O novo triângulo geoestratégico: EUA-China-Rússia, virando na sua base - Stephen Roach

  Acredito que os acadêmicos e os militares brasileiros estejam estudando seriamente a Declaração Putin-Xi Jinping de 4 de fevereiro, como o documento maior, o manifesto, da nova Guerra Fria, a declaração fundadora da nova Geostratégia do Século XXI. Este artigo do Stephen Roach pode ser interessante para ler, também. Eu não me impressiono muito com essas coisas: as três potências envolvidas nessa brincadeira vão torrar Zilhões de suas respectivas moedas em armas ofensivas e defensivas que não vão servir para NADA, pois tudo será dissuasão ao estilo do velho MAD, a Mutual Assured Destruction, ou seja, os contribuintes vão pagar para brinquedinhos que JAMAIS serão usados, em lugar de aumentar o grau de bem estar de suas respectivas sociedades, e para o desenvolvimento dos países pobres. Pena: a humanidade não precisaria dessas demonstrações de machismo estratégico...

Paulo Roberto de Almeida

Straits Times, Singapura – 11.2.2022

China’s triangulation gambit

America's rapprochement with China, 50 years ago this month, isolated the former Soviet Union at a time when its economic foundation was starting to crumble. Today, there can be little doubt that China has revived triangulation as a strategic gambit – or that this time America is the one being triangulated.

Stephen S. Roach

 

New Haven -  History’s turning points are rarely evident with great clarity. But the February 4 joint statement of Russian President Vladimir Putin and Chinese President Xi Jinping as the Winter Olympics opened in Beijing may be an exception – signaling a new turning point in a new Cold War.

Triangulation was America’s decisive strategic gambit in the first Cold War. Richard Nixon’s rapprochement with China, 50 years ago this month, isolated the former Soviet Union at a time when its economic foundation was starting to crumble. As Henry Kissinger put it in his opus, On China, “The Sino-US rapprochement started as a tactical aspect of the Cold War; it evolved to where it became central to the evolution of the new global order.” It took time for the strategy to succeed. But, 17 years later, the Berlin Wall came down and the Soviet Union imploded.

Never one to ignore the lessons of history, China is opting for its own triangulation gambit in a nascent Cold War II. A China-Russia tandem could shift the global balance of power at a time when America is especially vulnerable. This points to a worrisome endgame.

Important hints can be found in the triangulation of the first Cold War. Fearful of the Soviet military threat, the United States countered by embracing China in an economic marriage of convenience. Never mind that the US-China partnership, which initially provided cheap products for hard-pressed American consumers, has now been shattered by a trade and tech war. The point is that a comparable strategy has now brought China and Russia together.

This new marriage is convenient in both economic and geostrategic terms. Russia has the natural gas that an energy-hungry, coal-dependent, polluted China needs. And China, with its surplus savings, ample foreign capital, and its Belt and Road Initiative, offers Russia added clout to buttress its thinly-veiled territorial ambitions.

The geostrategic angle is equally compelling. Rightly or wrongly, both Xi and Putin are convinced that the US seeks to contain their supposedly peaceful rise. China points not just to former US President Donald Trump’s tariffs and to sanctions on its leading technology companies, but also to an ambitious Trans-Pacific Partnership that excluded China (and which has since morphed into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership). More recently, Australia, the United Kingdom, and the US established the so-called AUKUS trilateral security agreement, which takes dead aim on China. 

Putin makes a similar case in resisting US containment of Russia. Fearful of NATO enlargement, he appears more than willing to hold Ukraine hostage and take Europe to the brink of yet another devastating conflict.Putin, who has described the demise of the Soviet Union as “a major geopolitical disaster of the [twentieth] century,” would like nothing better than to rewind history. Yet US President Joe Biden’s threats may well have cornered Putin, leaving him with no face-saving path for de-escalation. For authoritarians, face is everything.

The joint Sino-Russian statement of February 4 leaves little doubt that both leaders are united in the view that America poses an existential threat to their ambitions. Putin was successful in getting Xi to weigh in against NATO expansion – an issue well outside the Chinese leader’s wheelhouse. And Xi co-opted Putin to sign on to an agreement that fits the template of “Xi Jinping Thought,” promoting their joint statement as yet another of China’s grandiose “new era” policy pronouncements.

There can be little doubt that China and Russia have embraced triangulation as a strategic gambit. Ironically, unlike the first Cold War, the US is the one now being triangulated. And, as before, there is good reason to believe that the endgame will be determined in the economic arena.

That’s where the comparison between the two cold wars is especially worrisome. From 1947 to 1991, the US economy was balanced and strong. By contrast, over the past decade, real GDP growth (1.7%) and productivity gains (1.1%) were half their average rate over that earlier 44-year period. Recent comparisons are even worse for domestic saving, the current account, and America’s gaping trade deficit.

The US prevailed in the first Cold War not just because its economy was strong but also because its adversary’s was hollow. Starting in 1977, per capita output growth in the Soviet Union slowed dramatically, before plunging at a 4.3% average annual rate in the final two years of the Cold War. That presaged a subsequent economic collapse in the Soviet Union’s successor. From 1991 to 1999, the Russian Federation’s economy shrank by 36%.

Today, a weaker US economy is facing a rising China, in contrast to the earlier clash between a strong America and a faltering Soviet Union. Nor is China’s clout likely to be diminished by Russia, a bit player in the global economy. In 2021, Chinese GDP was six times that of Russia, and the gap is expected to widen further in the coming years.

Yet Putin gives Xi precisely what he wants: a partner who can destabilize the Western alliance and deflect America’s strategic focus away from its China containment strategy. From Xi’s perspective, that leaves the door wide open for China’s ascendancy to great-power status, realizing the promise of national rejuvenation set forth in Xi’s cherished “China Dream.”

In late 2019, Kissinger warned that the US and China were already in the “foothills of a new cold war.” The plot has since thickened with the emergence of a new triangulation strategy. The Xi-Putin gambit reinforces the conclusion that this cold war will be very different from the last one. Sadly, America appears to be asleep at the switch. (P.S.)

 

Stephen S. Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China (Yale University Press, 2014) and the forthcoming Accidental Conflict.

 

China: the debate over economic policy, from export led to consumer led growth

Roach v. Pettis (on China)

Blog The Humble Student of the Markets, July 4th, 2013

Stephen Roach recently penned an article entitled "Get Ready for the Next China" outlining the transformation that China is undergoing from an economy led by investment led growth to consumer growth:

The message from this new approach to Chinese macroeconomic stabilization policy is clear: Gone are the days of open-ended hyper growth. Significantly, this message has been reinforced by an important political overlay. Xi’s rather cryptic emphasis on a “mass line” education campaign aimed at addressing problems arising from the “four winds” of formalism, bureaucracy, hedonism and extravagance underscores a new sense of political discipline directed at the Chinese Communist Party. The CCP is being urged to realign itself with the core interests of citizens and their need for fair and stable economic underpinnings.

This new mindset works only if China changes its growth model. A services-led growth dynamic, one of the pillars for a consumer-led Chinese economy, is consistent with a marked downshift in trend GDP growth. That’s because services generate about 30 percent more jobs per unit of Chinese output than do manufacturing and construction – allowing China to hit its all-important labor absorption and social stability goals with economic growth in the 7 to 8 percent range rather than 10 percent as before. Similarly, a more disciplined and market-based allocation of credit tempers the excesses of uneconomic investments, necessary if China is to begin absorbing its surplus saving to spur consumer demand.

He went on to say that this transformation presents a great opportunity for American business:

China’s consumer-led growth presents the United States with an important opportunity. With the American consumer on ice for more than five years – underscored by average annualized growth of just 0.9 percent in inflation-adjusted consumption expenditures since the first quarter of 2008 – the US is in desperate need of a new source of economic growth. China is America’s third largest and most rapidly growing export market. Washington negotiators should push hard on market access, ensuring that US companies and their workers have the opportunity to capitalize on China’s transformation.

Second, and related to the first point, is a potential bonanza in Chinese services. At 43 percent of its GDP, China has the smallest services sector of any major economy in the world. Under reasonable assumptions, the scale of Chinese services could increase by around $12 trillion by 2025. Increasingly tradable in a connected world, the coming explosion in Chinese services could translate into a windfall, up to $6 trillion, for foreign services companies from retail trade and transportation to hotels and finance. For the United States, with the world’s largest and most dynamic services sector, this could be an extraordinary opportunity. US negotiators should push especially hard for access to Chinese services markets.

How do you get from A to B?

In recent years, Stephen Roach has changed from the global bear to the cheerleader for China. In his article, he glosses over the little detail of how China can effect this transformation without a significant slowdown. 

Michael Pettis has a different take. He wrote a Foreign Policy article about the credit crunch related convulsions within the context of the transformation from an investment-led to a consumer-led economy and also urged caution by the West in their approach to China:

Last week is a reminder that Beijing is playing a difficult game. The rest of the world should try to understand the stakes, and accommodate China's transition to a more sustainable growth model. As policymakers in China continue to try to restructure the economy away from reliance on massive, debt-fueling investment projects that create little value for the economy, the United States, Europe, and Japan must implement policies that reduce trade pressures. Any additional adverse trade conditions will further jeopardize the stability of China's economy, especially as lower trade surpluses and decreased foreign investment slow money creation by China's central bank. A trade war would clearly be devastating for Beijing's attempt to rebalance its economy and have potentially critical implications for global markets.

Here is his key conclusion [emphasis added]:

Regardless of what happens next, the consensus expectations that China's economy will grow at roughly 7 percent over the next few years can be safely ignored. Growth driven by consumption, instead of trade and investment, is alone sufficient to grow China's GDP by 3 to 4 percent annually. But it is not clear that consumption can be sustained if investment growth levels are sharply reduced. If Beijing can successfully manage the employment consequences of decreased investment growth, perhaps it can keep consumption growing at current levels. But that's a tricky proposition.

In other words, Pettis estimates that the consumer-led Chinese economy can only grow at 3-4%. If the Chinese economy changes the tone of its growth from investment and infrastructure to consumer led growth, the consensus of growth in the 7% range is unrealistic.

In addition, what happens to all the leverage in the system? Who eats the non-performing loan (NPL) losses from all of the infrastructure spending by the SOEs and local governments? In past eras, the Chinese government had taken the brunt of the NPL losses through classic financial repression - through artificially low interest rates that repressed the household sector and blew an property asset bubble.

Now that the Plan is to grow the consumer sector, the old trick of household sector financial repression won't work. In a separate interview with Ron Rimkus of the CFA Institute, Pettis stated:

You can only resolve a bad debt problem by assigning the cost to some sector of the economy. In the past it was the household sector that implicitly paid to clean up the debt, but if we expect rapid growth in household consumption to lead the economy going forward, and this is what rebalancing means in the Chinese context, we cannot also expect the household sector to clean up the bad debt in the same way it has done so over the past decade.

So who pays? In the worst case, it could lead to a disorderly unwinding of the excess leverage in China which, given how the global financial system is inter-connected, spark a global financial crisis.

In addition, Kyle Bass sounded a warning on China (via Zero Hedge) [emphasis added]:

The speed and depth of the Chinese policy response will help determine the severity and duration of this crisis. If the Chinese address the issue quickly and move decisively to rein in credit expansion and accept a period of much lower growth, they may be able to use the government and People’s Bank of China’s balance sheet to cushion the adjustment in the economy. If, however, they continue on the current path and allow this deterioration to reach its natural and logical limit, we will likely see a full scale recession as well as a collapse in asset and real estate prices sometime next year.

Even Stephen Roach sounded an implicit warning of potentially higher interest rates as China transforms itself:

But there is another twist. As China shifts to consumer-led growth, it will start to draw down its surplus saving and current-account surplus. That could lead to a reduction in its vast $3.4 trillion foreign exchange reserves, thereby dampening China’s demand for dollar-based assets. Who will fund a seemingly chronic US saving shortfall – and on what terms – if America’s largest foreign creditor ceases doing so?

China's transformation from investment led growth to consumer led growth is a story of short-term pain for long-term gain. The only questions are:

1. When? And
2. How much pain?

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

About the Blog: 

HUMBLE STUDENT OF THE MARKETS

Mr. Hui has been involved in the equity markets since 1980, both on the buy side and the sell side. He serves as the portfolio manager principally responsible for making investment decisions for the Qwest Global Tactical Balanced Class of QE Funds Corp. He is also a director of Qwest Investment Fund Management Ltd and a CFA charterholder. Mr. Hui has presented numerous papers to quantitative discussion groups. Sample topics include: How Global are Resource Sectors; Hidden Biases in Quantitative Models; and Hedge Fund Replication.