web analytics

How Did the World Become Beholden to China?

China has acquired influence and power this century. Are we paying for it?

The British Empire controlled the 19th century. The United States dominated the 20th. Will the 21st belong to China? Beijing possesses all the hallmarks of a superpower that could lead the world for the next 100 years. Whether this is a positive development or a frightening prospect will be left up to the historians, analysts, and pundits. After decades of poverty, isolation, and humanitarian crises, China has ascended to the top of the food chain, fighting for what it thinks it is owed. As the world bows down to the whims of President Xi Jinping and his Communist government, it might be important to take a step back and determine how the world became so beholden to Zhōngguó.

The Rise of a Dragon

Mao Tse-tung – more commonly known as Mao Zedong – and the Communist Party rose to power in 1949 and implemented Maoism, a blend of Marxist thought and Leninist theory. The government nationalized the means of production in manufacturing and farming, making private agriculture illegal. Central planning was paramount through 1958’s Great Leap Forward, but the Maoists’ fatal conceit produced the usual socialist hallmarks: food shortages, starvation, totalitarianism, torture, and millions of people dead.

The Maoist doctrine ended in 1961, but it was not until 1976 that China adopted a myriad of reforms. While he was never officially a head of state, Deng Xiaoping was an integral force in resuscitating China from the ashes of Maoism. He merged socialist ideology with the free-enterprise system that reshaped the economy. Under his restructurings, private property was re-established, foreign investment was permitted, China participated in global financial markets, and government criticism was allowed. He aimed to mirror Japan by concentrating on society’s efforts on modernizing agriculture, national defense, the economy, and science.

The driving force behind Deng’s policies was the old proverb: “It doesn’t matter whether a cat is black or white, if it catches mice it is a good cat.” Put simply, if capitalist methods worked, then they would be utilized to help China rival powerful nations. It was a successful maneuver as living standards dramatically improved nationwide. Following Xiaoping’s death, China maintained the momentum by joining the World Trade Organization (WTO) and removing tariffs and other trade restrictions, allowing its products to be found everywhere around the world. Today, it is hard not to find something “Made in China,” although this is incrementally changing in the aftermath of the Coronavirus pandemic.

The World’s Banker

China has not only flooded the world with cheap products, it has also been an essential source of credit. For the last 15 years, Beijing has turned into the world’s biggest official creditor, a status that surpasses the World Bank and the International Monetary Fund (IMF). The central government and its state partners have extended nearly $2 trillion in direct loans and trade credits to about 150 countries, with outstanding claims topping 5% of global gross domestic product (GDP). New research has also highlighted that foreign debt accumulated by Chinese firms totals $650 billion.

China’s largest customer is the U.S. government, as Beijing possesses approximately $1.1 trillion in Treasury securities. China has reduced its holdings since 2011 by more than $200 billion, but this is still a mutually beneficial partnership. Washington can keep interest rates low, the Treasury can borrow more at lower rates, and Congress can increase federal spending. The demand for bonds priced in dollars raises the greenback’s value against the yuan, making Chinese exports inexpensive for American consumers. That said, being America’s banker has its political advantages since calling in its debt would collapse the buck and jack up rates.

China is the loan shark that can take you to an alleyway and break your legs.

While a lot of advanced countries are now indebted to the Chinese government, dozens of low-income emerging markets are in hock to Beijing as well. In recent years, China has lent to 50 developing countries and saddled them with debt that represented an average of about one-fifth of their GDP. For developed nations, they can receive complex mechanisms through portfolio debt flows. Developing states receive direct loans from state-owned banks – the Export-Import Bank and the China Development Bank – that are backed by collateral of a resource, mostly crude oil.

If Africa dictates the 22nd century, you can thank China. Since 2005, Chinese investments and contracts in sub-Saharan Africa have totaled nearly $300 billion, and President Xi has pledged another $60 billion over the next couple of years. This money has improved infrastructure, enhanced commerce, and cemented an incredible Chinese influence in the region. It has ignited fears of debt-trap diplomacy through its neo-colonial endeavors, which have also been seen in South America.

Beijing embarked upon the Belt and Road Initiative (BRI), a monumental global infrastructure investment plan to construct rail, road, and sea routes that connect China to Africa, Central Asia, and Europe. The purpose is to increase trade. Chinese banks have extended hundreds of billions of dollars in loans to countries participating in the BRI efforts, but the public health crisis has disrupted entire economies and affected repayment plans. Construction has also been interrupted since most of the parties are under lockdown.

The more significant issue for the poorer participants is that many have signed so-called barter deals. This is when Chinese loans are denominated in something like a barrel of oil, which could be a double-edged sword. On the one hand, the more oil that is pumped out to repay the loans, the less it will be worth. On the other, Chinese companies could be given control of state-run companies or be compensated by assets.

Analysts at the Economist Intelligence Unit (EIU) opine that China might face pressure to write off these loans or offer debt-relief programs. While this may curtail lending in the future, the large financial institutions enjoy government support. With state intervention, debt forgiveness may require political negotiations. What this entails for the growing number of desperate countries is anyone’s guess.

Addicted to Stuff

The consumer has become addicted to cheap imports from China. As governments and central banks do everything they can – on purpose or inadvertently – to destroy their currency, shoppers have been able to maintain their purchasing power by acquiring goods manufactured in the world’s second-largest economy. Everything from toasters to T-shirts, China has played a significant role in keeping price inflation as low as it has been since the Great Recession. If countries erect trade barriers and ban shipments from China, they might look inward for manufacturing or search elsewhere for cheap labor. The future of Made in China is uncertain, but our addiction to discounted stuff may be too much to abandon our dealer.

A Fake Economy

Basic economics could be the one thing that prevents China from leading the world in the 21st century. It runs on a Ponzi scheme economy. Before the COVID-19 pandemic, officials were trying to keep the pillars of society standing through fiscal and monetary policy maneuvering. It is a fraudulent economy managed by modern-day communists. They have cheated the world, using freshly created money to bail out thousands of state-owned enterprises (SOEs) that produce little value internally or to the rest of the world. Does the dragon want to be in a position whereby if it falls, it will take the whole world with it?

~

Read more from Andrew Moran.

For home study students and young people, Liberty Nation recommends…

All About Coronavirus

High School: The Spread of Coronavirus: How It Works

Middle School: A Scientific Look at COVID-19

Elementary School: Coronavirus: The Science

China’s International Influence

High School: The NBA Caves to China

Middle School: The NBA Gives in to China’s Pressure

Elementary School: The NBA Chooses China over Free Speech

Watch Now

VIDEO: 5 FACTS: China

Read More From Andrew Moran

Latest Posts

An Existential Crisis for Democrats – Uprising

In this Uprising Clip, Scott and Tim reveal President Biden's bringing back racist tropes against Donald Trump....

The Equity Con – LN Radio Videocast

On this week’s edition of Liberty Nation Radio we dive deep into Joe Biden’s budget, take on the racial grievance...

Bernie Sanders and the 32-Hour Workweek

In the recessions of the late 1950s and early 1960s, labor leaders and activists championed the 32- and 35-hour...

White House and Congress Clash Over Biden Impeachment

The impeachment investigation into Joe Biden and his family has gone on long enough, according to a White House...

The Equity Con – LN Radio

On this week’s edition of Liberty Nation Radio, we dive deep into Joe Biden’s budget, take on the racial...

Latest Posts

An Existential Crisis for Democrats – Uprising

In this Uprising Clip, Scott and Tim reveal President Biden's bringing back racist tropes against Donald Trump....

The Equity Con – LN Radio Videocast

On this week’s edition of Liberty Nation Radio we dive deep into Joe Biden’s budget, take on the racial grievance...

Bernie Sanders and the 32-Hour Workweek

In the recessions of the late 1950s and early 1960s, labor leaders and activists championed the 32- and 35-hour...