China’s Geopolitical Game Plan

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China’s Geopolitical Game Plan

In 2016, China faces problems that would decimate a conventional market.1

Consider just four key factors:

  1. President Xi Jinping’s greatest concerns right now are growing labor strikes, protests, and layoffs. In 2015, strikes and protests doubled over the previous year to reach 2,700 incidents. So far in 2016, they’re on track to surpass 6,000. China’s biggest coal company in northeastern China staged one of the most politically daring protests over unpaid salaries. Meanwhile, Hebei province is set to close 60 percent of its steel mills, lose 180 billion yuan in revenue, and lay off over a million workers as it weans itself off heavily polluting industries in the next two years.
  2. China is under acute financial stress, as debt is rising twice as fast as economic growth, according to China watcher and Beijing-based economist Michael Pettis. Chinese banks continue to practice “extend-and-pretend” loans. And sources estimate that China’s banking system could suffer write-offs four times larger than U.S. banks incurred during the subprime crisis. China’s shadow banking system has grown more than 600 percent over the last three years and has been using off-balance sheet trust products to hide losses. Some analysts estimate that China’s troubled credit could exceed $5 trillion, a staggering number that’s equivalent to half the size of the country’s annual economic output. China’s financial sector will have loans and other financial assets of $30 trillion at the end of this year, and as much as 22 percent of the Chinese financial system’s loans and assets will be “non-performing.”
  3. The most reliable sources report that China’s true GDP growth for the coming fiscal year may be as low as 3 percent. By China’s standards, that’s a depression.
  4. China’s rapidly aging workforce recently peaked, and its “dependency ratio” will grow from here, making internal growth tougher.

Yet, because China is playing “the long game,” it could be well-positioned to ride the global prosperity wave associated with the Deployment Phase of the Fifth Techno-Economic Revolution.

Throughout the centuries, one of the most successful strategies for expanding a nation’s power has been to conquer territories and turn them into the newest colonies of an empire. From the Roman Empire to the British Empire, the same formula has been used many times.

But a less-used, and less-understood, strategy can be just as effective. As the Dutch East India Company proved in the 1600s, turning the rest of the world into a supply chain can elevate a country into an economic power more rapidly than would an attempt to conquer the world...

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