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Entries in China (495)

10:10AM

The growing Sino-America co-dependency on food

FT story on a subject I've been harping on since my last book (and in it):  the stunning co-dependency that arrives with America increasingly feeding China, making our ag output as important to Beijing as the PG's energy exports.

Some data points on China's total imports (so not all NorthAm or US):

  • Cereal imports into China up almost 13,000 percent since 2008 to current 5.2m MT
  • Wheat up 6,000% to 3m MT
  • Rice up 264% to 1.6m MT
  • Overall rise from low-point of 2008 is from 2m MT to 12m MT.
  • China is now the 7th biggest importer in world, after Japan, Egypt (remember that when you imagine Egypt going rogue under the MB), Mexico, EU-27, Saudi Arabia, and SoKo.  Japan is #1 at just under 25m MT.

Note that US is biggest world exporter of wheat, corn and soybeans.

Yes, China is planting like crazy, so its own ag output is up.  It's just that demand is rising much faster.

The key line of the piece: 

China still has an official policy that mandates 95 percent self-sufficiency - a policy known as the "red line" - but recent comments suggest that the insistence on self-sufficiency is waning.

The US is waking up to China as THE ag export market.  Nebraska's top ag official:

China represents a huge export market . . . [and] a growing export destination.  

Nebraska's corn exports to China have doubled in the last half-decade.

China is already the world's biggest soybean importer (and - again - the US is the biggest exporter), and "is adding corn, wheat, barley and rice to its shopping list" (and - again - the US is the biggest exporter of corn and wheat).

12:31PM

Civilization = bad connectivity principle, but dream = good

Trio of stories (2 FT and 1 NYT) on evolving ideologies of Russia (old leader), Egypt (new leader) and China (new leader).

Putin is floating a unique Russian civilization idea - likely as his legacy signature concept in governance.  The purpose is setting the long-term course of how Moscow handles the federation's many nationalities.  For now, a trial balloon, but already the blowback is sensed and it's building.  These nationalities naturally feel like they're being told to assimilate or find themselves a bit lost in Russia's future - as defined by Putin et al.

Morsi in Egypt is now revealing a similar bias on his effort with the constitution.  He wants to make it so Islamist that Egypt's many minorities are reacting badly, seeing no good space for themselves in Egypt's future on this basis.

My point in raising both issues:  when you argue civilization and, on that basis, identity (typically tied to religion), then you're saying, "This is how we're going to run this place and this is how we're going organize our connectivity with the outside world - by requiring this sort of homogeniety at home."

Problem is, the self-limiting nature.  If you want connectivity, you want to promote diversity.   That attracts the bodies and minds and the money.  This is an old concept, as in back to Amsterdam and the Dutch when they built up their global nets.  England picks up this vibe and does similarly.  The US gets the DNA via New Amsterdam-cum-New-York.

When you don't care about identity/religion on this level, you take on all comers, meaning you're open for business with everyone.  That's how you succeed.

Third cite:  Xi Jinping in China resurrecting "Chinese dream" notion as part of his reform/progressive agenda.

That "dream" apes the US version, which is centered on success and the pursuit of happiness.  

Why good?  It says your identity is more about success than comformity and homogeniety.  You'll work with anybody, because the dream trumps the exclusionary identity.

So, my point:  if you go the civilization/religious identity route, you scare off connectivity and globalization (or certainly retard it), but if you go the "dream" route, you choose pragmatism over such identity.  Your identity is simply your culture of success.

I think both Russia and Egypt will learn the limits of this approach, and it will be a painful process. But these are natural growth patterns.

China, I think, risks the other pathway:  the cult of success makes it harder to promote morality.

So it's the old choice:  preserve the identity and the attached morality, or risk both by opening up and prioritizing success.

Why I always advocate the latter:  It simply works better on raising income, and when you raise income, it's a virtuous cycle, as the people become even more tolerant and open, seeing the value in this path.

Meanwhile, if you choose identity over success, you makes less money and achieve less, and you tend to trigger a vicious cycle, as the outside world becomes more evil in your eyes ("Why won't they do business with us on our terms?")

But this is why China succeeds where Russia (and I fear Egypt) will not.

12:02AM

Xi summoning his inner T.R.?

Xi will be walking the tightrope for a solid decade.  He needs to reform - but he's a princeling.  He needs to keep the country growing - but he needs to tame its many excesses (especially industry's rampant abuse of the environment).  And all the while he needs to assert China as a true global power - without taking on any unnecessary or risky fights.

If Xi Jinping isn't China's Teddy Roosevelt, that nation is going to end up wishing he was.

[And if you think I mischaracterize TR in any way, you need to read up on your Edmund Morris, for TR started no wars and actually was the first sitting POTUS to win a Nobel Peace Prize.]

Good sign (first cite below) is his early edict that Chinese officials need to cut down on all the pagentry and red carpets and flower arrangements and "empty talk" and spend more time touring the less fortunate parts of their mini-kingdoms.  You know, see how the other half lives now and then.

Very TR.

Bad sign (second cite) is China cutting exploration cable of Vietnam's national oil company as it tries to explore what it considers to be its chunk of the South China Sea bed.

A bit bully, to coin a phrase, but also a bit TR, who was famous for not taking crap off the powers-that-have-been.

We will want to see only the good stuff, and will cringe at the assertiveness, but the two must go hand in hand. Only Nixon could go to China, as they say.  You want Xi to fix things at home?  Well, then he'll need to prove things abroad.  There is a yin-yang balance to national shame and national pride.  Both work to drive a population and its leaders toward "positive" change.

China won't go meekly into its necessary future - nobody does.

The man has his work cut out for him - as towering as task as TR regrading the economic landscape of this country and centering our politics on the middle class.  Third cite notes that "China's murky shadow banking system could amount to nearly 50 percent of GDP and debate is raging about the effectiveness of how it is regulated."

Let's hope Xi is a suitable "traitor to his class."

After all, we lucked out and got two Roo-se-velts [thank you Netherlands!].

And became the greatest power the world has ever known.

The more China replicates that journey, the better off this world is.

And that's the God's honest truth.

Speaking this morning at Walt Disney World at a political post-election gathering of sorts.  I am preaching the progressive gospel to all who will listen.  Hallelujah brother!  Give me a high-four Mickey!

12:27PM

Nice post (full of data) about India in Africa

Find it here.

Posted by old friend (or is it demon?) Tyler Durden at Zero Hedge.

Best bit:

Parallels are often drawn between India and China’s African “safaris.” Indeed, their trade with Africa has grown at similar rates; India’s at a compounded annual growth rate of 24.8% and China’s at 26.3%. More importantly, access to natural resources and especially oil is the main driver of both Asian giants’ engagement of the continent.

There are important differences though.  For one, India’s footprint in Africa is small compared with that of China. Take their role in Africa’s trade for instance. In 2011, India accounted for 5.2% of Africa’s global trade compared with China’s 16.9%. Besides, unlike China’s investment in Africa, which is led by state-owned companies, Indian investment is mainly driven by the private sector. In another contrast with Chinese companies, India hires local laborers while many Chinese companies bring Chinese laborers to their projects in Africa.

Indian officials admit that China’s aid-for-oil strategy, which involves extension of soft loans for massive infrastructure projects in return for African oil, used to impress them as it helped Beijing secure deals in its favor, according to the MEA official. This prompted India to follow the Chinese strategy in some countries where it was seeking oil deals.  However, India was unable to match the aid the Chinese offered. It underscored the need for an approach that built on India’s strengths, which ultimately resulted in India focusing on capacity building in Africa.

Worth reading.  

Obtained from Craig Nordin.  He got it from Sudha Ramachandran at The Diplomat.

12:30PM

Big GM investment in China

 

GM reached out to China's auto firm SAIC in the late 1990s, and the fruits of that JV continue to pile up, according to the WSJ last Thursday:

General Motors C. and Chinese joint-venture partners agreed to build a third commercial vehicle factory in southwest China to meet growing demand and protect GM's status as the largest auto maker by volume in the country.

$1b plant looking to crank 400k vehicles by 2015, giving GM and its partners a total capacity of 2m vehicles. China's light vehicles market will top 20m next year, while the US remains around 15m.  600 or so new dealerships planned across China, bringing the volume to 3500 total.

Nothing marks you more fully as globalization's demand center than to have the car market.  That was America in the 20th century, and it's China in the 21st.

 

 

10:53AM

The Chinese Communist Party comes up with new "test" for industrial projects

Thanks to growing grass-roots protests by Chinese citizens over big industrial projects, the NYT reports that the government there now says all such plans must pass a "social risk assessment" prior to final approval.  

Interesting choice of terms, yes?  The environmental impact is what the people worry about, but it's the "social risk" that gets the government interested.  Apparently this has been done in some local governments for a while now (the experiment, per the Chinese way) and now it's being adopted on national scale.

China already has environmental impact studies, and now the government says (as of 1 Sept) that they must be posted on the internet (also interesting).

Environmental minister says, "By doing so, I hope we can reduce the number of mass incidents in the future."

The tipping point?

Enviro protests used to attract only the old and retired.  Then the young started showing up in numbers, and that's when the Party got scared.

China is, as I argue, on the verge of a huge and prolonged progressive era.  All sorts of things to clean up. Each time such steps are taken, just a bit more power to the people - always defensively offered by the government.

9:53AM

Big surprise: Asia wants a regional trade bloc that includes China

The Obama Administration's big idea was a Trans Pacific Partnership that magically excluded China.  It is the lynchpin, along with the "strategic pivot" of US military forces into East Asia, of his dreamt-of 21st century containment of China's rise.

The "pivot" idea is merely stupid, but the TPP was magnificently dumb.

We encouraged China's rise (after encouraging the tigers and before that South Korea and Japan) by playing regional military Leviathan and enabling their export driven growth by keeping our markets open.  The implicit deal:  take that trade surplus (now consolidated by assembler-of-last-resort China) and plow it back into US debt markets, keeping our dollar cheap and enabling more of the same (we import goods, we export security, everybody peacefully rises, and the world is a better place).

That transaction strategy, as I have called it, worked wonderfully for years and years.  But it came to its logical endpoint in the crash of 2008.  We simply can't sustain such a grand strategy any more and, frankly, we don't need to.  Asia is risen, it remains peaceful, and its logical regional integration now proceeds.

Can we still play Leviathan in this process?  At great cost, yes, but a Leviathan is not what is needed now. It is now longer a possible achievement, given China's rise, and attempting to maintain that status now only gets you unnecessary tensions and arms racing.  

Instead, the economic integration needs to be matched by suitable regional security arrangements.  Those arrangements tend to come via crises or hotspots like the South China Sea issue.  You either fix them or they fix you.

The new grouping is seen as a rival to a trade initiative of the Obama administration, the 11-nation Trans-Pacific Partnership, which includes many of the same countries but excludes China.

The announcement came as China was facing pressure to back down from its hard-line stance in its disputes with four Southeast Asian countries over ownership of islands in the South China Sea.

What ASEAN's proposed Regional Comprehensive Economic Partnership says is that, no matter the lingering tension on the islets issue, Asia's economic and trade and investment integration will proceed.  And no, it won't be held hostage to Obama's containment fantasies.

Some analysts in Asia describe the Obama administration’s trade initiative as one element in a policy to contain China, the world’s largest producer and exporter of manufactured goods.

“China’s exclusion is strange, given its huge economic presence in the Asia-Pacific” region, Amitendu Palit, a visiting senior research fellow at the Institute of South Asian Studies at the National University of Singapore, wrote in a recent edition of East Asia Forum. “This has given rise to views that the United States is driving the Trans-Pacific Partnership with the strategic objective of marginalizing China.”

There are plenty of Chinese behaviors that we need to work, but we're no longer in charge of how things unfold in Asia, and no amount of military hardware parked there is going to change that.

9:09AM

China not-so-bad sign: no longer growth-at-all-costs

Nice NYT story on growth of (primarily) middle class resistance to unlimited growth ambitions WRT environmental damage.  Most experts who track the grass-root democracy arising in China have noted its strong concentration in the environmental realm.  

It's a natural development that we've seen everywhere else a middle class historically arises:  once you get to a certain level of GDP ($4-7,000) you start caring about the environment a whole lot more.

Chart shows all the places where projects have been delayed/cancelled in response to popular demands.

Point being:  all part of the natural slowdown in growth that comes with modernization.  Things get more complex.  The public puts up with less crap.  China is not different in this regard whatsoever.

As I've noted for years now, Asian countries that modernize and open up to globalization typically do so as single-party states (either explicit or de facto) for about 5 decades.  Then things change.

That logic says China goes democratic in the 2020s - or faster.

9:08AM

China bad sign #2: young professionals leaving in record numbers

Yes, a brain drain as reported in the NYT.

At 30, Chen Kuo had what many Chinese dream of: her own apartment and a well-paying job at a multinational corporation. But in mid-October, Ms. Chen boarded a midnight flight for Australia to begin a new life with no sure prospects.

Like hundreds of thousands of Chinese who leave each year, she was driven by an overriding sense that she could do better outside China. Despite China’s tremendous economic successes in recent years, she was lured by Australia’s healthier environment, robust social services and the freedom to start a family in a country that guarantees religious freedoms.

“It’s very stressful in China — sometimes I was working 128 hours a week for my auditing company,” Ms. Chen said in her Beijing apartment a few hours before leaving. “And it will be easier raising my children as Christians abroad. It is more free in Australia.”

As China’s Communist Party prepares a momentous leadership change in early November, it is losing skilled professionals like Ms. Chen in record numbers. In 2010, the last year for which complete statistics are available, 508,000 Chinese left for the 34 developed countries that make up the Organization for Economic Cooperation and Development. That is a 45 percent increase over 2000.

Guess who wins this lottery, as usual?

When experts note that China modernized and marketized and opened-up to the world for the past 40 years and the Party still rules, they miss the reality of what happens when a critical mass middle class appears and starts wanting more than just a rising income.

That day has arrived.

So no, it's not a question of "Can China ever go democratic?"  It's only a question of when.

There is nothing unique about Chinese or Asian civilization in this regard.  Modernization is modernization.  People are people.  Democracy isn't achieved because it's fabulous.  It happens because it's the best worst system you can manage when you reach the point of genuine development.

11:44PM

Delivering a PPT in the PNT

 

Was approached by a group at the Joint Staff a while back to present to a working group focused on a particular operational theater.  The group regularly hosts speakers for an audience of about 75 flags, officers and senior civilians, with VTC to a large number of overseas commands.  Audience also had a number of foreign senior officers.  

The sponsor had asked to discuss near- and mid-term issues that could prove disruptive to security issues under their purview.  Because my current brief is more long term, I saw this as a chance to brief a number of Wikistrat sims.  So the bulk of the brief was on four sims we've done over the past couple of years now.

Little bit nervous going in, because it was a significant audience in terms of hierarchy, so a good test of the product line - as it were.  Unlike a pitch where you talk about the methodology and the company, this was a pure product presentation.  Not a demo, but actual product that had to stand on its own - as in, nowhere to hide behind hand-waving.

Joel Zamel was there as well to answer questions on the company and methodology.

I did 28 slides at a podium.  Couldn't move around due to the VTC cameras.  Also had to finger a screen to advance the slides (tap, tap, tap).  All in all, a terrible set-up for somebody like me, and I often feel like I underperform in those situations (I don't get complaints; it just doesn't feel as gloriously un-self-conscious as the perfect set-ups - for me - do).  But for whatever reason, it worked great and I got my head around the delivery and banged out about 30 mins of presentation, followed by another 30 or so of Q&A that felt even better.  Audience was really great.  Really interesting questions and super engaged.  What you expect from that level of crowd.  So you give what you get (e.g., my humor was above average), as the best audiences always get the best briefs.  It's just how it works.

Still, you just never know going in.  I tend to be pretty quiet right up to the point, because it takes a lot of energy. And yes, some nerves on the product. But the material was received very well, which was very gratifying. Big league audience in the bowels of the Pentagon and Wikistrat - at only three years old - comes off as top flight. We fielded a lot of powerfully positive comments and feedback. Extremely validating.

Follow-on lunch inside the Building with a crew of USA younger officers who are all elite something or other in some prestigious fellows program.  Most had seen me give my current standard globalization brief at Belvoir during my regular lectures there.  That was a really nice discussion.  Decent bisque, too.

Only really hard part was getting up at 0400 to fly there and back on same day, but nice to be back home for a movie with the kids at the end of their school week.

All in all, it felt like a genuine milestone.

You know, we run a lot of training simulations at Wikistrat.  Really pretty much nonstop.  And one of the things I'm always preaching throughout the community is that everything needs to be of high-enough caliber that, if I'm standing in front of a senior audience of serious operators and policy types at the Pentagon or some COCOM, I sound like the real deal from stem to stern. That's really the first threshold. Everybody knows we can do it fast and far less expensively, so the only remaining question is, Is the quality as good as anybody else's out there?

And that test was passed today (actually yesterday) - with flying colors.

And that is no small achievement. 

So the community should feel very proud of itself and what it is accomplishing.

Because the quality is only going to keep improving.  I'm seeing that elevate with each sim.  Less correcting work for me as Chief Analyst, and more time to really work the synergizing write-up, so elevation across the board, as well as product I can stand in front of - inside the Pentagon and with a senior audience - and deliver without a hitch.

8:29AM

China's future captured in perfect lead paragraph/sentence

Here it is from a WSJ piece:

China's latest evidence of sputtering growth underlnes a dilemma for its incoming leaders: They can shore up the economy by doubling down on an exhausted growth model, or take a risky political bet on reforms that could worsen the slowdown in the short term.

That not only captures where China is today (as in, this quarter), it basically captures where China is for the next decade or so.  I mean, what happens to a "communist" party when the progressive era necessarily arrives?

Well, the first instinct is to try and run it yourself, maintaining single-party rule, but that's basically impossible. The pain meted out will create blowbacks, no matter whether you direct it at the "gilded age" elite or the increasingly demanding middle class or the decidedly put-upon working class.  Worse, in the end, you'll need to disappoint them all on some level, which is where that throw-the-bums-out dynamic comes in handy:  a party wins and does what is necessary, outlives its welcome, and then gets tossed.  But in a sustainable progressive era, the opposition party that then comes in also does its bit, just tackling a different segment until its welcome is worn out.  And so on.

That's how the US did it 1890 onward.  When the Dems or GOP won, they won big and ruled big and changed big, and we got a much better country for it. 

China lacks that ability due to the stultifying nature of single-party rule, which, contrary to our green-eyed fantasies, is NOT more agile or adept or bold or visionary in its leadership.  Instead, it is self-preserving in the extreme.  It's bread-and-circuses.  It rules by fear and in fear of its own public.  

The WSJ piece is all about giving more money to consumers and the "dangers" inherent to that process.  It's a proxy description of the coming democratization of China, because giving money to consumers is giving decision-making power to the average citizen, versus hoarding it within the elite.  It's the economic prelude to the democratic denouement.

China has already reached the democratizing point.  I still believe it will muddle along with years before taking the plunge, in part because of that stultifying nature of single-party rule.  If we're lucky, Xi Jinping will be a real leader, but even if he is, we'll most likely have to wait a good 5-7 years to see that turn out.  That's how long it will take him to consolidate power as the evidence for the needed change piles up all around him.

And yes, those two dynamics are deeply intertwinned.

America's job?  Don't provide any stupid excuses for Beijing to avoid facing their own realities.

The "strategic pivot" is just such an excuse, which tells me Obama and Co. don't really understand China.

Sad to say, Romney's answers are beyond stupid and have no chance of being implemented (thank God).

10:03AM

Where I would expect Chinese to be right now - and reasonably so

 

 

WSJ story on snapshot of Chinese attitudes about things and their own lives by Chinese polling firm:

The vast majority of Chinese people believe their country is heading in the right direction, according to a Pew Research Center survey, although there is rising discontent over issues from corruption to food safety—and a growing fondness for U.S.-style democracy.

One of the more surprising findings of the survey of Chinese attitudes by Washington-based Pew is that as public confidence in Chinese institutions— from government bureaucracies to the health-care system—deteriorates, appreciation for other systems of government is building.

Some 52% expressed a positive view of American-style democracy, with approval levels highest among the urban educated elite. However, affection for U.S. policy-making and President Barack Obama has cooled since he took office.

Overall, domestic confidence is higher in China than anywhere except Brazil, according to the poll conducted by Beijing firm Horizon Research Consultancy Group. In all, 82% of those surveyed said they are satisfied with the way things are going, and 83% said China's economic situation is good or very good, while 70% said their family's lot has improved financially over the past five years.

But attitudes in key areas have soured since Pew asked many of the same questions in 2008. Half of those polled said official malfeasance is a very big problem, worse than the 39% who said so in 2008, while another 35% termed it a moderately big problem.

Chinese this year categorized as very big problems many issues they described as only moderately bad in 2008, such as food safety, air pollution, education, worker rights, income inequality and the health-care system. While 13% said quality issues related to manufactured goods were a very big problem in 2008, for example, that figure shot to 33% this year.

Rising prices registered as a problem for 92% of respondents. 

That, my friends, is a nation poised on the edge of a progressive era/democratization. 

I'm not predicting it for tomorrow.  My favorite window for the big push is 2025-2030, but I am guessing I am being too pessimistic.

9:28AM

Chart of the day: US-China economic ties deepen across Great Recession

Click smaller image for larger version.

Go here for interactive one you can peruse in depth.

BusinessWeek post by way of Craig Nordin.

Some basics:

 

  • Both imports from, and exports to, China grow since 2008.
  • Chinese investment creates 8,000 US jobs in 2007 and now 27,000 in 2012.  "If investment from China remains on track, Chinese businesses will employ 200,000 to 400,000 Americans by 2020."
  • Applications for enterpreneur visas to US:  About 500 Chinese in 2008 equals about 40% of total, and almost 3,000 Chinese applications in 2011 = about 80%.
  • Chinese students in US up 135% since 2008 (84,000 --> 197,000).
  • Chinese holdings of US Treasuries up 158% since 2008.
  • Patent applications: 4-5,000 Chinese applications in US in 2008 and 10-11,000 in 2011; and US applications in China 24-25,000 in 2008 and 28-29,000 in 2011.
  • Top 10 US exports to China are power generation equipment, oil seeds and fruits, electrical machinery/equipment, vehicles, aircraft and spacecraft, optics and med equipment, plastics, pulp and paperboard, copper, organic chems.
  • Top 10 US imports from China are electrical machinery/equipment, power generation equipment, toys-games-sports equipment, furniture, footwear, apparel, plastics, iron and steel, vehicles.

It is dismaying to listen to the crude level of discourse in this presidential election regarding China.  Something to remember when we blame domestic Chinese politics on similarly crude behavior/talk from the Beijing.

Yes, the clever wags will point out that we've outsourced more jobs to China than they've created over here.  But the interesting point is that China is already creating jobs over here and that that number is growing rapidly. That tells you how quickly that worm has already begun turning. Moreover, while some of those jobs will invariably return as China's wages rise, most will simply continue their long-term global migration to the next great sources of cheap labor - as they should (unless you believe America should, for example, attempt to become the most expensive manufacturer of low-cost, low-tech items in the world).

 

10:07AM

Charts of the day: Saudi Arabia's options

Nice full-page analysis at FT on how the Saudis have worked hard to give themselves a response option if Iran attempts to close Hormuz (far harder than imagined).

The relevant bit:

Earlier this year, Riyadh and Abu Dhabi opened new pipelines that will increase the ability of countries to bypass the strait. Fully operational, 6.5m barrels per day, or about 40 per cent of total flows, will now be able to take alternative routes. “The Middle East is much better prepared now than a year ago to cushion the impact of a disruption in the Strait of Hormuz,” says Edward Morse, head of commodities research at Citigroup and former US deputy assistant secretary of state for international energy policy.

The key number is the Saudi one.  The kingdom has managed to siphon off half their exports to other vectors.

Then look at who's at risk.  US imports only 42% of its oil, and only 16% of that comes through straits, so only about 7% of US imported oil comes through straits, or roughly 3% of total US oil usage comes through straits. Of total US energy usage, that's just under 1.5%.

So no, the US won't be crippled when Hormuz gets shut down - as unlikely as that feat would be for Iran.

12:42PM

Smart argument on handling America's water advantage

Smart op-ed in WSJ.

America is sending over huge amounts of alfalfa to China.  Alfalfa is a VERY water-intensive crop.  China uses it to feed their cattle which produce beef and dairy products.

Point of the article:  why not send beef and dairy to China instead and reap the better profit margin for our valuable water?

That's how New Zealand does it.  Its highest-value export is powdered milk, notes the authors of the piece.

The culprit?  America's antiquated and byzantine water-regulation practices - especially in the West.

9:11AM

Wikistrat briefing on China slowdown (part 1 of 4)

In March of 2012, Wikistrat ran a multi-week simulation that explored the possible future pathways for China as its encounters various developmental "walls" surrounding its attempted shift from extensive growth (more inputs) to intensive growth (more productivity) and thus avoid the so-called middle-income trap (i.e., it's far harder to shift from medium to high income than it is from low to medium). 

Dr. Thomas P.M. Barnett Discusses the results and take-away insights from the simulation.

Part 1 of 4

9:07AM

Culprit #2 for U.S. coal industry: China's economic slowdown

From a WSJ front-page story.

The U.S. coal industry wants you to believe its slowdown is caused by Washington's "meddlesome regulations," but as I noted earlier, the big killer is the cheap price of U.S. natural gas, which is displacing domestic use of coal for electricity generation big-time (25% down in a recent quarter).

Culprit #2 is the Chinese economic slowdown, which is really the culprit, along with Europe's problems, for the slowdown in general global economic activity.

Pretty amazing times, when you think about it.  Remember when the U.S. economy was all you needed for a global expansion?

12:02AM

Where is the world is Wikistrat?

A graphic listing most - but not all - of the sims conducted by Wikistrat this year.  The point is to display the breadth and the volume.  Be impressed, because you should be.

Wikistrat's sims aren't a year in the planning.  Client names the subject and we're off and running in days.  Why? All Wikistrat needs is a framework and then we turn the analysts loose on the scenarios.  The company don't spend countless man-hours narrowing down the range of possibilities so that 95% of the uncertainty and surprise is drained from the exercise by the time we actually start it.  Wikistrat can customize the structure to your concerns and then it brings the masses in to run with that structure and take it places you - the client - hadn't considered.

That approach allows for a huge mapping of possibilities.  You want to find the needle in the haystack?  Well, Wikistrat can run through that hay awfully damn quick.

Spend a minute and see if you can guess the four sims that were my ideas . . .

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First one was China as Africa's de facto World Bank.  I'm pretty sure that was based on a WSJ headline noting that tipping point.  It ended up positing a lot of interesting intersection points between the US and China on the continent. Sim ended up generating both a report and a briefing by me.

Second one was the North American Energy Export Boom.  There was a time when Wikistrat asked me what I'd most like to explore in terms of near-term uncertainty in the system, and the whole fracking thing just jumped out at me:  Which way does it go?  Does it work out big-time for the US and - ultimately - the world?  Or does it get aborted like nuclear power for enviro reasons?  That was a very strong sim in terms of output, and all that material (final report and my brief) still tracks incredibly well with headlines.  All we did is simply systematize all those possibilities, organizing them into four major trajectories (usual X-Y approach). But the upshot was, anybody who goes through that stuff now has the capacity to process all the headlines to come.

Third one was the China slowdown sim.  That one's been in my mind since I wrote the piece for Esquire back in the fall of 2010 (it came out in the Jan '11 issue).  The idea came to me in the summer of 2010 and it took a while to sell it to the magazine, but it looks fairly prescient today, doesn't it?  Anyway, a very solid sim that ran down all manner of possibilities, and I really loved the quartet of scenarios we came up with (which drew comparisons to historical risers).  Great report and probably the strongest brief I've yet done for WS.

Fourth one was "when China's carrier entered the Gulf."  Wikistrat asked me to generate a host of possible sims way back when, and that was one of them. Just a simple logical progression argument, with the trick being imagining all the possibilities when that inevitability unfolds.  Hence the sim, which turned out great, along with a solid report.  And this one was only a "mini-sim" by WS standards:  just a brainstorming drill on scenarios with a quick follow-up on policy options.  Mostly junior analysts, but the output was as good as anything I've seen from the National Intelligence Council - seriously.

Two on the list I didn't really have anything to do with: NATO and Pakistan.  First one was driven by a client's curiousity.  Second one is just a natural "what if?"  Both turned out quite nicely.

The Democratic Peace Theory Challenged sim is another one I did not design, and I will admit that, at first blush, I didn't much care for the subject.  I was brought in to work the design and shaped it somewhat, but I truly had low expectations.  In truth, those were exceeded by a long shot.  The material needed more shaping than usual, because the sim had a theoretical bent, but what I ended up with at the end in the final report was . . . to my surprise . . . quite strong - I mean, present at a poli sci/IR conference strong (or walk into any command and brief strong).  It easily could have veered into all sorts of panic mongering, but instead it organized a universe of possibilities very neatly.  I was really proud of the overall effort, and it reminded me not to get too judgmental going into sims.

The Syria sim I didn't design, nor did I oversee its operation.  That Wikistrat left to junior versions of myself.  I was brought in at the end to shape the first draft of the report, and, while I moved things around plenty, the material held up very nicely to my critical eye, which is encouraging.  If Wikistrat is going to handle all the volume coming down the pike (contractual relationships are piling up at a daunting rate), then the Chief Analyst position needs to be like that of any traditional RAND-like player:  that person needs to be able to shape things a bit at the start and then at the end, but mid-range staff need to be able to herd all those cats and the resulting material. So that one felt like a nice maturation of the process, because, like with any successful start-up, the real challenge isn't marketing but execution.

This graphic, for some sad reason, skips the headlining sim of the year to date:  When Israel Strikes Iran.  That one I had a lot of fun with, giving it my years-in-the-testing phased approach (initial conditions, trigger, unfolding, peak, glide path, exit, new normal).  That approach goes back to my Y2K work and later after-action on the Station Nightclub fire disaster in Rhode Island (done for the local United Way to provide lessons learned on how well the organization responded). That was the most structurally ambitious Wikistrat sim to date and it - unsurprisingly - produced the best material by far. I'd put that final report and brief up against anything the best elements of the US national security establishment could produce . . . naturally at about 20 times the cost and five times the duration of effort.

The graphic also doesn't include the most recent sims.  I just finished a final report on The Globally Crystalizing Climate Change Event (one of mine), and, despite the great time projection, I was pleasantly surprised at how well the material holds up in the report.  I thought the analysts did a great job there.

Based on that fine crowd performance, Wikistrat pushes the community even harder in the just-wrapping-up sim entitled When World Population Peaks.  This one was truly challenging, but my point in designing the sim was almost to purposefully "test out" analysts in the manner of a language-skills oral exam, meaning I wanted something almost too hard for most analysts so as to press both them and the supervising analysts on how they handled it.  Think of it like a NASA sim where Control is trying to crash the lunar module.  That was a bit stressful, I think, for a lot of the community who participated, but - to me - it was like a nasty cross-country workout (I am assistant coaching my kid's team again for the 8th year in a row and I'm on my third kid) early in the season:  bit of a bitch mentally and physically, but it'll pay off down the road.

Yes, Wikistrat does take all its sims - even the training ones - very seriously.  If you're not growing then you're dying - simple as that.  Start-ups have to have that survival-of-the-fittest mentality and we're talking about a small firm that's come out of nowhere (okay, Israel) in just three years.

So, a nice overview of the year, and it's an impressive body of work.  Would you believe me if I told you that all of it was accomplished within a timeframe and with a far smaller budget that one of those bloated wargames that Booz Allen runs for the Pentagon?

Well, if you did, then you'd know why Wikistrat is going to succeed in this cutthroat business.

12:02AM

The rest of Asia's hopes for China next stimulus package

Turns out China's one-party state is pretty predictable in its spoils system:  new leaders get in, investment boom follows, and you can bet the best connected princelings clean up.

So while the US resorts to QE3, the world waits and hopes for China's pattern to continue.  The biggest hopes for this path are located in Asia, where China's economic slowdown is causing the same for South Korea and Japan.

The Asian Union integration process has already begun.  Memberships were offered and accepted in the form of FDI flows and absorption into China's vast processing trade networks.  

Asia sinks or swims together, which makes for a new burden for China regarding leadership transparency (where in the world was/is Xi?), because Beijing's decisions matter far beyond China's borders.

12:03AM

With the challenges of deepness and complex geology, China has no choice on shale gas but to seek foreign help

FT story on how "China opens shale gas exploration to foreign joint ventures."

It's described as a "milestone policy change that will allow foreign energy companies to play a greater role in developing China's rich potential reserves of shale gas."

China has all the same ambitions as the US: reduce dependency on foriegn sources of coal and oil, plus simply move "down" the hydrocarbon chain to less CO2 emissions.

The irony:  to escape one form of foreign dependence is to invite another.