Wishful Thinking About China

I’m sorry to say that I found George P. Shultz’s Wall Street Journal op-ed about China, notionally about the “troubles” the country faces going forward, a combination of anodyne observations and wishful thinking. I did better with more detail and more insight 15 years ago. Over the intervening years China has failed to address any of its problems but doubled down on its trade and military policies.

Take this for example:

Americans long underestimated China’s progress and its leaders’ ambitions. I reluctantly accept that today’s China is different from the one I once worked with constructively.

Is it that China has changed or that we have? Its leaders’ objectives have largely remained the same even as their military and economic strength has grown. I challenge the notion that he worked with the Chinese “constructively”. It was constructive so long as the Chinese leadership wanted something from us and we had something to offer.

He points out, correctly, China’s shrinking workforce, a consequence of its “One Child Policy”, and the numerical imbalance between the sexes caused by culling unwanted females but fails to note that those females are now workers prized for fine assembly work—an ongoing problem in rebuilding the declining workforce. Or the possibility of social unrest due to the sexual imbalance.

I found this interesting:

State-owned China Railway took on nearly $1 trillion in debt to build that sprawling network; a few major lines are profitable, but most are not, and interest payments alone exceed operating revenues.

Rail isn’t the only area to have this problem. China presently has considerable overcapacity in producing cement, steel, and autos. That overcapacity has costs—both the opportunity costs of creating it as well as the costs of servicing the debt taken on to create it and keep it up. How much overcapacity? Chinese auto factories have the productive capacity to satisfy the entire world’s demand for autos for the foreseeable future.

I didn’t know whether to laugh or to cry about this:

China misunderstands us, too. To reduce the temptation for opportunism by anyone, including China, Americans must do better on our own challenges: government debt, stagnating and inequitable educational outcomes in disciplines that will define our future prosperity and security, and the demographic need for a reasonable and consistent immigration policy.

What, precisely, are “disciplines that will define our future prosperity and security”? I honestly have no idea what he means. Doesn’t he think that young people pursue incentives? Wages for engineers and IT workers have been flat for quite a while because companies have the choice of either importing the workers they need or offshoring the activities entirely. And Mr. Shultz apparently doesn’t see the conflict between his attribution of U. S. economic strength with immigration and his emphasis on “inequitable educational outcomes”. That’s the thing about importing workers: little of their education takes place here. As long as you’re going to import workers to suit what difference does our educational system make?

His conclusion distressed me:

We should quietly develop specific off-ramps from conflict with China—e.g., rules of the road for military ships and aircraft with a communication mechanism to address any incidents; stockpiling of important traded goods such as pharmaceuticals, rare earths or agricultural products—that would improve mutual stability. It is important that leaders here—and leaders there—work from a realistic view of China’s position, our own position, and our collective future.

Has he actually learned nothing over the last several decades? What would induce China to conform to such “rules of the road” if its leaders thought it were in China’s interest to do otherwise?

We don’t just need stockpiles of strategic goods; we need our own productive capacity for them and more than anything else we need supply chains that don’t run through China at all.