HAS CHINA UNLEASHED THE FRIEDMAN’S DISASTER ECONOMY ON THE WORLD

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Courtesy: chineseposters.net

War is nothing but a continuation of politics with the admixture of other means.” 
― Carl von Clausewitz, On War

An ancient Chinese stratagem advises military leaders: “Loot a burning house.” The trick is easy and self-explanatory — attack when your opponent is most vulnerable. China has given, this and many other hideous ancient wisdom, paramount importance in the quest for ‘Pax Sinica’.

After the 2008-09 financial crisis, Chinese firms ventured out to procure discounted bargains worldwide, especially those with strategic utility: iron & nickel ore, oil, and innumerable other commodities that the Chinese economy became dependent on. With China’s economy having a head start coming out of the COVID19 crisis and its appetite for technology and other strategic assets as strong as ever, is it going to be the repeat of China’s predatory addiction?

DICTATORS LOVE DISASTERS

There is no loyalty in the heart of a traitor, only the false act of appearing trustworthy.” 
― Jesus Apolinaris

Milton Friedman was the twentieth century’s most prominent American economist. He was a distinguished leader of the Chicago school of economics. In 1951 Friedman received the John Bates Clark Medal honoring economists under age forty for outstanding achievement, and Nobel Prize in economics in 1976.

In one of his well-known essays, Friedman stated, ”Only a crisis‐​actual or perceived ​produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable”. He floated the idea of ‘Disaster Capitalism‘.

Friedman had a long history of working with dictators and oligarchs, making impossible things possible. His first work on disaster capitalism came to use in the mid-70s when he became an adviser to Chilean dictator General Augusto Pinochet. Soon after the coup Friedman advice the dictator to impose a rapid-fire transformation, known as the ‘Chicago School Revolution’. That was the beginning of Friedman’s long and very successful career.

CHINA LOVES MILTON FRIEDMAN

China’s 600 million people have two remarkable peculiarities: they are, first of all, poor, and second, blank. That may seem like a bad thing, but it is really a good thing. Poor people want change, want to do things, want revolution. A clean sheet of paper has no blotches, and so the newest and most beautiful words can be written on it, the newest and most beautiful pictures painted on it.” – Mao on programmable Chinese people.

Friedman in China – Courtesy: Cato Institute

Friedman’s ideas were boon for communism. He got invited to China for the first time in 1980. His subsequent trips came in 1988, 1992, and 1993. In more recent years, the senior echelons of the Chinese Communist Party have renewed their interest in Friedman’s wisdom. Friedman not only influenced Chinese leadership, but prominent economists like Zhang Weiying; & his mentor Mao Yushi, and present-day influencer, a Taiwanese military defector Justin Yifu Lin, too were his ardent admirers.

China loved Milton Friedman. They realized that his theory not only could be applied to other countries but with their own citizens too. They understood that countries or citizens have to be taken to a feel-good level of economic achievements before a shocking event, like a war, coup, terrorist attack, market crash, natural disaster, or pandemic can be introduced. While the country or citizens are dealing with the event, it is very easy to manipulate their disorientation, restrain democracy, force through extreme free-market policies that enrich the select few in China at the expense of the poor and the middle class. China innovated and divided Friedman’s methodology into:

  • Economic Supremacy Phase
  • Shock and Awe Phase
  • Military or Political Supremacy Phase

At the end of completion of all phases, the previously unacceptable policies which were not to the liking of countries/citizens can be justified and made a permanent fixture, in the name of crisis. One prime example is the introduction of income in Canada as a temporary war measure in 1917, the war ended, but the income tax stayed.

ECONOMIC SUPREMACY PHASE

China’s Growth Story – Post COVID: Courtesy IMF

This is a very important part of the whole strategy. Economic Supremacy should give a feeling of empowerment to the countries/citizens. They should go into a kind of intoxication which gives them false excitement of being economically successful. Plenty of loans and free-floating capital should be available to countries/citizens. They should feel indebted and obliged to the provider of such prosperous times. At no given time countries/individuals should realize that they are making a select few very rich and successful, at their expense.

To accomplish this phase China has taken its citizens to a certain level of prosperity. It has also emerged as a savior to many poor and financially unstable countries. China has been the biggest lender and investor in the recent past. Few facts about Chinese lending and investments from 2008 Financial Crisis to 2020 COVID19 Pandemic:

  • Chinese lending surpassing more than 6% of global GDP. 
  • $1.5 trillion in direct loans and trade credits to more than 150 countries worldwide.
  • Major lending banks – China Development Bank and Export-Import Bank of China.
  • Chinese lending surpassed the World Bank, the IMF, or all OECD creditor governments put together.
  • Chinese debt to other countries’ soared ten-fold, from less than $500 billion to more than $5 trillion.
  • 50 developing countries’ China debt has increased from less than 1% of their GDP in 2005, to more than 15% in 2017.
  • As of 2020, following are the most vulnerable countries stuck in Chinese predatory debt trap:
    • Kenya – US$6.5 billion,
    • The Maldives – US$3 billion
    • Ethiopia – US$13.5 billion
    • Cameroon – US$5.7 billion
    • Pakistan – US$6.2 billion, US$62 billion CPEC
    • Angola – US$25 billion
    • Laos – US$1.9 billion
    • Mozambique – US$2.2 billion
    • Republic of Congo – US$7.3 billion
    • Zambia – US$7.4 billion
    • Sudan – US$6.4 billion

This phase has another important component – deceiving stronger nations. In addition to the USA, China realized that it must harness European financial and technological might before it could get into the next phase. China’s strategy is simple – rob, replicate, replace. In case that is not possible then the last option is to invest in technologically advanced European companies. Some of the most astonishing takeovers in Europe by China in the recent past:

  • China has invested $180 billion in Europe since 2000.
  • German acquisitions:
    • Advanced Robotics company Kuka
    • 9.92% stake in Deutsche Bank
    • 10% stake in truck maker Daimler
    • BIOTEST
    • Waste management EEW
    • Auto parts company GRAMMER
    • Private bank Hauck & Aufhaeuser
    • Metering and energy management group ISTA
    • Plastics processing machinery maker KraussMaffei Group
    • Forklift truck maker Kion
    • Offshore wind park Meerwind
    • LEDvance(OSRAM)
    • Engineering firm PUTZMEISTER
    • German government’s push for 23 percent stake in CureVac, a German company working on coronavirus vaccine, is probably to ward off China.
  • The UK acquisitions:
    • Hinkley Point C nuclear plant
    • Sizewell C nuclear power station in Suffolk(chance to build reactor in Bradwell, Essex)
    • China National Offshore Oil Corporation (CNOOC), accounts for
      • More than 25% of the UK’s oil production
      • 10% of the UK’s energy needs
      • Firm’s chairman, Wang Yilin, declared to its employees that deep-water rigs around the UK are China’s mobile national territory and a strategic weapon.
    • Europe’s largest battery storage project in Wiltshire
    • 30% in South Western Railway
    • London Crossrail franchise
    • 10% stake in Heathrow airport
    • 9 % stake in Thames Water
    • The sports car manufacturer Lotus
    • British Steel
    • London Black Cab maker Manganese Bronze.
    • Wolves football club
    • Hamleys(until Indian billionaire Mukesh Ambani bought it recently)
    • Currency exchange WorldFirst
    • Luxury fashion retailer Harvey Nichols 
  • Italian acquisitions:
    • For $7.9 billion 17% of Italian tire maker Pirelli
    • Power grid firms Terna and Snam
    • Turbine maker Ansaldo
    • Luxury yacht maker Ferretti
    • Fashion brands
      • Roberto Cavalli
      • Mariella Burani
    • Systems and components company Ansaldo Energia
    • Shares of
      • Intesa Sanpaolo
      • Unicredit
      • Eni
      • Enel
      • Telecom Italia
      • General insurance
    • Develop and manage ports of Genoa and Trieste. 
  • Greek port of Piraeus. Today China controls about one-tenth of all European port capacity.
  • Swiss agrochemicals manufacturer Syngenta
  • Swedish Volvo Cars
  • Finnish Amer Sports, Gaming companies Supercell and Midea
  • A 13% stake in Norwegian Air, through Chinese aircraft leasing company BOC Aviation.

SHOCK AND AWE PHASE

Subservient CPC: Courtesy Nikkei Asia Review

The Shock and Awe Phase has two distinct parts. The Shock part follows a clear pattern. Once the other countries/citizens are completely entrenched in Chinese loans and investments, China waits for a crisis or helps foment one, suspends some or all governing norms, and then pushes the CPC’s wishlist through, as quickly as possible. CPC learned it soon after the revolution that any turbulent situation if framed with sufficient hysteria by CPC, State-Owned Enterprises(SOE), and PLA, could further their agenda. It could be an event as radical as a military standoff, economic shock, budget crisis, or life-threatening situations like pandemic or bio attack. Taking advantage of a crisis the CPC would be able to sell a panicked population/country the necessity for attacks on social protections, or enormous bailouts, forcing those entities to seek leadership from CPC.

The current COVID-19 pandemic has provided the right opportunity to CPC to present the Awe part of the Shock and Awe Phase. While the world cringed in isolation under a covering of intense media paranoia-peddling, China showcased itself as a big brother. It started “We have provided assistance to over 130 countries and international organizations to fight the coronavirus. We are working very closely with other governments, and we’ll be helping them through this patch.” It exported medical supplies including face masks, protective suits, thermometers, ventilators, test kits, and protective glasses under the full glare of media coverage. Countries and eminent personalities forgot grilling China on the subject of the origin of the virus, rather they started singing praises in China’s name. Chinese citizens were overawed by their leadership’s capabilities and wisdom.

The advantage of Shock and Awe was seen immediately. Fifty-eight countries and four international organizations signed contracts with Chinese manufacturers. In June 2020, Chinese President Xi Jinping announced that China would write off interest-free loans for “relevant African countries”. However, these loans constitute only 2-3% of Chinese loans. China never came out to actually help the countries in distress, it just portrayed itself as a very benevolent nation. In contrast, the US Marshall Plan after World War II had 90% of the funds as grants and aid.

MILITARY OR POLITICAL SUPREMACY PHASE

“It is possible to turn the crisis into an opportunity, to increase the dependence of all countries around the world of Made in China”. –Han Jian, director of the Ministry of Civil Affairs

Police Brutality in Hong Kong – Courtesy: NY Times

Presently the Indian Ocean Region(IOR) and the South China Sea(SCS) have become the most important aspect of Chinese strategy. China is strong enough in SCS, to undertake misadventures, however, IOR remains it’s Achilles heel. Eighty percent of its trade and energy needs are met through IOR. In the IOR, India is the country that challenges China and capable of choking its supply lines.

China with its $26 billion investment in India assumed itself to be in commanding position. Alibaba through its associate Ant Financial(Group) has invested $2.6 bn in Indian unicorns PayTM, Bigbasket, Snapdeal, and Zomato. Tencent and other companies have invested $2.4 bn in Ola, Swiggy, Hike, Dream11, and BYJU. China very skillfully killed the Indian manufacturing sector with its standard predatory practices. Today Indian manufacturing is 9 points below where it should be, considering the size of its GDP. India’s trade deficit with China had reached an astounding figure of $53.56 billion in 2018, demonstrating India’s pusillanimous attitude.

Once China was assured of completion of Economic Supremacy Phase, it waited for the Shock and Awe Phase, which came in the form of COVID19(Chinese President Xi Jinping had cautioned its leadership in January 2019 that they must be on guard against “black swan” risks while fending off “gray rhino” events. Adding that the economy faces deep and complicated changesEpiphany of Pandemic?). When the world was reeling under the Chinese origin Coronavirus, China moved to the next phase, the Military or Political Supremacy Phase. It started taking unilateral military actions at the Indo-Tibet border, SCS, East China Sea(ECS), East Turkmenistan, and Hong Kong. Unfortunately, the external aggression backfired on China. India was a leviathan very happy in its slumber but, Xi Jinping, due to his domestic compulsions, woke up the giant. Losses of 111 Chinese soldiers at the hands of Indian soldiers in the Ladakh region of India and loss of face at home forced Xi Jinping to take a U-turn. In the SCS the American and other allied navies did not lower their guard and China had to do face-saving by asking its forces to stand down. However, it succeeded in enacting draconian laws in Hong Kong and subjugating Uighur population.

In the melee what most analysts missed out were two important Chinese moves – Italy and Iran. With Iran in its fold, China reaches deeper into the Strait of Hormuz, letting Pakistan’s CPEC drift into cold storage. But the biggest achievement amongst all this is the subjugation of Europe’s 4th largest economy – Italy. Its port infrastructure in the Mediterranean has tremendous trade and military implications. Italy was already in severe financial distress, and post COVID19 it has been checkmated by China. The Italian government is taking steps to tide over the pandemic but they have no real plan to save their businesses from bankruptcy or takeover by China.

BEWARE OF GREEKS BEARING GIFTS

Five years ago, I was sure that China could rise peacefully, as it says it wants to. Now, I am not so sure” – Shi Yinhong, China’s most eminent foreign-policy commentator.

Declining Chinese Approval Rating Across the Globe

China has not succeeded this time around in what it had intended to do, but it has not backed out in any way. The clear and present danger is very much evident. Xi Jinping is desperate, running out of time, and getting reckless in his approach. If the world doesn’t come together and rise above its greed, then that day is not far when China would strike harder. It has already succeeded in setting a new normal. Speculation is now prevalent in the media regarding potential permanent changes in the aftermath of COVID-19. Social media analysis implies there is a general endorsement by the population that things will never be the same again. This demonstrates, that in one sweep how the climate was created by China to implement the disaster-capitalism policies. Friedman must be turning in his grave, remembering Shakespeare’s words “The evil that men do lives after them; The good is oft interred with their bones”.

162 thoughts

  1. Once again, very well written and persuasively argued. But, as I have probably said earlier, simplistic. It seems China plans and executes. Period. “To accomplish this phase China has taken its citizens to a certain level of prosperity.” That is it? So, why has South Sudan not taken its citizens to a certain level of prosperity? Or Haiti? Or Nepal? And when people become prosperous, they will want even more. Alibaba, Huawei, or whoever. With resources at their command, they will believe they can now challenge the party and take even more for themselves.

    1. I agree with you, Ankur. There is no denying that China has made exceptional progress, but a lot of this is attributable to the US, which was trying to bring down the USSR. Transfer of technology, exchange of students and scientists made a huge difference in Chinese life. What CCP can do to its own citizens or for that matter to other countries, many civilized nations would think twice, before going down that path.

  2. As always another masterpiece Dear Commander.With this piece I’m introduced to Milton Friedman, lessons in Economics and Strategic History. I’m just in awe of the amount of research and dedication on this entry.
    I suggest a peek in this guy’s youtube Channel Daniel Dumbrill.
    Then looking a few years back they have this guy (Who Is Guo Wengui, the Chinese Fugitive). He exposed the CCP tactics of turning the very fundamentals of Capitalism against the West e.i weaponizing their money. Even this author made this claims a few years back. His name is William D. “Bill” Gertz.
    Is China becoming like Japan during WW2? Pushed to the limits and left with no option but to get fresh supplies of raw materials from less developed countries, and yet if one was able to see this documentary “The China Hustle ” this firm named Muddy Waters was able to uncover that some US Firms largely benefits from all the bust and booms.
    Now there are rumors of takeover and military in fighting inside the party…

    Lastly this is very informative Commander. All the best always.

    1. Thank you so much for stopping by and sharing your wonderful thoughts. Just watching Dumbrill as suggested by you. Keep visiting.

    1. Thank you so much.
      Chanakya Forum is India’s leading Think-Tank organization, connected with India’s highest security apparatus. Your valuable comments on the forum website would be highly appreciated.

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