You Will Be Assimilated: China’s Plan to Sino-Form the World
(David Goldman, July 17, 2020)
Transcript available below
About the speaker
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 âSpenglerâ 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, âAsk anyone in the intelligence business to name the worldâs most brilliant intelligence service, and we will all give the same answer: Spengler. David P. Goldmanâs âSpenglerâ columns provide more insight than the CIA, MI6, and the Mossad combined.â Goldman concealed his identity under the âSpenglerâ pseudonym until 2009, when he revealed his identity in the Asia Times article, âAnd Spengler isâŠâ and the First Things article âConfessions of a Cowardâ.
Goldman regularly appears as a guest on CNBCâs 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 Itâs Not the End of the World, Itâs Just the End of You: The Great Extinction of the Nations.
He previously spoke at Westminster on the subject of “Will China overtake the U.S. as the worldâs leading superpower?“
Transcript
Robert R. Reilly:
Hello, I am Bob Reilly, the director of the Westminster Institute, and I would like to welcome you to our online series of lectures during this difficult time that we are all enduring. I am particularly happy to welcome back David Goldman to the Westminster Institute. David gave a lecture on “Will China Overtake the U.S. as the World’s Leading Superpower?” back in 2017. It is one of the most popular videos we have ever put up in our YouTube channel. It gained more than 87,000 views and it is an evergreen, people keep watching it, and you will too, I am sure. After seeing this presentation, you can go to our YouTube channel and watch David’s other presentation.
David was a mystery man for quite some time. He wrote a profound column on strategic affairs in the Asia Times under the nom de plume Spengler. Those of us who follow foreign policy, strategy, avidly read that column and wondered who could this man be who was so well versed in history, demography, military affairs, the Middle East, Asia, Europe. Who could have such comprehensive knowledge in these subject matters? Well, the answer finally came when Spengler was unveiled as none other than David Goldman, who continues to write in the Asia Times and many other places.
David is an award-winning Wall Street strategist. He has advised the U.S. National Security Council, the Department of Defense, and institutional investors globally. He is the president of Macro Strategy, a senior fellow of the Jewish Institute for National Security Affairs and the Middle East Forum, among many other institutions.
His book How Civilizations Die appeared in 2011. In terms of his new book, I am just going to read one endorsement from a mutual friend of David’s and mine, Dr. Larry Arnn, who is the President of Hillsdale College. Here is what Larry says about David’s new book, “David Goldman has lived in, visited, watched, and interpreted China for decades. An economist and a polymath…” I will interrupt here to say I would use the words ‘renaissance man’ in describing David. I forgot to mention he is an expert in musical theory, as well. Anyway, “he,” David, “predicted long ago the things about China that the rest of us are beginning to see. In this master work, he tells a terrible story, and he shows how to redeem that story from its possible end in disaster. If you want to know where the world is going and how to stop it, read this book.â And the title of David’s book is the title of his lecture for Westminster Institute today, “You Will Be Assimilated: Chinaâs Plan to Sino-form the World.”
David Goldman:
Introduction
Bob Reilly, thank you for that kind and generous introduction, and coming from another expert in music theory, the mention is particularly gratifying. China wants to be the dominant superpower. It wants to takeover the world. It wants to assimilate you like the Borg and it has been gaining on us. In fact, it is still gaining on us, but before I talk about all of the depressing things that we need to talk about, I would like to begin on a note of optimism.
The Cold War
We have been here before. Back when I was a college student and Henry Kissinger was National Security Advisor, Secretary of State, Richard Nixon went to China. In those days the foreign policy establishment had written off the United States as a competitor to communism. It was the accepted wisdom that America was a declining power, that communism would succeed, and all we could do was delay it and mitigate it through detente, and so forth.
Now, when Ronald Reagan of blessed memory became President of the United States, the first thing he told his national security staff was, ‘our plan is we win, they lose, any questions?’ And he did that. Now, how did we win? There are a lot of things that we did, but there is one thing that we did absolutely decisively. We made ourselves incomparably the most powerful nation in the world by creating a generation of technology that no one hitherto had imagined.
Totalitarians do not care about human rights. They do not care about niceties. They do not care about being perceived as bullies. They are bullies and they revel in it. They respect power.
What the United States did in a very short period of time was to invent faster than light microchips, the kind that can be put in the cockpit of a fighter plane and give us look-down radar. We invented laser optical devices. We invented the internet. We invented a whole new set of displays. We invented basically all of the smart weapons and systems that made it clear to the Russians by the early 1980s that they would lose a conventional war with NATO and they did not want to fight a nuclear war. It was that realization kept by the Strategic Defense Initiative, which promised to eventually make us impregnable from enemy missiles, that broke the confidence of the Russians and led to the collapse of communism in the greatest bloodless victory in American history.
Nobody in 1973 thought we would do it, and everybody in 1983 saw us do it. The turnaround was stunning and it was comprehensive because American inventiveness, creativity, and patriotism triumphed over a totalitarian system. So having seen it happen before in my youth, I would very much like to see it happen again. I believe we can do it.
China is Not the Soviet Union
In some ways it is tougher. China is a much tougher kind of opponent than the Soviet Union ever was. Now, having started with a forward looking note and my confidence in the well-springs of creativity in the United States of America, let us talk about what kind of opponent we are looking at. A lot of my friends, for example Ted Cruz on whose campaign I worked in 2016, whom I respect enormously, are saying China is now what the Soviet Union was in the 1980s. We are fighting another Soviet Union and it is a new Cold War.
Well, there is some truth to that, but I think the differences are in many respects much more important. For one thing, the Soviet Union was always a rotten economy. It produced some fabulous engineers and scientists and some very good weapons, but it was never able to produce in depth and it certainly could not compete with the United States in the microchip revolution. Russians waited in line for hours outside stores of bare shelves.
Go to any Chinese city and you have shopping malls everywhere filled with goods from all over the world, supermarkets are full. As a matter of fact, in the past thirty years the Chinese economy has grown ten-fold and the consumption of the average Chinese has grown eight-fold. And there are people who say the Chinese fake the data. Well, I am sure they fix some of the data, but if you ask any Chinese what life was like thirty years ago and what it is like now, they will say well, thirty years ago we had a shack with a dirt floor and we had a pump outside and an outhouse, and if we saved for a couple of years, we might buy a bicycle. Now we have got an apartment with central heating and indoor plumbing, and if we save for a couple years, we might buy an automobile. It is the fastest increase in living standards for a large number of people that has ever occurred in the history of humanity at the fastest rate.
And it is not simply that China has copied the West, picked up our technology, stolen our intellectual property, and produced some of the gizmos that we now have. That was true ten years ago. When you are coming from behind and you are basically a primitive country with no technology, you are going to copy. China has now alarmingly moved beyond ‘copy’.
Building Higher Education
There are ten million Chinese kids who take the university entrance exam every year. And when you look at an economy, the first thing to always focus on is skills. You can destroy everything, but as Germany and Japan showed after World War II, if you have got the skills, you rebuild very quickly. Well, China has ten million incoming college students every year. According to the global rankings, many of their universities, particularly their engineering schools, rank in the world’s top twenty or top thirty or top fifty.
Now, only forty years ago we had the Cultural Revolution, which razed the university system to the ground and had professors paraded around and humiliated by radical students, and sent off to work in the rice paddies to learn from the peasants. In a very short period of time China has created a world class university system.
How did they do it? We built it for them. Something like four out of five of all of the doctoral candidates in fields like. electrical engineering or computer science in the United States are foreign students. And of those foreign students, by far the largest group are Chinese. Now, in the United States only one out of twenty roughly undergraduate majors choose engineering, so our engineering schools churn out doctorates. There are not any jobs for them, so they go back to China. We have created a world class factory for Chinese universities while our own kids are not studying engineering.
Why don’t the smart kids study engineering in the United States? Well, because about twenty years ago our technology companies in their wisdom decided that it was a lot more profitable for them to invest in software. Why software? Well, if you add an additional customer with software, they download Microsoft Windows or Excel or whatever it is, the cost of adding that individual customer is zero, so the potential return on equity can be infinite.
If you are actually building goods, the cost of additional customers is the cost of new goods, and the Asians (particularly the Chinese) subsidize heavy industry, so capital-intensive industry migrated to Asia. We lost ten million manufacturing jobs. The smart money, the kids who are really good at math, went to Wall Street where they coded software from Microsoft and Google, and the universities stopped attracting engineering candidates, so our capital-intensive industry has been vastly diminished. For example, the United States invented the microchip, which is the basic building block of the digital economy. When I was a kid, the United States was the only place that knew how to make microchips. Now we only make about ten percent of the world’s. microchips. The biggest producers are in Taiwan and South Korea, and increasingly the Chinese.
So China has put vast amounts of resources into human capital, and vast amounts of resources into building up its technology, particularly in the past ten years. It stopped depending on copying, and it is increasingly developing its own innovations and its own intellectual property.
I have heard people say the Chinese cannot innovate. Well, it is certainly true that Chinese culture is more conformist, people are less likely to take risks, and on average the average Chinese engineer is probably less likely to be an innovator than the average American engineer, but you have got 1.4 billion Chinese, so among them there are plenty of innovators. I have met them. As an investment banker I have helped take them public in China, so there are plenty of them.
There are a number of areas which the Chinese have concentrated on which are not simply productivity enhancers and are not simply platforms for improved military technology. They are platforms for taking over the world, and when I say the Chinese want to takeover the world, they want to do it the Chinese way. This is not the old Comintern of the Soviet Union. It is not a plan to send the Red Army marching into Prague or Budapest or Warsaw and occupy it.
The plan is to make us tenant farmers of the Chinese system, to make us dependent on Chinese technology, Chinese logistics, and Chinese finance ultimately. They want to not conquer us, but assimilate us, like the Borg. That is how the Chinese empire has always worked.
Now, if you would indulge me, I would like to take a step back. As Bob Reilly mentioned, I wrote a book about ten years ago called How Civilizations Die. I was struck by the fact that if you look at civilizations in the past, on average the norm is extinction. We do not have any more Hittites or Assyrians or Sumerians, no real Romans, a few Greeks left around.
Most of the civilizations in the past have died and sadly a large number of them [died out] of their own volition, but China has been around for five thousand years in pretty much the same form. China is not the kind of civilization that dies, and it is worth stepping back and saying what makes that civilization so enduring? As a Jew from a people who are more than 3,500 years old, we look at the Chinese and say wow, they are really old.
Why Chinese Civilization Persists
There are three things about China which I thinks sum up why that civilization has been so persistent; one is infrastructure, the second is meritocracy, and the third is family. And I would like to talk about each of these very briefly.
China has a blessing and a curse and that is its huge river system, the Yangtze and the Yellow Rivers and their tributaries. Because China had so many river valleys and the ability to irrigate large amounts of rice production, China could sustain a much larger population than anywhere else in the world, mainly because rice gives you about ten times the caloric content per acre than wheat does, so the wheat-based European or Middle Eastern cultures could not support China’s population density, so it always had the capacity for a huge population and therefore huge wealth.
But it also had a curse which is that the river valleys tended to flood. You might have a great population but a flood would come along and kill a very large number of your people. Now, the founding of Chinese culture according to legend occurred five thousand years ago when someone named Yu the Great managed to conquer the floods in the Yellow River after a catastrophic, Noah-like flood of biblical proportions, and successive Chinese dynasties have based their rule on riparian agriculture supported by water management.
The first Chinese Emperor, Qin Shi Huang, that is the fellow played by Jet Li in that movie with Brendan Fraser about the mummy returning, 2,300 years ago sponsored water management projects that turned the dry province of Sichuan in China’s west into four thousand hectares of incredibly productive agriculture, made it the breadbasket of China, and developed the wealth that allowed him to conquer China and become the first Chinese emperor.
And successive Chinese dynasties have done this and none more than this communist dynasty, which has built nearly 100,000 kilometers of roads, 24,000 kilometers of high-speed rail, airports, and other ports and infrastructure which frankly put a lot of American infrastructure to shame. Most of China’s infrastructure is brand new and extremely good.
You have heard about the Belt and Road Initiative. That is a two trillion dollar plan that China has to build roads, ports, railroads, high-speed telecommunications, pipelines and so forth across the Eurasian continent and lock Eurasia into the Chinese economic sphere. This is the Chinese method of government. That is exactly how a few kingdoms in the Yellow River turned into the Chinese empire and locked everybody out by building infrastructure, so what China is doing to the world is exactly what the Chinese emperors have always done to expand their reach inside China itself.
The second theme is meritocracy. To administer a national or imperial infrastructure, you need a lot of smart people. And when you have an empire with 250 languages and hundreds of different ethnic groups who look to Beijing, the capital, as a taxman who they do not particularly like, you need to align the interests of your cleverest and most ambitious young men (now young women as well) with a center, so you can see drawings from 2,000 years ago of Chinese kids, setting an example, taking exams to become imperial bureaucrats or Mandarins.
Now it is called the University Entrance Exam, the gÄokÇo é«è. And it really is a meritocracy. If you are the niece of a Chinese Communist official, you might get rich by getting contracts on a corrupt basis, but one thing you cannot do is get into Peking University, China’s Harvard. We are not looking at a bunch of drunken, corrupt communists. We are up against a Mandarin elite who are composed of the people who scored highest on national exams in a country of nearly a billion-and-a-half people. Imagine if the entire civil service of the United States were composed of nothing but National Merit Scholars. I am not saying that they get things right or that the Chinese system is particularly effective, but we are not dealing with fools. We are dealing with extremely smart and ambitious people.
The third thing about China is family. The Chinese economy was never founded on large-scale slave labor like ancient Egypt, which my ancestors got out of thanks to God and a fellow named Moses or latafundium of Ancient Greece or Rome. The extended family farm unit was always the cornerstone of the Chinese economy.
The Chinese really do not like their emperor. They do not like their political system. They love their families. They look at the emperor as a necessary evil. He is there to stop everyone from killing each other. He is the capo di tutti i capi, he is the Lucky Luciano of China, who stops the underbosses from becoming warlords and starting civil wars, which when you have had a weak emperor in China, have wrecked incredible damage on China.
So the Chinese tolerate their political system because they look to their families. China’s strength has been their families, but its weakness has been that its’ hierarchy makes the top man like the head of a national family with little emperors reporting to him, so all information flows up and down, borders flow up and down. No Chinese you have met have ever sat on a Little League committee, a church committee, a school board. Everything is a top-down system, so you have the advantage of smart people at the top and the disadvantage of having a very rigid and inflexible system. That is why I think our system is fundamentally superior and why we could beat them, but sadly we are not beating them now.
If you go back again to the Reagan era when the United States was the wonder of the world and every smart kid who wanted to start a tech business came to Silicon Valley because that is where the expertise was, that is where the financing was, we spent the equivalent in today’s dollars of about $300 billion dollars a year, about one-and-a-half percent of our gross domestic product, on basic R&D, and all of the major corporations (RCA, General Electric, IBM, Hughes Aircraft and so forth) had corporate laboratories. Bell Labs was the biggest of them.
And they employed thousands of scientists and engineers, and the Defense Department (through the Defense Advanced Research Projects Agency) would shower them with money for basic research. That is how we got the microchip, that is how we got the internet, that is how we got the semiconductor laser and optical networks. Every single invention came out of that. We do not do that anymore. We are spending relative to the size of our economy about a third as much as the Reagan administration did and that is the real scandal.
And the corporate labs have pretty much disappeared. There is a successor to Bell Labs, which produced so many Nobel Prize Winners and so many critical inventions. The assets of Bell Labs were picked up by Nokia, the Finnish telecommunications company, and now they are located in Shanghai, and it is called Shanghai Bell. So the successor of Bell Labs is sitting in Shanghai with fifteen thousand Nokia researchers, Chinese, developing technology for China.
Now, the Chinese have not stinted on investment in high tech either in education or in hardware. The Peoples Congress of China met during the last week of May and announced a $2.2 trillion dollar program for high tech developments. So what does that mean practically? The name of China’s premier telecommunications company, Huawei, has been much in the news. Well, what does Huawei exactly have in mind? The U.S. government has said Huawei is basically an ally or agency of the People’s Liberation Army of China, which is probably true, and that the purpose of its dominance of technology for fifth generation mobile broadband is to allow China to spy on Western telecommunications.
Now, the Chinese will steal any communication they can, but there is a bigger issue here which worries me a lot more than that. That is that 5G is not simply a super fast way of downloading your favorite TV show or playing games with virtual reality (though it can do that, it is about one hundred times faster than 4G LTE, potentially). 5G is something like what the railroads were to the industrial economy in the nineteenth century. You see once you have the ability to carry vast amounts of data and communicate with almost no lead time (that is called low latency, there is almost no reaction to it), you can get machines to talk to each other, you can get automobiles to talk to each other.
According to Huawei – and in my book I interview the Chief Technology Officer of Huawei. He is an Australian who worked for Huawei for a dozen years – the point of 5G is that industrial robots will be able to communicate in a way that will allow artificial intelligence to instruct them how to change production processes without human intervention. It will allow doctors to operate on patients thousands of miles away with medical robots. It will allow miners to sit on the top of surface in a white lab coat with a virtual reality helmet that sends robots underground to do the dirty work. It will make possible medical research on a scale that we have not thought about.
Huawei’s big partner in all of this is Phillips, out of The Netherlands, and their plan is to get a billion people hooked up into Huawei phones, which if you pick up the phone, it takes your temperature with an infrared scan. You put your finger on the fingerprint sensor, it will take your blood oxygen level. Put on an attachment, it will take an EKG. So all of the vital signs of a billion people will be uploaded in continuous time into the cloud, and it will be fed into artificial intelligence servers produced by Huawei, which also will have your digitized medical records and your DNA read-out, which means that the ability of artificial intelligence to correlate the effects of respective treatments, drug interactions with pharmaceutical research, look for cures for genetic diseases will be at a level that we have never thought about before.
Now, if you talk to American researchers, they say we know how to do that, but what we do not have is the data. There is no privacy in China. They can digitize your medical research and sell it to Huawei or whomever else. If artificial intelligence is the motor of the fourth industrial revolution, the fuel is data, and as the Chief Technology Officer of Huawei told me, they want to own the control port, which is the porting and storage of data, so Huawei is not simply a way of stealing information, it is more like Tom Sawyer, who got his friends to whitewash his friends for him. Huawei does not think they are going to have to steal the data, Huawei thinks they are going to get everyone to give them the data for free in return for the benefits that gracious and benevolent China awards to its tenant farmers around the world.
Now, considering that health is almost twenty percent of US GDP, and will probably be the biggest growth industry in the twentieth century, if China gains this kind of dominance in healthcare, the power of its economy will be enormous, and we already see all of the big European pharmaceutical companies doing joint ventures with China because that is where they go for the data, so when we talk about a Chinese octopus, trying to put its tentacles around the world economy and gain the control ports, which will change the way we live from healthcare to manufacturing to transportation, this is a well-thought out plan, run by very smart people in a very advanced stage. So to quote another movie tagline, be afraid, be very afraid.
Now, what does this mean from a military standpoint? Where do we stand militarily with respect to China? In the 1990s when the Chinese threatened Taiwan, the Clinton administration steamed a couple of aircraft carriers through the Taiwan Straits and the Chinese had to back down. They had absolutely nothing to match American firepower.
Now, we kind of do not know who has the upper hand in the Western Pacific. The Chinese have developed very sophisticated and accurate surface-to-ship missiles. A lot of people think they can take out American aircraft carriers. American aircraft carriers are sitting ducks. They have a very large number of diesel electric submarines, which make about as much noise in the ocean floor as turning on a lightbulb.
They have very sophisticated electronic warfare devices and most of all they have missiles that can take out American GPS satellites, so if in the first few moments of a military conflict with China all of our communications and GPS satellites were to go down within a matter of minutes, we would be hard put to conduct a war at all. And if we cannot move anything within a couple of hundred miles or more, the range of Chinese missiles, it is very hard for us to fight a successful war against China. Opinions differ, but last summer the American Studies Center of the University of Sydney in Australia, our ally, published a report saying that in the first few hours of a conflict China could neutralize every American military asset in the region.
The military balance in the Pacific of course is complex, so you have to take into account Japan, which has the strongest navy in the north Pacific, but Japan does not show a great deal of interest in getting involved in a scrap with China for obvious reasons, so China believes it has its neighbors cowed. It has the United States if not at bay, at least it has a high degree of Area Access Denial around its coasts.
It has technology the whole world wants, and the United States has been trying to slow this down with a certain degree of success, but in my view not nearly successful enough. For example, Huawei is by all accounts the most advanced technologically as well as the cheapest provider of fifth generation mobile broadband equipment. When you are talking about the rollout around the world, which is a trillion dollar business, the forty percent price differential between Huawei and its competitors is enormous, so most of Western Europe has agreed to buy Huawei equipment.
We put a great deal of pressure on the United Kingdom not to, and it is possible that the UK will not, but Germany, which is by far the most important economy in Europe, is using Huawei equipment and is pretty much hardwired into the Chinese company and that is not simply because the equipment is good and the equipment is cheap, it is because German companies want to be part of this Chinese-led fourth industrial revolution. Volkswagen is now selling virtually half its cars in China. Mercedes and BMW, which want to become big electric car makers and take on Tesla, are in joint ventures with Chinese battery companies. The Chinese market will be the biggest market for electric cars, so a lot of European industry is migrating to China because this 5G-centered fourth industrial revolution is being heavily subsidized in China.
So in China itself there are 1.4 billion people. They are outspending us three to one on 5G and they are spending an enormous amount of money on the industrial applications which make 5G a revolutionary technology, just as I said, on the scale of the railroads in the 19th century. So unless the United States has its own alternative technologies, we are not going to be able to stop China from selling technologies that we do not have for very long.
And people have talked about how great it would be if Ericsson and Nokia, the Scandinavian companies, were to be substitutes for Huawei. We could encourage people to go with them instead of Huawei. China assimilates, it does not conquer, and it is doing its best to assimilate the Scandinavians. I mentioned that Nokia has its biggest research facility (in fact, the successor to Bell Labs) in Shanghai. Ericsson in a couple of years will have its biggest sales anywhere in the world in China and its biggest production facilities in China.
The biggest plant in the world is a super automated new robotics plant in Nanjing China, so without having our own industrial capacity, our own advanced technology, without beating the Chinese in a game where we used to be the only player, we are not going to hold back China, not for very long and perhaps not at all, so although I applaud President Trump for standing up and saying things cannot go on the way they did with China in the past, we cannot stand for this, I do not think what he has done has been terribly effective.
Now, we look at China in the context of the COVID-19 pandemic – I am not going to comment on whether the Chinese deliberately launched this as a way of debilitating the West, but the fact is as the dust settles, China’s economy is coming back very rapidly because China’s authoritarian surveillance state is very good at tracking cases of infection, and the Chinese prepared for this.
China’s economy is expected to grow about five or six percent this year. Our economy is expected to shrink by five or six percent this year, so if anything the COVID-19 crisis is a reminder to us that not having the industrial capacity to make ventilators let alone protective gear for hospitals, to manufacture our own pharmaceuticals, to lead in the race for a vaccine, having moved so much of our industrial capacity offshore, in a crunch that turned out to be a really terrible idea.
Conclusion
I would like to conclude where I left off. I think we have to look back at what the United States has done so successfully in the past. Look to the resources of American ingenuity, but we have to realize that we are not dealing with the Soviet Union with a couple hundred million people, we are dealing with. China with 1.4 billion people and massive subsidies to build out high technology industry.
Now, I am a free market guy. I always have been. I do not like the idea of industrial policy, but I have to point out that the United States like it or not has an industrial policy. The industrial policy is China’s industrial policy, and under China’s industrial policy high tech, capital-intensive manufacturing migrates to China away from the United States because it is subsidized. Unless we provide the right kind of financial incentives for American industry to build out high technology, capital-intensive manufacturing in the United States, we will continue to lose. Tariffs are not enough. Sanctions here and there are not enough. It is going to take us in my view a trillion dollars and ten years to turn this around.
Now, considering that we just spent six trillion dollars to tide people over through the COVID-19 crisis and bailout financial markets by having the federal reserve buy tons of securities, that should not sound like a great deal of money. We still have the credit to borrow that money at very low interest rates, so this is a great time to repair the roof because if we wait, we may not have the opportunity in this way again. With that I would like to thank you very much for your attention. There is more detail in my book. Thanks for listening and thanks for considering reading my book.
Q&A
Demography
Robert R. Reilly:
David, if I could ask you to comment on a few things we would greatly appreciate it. In your past work you have pointed to demography is destiny, the impact of demography on the survival of civilizations, so could you comment on China’s demography and the problem of its aging population?
David Goldman:
Yes, China’s workforce stopped growing in the last couple of years. Thanks to the one child policy, which has to be the cruelest social policy since Harrod or Pharaoh, the Chinese have had one child. They have lifted that. You can now have two children, but we do not see people responding to that quickly. The Chinese have learned that in this winner take all meritocracy, the most efficient strategy to advance family interests is to concentrate all of their resources on preparing one princeling for the college exam. So the average Chinese family spends the equivalent of a year’s pay on tutoring even though schools are free, universities are free. And that kind of incentive has created distortions, which are probably very hard to reverse.
Now, that is going to keep China’s growth rate lower for a while, and if China keeps up this way in fifty years China will collapse. Unfortunately, it is not going to collapse fast enough to bail us out of this mess. That is a much longer term kind of process. Part of the reason that China wants the Belt and Road Initiative is if they look at their neighbors, you have in Southeast Asia six hundred million people who basically come from a similar kind of Confucian culture. They are hardworking, they are good learners, they turn up to work on time, so the first thing China wants to do is absorb those six hundred million people of Southeast Asia.
Vietnam has become an industrial power just in the past five years, mainly because China has offshored a great deal of its own labor-intensive industry to Vietnam. The same thing is happening in Malaysia. The same thing will happen in Thailand and to a lesser extent in Indonesia, which has a few more problems than Vietnam, and eventually they will get to Central Asia and Turkey, so China is dealing with its demographics by imperial expansion, as well as internal social policy. It is a long term threat to China, but it is not the kind of threat that is going to get us out of the predicament we are in now, so you cannot count on demographics to cripple China fast enough to help us.
South China Sea
Robert R. Reilly:
If I can, let me also ask you to comment on Secretary of State Michael Pompeo’s recent formal declaration that the United States is not going to accept Chinese claims for most of the South China Sea.
David Goldman:
Well, they shouldn’t. They are artificial claims, they are based on maps of dubious origin. China never really had clear claims to the South China Sea, but ultimately that is a matter of power. Are we going to go to war with China over various atolls? I do not know. I am very concerned with how our allies in the region are looking at China. Japan, which is the biggest threat to China, really scares the Chinese. During World War II Japan killed twenty-five million Chinese, so they remember that.
Japan has been backing off commitments to the United States, for example, a commitment to install offshore Aegis missile defense systems that defend American bases in Japan. That was a big Chinese demand that the Japanese buckled to, so although Secretary Pompeo is completely right not to accept Chinese claims, which are aggressive and outrageous. Nonetheless, what is really going to determine how the Chinese look at this is whether we think they can shoot down their missiles aimed at American aircraft carriers or, God forbid, American cities.
The Chinese helped pioneer very fast missiles, the hypersonic live cruise missiles, which travel at several times the speed of sound. We currently have no defenses against them. Under Secretary of Defense for Research and Engineering, Brian Giffith, has talked a great deal about the threat from these very fast missiles. The kind of thing that we did in the 1970s and 1980s is to put vast resources into cracking that problem and neutralize it. Prospective enemy weaponry is the sort of thing that will really impress the Chinese, and unless we put that kind of effort into it and achieve clear technological dominance in weaponry, I do not think the Chinese are going to care very much of what we say because they believe that might makes right. They are going to look at the U.S. and say what kind of might do we have behind us.
Robert R. Reilly:
Yes, well that is a very daunting prospect. It seems also the United States is trying to use the human rights issue as a lever against China; protestations about what mainland China is doing to bring Hong Kong to heel, American sanctions on Chinese individuals involved in the mistreatment of the Uyghurs. Does this have any prospective effect?
David Goldman:
It certainly will not move the stony hearts of the Chinese leadership. For thousands of years China has dealt with what they would call unruly barbarians by offering them two choices: one is you assimilate and the other is we kill you all. If you talk to any Chinese from a Foreign Ministry official to a taxi driver and say well, what do you think about the Uyghurs? They will say matter of factly, well, of course we are going to kill them. Of course, they are not killing them all, but they are destroying their culture, humiliating them, diluting their population, and so forth.
In the case of Hong Kong that is a tragic situation because Hong Kong is a British city, not a Chinese city. It never should have been part of China. In my view the worst thing that Margaret Thatcher of blessed memory ever did was to hand over Hong Kong and Kowloon to the Chinese when the British had a perpetual lease hold on it. They did not really have to do that. So Hong Kongers, who are basically British residents of Chinese ethnic origin, have been stuck with the People’s Republic of China, which is a roach motel.
Once you become part of China, you never leave. China will go to war over the integrity of its territory because it is a patchwork of languages and ethnicities, and every ruler in Beijing from the dawn of time has thought if one province can secede, they all will, so we have got to make an example of any prospective secessionists.
I think what will happen with Hong Kong is extremely simple. About a half million people to a million people will emigrate. Many have already. Hundreds of thousands have left. People who really hate the Chinese system, who want democracy, will go to Taiwan or the UK or the United States or Canada, and the Chinese will ship a similar number of people in from the mainland. So you will have a population transfer, which in fact has been going on for a few years, until the Chinese get a population with a majority that supports the People’s Republic of China. Again, that is tragic, but this is a city of seven million people up against a country of 1.4 billion people. It is an anomaly that never should have been Chinese, so I do not think our best protestations about Chinese human rights violations in what is in fact a Western city are really going to do very much.
Now, we threaten financial sanctions on Hong Kong. We threaten to kick Chinese companies out of American stock exchanges that change their shares there. The result of that has been that Chinese companies went back to Hong Kong and money followed them to Hong Kong, so the Hong Kong Dollar has been very strong and the Hong Kong market has been very buoyant since the United States threatened to kick the Chinese companies out of American exchanges. That has been a case of throwing them into the briar patch.
So again, piecemeal actions, reactions to Chinese barbarities, things we do not like that they do, are not going to add up to a strategic policy. We need a policy to be stronger than China, to be technologically dominant, economically and militarily as we were in the past. Nothing works against totalitarian empires except power, and technology is power.
Taiwan
Robert R. Reilly:
What about the possible role of Taiwan in such a strategy?
David Goldman:
Well, Taiwan by itself… I would say Taiwan and Japan together. Taiwan was owned by Japan for a very long time. People speak more Japanese there than English. The industrial and economic ties between Taiwan and Japan remain very strong and Japan is a formidable military power. It has the strongest navy in the region. Its air force could wipe out anything the Chinese can put in the air. The Japanese Air Force could destroy Shanghai if it wanted to. I can tell you the Chinese remain terrified of the Japanese.
So Taiwan by itself I do not think can mount a successful resistance against the Chinese mainland. However, if the Japanese were to be involved, the Chinese would be at an enormous strategic disadvantage. That is something we have discussed at length at Asia Times. If you go to our website and look it up, there is a good deal of analysis about that. The problem with the Japanese is they are going to be pragmatic. They are not going to fall on their sword for the sake of the American concept of truth and justice and the American way, they will do it if they think Americans are more powerful, so I think the way to make sure that we have the upper hand, particularly in the North Pacific, is technological superiority.
I will give you a simple example. Russia has an air defense system called the S-400. It is supposed to be very good, probably the best there is. We do not know how good its capacity is to resist American jamming or to deal with stealth. Right now the S-400 with a range of several hundred kilometers can sweep the skies over Taiwan, and it is possible that the Chinese now have the ability with this system they bought from the Russians to wipe out the Taiwanese Air Force from land-based systems based in the mainland.
Now, I do not know whether that is the case and sadly unless we actually fought a war, we probably would not know for sure, but there are many techniques that are in development, for example, drone swarms, which could defeat the S-400. And if the United States had a Manhattan-style program to improve on air defense and basically turn all of the Russian and Chinese air defense systems into worthless junk, they would take that very seriously. That would scare them.
Robert R. Reilly:
David, since you mentioned Russia, let my last question be about Russia. Has it pretty much accepted its role as a very junior partner to China?
David Goldman:
The Russians and Chinese have always disliked each other. They have never trusted each other. We won the Cold War in fact because Richard Nixon had the wisdom to open a diplomatic relationship with China and create – if not a second front with China – at least the threat of a second front for Russia, but at this point Russia has a hydrocarbon monoculture and secondarily is a weapons provider, [and] has China as its main market.
China very much wants to get its energy imports over land so the United States cannot interdict them in case of war, so they are building massive amounts of pipeline, and Russia now exports more oil to China than any other country, more than Saudi Arabia. They are also a major weapons provider to China within limits. They do not want the Chinese to reverse engineer everything they have.
I think that the Russians are always going to be pragmatic under present circumstances with the hostility prevailing between us and Russia, particularly over Ukraine. Russia has dealt itself back into a relationship with China, but there is always the possibility of a diplomatic revolution, of breaking the Russian way. I think that would really depend on a NATO so strong that Russia wants to join us rather than try to beat us, and see its economic future more in the West. But that is a very long way away, so de facto Russia and China are now allies and maybe also Iran.
Robert R. Reilly:
David thank you very much for that superb presentation and best of luck with your brilliant new book, You Will Be Assimilated.
David Goldman:
Bob Reilly, thank you so much for this invitation. It is always a great pleasure to talk to you under any circumstances. And thank you all for listening.