A tale of two civilisations

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by Alasdair Macleod, GoldMoney:

In recent years, America’s unsuccessful attempts at containing China as a rival hegemon has only served to promote Chinese antipathy against American capitalism. China is now retreating into the comfort of her long-established moral values, best described as a mixture of Confucianism and Marxism, while despising American individualism, its careless regard for family values, and encouragement of get-rich-quick financial speculation.

After America’s defeat in Afghanistan, the geopolitical issue is now Taiwan, where things are hotting up in the wake of the AUKUS agreement. Taiwan is important because it produces two-thirds of the world’s computer chips. Meanwhile, the large US banks are complacent concerning Taiwan, preferring to salivate at the money-making prospects of China’s $45 trillion financial services market.

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The outcome of the Taiwan issue is likely to be decided by the evolution of economic factors. China is protecting herself against a global credit crisis by restraining its creation, while America is going full MMT. The outcome is likely to be a combined financial market and dollar crisis for America, taking down its Western epigones as well. China has protected herself by cornering the market for physical gold and secretly accumulating as much as 20,000-30,000 tonnes in national reserves.

If the dollar fails, which without a radical change in monetary policy it is set to do, with its gold-backing China expects to not only survive but be able to consolidate Taiwan into its territory with little or no opposition.

Introduction

On the one hand we have America and on the other we have China. As civilisations, America is discarding its moral values and social structures while China is determined to stick with its Confucian and Marxist roots. America is inclined to recognise no other civilisations as being civilised, while China’s leadership has seen America’s version and is rejecting it. Both forms of civilisation are being insular with respect to the other, and their need to peacefully cooperate in a multipolar world is increasingly hampered.

Understanding another nation’s point of view is essential for peaceful harmony. This truism has been ignored by not just America, but by the Western alliance under American coercion. The Federal Government and its agencies are pursuing a propaganda effort against China’s exports and technology, while the average American appears less troubled. Perhaps we can put this down to a nation based on immigrants having a more cosmopolitan psyche than its predominantly Anglo-Saxon establishment.

In Europe, it sometimes appears to be the other way round, with the politicians more prepared to tolerate China than their US counterparts. But then geography is involved, and the silk roads do not involve America, while rail links between China and Western Europe work efficiently, delivering vital trade between them.

Economic interdependency is rarely considered. Nor are the potential consequences of diverging economic and monetary policies. While China has been squeezing domestic credit, the West has been issuing currency and credit like drunken sailors on shore leave. Being starved of extra credit, China’s economy has been deliberately stalled, and there is a real or imagined crisis developing in its property markets. Only now, it has become apparent that the West’s major economies are running into troubles of their own.

Economic destabilisation heightens the risk of conflict, and perhaps the timing of the build-up of tensions in the South China Sea and over Taiwan is not accidental. On Wall Street there is an air of complacency, with the US investment community led by the big banks ignoring the developing risks of this dysfunction. In the context of deteriorating relations between China and America and with China’s growing contempt for US political resolve, Taiwan is becoming extremely important geopolitically.

China’s plans for Taiwan

Taiwan is in the world’s geopolitical crosshairs with President Xi insisting it returns to China. The West, which has failed to protect Taiwan from China’s claims of sovereignty in the past, thereby endorsing them, is only now belatedly coming to its aid with a new Pacific strategy. But the signals already sent to the Chinese are that the Western alliance is too divided, too weak to prevent a Chinese takeover. This surely is the reasoning behind China’s attempts to provoke an attack on its air force by invading Taiwan’s airspace. And all the West can do is indulge in finger-wagging by sailing aircraft carriers through the Taiwan Strait.

Taiwan matters, being the source of two-thirds of the world supply of microchips. Faced with a pusillanimous west, this fact hands great power to China — which with Taiwan corners the market. Furthermore, the big Wall Street banks are salivating over the prospects of participating in China’s $45 trillion financial services market and are preparing for it. China has thereby ensured the US banking system has too much invested to support the US administration in any escalation of the Taiwan issue.

The actual timing of China’s escalation of the Taiwan issue appears related to the AUKUS nuclear submarine deal. That being so, the posturing between China and the Western Alliance has just begun. There are four possible outcomes: China backs off and the tension subsides, America and the Western Alliance back off and China gets Taiwan, there is a negotiated settlement, or a military war against China ensues.

In this context it is important to understand the civilisation issue, which increasingly divides China and America. There is little doubt that the hitherto normal relationship between America and China was disrupted by President Trump becoming nationalistic. His “make America great again” policy was a declaration of a trade war. That was accompanied by a political attack on Hong Kong, which provoked China into taking Hong Kong under direct mainland control. There followed a technology war, leading to the arrest of the daughter of Huawei’s founder in Canada.

There appears to be little change in President Biden’s policy against China. Now that his administration has bedded in, China is beginning to test it over Taiwan. To give it context, we should understand the Chinese culture and why the state is so defensive of it, and how the leadership views America and its weaknesses. For that is what is behind its economic divergence from the West.

China’s changing political culture

Since becoming President, Xi has reformed China’s state machinery. After assuming power in 2012, he needed to clear out the corrupt and vested interests of the previous regime. He instigated Operation Fox Hunt against corrupt officials, who, it was estimated, had salted away the equivalent of over a trillion dollars abroad. By 2015 over 180 people had been returned to China from more than 40 countries. Former security chief Zhou Yongkang and former vice security minister Sun Lijun ended up in prison and Hu Jintao’s powerful Communist Youth League faction was marginalised.

By dealing ruthlessly with corrupt officials Xi got rid of the vested interests that would have potentially undermined him. He consolidated both his public support and his iron grip on the Communist Party for the decade ahead. His public approval ratings remain extraordinarily high to this day.

On the economic front Xi faced major challenges. Having become the world’s manufacturer, a sharp wealth divide opened between China’s concentrated manufacturing centres and rural China. Some 600 million people are still subsisting on a monthly income of less than 1,000 yuan ($156) a month. A rapidly increasing urban population has been denuding the rural economy of human resources and undermining the family culture.

The wealth disparity between city and country has become an important political issue, which is why as well as refocusing resources towards agriculture Xi has clamped down on super-rich entrepreneurs and their record-breaking IPOs. In his Common Prosperity policy, Xi declared that he was not prepared to let the gap between rich and poor widen, and that common prosperity was not just an economic issue but “a major political issue related to the party’s governing foundations”.

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