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Will China overtake the U.S. as the world’s leading superpower?

Will China overtake the U.S. as the world’s leading superpower?

David Goldman

See his talk here

David Goldman is an American economist, music critic, and author, best known for his series of online essays in the Asia Times under the pseudonym Spengler. He is the Wax Family Fellow at the Middle East Forum, a Senior Fellow at the London Center for Policy Research, and a member of the Board of Advisors of Sino-Israel Government Network and Academic Leadership (SIGNAL). According to the Claremont Review of Books, the “Spengler” columns in the Asia Times have attracted readership in the millions.

His analyses of global events have become highly regarded. Former C.I.A. National Intelligence Council Vice Chairman Herbert E. Meyer said, “Ask anyone in the intelligence business to name the world’s most brilliant intelligence service, and we’ll all give the same answer: Spengler. David P. Goldman’s ‘Spengler’ columns provide more insight than the CIA, MI6, and the Mossad combined.” Goldman concealed his identity under the “Spengler” pseudonym until 2009, when he revealed his identity in the Asia Times article, “And Spengler is…” and the First Things article “Confessions of a Coward”. Goldman regularly appears as a guest on CNBC’s Larry Kudlow Program, where he has been an outspoken critic of Federal Reserve efforts to resuscitate the American economy. He is the author of How Civilizations Die: (And Why Islam is Dying Too) and It’s Not the End of the World, It’s Just the End of You: The Great Extinction of the Nations.

Rough transcript:
Robert Reilly:
David Goldman is not only an economist with a lot of experience on Wall Street, he’s a music critic and a music theoretician who has taught on that subject. Of course he’s best known not as David Goldman but as Spengler through his years and years of extraordinary articles and columns in the Asia Times, which I have followed [and] which I’m sure many of you did as wel always wondering who could this man be who knows Islam so well, knows the Middle East so well, Turkey, who knows of course the Asian War affect, the- who knows everything and so finally he’s been exposed as indeed David Goldman who’s going to talk to us tonight on, “Will China Overtake the US as the World’s Leading Superpower?” question mark. I just want to share with you because it’s such a delicious quote and there are a number of you in the audience tonight who have worked in the intelligence world, the quote about our speaker by the former CIA National Intelligence Council vice chairman Herbert E Meyer. Quote, “Ask anyone in the intelligence business to name the world’s most brilliant intelligence service and we’ll all give the same answer: Spengler. David Goldman’s Spengler columns provide more insight than the CIA, mi6, and the Mossad combined.” Please join me in welcoming David Goldman.

David Goldman:
I’m humbled to be invited to such a distinguished group in the presence ofso many people as work I’ve admired for many years, including Bob Reilly’s. Bob’s work on music by the way is some of the most interesting and important I’ve read. His book in 20th century music I think should be the standard on the subject so I throw that in as a free advertisement. The good the simple answer to the question, “will China try to overtake the United States as leading world as a new superpower?” is yes unless we change the course. The hour is late and it’s time to be alarmed. I’ll explain the point of my title, “Geeks in a new Roman Empire in a moment. How you measure the Chinese economy… the Chinese economy is either 20 percent larger than ours or 20 percent smaller, what the world bank calls purchasing power parity, that’s the actual cost to do business. So for example if you want to create a research lab and develop a new hypervelocity missile inside of the costs of the engineering personnel will be considerably less so the GDP of China that respect to be upgraded a bit if you calculate it in ordinary U.S. dollar terms they’re still somewhat behind us but even so given the growth rate of the Chinese economy sometime in the early 2020s it is very likely that China over it will overtake us in nominal dollar terms and however we measure it it will be roughly our size given that China is growing at six or seven percent a year which is a doubling every ten or twelve years not very long from now the Chinese threat that we have now will double we’re like hercules wrestling the giant and TAS the daughter of gaia ‘the the earth goddess who every time he touches the ground doubles in strength. Hercules finally had to strangle him in midair and the problems that we now face are going to be much greater in the future and if we don’t address them we’ll be dealing with a power that will in many ways swamp us I’ll try to explain what those ways are first I’d like to say something about what China is China is a civilization that has been with us for five thousand years does much more much older than us it has had periods of extreme decline and chaos followed by periods of reconstruction but overall it’s certainly one of the world’s few truly successful civilizations according to the linguists not quite a hundred and fifty thousand languages have been spoken on planet earth since the dawn of man of those perhaps five thousand is still spoken but if you eliminate the languages spoken by a few hundred people in the New Guinea Highlands and the ones that are likely to survive another 100 years you get into the hundreds so of this enormous pool of languages and cultures Chinese culture has been one of the very few successes coming from a younger and also reasonably successful culture which is the Jewish culture I look at the Chinese in all they should never be underestimated what makes China China what is it how does it understand itself until the Jesuits turned up in the 16th century matera Ricci and his colleagues China simply understood itself as civilization China was a civilizing principle it was a means of unifying different ethnicities on the basis of very different principle than Rome or Alexander or the Holy Roman Empire or any entity in the West or its antecedents and I think that’s best illustrated by what it’s like to be a Chinese child Chinese children but I was very bumptious and sort of have a free happy-go-lucky kind of existence until they’re about six at which point they’re given a pen and the pot of ink and a piece of paper and they’re told now you’re going to learn the characters and for the next six or seven years they’ll spend four hours a day learning the characters. China managed to combine roughly 70 major language groups by having a unified written language and entirely diverse spoken languages it’s not until very recently with the advent of telecommunications and the centralizing influence the Mandarin dialect the old Beijing imperial court dialect that China has said anything like the unifying culture in the sense that we understand culture know what Chinese mother for thousands of years sang a lullaby to a child in Chinese Chinese was what you wrote this duality lies at the heart of Chinese strength and Chinese fragility China has never quite been unified it’s like a bag full of operas Lee charge magnets held together by super glue. China’s trying to spend a hundred years until the Communist revolution the so-called century of humiliation disunited dominated by warlords with civil wars that may have cost up to a hundred million lives in the middle of the 19th century the Taiping rebellion for example this is still a living memory there are people who remember this in the 1930s and 1940s so China’s paranoia about a rebel province Taiwan breaking away or a Tibet is deeply rooted in the fragility of Chinese history but at the same time the process of acculturation of Chinese citizens is so intense and so deep requiring so much effort and felt hood that the unifying characteristics have a kind of have a different kind of strength which no supranational entity in the West has ever achieved important to remember that China had by some estimates 30 percent literacy 2,000 years ago when literacy in the West was a tiny fraction of that now China essentially grew from the tiny area to notify the Shang Dynasty 3,500 years ago by making its neighbors an offer they couldn’t refuse. The offer was you become Chinese which is you learn the characters you adopt Chinese dress, Chinese customs, and you pay taxes to the Emperor who will be the arbiter of conflicts among various ethnicities and so forth. That’s a option one. Option two is we kill you all and it won’t well effectively fine a basically reached its current geographical boundaries which were natural the Gobi Desert that million mountains and the oceans by the year 700 they haven’t changed substantially since then nor are they likely to change this is not Rome or Alexander or the British Empire or the Comintern which wants to conquer masses of territory China wishes to project influence but it does not look it is not in thirteen hundred years fourteen hundred years look for territorial expansion the differences between China and the West are deeply set the most important thing we’ll notices in China is that there are no subsidiary institutions to use the terminology from Catholic social theory there’s no Football League no Church bingo game no Board of Education that is or that’s organized outside the imperial struck which is run by the Communist Party which tolerates no competition the fundamental unit in China’s society was never a subsidiary organization like New England churches that elected their own clergy and didn’t like Anglican bishops telling them what to do it’s nested dolls the fundamental unit was the extended family form in which the head of the form was admitted for Emperor and many forms formed a clan which had a head who was another slightly less miniature Emperor going up to a provincial governor going up to the Emperor it was a structure that reproduced itself down to the capillary level of society that in a deeply oversimplified summary is what Confucianism is my friend Francesco see she came from a writer for ancient times points out that the Chinese conception of law rights and obligations is radically different from the West starting with the Romans and certainly ancient Israel elsewhere the state was an entity to which one had obligations and from which one derived rights and privileges in Rome he paid her taxes he served in the army you could demand certain things of the state you had certain economic benefits as it is in you’d deserve protection and so forth it was a very well defined quid pro quo engraved in common law shana you do what the emperor feels like at the moment and you hope you get a reward there’s no sense of rights and privileges. China is radically different than Japan. Japanese love their emperor. The Chinese have never loved their emperor. The emperor is a necessary evil. Chinese will tell you today we’ve always had a temper. Why should we change now? When we didn’t have a strong Emperor we killed each other. Look at the century of humiliation so we don’t like the common party we don’t like any of these people they’re tax collectors they’re brutal and they’re arbitrary but without them we would all kill each other close this part of it with an anecdote I I worked for several years for an investment banking boutique in Hong Kong Chinese owned we took a number of tech companies public and got a good view of some of the more interesting things happen in the Chinese economy at once and I wrote a research report and included the name of young Chinese colleague otic he said why did you do that I said well I’m trying to give your career a little help it’s what you do he said no one in China does that I said really you said in China no one has any friends at age six you look around yourself in primary school and try to figure out whom you’re going to walk over to get ahead that is not a lack of altruism it’s the way the system is gamed because in parallel to this arbitrary Imperial structure China said it for 3,000 years of form of meritocracy which has been on many occasions highly effective that’s the Mandarin system you passed the Mandarin exams your family becomes rich so a vast number of people spend their families will find one talented boy invest all the resources to try to get him to pass the matter of exam so it can elevate the entire family China has no header hitter had hereditary aristocracy unlike the west no Dukes counts princes and so forth. There are no aristocratic families but they tend to last two or three hundred years. They keep turning over because talent from the base is allowed it’s a cold-hearted and merciless meritocracy but it still works the one thing she Jinping cannot do is to get one of his children into Peking University or Shema university you have to pass the exam and get the right score of course there are people who hire professional exam passers and with fake fingerprints to get to the security there’s a whole industry and cheated on exams but the principle is nonetheless there that’s one of the great difficulties we have in communication with Chinese if you meet any Chinese public official of any significant rank you’re guaranteed that he or she has an IQ of over 150 it’s as if we had a government entirely composed of National Merit Scholars not semi-finalists because out of the vast population you select out the brightest by competitive exam systems and those are the people who manage the government the difficulty the Chinese have is understanding that democracies frequently advance stupid people you’re talking to people who since the age of 12 have never met a stupid person and they’re completely unable to believe that some of the things we do are not conspiratorial subterfuges but simply incompetence and dynasties have always fallen in China because they become soft and corrupt of it and then get invaded or because they’re successful and the population expands faster than the arable land China’s cursed with a very small portion of arable terrible territory so lack of arable land has always produced peasant rebellions chronically the current dynasty has had a very simple solution decimate the peasants and there won’t be a rebellion that’s the reason for the one-child policy it’s a social control mechanism overpopulation overthrew other dynasties okay we get rid of the population you’ve always been plenty of side it’s one of the cruelest policies that any government in history has ever adopted really ruthless but that’s the motivation second thing of course is since peasants tend to be fractious as Mao Zedong observed famously in his report on Hunan in the 1930s eliminate the peasantry moved them to the cities put them into a polygon block of urban residents with people who come from other provinces can’t even talk to each other and of course keep trying to prosperous maintain the mandate of heavy and make China impregnable so what is fine is problem China’s problem is the same as that of every other country in the world and I’d like to step back and mention a bit of wisdom from Robert Mundell the grandfather of supply-side economics, 1999 Nobel Prize winner in economics who observed that chronic current account deficits are the result of aging all capital markets are as young people borrowing from old people old people need to retire young people need to raise families start businesses old people of savings and they lend money to young people what happens if you have a country with lots of old people who need to lend money to retire on but they don’t have a lot of young people well you find another country which has young people and you lend the money to them how do you get the money you sell the more Goods than they sell to you that’s what national savings is it turns into a current account surplus so there’s a relationship and a loose relationship between the percent of population over 65 and the current account balance as a percentage of GDP this is what Mandela predicts now of course it’s a loose relationship and how far you are from the regression line is an important data point so I’ve labeled the one the countries who have more of a current account balance then their position and age would indicate it’s the ants and the ones below it as the grasshoppers the ants are saving the grasshopper it’s a district because I’m try that is way above the line we’re way below the line now since the whole world the whole world doesn’t appear to be age if you look at the UN population tables it appears static but that’s deceptive because most of the young people are in Africa or South Asia and it’s very difficult to invest Western capital in a politically safe product productive fashion in countries with low educational infrastructure poor political governance and so forth so actually there’s a race on to control those markets which are investable and that’s the decisive race in the world today Chinese have a rapidly aging population the question for every population of the world is will you get rich before you get old in the past I’ve drawn attention to the extraordinary fact that Iran will without any doubt be the first country that gets very old without getting rich and all this is because of the extraordinary fact that the Iranians running around today in their 30s 40s childbearing age come from families with an average of seven children they’re having one and a half to two children 1.6 1.7 never in the history of the world has there been such a radical and sudden shock to fertility behavior that means in 20 years from now there will be only one and a half Iranians of working age to support every elderly Iranian so grandma’s going to be left to starve in a garret and the society will break down Iran is the Walking Dead you can now China is age not as fast as Iran but it’s aging as a result of the one-child policy that’s been rescinded it’s our – child policy it’s yet to be seen whether it having been muscled into a certain kind of fertility behavior that findings population will change but China’s problem is they need to save massively in order to meet their their future obligations to an age and generation Germans will tell you exactly the same thing so China is proposing to take over Eurasia and make it a greater age greater a ragin co-prosperity sphere or in their language one belt one road this is a trillion-dollar investment program three years ago this looked like one more propaganda exercise by Chinese leadership that couldn’t find its way to the sanitary facility it was launched with great fanfare publicity nothing seemed to be happening but now a great deal is happening there are now two rail lines going from China to Iran which cut the cost and time of shipment to Iran in half there’s a fast train from Beijing to Istanbul it goes through a Caspian Sea ferry to Baku and Arzo bajean then on to the blue sea and Georgia and then two cops in eastern Turkey and then to Istanbul it also cuts the time in half we wonder looking at Turkey why Turkey seems to be impervious to threats menaces bribes or whatever we try to offer them to keep them in the Western alliance turkey now is profile itself as the Western economic province of China and among other things you can see they’re behaving on the matter of the weekers which was a sore point between Turkey Chinese for quite some time the other thing that the Chinese are doing a Turkey which is a good segue into another aspect of Chinese plans is transforming the Turkish broadband system mobile broadband is having a transformational effect politically and economically that very few people anticipated until very recently for my sins in the past I did some develop a economics I did some work in place like Mexico Nicaragua Peru Russia after the fall of Communism the main thing one notices about so-called developing countries is that most people sit around doing very little most of the day you work this persistence plot you sit in a market stall swat flies and wait for someone to come along and buy a liter of cooking oil you don’t pay taxes you work off the books you scrape out a living 30 or 40 percent of economic life is the so-called informal economy official labor participation rates are abysmal people are lost in a cycle of poverty what mobile broadband has done is to reach into the capillaries of emerging economies and locate the intrapreneurs the talent give them access to a world market platform and increasingly give them access to microfinance and the entrepreneurial genius who created this model in China where it’s most advances of course Jack Ma of Alibaba now as big as Amazon Jack Ma is joined-at-the-hip bees the Siamese twin of Xi Jinping there are two sides there’s a bright side and a dark side to what Big Data and mobile broadband do you know the turn villages in China which are working for one person who figured out how to make a product and sell it on the Alibaba platform and you’d have something called ant finance and a number of other microfinance platforms which are making small loans to businessman all over China something the banking system state banking system doesn’t do state banking system is based a bucket full of cash with a shovel which is used when a state of an enterprise comes by and this is transforming the capillary level of China the most important thing that China has managed to do that no other so-called emerging economy has done in the past while Korea has done it becoming it has emerged is to mobilize the human capital of its citizens make the whole world available to them but because the Chinese have successfully protected their intranet the Great Wall of China there’s a dark side to this as well all the data that Alibaba and 10 cent and the other great internet organizations in China collect is of course at the disposal of the Ministry of State Security the greatest telecom communications equipment provider in the world is now Huawei founded by a former officer in the Chinese Signal Corps a couple of years ago as an anecdote I wanted to get a tour of Huawei headquarters and to do that I had to find some unsuspecting Latin American ambassador to take the tour so I could tag along as the escort and we were shown the Huawei exhibition hall which is a three-hour extravaganza it looks like two wings of the Smithsonian we came to a wall at Norma’s wall and as several times the size of that screen which the city of Guangdong map with lots of points of light they said very proudly every one of those is every smartphone in the city and we can correlate the location of the smartphone and its movement with online searches online shopping Facebook about Facebook WeChat postings and so forth so they know where everybody is who they’re with and what they’ve done and what they’ve said at a little times plus they’ve got cameras everyone meters or so which do very effective faithful recognition so if you happen to be holding someone else’s smartphone they’ll figure that out quickly enough which gives the Chinese Communist Party without any doubt the cruelest dictatorship in modern history to Tollett Aryan social control capabilities that the likes of a Hitler or Stalin could not have dreamed of overthrowing this entity is not an easy proposition I don’t know where we begin and I wouldn’t undertake the task we’re dealing with an entity which is not going to be cowed politically we’re a few Op-eds about dissidents or human rights are going to have much of an effect this is not Poland with a subsidiary Catholic Church or Hungary it’s a very different entity it’s a society with no subsidiary hollowed out except for the Catholic Church except except for the Communist Party I just spoke for a second there is a Catholic Church in China it’s tiny it’s split into a Catholic patriotic Association controlled by the state and a very small underground Catholic Church you do have perhaps a hundred billion Chinese who consider themselves in one way or another to be Christian and they’re tolerated as long as they meet in homes and form no visible organizations so they tend to be very low-profile for that reason it’s extremely difficult to gain an overall profile of what the content of Chinese religious life is you have any people who identify as Christians who’ve never had a Bible and many who are deeply learning and profound but we only have anecdotal evidence about that that might be over the very long term of soft underbelly of Chinese culture but it’s something we can only speculate about and in the horizon of any viable strategy I don’t believe will be a factor so this chart shows the percentage of population owning a smartphone Turkey and China are right there around 50 percent China has become a cashless society effectively no a few years ago the Apple store in Hong Kong had the calf counting machines that drug dealers use and people have come from the mainland with suitcases full of cash and they go down the cash counter machine and walk out with a hundred iPads taken back to the mainland and sell them not anymore Ali pay and other electronic payment systems have largely eliminated cash this is the core of the anti-corruption campaign which is enormously successful because it’s technology driven the government can track every transaction because they’re electronic the most important appointment that came out of the Chinese Party Congress in the view of our China editor days at times Jeff Tao was the elevation of yeah who was the reforms are under under Xi Jinping the author of the famous dot now famous document called a proposal for supply-side structural reforms in the Chinese economy what are these reforms law in the case of Turkey Turkcell is now in a joint venture with one way to help the Finance Ministry eliminate cash payments by 2023 broadband and physical transport or hard wiring turkey into the Chinese economy that’s why the West has lost leverage and Turkey Iran with its two rail lines going to China they’ve always believed in dependent on the Chinese economy for many years that’s also a problematic consideration what kind of pressure would sanctions effect on Iran given their dependence on China Russia has quadrupled or quick toppled it’s oil exports to China over the last four or five years mainly the expense of Saudi Arabia Russia will be bankrupt without the Chinese favoring oil imports from Russia Russia’s incredibly important adjunct to China one of the things China doesn’t have a culture hasn’t favored it is a foreign intelligence services speaker for a diplomatic service in China if you meet somebody in the Diplomatic Service who’s lived abroad speaks four languages at ease of Western culture you know for sure he’s the near to well brother-in-law of some party official who didn’t think it was worth putting them up the fast-track of the peoples of the race and arming of the regional party organizations it’s a dumping ground for people who aren’t that important so the Ruffins with their great expertise in Turkey in the Caucasus and Persia and so forth they’re excellent intelligence service language capabilities are critical adjunct very fine now is trying to kind of go bankrupt I’ve been reading articles about China’s debt and debt problem and so forth I think many of the reports we’ve had have been a quick first cut and superficial I’m a banker and the question bankers wanted it was what’s the collateral if there’s a loan what’s behind it the debt to the laboratories of a company is less important than its underlying carrying capacity so our team at age of x broke down the balance sheets of the 300 top companies in the shinjin 300 index that’s the closest thing China has to an S&P 500 index and we discovered that two-thirds the total debt is attached to infrastructure companies biggest is petrified the others are real companies and metal companies power development nuclear power take out the fine and not putting me including the financials a couple of airports this is theme this is China’s infrastructure which is includes now close to thirty thousand kilometers of high-speed rail which is an enormous productivity booster now there’s a lot of inefficiency obviously but it’s not the same thing as the great American bubble of 1998 to 2008 where foreign money bought American mortgages American mortgages finest house speculation by households how speculation was used to artificially boost consumption so the problem we had was financial distress in the population itself this is debt backed by infrastructure which has a productivity-enhancing effect why did this happen this way well one of the oddities I don’t want to go through the details of this if I’ve got some data I’d be glad just and send you if you talk to me afterwards but if you look at the debt ratios in China versus almost any other country in the world you see this huge corporate debt component very small government and household debt components compared to everyone else China until very recently had effectively no taxes there’s no personal income tax they had what’s called the corporate tax which is just a top-line tax recently they adopted value-added tax being introduced that’s being corrected but in the meantime if you wanted to build the infrastructure oh and they didn’t have a domestic bond market to speak up so in the U.S. you issue bonds and you raise tax revenues down to tax revenues you borrow money against tax revenues those mechanisms simply didn’t exist in shock they’re now being built rapidly so to get the infrastructure built the Chinese government simply told the state banks we’re printing money give that money to state companies so it shows up as a ballooning of corporate debt that’s an inefficiency in the structure the Chinese economy which is one of the many things that the Xi Jinping regime will address in the course of the reforms but it’s not a financial crisis the hedge fund community is littered with corpses of people who shorted China believing it was a crisis there’s a before I get to the the Rd stuff famed just as a quick aside China lost a trillion dollars worth of reserves 2015-2016 and the papers were full of reports saying there’s a massive run out of Chinese assets Chinese are panicking China’s going to go backward what the papers did not report but the Bank for International Settlements Economics staff documented a great detail is that while the Chinese government was losing a trillion dollars of reserves Chinese companies mostly state-owned companies were paying down a trillion dollars worth of foreign debt it was simply an internal bookkeeping transaction and it was undertaken because the Chinese had let their currency appreciate for years so it was the advantage of corporation to borrow in dollars use the proceeds in RMB and then pay the dollars back and a more favorable exchange rate in the future but the Chinese were the very fast drives of the dollar 2015 Chinese had to turn that around so you had to turn around the super tank of a balance sheet or replace the dollar debt with local currency gain and so anyway a lot of very poor superficial analysis has been done on the Chinese economy but also some really excellent work for example as I mentioned by the Bank for International Settlements the data and the analysis are out there if you look for them unfortunately the gullible and lazy reporters of the mainstream media who give us most of our daily feed don’t bother to do their so China’s now has R&D at 2% of GDP what does that go into well I’ve got the fastest supercomputers in the world they have a functioning quantum satellite in other words a quantum a quantum link between satellite earth means that if there’s any attempt to interfere with a signal for example to eavesdrop on it it immediately destroys the signal itself liquidates Chinese scientists had a conversation over the satellite link with the French counterpart massive investments in supercomputer also investments and things like services to ship missiles which may or may not be able to take down an American carrier we probably don’t want to find out diesel-electric submarines of the kinds of Germans that for a long time that can lurk on the bottom and batteries and at this point are virtually undetectable hypersonic missiles designed to defeat not only fat or Patriot or other systems that we currently have but systems that we might develop in the future satellite killer missiles and a range of things to make themselves and pregnant now one important caveat about Chinese military spending is shown by the difference between how they equipped a ground soldier and how they equip their space forces and missile forces the United States spends last I checked something over a hundred thousand dollars maybe one hundred ten hundred twenty thousand dollars to equip a single infantryman Chinese spend about fifteen hundred dollars twelve hundred fifteen hundred dollars that’s basically a Kalashnikov rifle pair of boots couple spare uniforms and that’s it Chinese have no grab attack aircraft nothing like the warthog nothing like the Russian frog but simply not in the inventory Chinese are not preparing for a land war the only land where they could conceivably fight might be with India or Vietnam that really doesn’t fit into their objectives but they want to absolutely dominate the South China Sea make Taiwan entirely dependent on and control everything around them one of the companies that we took public at when I was at reorient group in Hong Kong kwangji science run by a bunch of materials PhD is from Duke I walked into the office of the chairman that he had his iPhone out and he said I want to show you something they showed me a little map of the South China Sea with lots of triangles so that’s cool what are those triangles so that is the location speed direction and condition of a motor of every ship in the South China Sea so we can distinguish a fishing trawler from a destroyer how do you do that it said balloons they have some very strong materials they develop so they put a pie out to balloons all over the place with coaxial cables they can monitor the South China Sea if God forbid we had a wall of China and we each take out of each other satellites the US military is blind Chinese have a much more primitive but robust technology covering their entire Coast so roughly six or seven percent of undergraduates major in engineering in China it is 33% Chinese produce twice as many stem PhDs as we do now and four times as many stem undergraduates now granted the saw the quality of the Chinese educational system is spotted remember that the Cultural Revolution leveled the universities they had to be rebuilt from scratch but in the view of many the better schools are as good as ours then you have some crappy diploma mills at the bottom of the pile but I urge you to go on the internet and simply look at the equivalent of New York regions test for graduating high school seniors in China I know a little math and it made me sweat I guarantee that if that were the standard test for Americans you know 1/10 of 1% competency right now in America there’s a lot of warranty plenty of people doing R&D to try to find a better breakfast cereal but federal R&D is a good proxy for hard science long-range R&D and that was in the Reagan administration of blessed memory roughly you know close to about 0.8 percent of GDP and it’s fallen by half to about 0.4 percent of GDP remember in the 1980s we had corporate laboratories we had GE RCA IBM Bell Labs none of them exists anymore they’ve all been shut down the National Labs are you know shadow of themselves we’ve got plenty of people at universities doing things but we don’t have the kind of concentrated industry science relationship which holds these things together and is related to do this in productivity which I don’t want to go into the case where’s the money going in the U.S. well there’s tons of money going into software this is a venture capital commitments but nothing going into computers peripherals semiconductors telecom networking why don’t we invest in capital intensive high-tech manufacturing because every venture capitalists out there is scared witless of the agents who subsidize this stuff they’re afraid they’ve got Christ so we invest it apps capital white stuff we’ve got a trillion dollar valuation on an app to search for used cars we’ve got 120 different dating sites we are geeks in a new roman empire now what do we do about we’re gonna have to do subsidies I’m a-free marketer. I’m a supply-side I’m a free trader this is war war you do things differently where you put the subsidies you put them in the hard science hard Rd let businesses take the risk but the Defense Department may have to do direct investments in some industries we start with inherent Dr. Henry Cassell and I proposals in the World Street Journal just after the election start with the rule sense of defense goods have to be made in the U.S. under secure conditions period that’s a gazillion percent tariff how do you like them apples I don’t care about tariffs on steel or aluminum the Chinese want to get rid of that stuff anyway Chinese would love us to be Brazil let agriculture energy of semi-finished goods and of course politically a steel plant has more workers to give a speech in front of then semiconductor fab plant does not quite a sexy so politically it may not fit the profile quite as smoothly as some other things but if we don’t do this we’re going to lose this one belt one road thing well lots of people hate the Chinese they’re horrible they’re aggressive they’re nasty they in debt countries they bully them well what if we could to get together with the Japanese who’ve got more foreign assets than the Chinese and the Indians and compete with them the Chinese and sorry the Indians of Japanese ordered of something already have something called the Asian growth car which is supposed to be but it’s tiny if we got behind that in a three-way effort we could offer the Chinese a serious competition and then stop Intel and other companies from getting access to the Chinese market by giving away the store a lot of companies won’t like that because it’s good for their stock price in the short run a lot of people are getting rich on the decline of the West but there are some things more important than Intel stock price a lot of people don’t like it but it’s got to come down to the top my conclusion ladies and gentlemen thank you for your patience is that we have done this before we did it in World War II we did it with a Kennedy moonshot we did it with Reagan and the military buildup in the SDI we know how to do it a lot of the people who did it are still around it’s not that we can’t do we just have to determine that we want to do it and get it done otherwise we’re going to live in a world that none of us are going to be really pleased with. Thank you very much for you. I have a lot of neighbors who are Chinese Americans and they’re on WeChat here so two questions one is there any way that the Chinese government can be America and to word about from lack of time I think North Korea is a case of the Chinese wanted play arsonist and Fire Brigade at the same time they’ve encouraged the Chinese they’ve encouraged the North Koreans and given them some covert help and then you know President Trump will go to China and tell the Chinese we need your help to deal with these nutcases Xi Jinping will say well we can help little cost you now that’s a dangerous game to play because I say the Japanese decide to develop nuclear weapons I can tell you the Chinese won’t like that they’re very afraid of the Japanese so it could backfire on them it’s a delicate game but that is an example of the Chinese using well their play play go you surround the opponent with your pieces you don’t do obvious dramatic moves you play for the very long-term very patient very strategic whereas we are impatient and tactical they’re playing go we’re playing Monopoly Brendan thank you for your time honored but my real question is the Russian Far East and Chinese Leeson the far-east is kind of a quasi-vassal state how do we get well Chinese look at everybody and think protein source reference included but now the Russians simply don’t have a population to dominate the Far East so the Chinese it’s not worth their fighting over it because long term it’ll fall into Chinese hands the Chinese won’t fall over it because long term it will be theirs just due to Russia’s population at riffin how do you get the Russians to understand that well I think there are a lot of things we could do with the Ruffins that’s a whole other presentation I think we’ve mishandled it I think you need a very big stick and a very juicy carrot at the same time we won the Cold War in large part because Henry Kissinger god bless him helped split and Nixon helped split China from Russia and get in the back together again cannot possibly be in our interests but given in China’s the fact that China dominates the raw materials demand side and Russia depends on raw materials there’s very little we can do in the short term to change that dependency that Russia has on China so although in principle I agree with you tactically that’s a much longer term kind of consideration that’s just the way the cards are dealt then you should be writing four times I’m delighted to meet you in person my pleasure – yeah two questions one with China’s economic penetration in the de Central Asia as far as Iran and Turkey what impact do you think this might have along the instability and chaos in the Middle East well that’s one second the US has turned its back on the TPP how serious of blunder do you think that is well I don’t think the TPP is going to help us at this point I think it’s much more a matter of fighting economic war with the Chinese they’ve got there greater co-prosperity sphere we want to set up competition so I think you should just sort of move on and adopt a different policy as far as instability it’s very hard to know it is possible that the Chinese will exercise a moderating influence on the irradiance the Chinese want to get rich want it but powerful and they want everyone to behave and pay them tribute they don’t want the meijer tribes to war with each other and they have a 3,000 4,000 year history of exterminating unruly barbarians so they would certainly encourage the Iranians to cool it with the Israelis they like the Israelis they get you know they get along they want is really technology they don’t want a war between Iran and Israel for example on the other hand all of this may variable embolden an Iranian regime which is increasingly desperate and strident and Chinese are very poor at managing relation so they may have quite different effects very hard to know the worlds being transformed so quickly that it’s very hard to make a blank judgment it’s a great question I wish I could be are using their gene-splicing to be able to look at embryos and try to determine which are smarter so parents can create a bunch of fertilized embryos and then decide which to plant later in the womb and create the smartest kids in the world how effective they will be I have no idea but this is not an urban legend. This is real. They are doing it and that’s how they think as I said it’s a very cruel society. It’s an absolutely ruthless meritocracy and which does not give any mercy to the hindmost parties consistently well I think China wants Russia to be its cat’s paw in a number of strategic operations it wants to make the Shanghai Cooperation Organization a successful competitor NATO wants to harness all of Russian military technology to Chinese ends and China has some significant gaps in their military profile which the Russians have historically filled for example Chinese still can’t make a good jet engine their metallicky is behind the Russian so they use Russian jet engines they only just got the s400 which is important because with a range of several hundred kilometers it can control the skies over Taiwan from land bases on the mainland that probably want the s500 so they won thrushes to do their bidding at effectively be their vassal state at a hundred year horizon roughest population will have shrunk it’s even though Russian fertility has actually recovered a good deal the pool of women of childbearing age fell so quickly that a decline is inevitable and that means that it’ll be the marginal areas like Siberia that lose the most population so it’ll fall into Chinese hands the Chinese set up to fight for it they’re going to get it anyway you swear well circle for me while while seeing paradox they all have the most strategic nation out there right now but at the same time you correctly demonstrated that they don’t know how to before intelligence they’re rubbish at the close why is that there’s a lack of capital empathy how can they be uber strategic with the one belt one Road at the same time the further eight intelligence and all Chinese culture has been to push inward to take peach to take the periphery and force it inward and homogenize it with the with the single written language with the ideograms because china had no interest in getting through the getting to the rest of all that reached natural natural borders by about 700 with the Tang dynasty they really didn’t have pressure to do so China’s economic basis has always been agriculture never been a colonial power like the British the Emperor had an annual ceremony where he put his hand on the plow which say the son of heaven himself is symbolically a plough it’s deeply embedded in Chinese history when you spend your entire childhood I mean after the age of 11 or 12 if you know working four hours a day you can read 2,000 characters perhaps that right mm maybe 1,500 to 2,000 and ames 11 means you can read a newspaper to get to 10,000 characters which is high literate you do everything else the ability to learn languages phonetically that we have in the West is something that has never been developed as part of Chinese culture that Roman polyglot or Greek polyglot capacity was simply never part of the culture the Chinese feel so drawn centripetal to their own culture that they simply don’t like living anywhere else when they go to other countries they bring their own war teams their own wheelbarrows their own cooks their own food that open next to the locals because they feel out of sorts on the other hand Chinese who as individuals emigrate er some of those adaptable people in the world from the Chinese diaspora has been remarkably adaptable both culturally and economically so it is it is a it is a difficult contradiction to shyness Turkish relations were at a low two or three years ago because the Chinese believed with some justification that the Turks were supporting wigglers who were moving in large numbers Syria fighting in Syria getting trained as terrorists a lot of them there was a route that went from China to Southeast Asia at the Yunnan Province they go to Turkish consulates they present themselves as Chinese Turks get Turkish passports Chinese officials locally the Turks had fifty thousand blank passports and their consulates to serve us the weavers whether that’s true or not I don’t know but I think the Chinese actually believed that they were very afraid of weaker terrorism since then Erewhon has started behaving himself he cracked out of the weavers in Syria and Turkey he’s not letting them travel back and forth without any fanfare there been a very few reports in the media dothis air Dhawan has completely exceeded two Chinese demands so air the ones national interest his desire to gain independence from the West has trumped his ethnic solidarity with his weaker cousins when our people thank you very much for that comment I deeply share your concern and if it weren’t for the fact that we’ve lost our moral compass we wouldn’t be having these concerns at all to begin with but I do I certainly want trying to do the prosperous and to be a piece and to be secure I don’t think the United States should attempt to break Taiwan or from China I think the one policy one China policy simply is a banner of realism I don’t like it particularly but I think that’s the way the cards are dealt I don’t think we’re going to get any worth to bet so I don’t want to mess with that I’m all for China being secured at U.S. borders however it’s like steel in 1870 very European country they don’t have high quality steel mills you can’t make cannon you’re dead militarily if we lose our semiconductor industry our edge in semiconductors militarily we become a second-rate power and that has all kinds of terrible consequences which are almost impossible to predict apart from the fact will be a great deal poorer as well so I’m all for China being prosperous but I’ve I deeply want America to have a technological edge that’s tangible and keeps everyone afraid of us I very much believe if you want peace you prepare for war relatively little reserves of energy great day little cold not very much else 25 million cars that are produced there now running this is the imported fuel well they’re turning coal into methanol well they do have a huge potential for fracking probably as large as the United States Romney takes a lot of water in one hears stories that water is our premium and processes just get a Ford there’s definitely true what do you hear about any plans actual investment going into it’s not my field that’s a gray it’s an excellent question I wish I knew more about it from what I’ve heard you’d have to construct a pipeline from the sea to bring in seawater because the air is where the shale deposits located or mountainous and extremely dry so there isn’t any water source ready to have that would be an enormous expense and the Chinese have to weigh that against for example building pipelines interruption well a natural gas which they’re doing and creating the pipelines to through Pakistan to the Indian Ocean which would give him better access to Iranian and and belayed and Iraqi crude without going without the vulnerability of going through the Straits of Malacca so I think the Chinese tension is much more an energy security replacing the existing routes and increasing their supply from Russia that on fracking they also of course if announced that they’re going to eliminate the internal combustion engine entirely in China but what 2030 I wouldn’t take that too seriously but it is an important effort they’re building nuclear power plants as fast as they can several a year that will not have a huge effect on their total energy output for several years to come but at a 15 year horizon it will make a very big difference further alarming they have a plan is beyond the one belt one road to build a grave it connects the entire world including us is but which way do you pay the tolls thank you for that thank you good for whom Xi Jinping is a very capable leader and his Chinese patriot is doing what he’s thinking thinks is best for his country in ways that in many cases I found repugnant in the extreme but I don’t propose to criticize and the Chinese are going to have to work out their own problems I think Trump trap is being set for the United States which is will make a fuss about aluminum tariffs and steel tariffs and dumping and various other things Chinese will kick and scream and negotiate and finally they’ll give in and trumple of a great victory we saved the American aluminum industry from Chinese dumping we saved steel Chinese officials told me why does Trump want to save all the industries who want to get rid of China is happy for us to be Brazil semi-finished goods and raw materials so I think that’s what the habitus ocean is going to go and I think the first thing I would tell if I were trumpet here’s what I would tell Xi Jinping for the last 30 years you and the Russians have told us it would be unacceptable for us to develop and implement a space-based anti-missile system because he’d consider that a tenable change in balance of power like to acknowledge the presence here the distinguished political scientist Angela Kota Villa one of the world’s experts on this may want to say something more about it I would say see we understand your concerns but you loused up you let the North Koreans get out of control everybody was relying on you and look what a mess you made of it that leaves us no choice so as soon as I come back I’m going to announce the American people to the American people a Manhattan Project to develop a space-based anti-missile system to make the United States impregnable and if you don’t like it go jump on the belief system to sustain is that in China I know she is working hard to promote the per diem ideology and is thinking how vulnerable is it to a change such as that since it’s been said for so many years that is the great question Bob and the riddle wrapped in an enigma is the status of Chinese Christianity if ever a country were ripe for Christianity that would be China look at the late Roman Empire with tribes migrating disappearing losing their national identity losing confidence in their preworld gods well China’s a nation of my currency 600 million people have moved from countryside to the city it’s spiritually empty human beings do not do well in a spiritual vacuum but because the movement has been so subtle and so located it’s been a house church movement not an organized movement it’s extremely difficult to gather data on it there’s a recent book on Christianity in China a good book but entirely Anto almost impossible to get real data on this so that certainly could be a game-changer is not the right word for it that could be the transformational change that would that would make China an entirely different place but I’ve got no means to evaluate it I’ve been trying to learn about it for years and you only hear anecdotes because with very good reason Chinese Christians are keeping their heads down.

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