East Asia

Geopolitics within China

The year 2017 has short, medium, and long-term significance in China.

Its short-term significance comes from the Communist Party’s quinquennial leadership transition, which is being held a week from today.

Its medium-term significance comes from being the thirtieth anniversary of the most recent notable geopolitical transition in China; namely, of Hong Kong leaving the British to join (in effect) China’s largest province Guangdong, and of Chongqing leaving China’s formerly-largest province Sichuan, in 1997*.

Its long-term significance comes from being the 100th anniversary of the Russian Revolution; of which, with the Soviet Union now long gone, the Chinese Communist Party is the only major remnant. The Party’s centennial is itself arriving in 2021, the first deadline in Xi Jinping’s “Chinese Dream”.

It is interesting to think on how these factors may overlap. The Russian Revolution of course brings to mind the Soviet collapse. That collapse occured 69 years after the Soviet Union’s formation; next year will be 69 years since the People’s Republic of China’s formation. These memories may be reenforcing the desire of China’s leadership to avoid the mistakes they perceive Gorbachev to have made. In a small way, this might be contributing to the Party’s granting more power to Xi Jinping. The promotions Xi makes this week are being watched closely, worldwide, as a yardstick of his clout.

Geopolitics within China 

The 30th anniversary of the political changes to the Hong Kong-Guangdong and Sichuan-Chongqing regions are, arguably, deeply relevant to this issue.

First, the two men Xi is expected to highlight as long-term successors of himself and of Premier Li Keqiang currently lead those regions. Chen Min’er is the party chief of Chongqing, Hu Chunhua is the party chief of Guangdong. Both will have an incentive to keep their regions pliant, in order to realize this rise to the top.

Second, the strongest moves in Xi’s anti-corruption campaign have been taken against top leaders in the Sichuan-Chongqing region: against Sun Zhengcai, party chief of Chongqing, a few months ago, and against Zhou Yongkang, a former chief of Sichuan, in 2015. Sun will be the first Politburo member kicked out under Xi. He will be just the third incumbent Politburo member to fall in the past 20 years, and yet the second party chief of Chongqing (the other being Bo Xilai, in 2012) to do so.

Third, Guangdong and Sichuan are by far the largest of China’s “peripheral” provinces (see graph); provinces outside of the part of China that, roughly speaking, lies between or near Beijing and Shanghai. Few recent Chinese leaders have been born in peripheral provinces; the new Standing Committee that Xi is expected to pick will not have anyone born in a peripheral province. Neither was anyone on the current Standing Committee* born in a peripheral province. Indeed, nobody born in Guangdong or Sichuan holds any of the 43 positions within the Communist Party’s Politburo, Secretariat, or Central Military Commission.

China's Peripheral Provinces

Read the full article here: Geopolitics within China

Advertisements
Standard
East Asia

The Geopolitics of Chinese M&A

According to an article in The Economist, the value China’s outbound M&A activity rose sharply in 2016, up approximately fivefold since the summer of 2015 and eightfold above its average rate between 2010- 2015.

The article mentions that this increase could represent a troubling trend for China, of capital fleeing the country in response to its slowing economic growth rate and gradually depreciating currency in recent years.

It then largely dismisses this theory, however, saying, “rather than sparking a stampede [of money] to the exits, it is more accurate to say that these changes [in China’s economic performance] have alerted Chinese firms to the fact that they are still woefully under-invested abroad. China’s share of cross-border M&A has averaged roughly 6% over the past five years, despite the fact that it accounts for nearly 15% of global GDP”.

In other words, the article assumes that, if  a country’s share of global M&A does not exceed its share of global GDP, its M&A is less likely to be capital flight. This assumption is not justified, however. It overlooks other key factors that may determine a country’s propensity for engaging in outbound M&A. Such factors include:

1. A country’s physical proximity to other large economies

In order to have cross-border M&A, you need borders to cross. Economies with large neighbours, for example Canada or the Netherlands, tend to have a relatively high propensity for engaging in international M&A.Canada’s cross-border M&A, for example, has tended to be 25-50% as large as the US’s in recent years, in spite of the fact that Canada’s GDP is less than 10% as large as that of the US. China, unlike Canada, does not border any large economies. This impacts not just its M&A, but also trade: in China trade counts for 37% of GDP, whereas in Canada it is 64% and in the Netherlands it is 151%.

2. A country’s cultural and linguistic affinity with other large economies

Most economies in the world speak European languages; Northeast Asia remains something of a linguistic outlier. This may make Northeast Asian countries less likely than other regions to engage in global M&A.  Japan, for instance, currently accounts for 6.5 percent of global GDP, yet has accounted for less than 1 percent of global inbound M&A in recent years, and less than 4 percent of cross-border M&A in general. Arguably, China too might be expected to have a low propensity to engage in M&A.

3. Capital availability versus investment opportunity

One of the reasons that Japan’s outbound M&A far exceeded its inbound M&A is that capital in Japan has been cheap (its interest rate is below zero), yet investment opportunities in Japan have been limited (its economic growth rate is 1 percent). Thus, the Japanese borrow money cheaply at home, and often invest it abroad. In China, however, interest rates frequently top 4 percent, while economic growth is estimated to be 6-7 percent. We might, then, expect China to be less M&A-intensive, and generate more of its own investment opportunities domestically rather than seek out ones in foreign markets. Unless, of course, as many economists suspect, China’s true growth rate is much below 6-7 percent.

4. A country’s political relationship with other large economies

Outside of mainland China itself, approximately 45 percent of East Asia’s GDP is generated in Japan, China’s historic regional rival. Outside of mainland China, approximately 29 percent of global GDP is generated in the US, China’s potential global rival. Because China’s relationship with Japan and the US is sometimes a tense one, its investment relationship with Japan and the US may be less than it could otherwise be. For instance, when a territorial spat between China and Japan, over the Senkaku/Diaoyutai islands, heated up (rhetorically) around 2012, cross-border M&A between China and Japan fell sharply. Indeed, in spite of relatively close cultural connections, Japan was not even one of China’s top ten targets of outbound M&A spending in the past decade. China has tended to invest in Europe; Japan in its political ally the US. 43 percent of Japan’s outbound M&A in the past decade went to the US.

5. A country’s relationship to foreign financial hubs

Relatively independent financial hubs, like Hong Kong, Singapore, or Luxembourg, tend to be significant net providers of M&A capital. Their outbound cross-border M&A spending tends to far exceed their inbound M&A, and their global share of cross-border M&A tends to far exceed their global share of GDP. From  2011-2014, for example, Hong Kong’s outbound M&A was about 25-40% as large as mainland China’s, even though Hong Kong’s GDP is only around 2% as large as mainland China’s. (Rightly or wrongly, M&A statistics tend to treat Hong Kong as if it was an independent entity). The fact that the world’s top two financial city-states (Hong Kong and Singapore) are Chinese may suggest that mainland China’s propensity for outbound M&A should be relatively low—just as, for example, US outbound M&A would plummet if (hypothetically) Manhattan were to secede from the US.

The value of China’s outbound M&A as a share of global cross-border M&A should, perhaps, be lower than China’s share of global GDP, then. Yet in 2016 Chinese buyers accounted for an estimated 15 percent of the value of all cross-border M&A, slightly higher than the 14.5 percent of global GDP China had. The Syngenta deal alone, announced in early 2016, was roughly large enough to eclipse all outbound Chinese M&A in any year prior to 2014.  China has kept up its M&A pace thus far in 2017, not counting Syngenta.

The explanation that you often hear for why China’s M&A boom is not capital flight — namely, that Chinese firms are seeking foreign expertise and technology, as China transitions to a more knowledge-intensive economy — may have some merit, but still it ignores the fact that money has also been pouring out of China into other assets in the developed world in recent years. To take the most notorious example, Chinese capital been pushing up real estate values in Pacific cities (Vancouver, Seattle, Sydney, etc.) and hub cities (NY, London, Toronto, etc.). The M&A boom, then, may be part of the greater trend of Chinese capital seeking safe haven. China’s 2016 M&A investment in the global safe haven, the US, was roughly triple what it had been in 2015, 2014, or 2013. It was larger than in every year from 1990-2012 combined.

If much of China’s M&A boom really is a result of capital flight, it is also likely to be unsustainable. In part two of this article we will analyze China’s geopolitical structure, to see when (or whether) this boom will end.

Standard
East Asia, North America

The League of the Overshadowed

It is easy to be small and ignored. But to be large and ignored, it helps to hide within the shadow of an even larger entity. In the realms of economics and geopolitics, there are three very large countries which, though not actually ignored, do not always receive the respect their size demands, as they inhabit the shadows thrown by the world’s colossi, the USA and China. These countries are Canada, Mexico, and Japan.

Japan has by far the third largest economy in the world, by far the second largest developed economy in the world, by far the second largest population among developed economies, and the tenth largest population globally.

Canada is the second largest country in the world, the fourth largest possessor of renewable freshwater, the fourth largest producer of renewable energy, the fourth largest exporter of oil, and the tenth largest economy.

And Mexico has the world’s eleventh largest population, thirteenth largest territory, and fifteenth largest economy. (Only five other nations are top-15 in all three categories: the US and the BRICs). Mexico has 2.5 times the population of the next largest Spanish nation (Colombia), plus a diaspora of 35-45 million in the US. It is also the twelfth largest oil producer in the world. The Greater Mexico Region (including Mexico, Texas, California, Venezuela, and US waters in the Gulf) produces more oil than Saudi Arabia or Russia. This region also has an economy larger than any country in the world, apart from the US or China.

The League of the Overshadowed

At the moment, however, trade between Canada, Mexico, and Japan is quite small. Neither Canada nor Mexico are even among Japan’s top fifteen trade partners. And while Mexico and Canada do trade with one another more often — Mexico recently overtook Britain to become Canada’s third biggest trade partner — trade with Mexico still counts for less than three percent of Canada’s total. Their trade with one another is overshadowed by that of the US. Indeed, California alone trades far more with Canada, Mexico, and Japan than those countries do with one another. There is no League of the Overshadowed… yet.

It may be worth noting, though, that US politics have to a certain extent put trade with Canada, Mexico, and Japan into question. President Trump’s first executive order was to withdraw from the Trans-Pacific Trade Partnership, in which Japan would have accounted for over 60 percent of the twelve member-states’ GDP apart from the US. Trump has also signalled his intention to renegotiate NAFTA, tighten the US-Mexico border, raise tariffs on Canadian farm and forestry products, and keep American fossil fuels cheap.

If these policies are followed through on, they could have the effect of driving US trade partners somewhat closer together. Obviously, Canada and Mexico have an interest in showing that they can trade with one another regardless of what Washington intends to say or do about NAFTA. Both also have an interest in exporting more fossil fuels to Asia, where prices remain more expensive than in the shale-rich US. On June 1, in fact, Canadian senator Paul Massicotte wrote an op-ed calling for Canada and Japan to sign a free trade agreement with one another as quickly as possible, given the failure of TPP and risks for NAFTA. Especially as both Canada and Japan have large majority governments right now, such a deal may happen.

An economic relationship between Canada, Mexico, and Japan could turn out to be far more significant, however, than being just a knee-jerk response to Trump’s America-First politics. As we will see, Canada, Mexico, and Japan are in fact complimentary nations, both economically and geographically. Already they have a propensity to trade with one another that is larger than their absolute trade levels suggest (see graph below). So long as Japan’s economic growth remains stagnant, Mexico remains poor, and Canada remains underpopulated, this propensity does not matter much. But if these conditions do not remain, we should expect trade between these three significant, overshadowed countries to grow by a very large amount.

canada propensity to trade

Complimentary Nations

Economists often talk about land, labour, and capital, considering them fundamental inputs of productivity. In the case of Canada, Mexico, and Japan, these inputs are epitomized: Canada has land but not labour, Mexico labour but not capital, and Japan capital but not land. Together, then, they could make a formidable team.

In Canadian politics and business, it has become common in recent years to say that by exporting natural resources to China, Canada can finally reduce the near-monopoly that the US has on buying Canadian exports. This view, however, is based on a false extrapolation of a trend that is now nearing its end: industrial growth in coastal Chinese cities. As China now seeks to rebalance its economy, by investing instead in its service sectors (which are less resource-intensive) and interior cities (which have a lower propensity to engage in trans-Pacific trade), its demand for Canadian resources is unlikely to continue to surge. Most of the resources it does buy will probably continue to come from within its own borders — China only imports 15 percent of the energy it consumes — or from its “One Belt, One Road” partners in Asia.

In Japan, on the other hand, the reverse is true. Japan has few resources of its own, and no Silk Roads to tap. Japan imports 90-plus percent of the energy it consumes, mainly from the Middle East. Its access to the Middle East, however, is imperilled, both from competition with other Asian countries (notably, China and India) as well as from Middle Eastern conflicts. Consider, for example, that Japan accounts for 30-40 percent of LNG imports globally, yet its primary supplier, Qatar, is now in an open feud with Saudi Arabia. Between competition and conflict, Japan could have to rely more on trans-Pacific trade to get resources. It would not be the first time: in the 1930s, eighty percent of the oil Japan consumed was imported from the US.

China-Japan comparisons.png

Even more important may be the impact of labour-saving machinery — robotics — upon Japanese trade. Because Japan has the oldest population in the world by far, it is planning to become a leader in robotics. Even, for example, as soon as the Tokyo Olympics in 2020, Japan is planning to showcase its robotic prowess. Yet robots are highly energy-intensive, and industrial robots resource-intensive. If Japan really does become the leader in robotics, it is likely to start importing lots of energy and other commodities from resource-rich countries like Canada. It may also be likely to start exporting its robotic technologies to countries like Canada, given Canada’s abundance of resources but lack of a large, cheap, human labour force.

Upstairs, Downstairs 

Today, if you exclude the US or Europe, Canada and Mexico have the largest combined economies of any pair of countries which are part of the same trade bloc (see graph 1 below). Yet if you include Europe, Canada and Mexico still rank quite a bit lower than a number of pairings of Europe’s largest economies (graph 2).

trade bloc pairing comparisons

In other ways, however, Canada and Mexico rank ahead of these European pairings. In population they do so (graph 3). In land they do so too (indeed, Mexico alone is larger than any four countries in the EU combined). And in terms of their indirect, second-degree trade (their combined trade with a third country), Canada and Mexico as a pair lead the world (graph 4), a result of their both trading hugely with the US.

canada-mexico indirect trade

 

While Canada’s propensity to trade with Mexico is greater than with any significant country apart from the US, it is still only around half as high as its propensity to trade with the US. The reason for this is simple: Canada and Mexico do not share a border with one another. They are not even very close in proximity to one another. More than 3000 kilometres separate Mexico City from any of the largest cities in Canada.

This separation is also reflected in Canada’s lack of a significant Spanish-speaking diaspora, particularly relative to that of the US. In spite of the fact that 21 percent of Canada’s population is foreign-born, compared to just 14 percent in the US, only 0.3 percent of Canada’s population is Mexican, compared to an estimated 11 percent of the population in the US. Even the state with the smallest share of its population being Mexican or Mexican-American—Maine—has a higher share, 0.4 percent, than Canada does.

But this may be likely to change, for two reasons. First, there is a political faction in the US which is wary of further Hispanic immigration, seeing it as a threat to the singular position held by the English language in America. Second, whereas the population of the US is relatively young, the population of Canada is Boomer-dominated, inching towards old age. This is especially true of the population of Canada’s French-speaking provinces, Quebec and (partially) New Brunswick. These provinces also, because of the far smaller language gap between French and Spanish than between Spanish and English, have a much higher propensity to attract Latin Americans than do other parts of Canada (see graph). Between demographics of this kind and US immigration politics, the next major wave of Latin American emigrants could be to Canada.

canada-quebec comparisons.png

The aging population of Canada’s Baby Boomers, and especially of Quebec’s Baby Boomers, also indicates another area in which Canada-Mexico economic ties—both direct and indirect—are likely to grow: tourism.  Already today, Mexico is the largest destination for Canadian travellers apart from the US, while the areas of the US that Canadians spend the most time in — Florida, the Southwest, and New York — are ones in which Mexican-Americans (or in Florida’s case, Hispanic-Americans in general) inhabit in large numbers. As Canadian Baby Boomers reach old age or retire, they are likely to spend more time in places like Mexico, in order to avoid much of the discomfort (even danger) of dark, icy Canadian winters. This will be most true of Quebec, given its older population, colder winters, and greater ability to learn Spanish.

Travel by Canadians .png

As the chart above implies, the US reconciliation with Cuba may also lead Canadians to spend more time in Mexico. During the past generation, the US rivalry with Cuba has given Canadians a near lock on the Cuban market. Canadians account for an estimated forty percent of all visitors to Cuba, and Cuba accounts for a disproportionately large destination (given Cuba’s relatively small size) for Canadian tourists. As the US allows its own population to go to Cuba, however, Canadian snowbirds will lose the advantage of having such a cheap, warm country all to itself. Many will re-route to other Latin American beaches.

An even more important pull factor for Canadian snowbirds will be “e-commuting”. The ability for young Canadians to spend time in a cheap, warm country in the winter is likely to increase dramatically as a result of the modern Internet. This is also likely to impact the Baby Boomers. If, for example, it becomes easier for a Boomer’s children and grandchildren to come visit them in Florida or Mexico for, say, a whole month over Christmas, rather than for just a week, then Boomers will be likelier to go in the first place.

And the relationship may not even remain one-way only: Mexicans may begin to visit Canada more often too. Today Mexicans do not go to Canada much, because they lack the disposable income to do so. If and as Mexicans become wealthier, however, they may look to Canada as a place to go in the summer; a place where the summer weather is not too hot, the major metropolises are not too crowded, and a cottage by a northern lake may be rented at an affordable rate. Climate change could, sadly, also play a role in this equation. Mexico — and the Southwestern US, in which tens of millions of Mexican-Americans live — is dangerously arid, whereas Canada is in possession of an abundance of renewable, surface-level freshwater.

Conclusion—The New Drivers of Trade 

Today, the main driver of trade is proximity. Countries which share borders with one another tend to trade a lot — though, of course, there are many exceptions to this — whereas far-away countries tend not to. However as (or, admittedly, if) globalization continues, proximity may no longer matter as much. Complimentarity may matter a lot more. We have seen here various ways in which Canada, Mexico, and Japan may be complimentary to one another. Canada has land but not labour, Mexico labour but not capital, Japan capital but not land. Canada has cold, dark winters but warm, water-rich summers, Mexico warm bright winters but hot, arid summers. All three countries have coasts on the North Pacific Ocean; none are part of the Asian (or Eurasian, or Afro-Eurasian) continent. And all three countries are very large, yet are overshadowed by neighbours that are far larger than they are. They may end up, if only informally, a formidable League.

Standard
East Asia, North America

North Korea in the Next Five Years

The Korean War, fought from 1950-1953, was a result of two earlier wars in the 1940s: the US-Japanese War, which ended with the destruction and occupation of Japan in 1945, and the Chinese Civil War, which ended in a Communist victory (and Nationalist retreat to Taiwan) in 1950. With the Communists and Americans as the only powers in East Asia following these wars, the Korean peninsula was split in two, each side taking a piece for itself.

When the US triumphed over the Soviet Union around 1990, many expected the North Koreans to fix their broken ties with South Korea.  That this did not occur was partly the result of inertia, partly the result of Kim Il Sung’s living until 1994, and partly the result of the 1997 East Asian financial crisis, which kept the South Koreans too poor to want to bear the cost of investing in North Korean infrastructure or labour.

It was also partly the result of a miscalculation on behalf of North Korea in 1987, twenty-four months before the Berlin Wall came down. Seeking to ruin the South’s first-ever Olympics in 1988, the North blew up a commercial airplane. It was by far the deadliest attack on the South since the armistice began in 1953. South Korea’s anger and mistrust of North Korea as a result of this deed persisted during the ’90s.

When the 21st century arrived the situation changed again.  The US, after having fought the bulk of its four major 20th century wars in East Asia—in the Philippines, WW2, Korea, and Vietnam—shifted its focus elsewhere in 2001. This shift was mainly a result of US wars in Afghanistan, Iraq, and Libya. To a lesser extent, it has also been a result of recent Russian interventions in Georgia, Ukraine, and Syria .

In East Asia, meanwhile, China’s GDP surged, while Japan’s continued to stagnate like it had in the ‘90s. Between Chinese growth,  Japanese stagnation, and US distraction, East Asia became again a two-power region: those powers being the United States and China. But this may now be ending. In the years ahead, East Asia is likelier to become either US-dominated again, like it was in 1990s, or balanced between three separate powers: the US, China, and Japan. The two-power status quo could remain in place, but is hardly certain to do so.

In a one-power or three-power region, the powers involved may have less to gain from the continuation of poor relations between North and South Korea. There will be much less reason to split Korea in two, as it has been for 67 years now, when East Asia as a whole is not split between two major powers, as it is today.

The move to a US-dominated East Asia, or a US-China-Japan-dominated East Asia, is likely for three reasons:

First, the US has been drawing down from the Middle East. It had 150,000 soldiers fighting in Iraq and Afganistan in 2011, but now has fewer than 15,000.  Unless it decides to wholly reverse this process — Trump has announced the addition of 4,000 soldiers to Afghanistan, but that is a far cry from the Obama-era surge—the US will have the ability to focus on other regions, like East Asia, more than it could during the 2000’s.

Second, China’s GDP growth has slowed, from 10-15 percent growth during the 2000s to 3-7 percent (depending on whether you believe its official growth rate, 6.7%) last year. In order to keep up with 2.5 percent US growth, China must grow around 4 percent. China’s challenge in doing this is that its labour is now much dearer and older than it used to be, while its resource wealth, most notably its coal, has led to pollution.

China may struggle to keep up with US power. As it is, the US economy is an estimated 1.6 times larger than China’s. The US-Canada-Britain-Australia alliance, meanwhile (which, unlike China itself, more or less speaks a single language) has a GDP 2.2 times larger than China’s. The US GDP alone is larger than that of East Asia as a whole.

Third, the economy of Japan, which today is an estimated 37 percent as large as China’s and 18 percent larger than Germany’s, is likely to benefit from the crash in oil and other natural resource prices that began in mid-2015. Unlike China, Japan has few resources of its own, and so depends on imports to fuel its economy.

relative trade northeast asia

While Japan’s aging population continues to be a challenge — Japan’s largest age cohorts are 40-45 year olds and 65-70 year olds — it may be able to address the challenge via a combination of robots, cheap energy to power robots, and a labour force dominated by highly skilled 50-80 year olds. Japan is already planning to advance its robotic prowess in the near term: it wants to showcase them at the 2020 Tokyo Olympics.

Japan’s robot drive is likely to have consequences not just for the Japanese economy, but also for the Japanese military. Japan has already begun to rebuild its military of late, first in response to China’s rise and then in response to Donald Trump’s rhetoric that US allies should “stop freeloading, and pull their own weight”.  Already today the Japan ranks 8th in military spending, despite devoting just one percent of its GDP to it. Should Japan double this, to reach the 2 percent of GDP that France and Britain spend, it would then become the third largest military spender in the world, and move far ahead of the next largest, Russia. (Were Japan to spend 5 percent of GDP on its military like Russia does, it would move far ahead of China).

Even if Japan does not re-emerge, East Asia might not remain a two-power region. Rather, China could fall behind the US sufficiently that, in effect, it will be a one-power region again, like it was in the 1990s. US power is rising not only due to its withdrawal from the Middle East, but also because its rivals, most notably Russia, are being hurt by the fall in resource prices. As in the ’90s — when oil prices were at all-time lows — cheap oil works in the US’s favour. And if US power in the region does rise, the North Koreans might be less willing to resist its demands.

GDP.png

Source: http://gypsyscholarship.blogspot.ca/2013/06/bye-bye-north-korea.html

There is an additional reason for improving relations between the North and South: it may benefit the South’s economy.  Unlike in the 1990s, South Korea is now a relatively wealthy country. Yet because of its rapid growth, it has become dependent on imports of natural resources and exports of manufactured goods. South Korea has been importing resources mainly from the Middle East, and exporting mainly to China.

The Middle East, however, remains unstable. Qatar, for example, the world’s largest LNG exporter, sells more to South Korea than to any other country. But Qatar is now in open conflict with Saudi Arabia. Uncertainty of this kind threatens South Korea’s GDP growth. In addition, as China tries to shift from coal to gas, and as Japan tries to shift from human labour to fuel-powered robots, South Korea may have to deal with rising competition from its own enormous neighbours when importing fossil fuels from the Middle East.

Similarly, South Korean exports have been limited by the slowing Chinese economy. China accounts for a quarter of all South Korean exports, more than the US and Japan combined. South Korea has also been hurt by its own success: its labour is no longer so cheap like it was in previous decades, when it was still a poor country.  For these reason, South Korea has already grown more slowly in the past two years that at any time since 1997 (excepting the global financial crisis in 2009).

These economic troubles are occuring at a bad time for the South. South Korea will host the the first-ever Winter Olympics in continental Asia this year. It wants the world’s perceptions of itself—namely, that it is a remarkable country, with remarkable companies like Samsung and remarkable economic prospects in general—to endure. It also does not want the North to cause trouble this time, as occured in 1987.

Trading with North Korea could help address both these concerns. North Korea has an extremely cheap, Korean-speaking labour force; a labour force that includes cousins, and in some cases even siblings, of the South’s. It represents a potential Korean-speaking market for South Korean exports, both of media and manufactured goods. It even, if ties improve enough, offers opportunities in tourism. And it offers access to natural resources. The North Koreans are rich in coal; the South Koreans are top coal importers. More importantly, the North offers a land route by which South Korea can access resource-rich Manchuria and Siberia.

China_topo

It is possible, of course, that the Korean issue will be addressed by war rather than by trade. In the past year alone, the US has prepared for such a war. It is also possible that the North will not be addressed at all; that the tyrannical staus quo will endure. But for the reasons outlined above, I believe reconciliation is the most likely, and the status quo the least likely.

Dennis Rodman, who played on the the 1990s Chicago Bulls (Kim Jong Un’s favorite basketball team) has lately met with Un. Do not be suprised if Rodman’s Celebrity Apprentice co-star, Donald Trump, follows suit.

Standard
East Asia

North Korea and the Olympics Curse

Countries, or even entire regions, sometimes change dramatically soon after hosting major sports events like the Olympics or World Cup. For the next five years, these events will all be held in countries surrounding North Korea. The 2018 Winter Olympics will be in Pyeongchang, South Korea, the 2018 World Cup in Russia, the 2020 Summer Olympics in Tokyo, and the 2022 Winter Olympics in Bejing. This could, maybe, foreshadow a coming political change.

 

The Olympics Curse 

In the relatively common phenomenon known as the “Olympics Curse”, countries or even entire regions change dramatically soon after hosting major sports events like the Olympics or World Cup. Sometimes this change is for the better, but often it is for the worse. It is, typically, the result of boom-bust economic cycles: countries bid for the tournaments during periods of growth but, by the time the tournaments finally take place, leaner years have set in. 

The BRICS 

During the past decade the curse of the Olympics has been especially striking. It was felt most recently in the aftermath of the “BRICS” economic cycle, which had led to Olympics in Rio de Janeiro in 2016, Sochi in 2014, and Beijing in 2008, and to World Cups in Brazil in 2014, South Africa in 2010 and (for cricket) Mumbai in 2011. 

The BRICS boom first began to waver in 2008, the year of the Beijing Olympics, as the global financial crisis began and called China’s exports to the US and Europe into question. This forced the Chinese to rely instead on growing debt — and then on a new cult of personality, that of Xi Jinping —to keep their boom going. 

The slowing economic growth in Europe and China also took a toll on commodity prices, which in turn crushed the Russian, Brazilian, and South African economies. Russia responded to this economic threat by going to war with its neighbours, first in Georgia in 2008 (the day before the Beijing Olympics), then in Ukraine in 2014 (three days before the end of the Sochi Olympics).

Brazil, meanwhile, entered what has been perhaps the worst recession in the country’s modern history; its president, Dilma Rousseff, ended up being impeached last summer (ten days after the Rio Olympics) in a political scandal that just won’t end

While India escaped the BRICS slowdown relatively unscathed (and also never hosted the Olympics), it too has undergone a political shift in recent years, with the defeat of the Congress Party and success of Hindu-nationalist figures like Narendra Modi and, recently, Modi’s chosen leader for Uttar Pradesh, Yogi Adityanath

Even the Olympics in Vancouver in 2010 and London in 2012 were, in effect, extensions of the BRICS boom. Both cities are hubs of activity and investment for persons originating from China (in Vancouver’s case) or emerging markets in general (in London’s). Both have also experienced some trouble of late. Vancouver is experiencing a housing affordability crisis partly as a result of capital flight from China, while London — where housing prices are not exactly affordable either— suffered a harsh defeat in its country’s Brexit vote last year. 

The Eurozone 

Before the BRICS sports spree began in 2008, there was Europe’s. Athens hosted in 2004, Turin in 2006. Berlin too played host in 2006, to the World Cup. It was the year before the 2007-2008 financial crisis, which led to a “lost decade” in Europe that has, among other things, wrecked Greece, weakened Italy, and brought Germany nearer than it would like to becoming again the most decisive but reviled country in the region. 

South Korea

For South Korea, which will be hosting the first-ever Winter Olympics in continental Asia at the beginning of 2018, in a city less that is than 100 km from the DMZ, the hope is that the worst of the curse has already taken place in the past year. South Korea’s economy grew more slowly in 2015 and 2016 than in any year since 1998 (with the exception of 2009, the year of a global recession), and its president was impeached in the closing days of 2016. 

Yet if the effect of the Olympics truly is a consistent phenomenon, then there is no reason to expect that Korea won’t continue to change. Not only is South Korea hosting in the winter of 2018, but all of the major sports events in the near future are going to be held in countries that surround the Korean peninsula. The 2018 World Cup will be in Russia, the 2020 Summer Olympics in Tokyo, and the 2022 Winter Olympics in Beijing.

Even the host of the 2022 World Cup, Qatar, has Korean connections: South Korea is the number one destination for Qatar’s exports. 

North Korea 

For North Korea, the changes in the region that these upcoming sports tournaments may foreshadow are, if anything, only one more indication that the status quo on the peninsula is becoming less and less likely to hold. 

Whether through rapprochement, reunification, or regime change, it seems that the country and the region are headed for a significant change in political conditions.

It is possible that sports will play even a direct role in this change. Sports diplomacy, after all, has a long history in the region. The US and China played ping-pong in 1971, just months before Nixon’s infamous trip to Beijing; the ping-pong players were at the time among the first Americans to officially visit China since the end of the Korean War two decades earlier. 

More recently — just this past week, in fact — South Korea’s Chung Mong-gyu, the first Korean to hold a seat on FIFA’s council since 2001, announced that he and FIFA’s president Gianni Infantino both support the idea of a proposal for South Korea, North Korea, China, and Japan to co-host the football World Cup in 2030.

Even Dennis Rodman, who played on the 1990’s Chicago Bulls (Kim Jong Un’s favourite basketball team), used a sport trip to North Korea in 2014 as an opportunity to reach out to the isolated, tyrannical regime.

If war is to be averted, we can hope that Rodman’s Celebrity Apprentice co-star, Donald Trump, will now follow suit.

Standard
East Asia

Deep State vs Deep South?

There is a recent pattern in American politics, in which Democratic politicians who succeeded in presidential elections were not born in northern states (e.g. Obama, Clinton, Carter, Johnson, Truman, and, if you must, Al Gore), while Republicans who won presidential elections — so, not counting Ford, who inherited Nixon’s presidency post-impeachment — have had very close ties to either Texas (the Bush’s, Eisenhower), California (Reagan, Nixon), or Florida (Bush, Trump).

To some degree, this pattern presumably reflects the old divide between the country’s Northeast and Southeast. The Democrats, who have their base of support in the Northeast, have had trouble in elections when they do not reach out to the South by selecting one of its native sons as their candidate. The Republicans, who have support in the Southeast, have had trouble winning when they do not secure the support of at least one of the country’s three largest states—California, Texas, or Florida.

Looking at the home regions of China’s leading politicans, it is fairly easy to discern a similar north-south divide. A large share of Chinese leaders were born in northern China. These include Beijing-born Xi Jinping (who’s father, Xi Zhongxun, was from Shaanxi) and Shandong-born Wang Qishan (a former mayor of Beijing, now Xi’s anti-corruption chief). At present, out of China’s seven Standing Comittee top leaders, only seventh-ranked Zhang Gaoli was born in southern China. Five of the seven were born in the north and one, Premier Li Keqiang, was born in in central China. Many politicians of the past, such as Zhao Zhiyang or Hua Gaofeng, have also hailed from the north.

Indeed, as far as I can tell, Zhang Gaoli may in fact be the first person in thirty years to be born outside of northern or central China and have made it to the Standing Committee. He is also the only person currently serving in the Party’s 25-member Politburo born outside north or central China.

Central China — which, somewhat confusingly, is sometimes considered to be part of Southern China, though it is located far north of the ‘deep south’ regions like Guangdong or Yunnan — has also produced its fair share of notable figures, such as Hu Jintao, Jiang Zemin, Li Keqiang, Zhou Yongkang, and Wu Bangguo, all of whom were born in Jiangsu or Anhui. There seems, in fact, to be a very recent trend in which, when the General Secretary is from northern China, then the Premier is from central China, and vice versa. So, for example, there is now the pairing of Xi and Li (born in Beijing and Anhui, respectively), and before them the pair Hu and Wen (Jiangsu and Tianjin).

 

Some may interpret this as an implicit power-sharing arrangement between central China and northern China. While at present most leaders come from northern China, this was not the case a generation ago. Jiang Zemin (born in southern Jiangsu), Zhu Rongji (northern Hunan), Li Peng (Shanghai), Hu Yaobang (northern Hunan), Li Xiannian (Hubei), and Yang Shangkun (Chongqing) were not from the north. Of the “Eight Elders” of the 1990s and 1980s, six were born in central or south-central China; the other two in Shanxi. Even Xi Jinping, a northerner, spent his political career in central China or south-central China, in Hebei, Fujian, Zhejiang, and Shanghai.

All this, of course, could be meaningless; birthplace is hardly always a determining factor in any leader’s politics. What is interesting, however, is that such a regional pattern arguably exists in spite of the fact that most of China’s most prominent political figures and revolutionaries in the first half of the twentieth century — including Mao Zedong, Deng Xiaoping, Sun Yat Sen, Chang Kai-Shek, Zhu De, Liu Shaoqi, Hong Xiuquan, Ye Jianying, Zhang Guotao, or even the writer Lu Xun — hailed from southern China or from south-central China. Perhaps this shows that China’s establishment tends to be more northern, whereas China’s anti-establishment tends to be more southern?

The pattern, if it does actually exist, does not appear to be unique to civilian political leaders. Among today’s 11-man Central Military Commission, seven were born within northern China, while two were born in north-central China and two in south-central China. None are from the deep south.

Meanwhile, out of the 205 active members of the Party Central Committee, fewer than 15 were born in the deep south*. (*Here, please correct me if I am wrong. I do not speak Mandarin, and finding this information was difficult. Bo Zhiyue’s work was useful and worth reading, but has a different emphasis. In the end I had to sift through biographies of the Committee members one by one…). No person born in the vast southeast province Guangdong, or the vast south/centre- west province Sichuan, holds one of the 43 positions in either the Communist Party’s Politburo, Secretariat, or Central Military Commission, at or around the highest levels of China’s political hierarchy.

The Sichuan basin has also witnessed a spate of high-profile political take-downs in recent years, notably of Chongqing’ party leader Bo Xilai and, later, of Sichuan province’s former chief Zhou Yongkang. Now Chongqing’s party chief is Sun Zhengcai, who is the youngest member of the current 18th Politburo and formerly served as party chief of Jilin. Guangdong’s party chief, Hu Chunhua, is the second youngest member of the Politburo and formerly served as party chief of Inner Mongolia, after having spent most of his career working in Tibet.

This may be significant, in both cases. Southern China, as well as other areas that might perhaps also be considered to be ‘peripheral’ (including Inner Mongolia, Tibet, and even Jilin), appear often to have been used as something of a stepping-stone to power by young, up-and-coming leaders like Hu and Sun. The idea is—presumably—that they will do whatever it takes to secure the Party’s interests in those regions, given they have such bright future careers to lose if they fail to do so. Past instances may include Hu Jintao serving in Guizhou and Tibet, Zhao Zhiyang in Guangdong, or maybe even Xi in Fujian. In the case of Hu and Sun in Guangdong and the Sichuan basin, they might be there simply because of those regions’ large sizes and significance—but perhaps they are also there to preempt dissent.

…And yet. Much of China’s economic output is generated in areas from around Shanghai south to Guangdong; particularly if you include Taiwan as being part of the country. Guangdong alone accounts for an estimated 10% of mainland China’s GDP and more than 25% of its exports. This creates, perhaps, an unbalanced dynamic: China’s political periphery is also its top commercial engine.

Americans might be tempted to call this state of affairs “taxation without representation”. While I will not stoop to doing so, I would however be very interested in hearing feedback about these patterns from any of the billion or so people who are more knowledgable on Chinese affairs than I am.

So please, comment below.
Standard
East Asia

Oil and the Ouroboros

Today, at $45-50 a barrel, the price of crude oil has risen significantly from the $30 lows it reached around the start of 2016. Still, it remains quite far below the $80-110 range in which it resided during most of the past decade, prior to its crash in mid-2014. Gas and coal prices, meanwhile, have in most areas of the world fallen even more than those of oil has. China, because it is the world’s largest net importer of oil and of fossil fuels in general, has often been viewed as a country that is likely to benefit from these cheaper prices.

This view may be incorrect. Not only do China’s energy imports not equal a large share of its GDP, but the growth of China’s energy imports going forward may be slower than many predict. Moreover, there is an enormous discrepancy in the amount of fossil fuels produced by various regions and provinces within China. As such, the crash in energy prices may excacerbate, or at least influence, some of China’s preexisting geo-political divisions.

Energy Imports

China may be the world’s largest energy importer, but it is has also become its second largest energy producer, and as such only relies on energy imports for an estimated 15% of its total energy consumption, in contrast to 94% in Japan, 83% in South Korea, 33% in India, 40% in Thailand, and 43% in the Philippines. In 2014 imports of oil were equal in value to just around 2.4 % of China’s GDP, according to the Wall Street Journal, compared to 3.6% in Japan, 6.9% in Korea, 5.3% in India, 5.4% in Thailand, 4% in the Philippines, and 3.3% in Indonesia.

South Korea and Japan also imported more than two and four times more liquified natural gas, respectively – the prices of which tend to track oil prices more closely than conventional natural gas prices do – than China did. China’s LNG imports barely even surpassed India’s or Taiwan’s. China’s imports of natural gas in general, meanwhile, were less than half as large as Japan’s and only around 20% percent greater than South Korea’s.

China, furthermore, tends to import energy from the most commercially uncompetitive, politically fragile, or American-hated oil-exporting states, such as Iran, Russia, Iraq, Angola, and other African states like Congo and South Sudan. In contrast, Japan and South Korea get their crude from places that will, perhaps, be better at weathering today’s low prices, namely from Kuwait, Qatar, the UAE, and Saudi Arabia. (Granted, China gets an enormous amount of oil from Saudi Arabia too; however, Saudi oil does not count for nearly as large as share of China’s oil imports as it does for Japanese or South Korean oil imports). Similarly, China gets much of its natural gas from Turkmenistan, Uzbekistan, and Myanmar, whereas Japan imports gas from Australia and Qatar and South Korea imports gas from Qatar and Indonesia. China’s top source for imports of high-grade anthracite coal, and its third largest source for coal in general, is North Korea.

China has, in addition, invested capital all over the world in areas hurt by falling energy and other commodity prices, both in developed countries like Australia and developing economic regions like Africa. With energy prices cheap, it may get low returns on these expenditures.

Energy, History, and Politics

Another mistake the financial media makes is looking at China as if it were a country, rather than what it really is: both a country and a continent. Continents contain deeply-rooted divisions along regional, linguistic, and ethnic lines. China is no exception. China’s main division, roughly speaking, is between  areas south of the Yangtze River, which tend to be mountainous, sub-tropical, and dependent upon importing fossil fuels, and areas north of the Yangtze, which tend to be flat, more temperate, and rich in fossil fuels.

China’s Physical Topography                     China’s Population Density

Northern China, stretching over 1000 km from Beijing southward to Shanghai on the Yangtze, is the country’s political heartland. It is densely populated and home to most of China’s natively Mandarin-speaking, ethnically Han citizens. When compared to southern China, the north has historically been somewhat insulated from foreigners like the Europeans, Americans, and even Japanese. Beijing’s nearest port is roughly 5000 km away from Singapore and the Strait of Malacca; Hong Kong, in contrast, is only around 2500 km from Singapore and Malacca. Beijing is rougly 2600 km from Tokyo by ship, whereas Shanghai is 1900 km from Tokyo and Taipei (in Taiwan) is 2100 km from Tokyo.

Japan’s Ryukyu island chain and the Kuroshio ocean currents historically allowed for direct transport from Japan to Taiwan and the rest of China’s southeastern coast; the Japanese controlled Taiwan for more than three and a half decades before they first ventured into other areas of China in a serious way during the 1930s. Even today, Japan accounts for a larger share of goods exports to Taiwan than do either China or the US.

Southern China has often depended on foreign trade, since much of its population lives in areas that are sandwiched narrowly between Pacific harbours on one side and coastal subtropical mountain ranges on the other. In northern and central China, in contrast, most people live in interior areas rather than directly alongside the Pacific coast.

People in the northern interior often did not engage in as much foreign trade as those on the coast, as, in the past, transportation in the interior was often limited by the fact that northern China’s chief river, the Huang-he, is generally unnavigable and prone to flooding northern China’s flat river plains, destroying or damaging roads and bridges in the process. In southern or central China, by comparison, even people living far inland could engage with the coast by way of the commercially navigable Yangtze and Pearl Rivers, which meet the Pacific where cities like Shanghai, Guangzhou, and Hong Kong are located.

Northern China, however, was most directly exposed to the land-based Mongol and Manchu invaders who ruled over the Chinese for most of the past half-millenium or so, prior to the overthrow of the Manchu-led Qing Emperor in 1912. Today, of course, the north continues to retain China’s political capital, Beijing, and a disproportionally large majority of Chinese leaders were born in northern China — including Beijing-born Xi Jinping and Shandong-born Wang Qishan, a former mayor of Beijing). This is in spite of the fact that most of China’s leading political revolutionaries in the twentieth century, including Mao Zedong, Deng Xiaoping, Sun Yat Sen, Chang Kai-Shek, Zhu De, Ye Jianying, Hong Xiuquan, and the writer Lu Xun, hailed from southern or south-central China.

At present, out of China’s seven Standing Comittee top leaders, only seventh-ranked Zhang Gaoli was born in southern China; whereas five of the seven were born in northern China and one, Premier Li Keqiang, was born in central China. Zhang Gaoli may in fact be the first person born outside of northern or central China in thirty years to have made it to the Standing Committee. He is also the only person currently in the 25-member Politburo born outside of northern or central China. Meanwhile, among the 11-man Central Military Commission, seven were born in northern China, while two were born in north-central China and two in south-central China. By my count, out of the 205 active members of the Party Central Committee, fewer than 15 seem to have been born south of central China.

Indeed, the southern half of China, stretching from islands in Taiwan, Hainan, Hong Kong, Xiamen, and Macau in the east to the plateaus of Yunnan, Sichuan, and Tibet in the west, seems to be politically peripheral. It is home to a majority of China’s 120 million or so non-Han citizens (most of whom are not Tibetan or Uyghur, though those two groups recieve almost all of the West’s attention), as well as home to China’s 200-400 million speakers of languages other than Mandarin, and to China’s tens of millions of speakers of dialects of Mandarin that are relatively dissimilar to the Beijing-based standardized version of Mandarin, and to most of China’s 50-100 million recent adopters of Christianity, and, finally, to most of China’s millions of family members of the enormous worldwide Chinese diaspora.

Southern China is closer to Southeast Asia, a region with an enormous, economically active Chinese population (many of whom speak southern Chinese languages like Cantonese), than is northern China. Southern China’s Fujian province, in particular, is both linguistically and economically close to Taiwan, and southern China’s Guangdong province—the largest province in China—to Hong Kong. A large share of China’s GDP comes from the coastal areas of China from around Shanghai south to Guangdong, particularly if you include Taiwan as part of the country. Guangdong alone accounts for an estimated 10% of mainland China’s GDP and over 25% of its exports. This creates, arguably, an unbalanced dynamic: China’s political periphery is also its main economic engine.

Fossil Fuels

As it happens, northern China produces almost all of China’s fossil fuels. Most Chinese energy is, in fact, produced in and around the province of Shanxi, 300 km or so west of Beijing, where a tremendous share of China’s (and, indeed, the world’s) coal is mined. Shanxi has also seen the biggest political shakeup of any province from Xi Jinping’s anti-corruption campaign thus far. When combined with the northern “Autonomous Regions” of Inner Mongolia and Xinjiang, as well as China’s north-easternmost province Heilongjiang, Shanxi produces a gigantic of China’s fossil fuels in general. Other northern areas, such as Shandong, Liaoning, and Tianjin, are also significant oil producers.

Southern and central China, in contrast, account for most of China’s imports of fossil fuels—especially if you include the economy of Taiwan as being part of southern China. Taiwan, in fact, may be more dependent on oil imports than any other significant economy in the world, according to data from the Wall Street Journal. Falling energy prices may weaken the historical political heartland of China relative to its periphery, in that case. Whether or not this will generate political instability going forward remains to be seen.

Looking Ahead

If (a big if) energy prices remain low for a sustained period, then the question of China’s future dependence on imported energy also becomes relevant, as does the question of the future dependence on imported energy of China’s most important neighbours. In that case, how dependent on energy imports will countries like China, Japan, and India be in a decade or two from now?

While it is impossible to know what the future will be like, it is not difficult to imagine that China will remain less dependent on energy imports than India and/or Japan during the years or decades ahead, as a result of India’s still-emerging economy and Japan’s still-roboticizing economy.

China is not likely to be a major adopter of energy-intensive robots, in per capita terms, because China has a far larger cheap labour force than any country in the world apart from India. Japan, in contrast, will likely help lead the robot revolution, as its labour force is expensive and aging rapidly. This could make Japan even more dependent on importing energy, as machines that are both highly mobile and capable of sophisticated computation require an enormous amount of energy to run — and indeed, one of their main advantages over human labour is that they can and frequently will be tasked to run 24-7, without even taking any time off for holidays or sick days.

China is not certain to increase its energy imports nearly as much as less-developed economies like India, meanwhile, as the Chinese inudstrial sector is facing challenges as a result of its past generation of energy-intensive growth. China faces rising labour costs in many of its cities; a pollution problem; a US that is concerned with Chinese industrial power; and countries throughout the world afraid of China’s world-leading carbon emissions.

In addition, China is located much further away from the Persian Gulf and Caspian Sea oil and gas fields than the Indians and other South Asians are, and so might have difficulty accessing them in a pinch.

China may also, for the first time, have to face industrial competition from resource-rich economies such as Australia, Norway, Canada, Texas, or even the Gulf Arab states,which may be able to use energy-intensive robots of various kinds to build up their manufacturing sectors in spite of their small, expensive domestic labour forces.

All this could make China’s industrial growth rate slip, which in turn might reduce China’s resource imports and thus prevent China from becoming the leading beneficiary of low energy and commodity prices.

Such a shift will be especially likely if the United States or European economies decide to enact tariffs on goods coming from places that generate power by using coal in inefficient ways, a prospect that has become increasingly likely as a result of America’s triple-alliance between environmentalists opposed to coal consumption, shale gas producers competing with coal miners, and energy companies trying to pioneer more expensive but cleaner ways of consuming coal and other fossil fuels. China may then have to focus on growing its service sectors instead of its energy-intensive industrial sectors.

China, Japan, and Siberia 

Japan, lastly, might benefit from Russia’s energy-related woes more than China will. This is not only because the Chinese have to a certain extent often looked to Russia as an ally against the West, but also because the areas of Russia that China is close to are mostly irrelevant to China: they are landlocked, Siberian, and for the most part located far from China’s population centres.

Pacific Russia, in contrast, which is located next to the Sea of Japan on the East Asian side of Russia’s Pacific mountain ranges, has a far more liveable climate than does most of the continental Siberian interior. It is home to several small or medium-sized port cities, such as Vladivostok and Petrapavlovsk-Kamchatsky, which are very, very far away from Moscow. This region accounts for much of the oil and nearly all of the Russian gas exports to Asia—especially energy-rich Sakhalin Island, which is just 40 km away from Japan and was half-owned and inhabited by the Japanese prior to the Second World War.

Russia may, in fact, be somewhat better prepared to fight another border war with China like it did in 1969—which might not be too different than the many other wars Russia has fought within or near its borders both prior to or since then—than it would be to face off against Japan again within the far-eastern, mountainous, archipelagic and peninsular Pacific Russian region, as it did in 1905 and then again during the 1930s and WW2. Of course this does not mean Japan will attack Russia — though it has certainly toyed with the idea of eventually making some bolder moves in the Southern Kuril Islands, which both countries claim as their own. Even the remote, unstated possibility of conflict, however, may help grant Japan leverage in any negotiations with Russia regarding commercial or political issues.

Conclusion

All of this is not to be bearish on China’s future. Energy-intensive industrial growth, after all, woud not necessarily mean an improved quality of life for Chinese citizens. Ideally Chinese standards of living will rise at a considerably faster pace than its energy usage. It does seem, though, that China’s economy may not turn out to be a major beneficiary of the fall in energy prices. The PRC’s neighbours on the other hand, such as Japan and Taiwan, which are less rich in fossil fuels or in labour, may benefit greatly. So too might the poorer countries that depend on energy imports, like India and the Philippines. Just as important, however, yet often overlooked, are China’s domestic geopolitics. Internal Chinese divisions—including along north-south and east-west lines—have been, and might remain, of paramount importance. Energy prices could impact them too.

Standard