model and then passed through the crucible that led to the emergence of a new one.
Such crises tend to belie the underlying social and political problems at work. The cycle works like this: A great deal of wealth is lost by people who nevertheless remain wealthy. Much less is lost by the lower classes, but their loss is existential. The lower classes, we learn, need to be cushioned. The political system must assure social and political stability while at the same time managing capital allocation. As it manages capital, it appears to favor the rich, thereby increasing unrest. The New Deal generated a massive populist movement demanding that the rich be soaked. The upper and upper-middle classes see such programs as a violation of their principles and interests. In the U.S., it is not clear what would have happened had World War II not generated state-driven industrialism and thus ended unemployment.
China is in the midst of a systemic failure based on the increasingly irrational allocation of capital driven by market forces and state policy. It now faces an extended period in which the economy is shaped less by markets than by the state, and the state, which should be making long-term decisions regardless of short-term pain, understands that maintaining a society leads to demands that it function in a different time frame. Chinese President Xi Jinping isn’t kidding when he focuses on a “share the wealth” policy.
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This will affect the entire world.
Explore. Learn. Elevate. Philip Morris International
3 年If China hits a real crisis, then the impact on global supply chains will be massive.
Geo-Economics | Strategist | Ex: Start-Up Advisor | Speaker of Russian, Spanish, Chinese | Invented: "21st Century Global Manager (Zero Cost MBA)"
3 年The situation is not good either in other countries. With high inflation, rising gas prices and lack of opportunities; social unrest are next in line in many developing countries.
Wide Spread Systemic Failure is exactly what is going on. The burden on the population after years of hope and positive change is hard to bear. We will see more and more of this affecting ever sector of both China's economy and ours.
Very interesting insights.