US-China Economic Competition?

In My Humble Opinion
1

Reading a book by Ray Dalio where he discusses competition between US and China, where he has been investing for decades. His thoughts are partly summarized here.

And his more generali thoughts in this linked thread.

In the first link, he thinks there is about a 30% chance of upcoming Civil War in the US in the next decade This seems pretty high to me. He bases this on a historical view given certain numbers of economic and social red flags.

My questions are more about China, which he sees as continuing to outperform the US. His book gives guidelines for changing national status, and he implies it would be problematic if the US were to:

  • default on debt owed to China
  • refuse to let American companies invest in China or place restrictions
  • engage in brinksmanship over Taiwan
  • have the renminbi replace the USD as a preferred reserve currency in more countries.

My question, given increasing globalization and the huge clout of American companies, are any of these things really likely to happen? What might be the determining factors?

2

The linked article is light on details but I’d say it’s broadly right.

The thing to appreciate with China is that while many people picture it as the world’s sweatshop, exporting trash for less than other countries can, this view is quite out of date.
China is the midst of the same kind of transition as post-war Japan, investing a great deal in R&D and increasingly targeting the high-end and new markets.
The growing middle-class in China also means that serving just the domestic market can be enough to produce companies among the biggest in the world.

Chinese culture also puts a very, very high value on education, which is ominous when compared to the anti-intellectualism that the US suffers from now more than ever.

However, in terms of competition, it’s more politics than structural differences.
The Chinese market is not easily-accessible to Western firms* and of course many internet services are blocked completely. The RMB cannot be freely traded. And generally you can only trade with China if you say nice things about them, which not everyone is willing to do.

Meanwhile the US of course started the trade war, and also did things like blocking Huawei tech as a precaution. I think a lot of countries have similar hesitation about allowing new Chinese tech.

I find some of the Chinese apps like We Chat and Taobao far superior to their western equivalents (Whats App and Amazon respectively) but I don’t see a scenario where these apps are allowed to gain much ground outside SE Asia. Though I guess Tiktok managed it…

I think just due to their huge population that it’s just a matter of time for China to overtake the US in gross GDP, but it’s going to take a long time and I don’t think there’s anything particularly significant about that moment.

* I will say though, that some of my friends imagine all Western products being banned, and it's far from that. If I show you a photo of a mall in Shanghai you might mistake it for being in the US or Europe as just about all the big names you can think of have a high-street presence. It's just that they've had to jump through hoops to arrive there. And they have to keep jumping...H&M was one of the biggest clothing brands but even they almost got booted following a comment about Xinjiang.
3

Why couldn’t Chinese apps become more popular?

4

In an aside, the Saturday Globe and Mail had a front page article suggesting sanctions could be delivered by refusing a country transfers via the SWIFT system. Though doubtless inconvenient, I am guessing workarounds could be found in a matter of weeks, if that.

5

Nothing? The book by Dalio is basic but excellent. Trump was never the guy who really “told it like it is” unless the chip on your shoulder was as large as his. Dalio is.

6

You need to look into the source, basically. As this is just IMHO, I’ll leave it to you to do some research on the guy, but IMHO and all that he’s basically in the pocket of the CCP and has been for a while. He has a multi-billion dollar business tied directly into China, so it’s not exactly a mystery why he’s so bullish on China and has advocated doubling down on Chinese investments. Nor is it a big mystery why he’s predicting silly shit like a civil war in the US and that China is stronger, economically (with a far better system) than the US or Europe.

This is a guy who doubled down on China after their real estate sector started to fold, and has been urging investors to pour more money into China and Chinese infrastructure despite the fact that Beijing has already said that IF they bail out companies like Evergrande (or several other companies in similar straights) that their focus won’t be on getting foreign investors their money back.

As for your laundry list there:

This could happen, but if it did it would be because of political bickering, not because the US doesn’t have the money. Even with the political bickering, it’s very unlikely the US would be so stupid and the politicians that allowed it to happen would face some pretty dire consequences for taking us over the edge. While no doubt this would be great for propaganda purposes for China it won’t really affect them.

We are already doing this wrt the latter anyway, and pressure is building on the former, but not from the government side. It’s a real possibility and it would really hurt China if we did this, since currently they badly need folks like good old Ray to drum up foreign investment to bail them out of the deep hole(s) they are in.

Yeah, that’s the US doing the whole brinksmanship thingy. :stuck_out_tongue: At any rate, the US so far hasn’t backed down so, again, I’d say we are doing this already. Really, this crisis is entirely the CCP’s making so it’s on them what happens next.

Ok, that’s just funny. It’s basically never going to happen, even if the US currency stops being the main reserve for the world. No one…even the Chinese…trusts the RMB. The reason is CCP corruption and manipulation of their currency. Really, it’s how opaque their entire process is.

As for RayDalio, just know he is not exactly an unbiased source. He has been involved in with the CCP for decades…and successfully so. That, alone, should indicate that he’s deeply invested in and has deep ties to the CCP, because, basically, you can not be successful in China without those ties, especially if you are a foreigner. Also, the fact that he is basically spewing out CCP propaganda on things like his Linkedin essay should be an indication that he’s not exactly an unbiased source looking at things clear-eyed and spin-free. He (and others to be sure) are giving their investors, IMHO and all, really, really bad advice to double down on investments in China, especially right now with everything that’s going on. I guess that will be something we’ll see down the road though…my WAG is a lot of investors in China are going to lose a lot of money in the next few years, but maybe I’m wrong there. I’ve certainly pulled all of my investments out of any company that is putting money into China, but perhaps I’m just missing the boat.

7

This is unlikely to happen unless China allows the renminbi to be fully convertible, which it is reluctant to do. There are two conflicting interests here for China. On the one hand, it would like to see its currency to gain importance as a global reserve currency; on the other hand, it would like to retain control over it. Those two objectives are not easily reconciled, since foreign investors prefer to keep their assets in a currency they can freely trade. So far, China has prioritised the second objective over the first.

8

I agree Dalio is not unbiased, and agree with many of your attributions. However, if he is stating the Chinese view it does not hurt to understand what this. I do not think he would say anything that would jeopardize his current investments.

I also think his overall approach is reasonable but imperfect, as he acknowledges. The US and China are intertwined but will possibly further decouple if they continue to be in economic, geopolitical, capital and technological conflict.

The USD losing reserve currency status is indeed ridiculous at the moment but in a hundred years may seem less so. The dichotomy is there. But I think he is right the US needs to find a way to dial down its internal conflict and polarization before the rule of law is further threatened. His risk for civil war is overstated but it is not negligible.

He also quoted the Notre Dame scale for how much climate change might effect various countries; and I was surprised that coastal Britain and The Netherlands are deemed to be relatively immune although the latter has given it much thought and investment.

9

It’s fine to try and understand the other guy’s viewpoint…hell, it’s one of the things I always try and do. The trouble is, he whitewashes the other side (a.k.a. the CCP) and often contradicts himself when he’s doing it.

You hit the nail on the head with the second part of this…he definitely is not going to jeopardize his investments or his connections in China. Going further, I think he’s trying to leverage his audience to cover his investments by projecting a lot more confidence and bullish optimism because if there is enough foreign investment it might mean the CCP can get past the current rough patch and he will make money, both from his investments and of course because the CCP will reward such service going forward

Certainly. In fact, I’d say there is a good chance on that time frame that the USD won’t be in the same position it is today, which is as the major reserve currency and embedded in so much of the world’s commerce as it is today. That doesn’t mean the RMB will take its place, however, which was the point I was making. I’d say there is nearly zero chance, unless things radically change, for the RMB to take the dollar’s place on any timescale. What will is a mystery at this point, but it won’t be (IMHO and all) the RMB.

Well, China is already having several very serious, nearly existential crises related to climate and environment, and it’s not expected to get any better for them. Many of their issues are self-inflicted wrt water issues and environmental damage and impact, but climate change is definitely going to impact them very hard going forward as well. I don’t know about the impact on Britain and the Netherlands wrt the coming (really, already here IMHO) climate impacts due to climate change, but China is already stressed and will get hammered once climate change really starts to hit in the next few years or decade. Another reason why it might not be all that smart to pour billions or trillions of foreign investment into the country, though I’d say their government is the prime reason.

10

Thus author makes the point that if Ireland avoided civil war the US will too. I say the risk is perhaps 3%.