Hong Kong Headed for Crisis Again

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I’ve been visiting Hong Kong for over 35 years. My first visit was in 1982 and my most recent was in May 2018.

All large cities change over time. New districts are developed. New buildings are erected and some old ones torn down.

Cities on the water, like Hong Kong, can use landfills to build more land and transform colourful (if dangerous) dockside alleys into sleek convention centres and hotel districts. None of that is unexpected, especially in dynamic cities like Hong Kong.

Yet in addition to physical infrastructure (which changes), cities have a kind of soul or zeitgeist, which is less susceptible to change.

St Mark’s Square in Venice, the Louvre in Paris and the Houses of Parliament in London are all defining and, if not eternal, at least help to keep a place rooted over time.

My visits to Hong Kong in the late 1990s and early 2000s were characterised by the same energy and dynamism I had encountered decades earlier.

I had routinely described Hong Kong to friends as the most energetic city in the world after New York.

The ‘One country, two systems’ seemed to work well together.

Yet as China’s growth ‘miracle’ gathered steam from 2002-2007, a legal heavy hand and gloomy administrative culture directed from Beijing descended on Hong Kong. You could feel it in the air.

At first, I noticed the lack of energy. The city was still rich and active, but there was a ‘business as usual’ attitude that was less driven than the energetic venue I had always known. Then I noticed a more depressed attitude among the bankers, investors and event planners I associated with.

They still made money, but the typical upbeat smile had been replaced with a more worried look.

This was accompanied by a rise in street protests against the heavy hand of Beijing on matters such as free speech, government autonomy and the relative importance of Hong Kong in the Chinese master plan.

Clearly, Shanghai had come into its own as the financial centre of China, so Hong Kong’s special role had been greatly diminished. The starkest evidence of change came during my last visit in May 2018…

I was presenting to a group of elite policymakers and property developers at the prestigious Asia Society local headquarters. At one point, one of the local elites took me aside, looked over his shoulder and at a near whisper said, ‘Be careful what you say.’

Global investors are accustomed to treating Hong Kong as a bastion of free markets and fair dealing. Those assumptions were suddenly no longer true, as Beijing began to treat Hong Kong as just another piece on a chessboard of market manipulation and geopolitical ambition.

The Chinese authoritarianism evident in Hong Kong last year only cemented that policy shift. What developments can we expect now that the freewheeling Hong Kong we knew from 1960-2005 has come to an end?

Last year’s unrest in Hong Kong was another symptom of the weakening grip of the Chinese Communist Party on civil society. The unrest spread from street demonstrations to a general strike and shutdown of the transportation system, including the cancellations of hundreds of flights.

This social unrest died down after the proposed bill to extradite Hong Kong citizens to China was pulled off the table. But now Beijing is clamping down hard with its proposed legislation to punish dissent.

Expect the pro-democracy protests to resume again. They may even grow larger. How will China react?

A direct Chinese invasion cannot be ruled out if local authorities cannot squash the unrest.

Of course, that would be the last nail in the coffin of the academic view of China as a good global citizen.

That view was always false, but now even the academics have started to understand what’s really going on. The situation in Hong Kong today is eerily reminiscent of the days leading up to the Tiananmen Square massacre on 4 June 1989.

In both cases, a particular cause for complaint gave rise to demonstrations, which soon grew and led to wider demands for political liberty and justice. Tiananmen started as a demonstration against inflation, which drew college students and housewives.

At its height, over one million protestors were active in Beijing, while demonstrations sympathising with the Tiananmen protestors appeared in over 400 Chinese cities.

Tiananmen Square is immediately adjacent to the Forbidden City and the Chinese leadership compound, so the demonstrators posed a potential threat to the government itself. Finally, hard-line Communist Party leaders ordered tanks and troops to attack the demonstrators.

No one knows the exact number killed, but estimates range from the low thousands to the tens of thousands. The entire incident has been covered up and is never mentioned in official communications or taught in Chinese schools…

As I described earlier, Last year’s Hong Kong demonstrations began on a small scale to protest a proposed law that would allow extradition of Hong Kong people to Beijing for trial on charges that arose in Hong Kong.

That would have deprived Hong Kong people of legal protections in local law, and could have subjected prisoners to torture and summary execution. The demonstrations grew exponentially and involved hundreds of thousands of protestors.

The list of demands also grew to include more democracy and freedom, and adherence to Hong Kong’s rule of law. Now the protests look like they’re starting again, and rightly so. Here’s China’s dilemma…

If Beijing tolerates more protests (and they succeed), they may lead to greater autonomy for Hong Kong at a time when Beijing is trying to strengthen and centralise its control. But if Beijing cracks down on the protestors, it will have another Tiananmen Square massacre on its hands with two important differences.

Hong Kong is a major city and will not be as easy to control as a confined square in Beijing.

And the rise of social media, mobile devices and live streaming guarantee that Beijing will not be able to hide or cover up any atrocities.

The jury is out on which path the Communists would take. But with China’s increasing belligerence in the region, don’t count out a strong response.

Unfortunately, the resolution may not be the peaceful one hoped for but another bloody massacre.

With the U.S. warning China against strong action in Hong Kong, let’s just hope the situation doesn’t light a powder keg resulting in a shooting war.

In case investors didn’t have enough to worry about with the coronavirus, they may have a whole lot more to deal with before too long.

Regards,

Jim Rickards
for The Daily Reckoning

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Is War Next?

This post Is War Next? appeared first on Daily Reckoning.

Remember the pro-democracy protests in Hong Kong against Chinese authoritarianism?

Well, guess what? They’re about to start again. And U.S.-Chinese relations could get even worse than they are right now.

Are you prepared for a bumpy ride?

Let’s unpack this…

Last year’s protests came in response to a proposed law that would have allowed the extradition of Hong Kong residents to Beijing for trial on charges that arose in Hong Kong.

That would have deprived Hong Kong residents of legal protections in local law and subjected prisoners to torture and summary execution.

The legislation was proposed by Hong Kong’s Chief Executive Carrie Lam, who many consider a puppet of Beijing.

The demonstrations grew exponentially, ultimately involving hundreds of thousands of protesters.

The list of demands also grew to include more democracy and freedom and adherence to Hong Kong’s rule of law.

Due to social media, these protests were seen around the world.

The proposed bill behind the original protests was scrapped last October, which was a victory for the pro-democracy protesters.

The protests didn’t end altogether, but tensions were at least diffused to a great extent and the world moved on.

Well, here comes round two…

China’s Communist parliament is preparing to roll out legislation that would ban “treason, secession, sedition (and) subversion” in Hong Kong.

This is different from the previous legislation because this bill actually originates in Beijing, not Hong Kong. It’s a direct assault on Hong Kong’s democracy. The Chinese parliament would insert the legislation directly into Hong Kong’s constitution.

It’s scheduled for passage next week.

Pro-democracy activists have called for mass protests this weekend in response to what they rightly consider a Chinese invasion of their autonomy.

We could be in for a fresh round of protests, with as many or more people. China’s reaction will be key.

Will they try to put the protests down by force? That could have major consequences.

Yesterday, news emerged that the U.S. Senate is introducing bipartisan legislation to impose sanctions on officials and business entities that enforce the new law.

And President Trump warned yesterday that the U.S. would react “very strongly” to the Chinese legislation.

In response, China’s foreign ministry warned Beijing would “fight back” against any U.S. interference.

At a time when U.S.-Chinese relations are already at a low ebb due to China’s almost criminal handling of the coronavirus pandemic, it looks like things are about to get even worse.

This situation could become very interesting.

But you shouldn’t be surprised. The current trajectory of U.S.-China relations is following a familiar course. It started with the currency war…

When my first book, Currency Wars, was published in 2011, I made the point that currency wars don’t exist all the time, but when they emerge they can last for 15 or 20 years.

The reason is that the currency devaluations just go back and forth between major trading partners and no one is any further ahead in the long run.

Readers said, “OK, we get that, but what comes next?”

The answer is trade wars. Once currency devaluations fail, countries turn to tariffs to slow down imports and help their own exports.

That’s where the U.S. and China are now, with the ongoing trade war (which could get worse).

But that’s also a dead end from an economic perspective. Again, the question is: What comes next?

Well, with history as a guide, we can see that today’s pattern is a repeat of what the world went through in the 1920s and 1930s.

First came currency wars (1921–1936). Then came trade wars (1930–34) and then finally a shooting war (1939–1945).

Are we heading for another shooting war with China? The signs are not good.

Trade war tariffs can be weaponized to pursue geopolitical goals. Trump is using tariffs to punish China for its criminal negligence (or worse) in connection with the spread of the Wuhan virus to the U.S. and the rest of the world.

This also has historical precedent.

Between June and August 1941, President Franklin Roosevelt placed an oil embargo on Japan and froze Japan’s accounts in U.S. banks.

In December 1941, the Japanese retaliated with the sneak attack on Pearl Harbor. Will China now escalate its retaliation to the point of armed conflict?

We’ll find out soon, possibly in the South China Sea or the Taiwan Strait. The latest reemergence of tensions in Hong Kong only adds kerosene to the fire.

Investors should prepare for U.S.-China geopolitical tension to grow worse. Maybe a lot worse. That’s the lesson of history.

Regards,

Jim Rickards
for The Daily Reckoning

The post Is War Next? appeared first on Daily Reckoning.

Chris Temple from The National Investor – Thu 21 May, 2020

US cities start opening up and the US escalates tensions with China

Chris Temple joins me for a look ahead to the economic restart that is starting in the US. We saw some jobless claims data again this week but the recent data has not had an impact on the market. We outline what to watching as we move through this restart.

US and China tensions are in the news again as the US is moving forward with restrictions on Chinese companies listing in the US and limiting US pension funds from investing in Chinese companies. More details are still to come.

Click here to visit Chris’s site and follow along with his comments.

China: More Bark Than Bite

This post China: More Bark Than Bite appeared first on Daily Reckoning.

I’ve made many visits to China over the past thirty years and have been careful to move beyond Beijing (the political capital) and Shanghai (the financial capital) on these trips.

My visits have included Chongqing, Wuhan (the origin of the coronavirus outbreak), Xian, Nanjing, new construction sites to visit “ghost cities,” and trips to the agrarian countryside.

My trips included meetings with government and Communist Party officials and numerous conversations with everyday Chinese people.

In short, my experience with China goes well beyond media outlets and talking heads. In my extensive trips around the world, I have consistently found that first-hand visits and conversations provide insights that no amount of expert analysis can supply.

These trips have been supplemented by reading an extensive number of books on the history, culture and politics of China from 3,000 BC to the present. This background gives me a much broader perspective on current developments in China.

An objective analysis of China must begin with its enormous strengths. China has the third largest territory in the world, with the world’s largest population (although soon to be overtaken by India).

China also has the fifth largest nuclear arsenal in the world with 280 nuclear warheads, about the same as the UK and France, but well behind Russia (6,490) and the U.S. (6,450). China is the largest gold producer in the world at about 500 metric tonnes per year.

Its economy is the second largest economy in the world, behind only the U.S. China’s foreign exchange reserves (including gold) are the largest in the world.

By these diverse measures of population, territory, military strength and economic output, China is clearly a global super-power and the dominant presence in East Asia.

Yet, these blockbuster statistics hide as much as they reveal.

China’s per capita income is only $11,000 per person compared to per capita income of $65,000 in the United States. Put differently, the U.S. is only 38% richer than China on a gross basis, but it is 500% richer than China on a per capita basis (of course the massive economic fallout from the coronavirus will have an impact).

China’s military is growing stronger and more sophisticated, but it still bears no comparison to the U.S. military when it comes to aircraft carriers, nuclear warheads, submarines, fighter aircraft and strategic bombers.

Most importantly, at $11,000 per capita GDP, China is stuck squarely in the “middle income trap” as defined by development economists.

The path from low income (about $5,000 per capita) to middle-income (about $10,000 per capita) is fairly straightforward and mostly involves reduced corruption, direct foreign investment and migration from the countryside to cities to pursue assembly-style jobs.

The path from middle-income to high-income (about $20,000 per capita) is much more difficult and involves creation and deployment of high-technology and manufacture of high-value-added goods.

Among developing economies (excluding oil producers), only Taiwan, Hong Kong, Singapore and South Korea have successfully made this transition since World War II. All other developing economies in Latin America, Africa, South Asia and the Middle East including giants such as Brazil and Turkey remain stuck in the middle-income ranks.

China remains reliant on assembly-style jobs and has shown no promise of breaking into the high-income ranks.

To escape the middle income trap requires more than cheap labor and infrastructure investment. It requires applied technology to produce high-value added products. This explains why China has been so focused on stealing U.S. intellectual property.

China has not shown much capacity for developing high technology on its own, but it has been quite effective at stealing such technology from trading partners and applying it through its own system of state-owned enterprises and “national champions” such as Huawei in the telecommunications sector.

But now the U.S. and other countries are cracking down on China’s technology theft and China cannot generate the needed technology through its own R&D.

In short, and despite enormous annual growth in the past twenty years, China remains fundamentally a poor country with limited ability to improve the well-being of its citizens much beyond what has already been achieved.

And that has serious implications for China’s leadership…

China’s economy is not just about providing jobs, goods and services. It is about regime survival for a Chinese Communist Party that faces an existential crisis if it fails to deliver.

It is an illegitimate regime that will remain in power only so long as it provides jobs and a rising living standard for the Chinese people. The overriding imperative of the Chinese leadership is to avoid societal unrest.

If China’s job machine seizes, as parts of it did during the coronavirus outbreak, Beijing fears that popular unrest could emerge on a potentially scale much greater than the 1989 Tiananmen Square protests. This is an existential threat to Communist power.

President Xi Jinping could quickly lose what the Chinese call, “The Mandate of Heaven.”

That’s a term that describes the intangible goodwill and popular support needed by emperors to rule China for the past 3,000 years. If The Mandate of Heaven is lost, a ruler can fall quickly.

Even before the crisis, China has had serious structural economic problems that are finally catching up with it.

China is so heavily indebted that it is now at the point where more debt does not produce growth. Adding additional debt today slows the economy and calls into question China’s ability to service its existing debt.

Meanwhile, China’s real year-over-year growth tumbled 6.8% in the first quarter.

Besides the slowdown from the pandemic, China confronts an insolvent banking system and a real estate bubble.

Up to half of China’s investment is a complete waste. It does produce jobs and utilize inputs like cement, steel, copper and glass. But the finished product, whether a city, train station or sports arena, is often a white elephant that will remain unused. The Chinese landscape is littered with “ghost cities” that have resulted from China’s wasted investment and flawed development model.

Chinese growth has been reported in recent years as 6.5–10% but is actually closer to 5% or lower once an adjustment is made for the waste. Again, that was before the crisis.

Essentially, China is on the horns of a dilemma with no good way out. China has driven growth for the past eight years with excessive credit, wasted infrastructure investment and Ponzi schemes.

The Chinese leadership knows this, but they had to keep the growth machine in high gear to create jobs for millions of migrants coming from the countryside to the city and to maintain jobs for the millions more already in the cities.

The two ways to get rid of debt are deflation (which results in write-offs, bankruptcies and unemployment) or inflation (which results in theft of purchasing power, similar to a tax increase).

Both alternatives are unacceptable to the Communists because they lack the political legitimacy to endure either unemployment or inflation. Either policy would cause social unrest and unleash revolutionary potential.

The question is, will China pursue an aggressive posture against the U.S. to distract the people?

China does not want war at this time. But diverting the people’s attention away from domestic problems toward a foreign foe is an old trick leaders use to unite the people in times of uncertainty.

If China’s leadership decides that the risk of losing legitimacy at home outweighs the risk of conflict with the United States, the likelihood of war rises dramatically.

I’m not making a specific prediction, but wars have started over less. This is a very dangerous time.

Regards,

Jim Rickards
for The Daily Reckoning

The post China: More Bark Than Bite appeared first on Daily Reckoning.

China, Iran Are on the March

This post China, Iran Are on the March appeared first on Daily Reckoning.

There is so much focus on the COVID-19 pandemic right now that Americans can’t be blamed if they’re not spending much time studying other developments.

That’s understandable, but inattention may be as dangerous as the virus itself. That’s because America’s adversaries are taking advantage of the situation by challenging U.S. interests in a set of geopolitical hot spots.

They believe we’re too distracted by the virus containment effort to mount a firm response.

At the same time, geopolitical confrontation is a classic way to rally a population against an outside threat, especially when they’re still hurting from the pandemic and the economic consequences. It’s one of the oldest tricks in the books to get the people behind the government.

This appears to be the case with China and Iran right now.

China in particular is trying to divert attention away from its own cover-up of the pandemic, which allowed it to spin out of control. So it’s engaging in a global propaganda campaign to try to blame the U.S. for the spread of the virus.

Both China and Iran have lied about the damage caused by the virus in their own countries. China officially reported about 4,600 fatalities and Iran officially reported about 6,200. But reliable sources suggest that the actual count of fatalities may be at least 10 times greater in both countries.

This could put actual fatalities in China and Iran about equal to the U.S. (over 70,000 dead).

Meanwhile, the U.S. has been reeling economically, and there’s no reason to believe that China and Iran are feeling any less pain. Let’s first consider China…

Not surprisingly, China has tried to take advantage of the situation by acting aggressively in the South China Sea and threatening Taiwan.

The South China Sea is a large arm of the Pacific Ocean surrounded by China, Vietnam, the Philippines, Malaysia, Brunei and Indonesia.

All six countries have claims to exclusive economic zones that extend several hundred miles from their coastlines.

Parts of the sea are international waters governed by the Law of the Sea Convention and other treaties. All of the other nations around the South China Sea have rejected China’s claims. But they’ve been pushed back to fairly narrow boundaries close to their coastlines.

China has ignored all of those claims and treaties and insists that it is in control of the entire body of water including islands, reefs and underwater natural resources such as oil, natural gas, undersea minerals and fisheries.

China has also become even more aggressive by designating the South China Sea reefs as city-level administrative units to be administered by mainland China.

And China has pumped sand onto reefs to build artificial islands that have then been fortified with airstrips, harbors, troops and missiles.

China has said it will never seek hegemony, but that’s clearly not true. It most certainly seeks hegemony in the region.

And it’s willing to enforce it. Several encounters have happened lately where Chinese coast guard vessels have rammed and sunk fishing boats from Vietnam and the Philippines.

But China’s aggression in the South China Sea can also jeopardize U.S. naval vessels.

The U.S. operates “freedom of navigation” cruises with U.S. Navy ships to demonstrate that the U.S. also rejects China’s claims. It’s not difficult to envision an incident that could rapidly escalate into something serious.

It’s also fair to assume that a weakened U.S. Navy has emboldened Chinese actions recently.

The two aircraft carriers the Navy has in the western Pacific, the Theodore Roosevelt and Ronald Reagan, were both taken out of action due to outbreaks of the coronavirus among their crews. That’s been a dramatic reduction in power projection in the region.

But neither side will back down, as neither wants to appear weak. This makes warfare a highly realistic scenario. It’s probably just a matter of time.

Meanwhile, Iran has harassed U.S. naval vessels in the Persian Gulf, launched new missiles and continued its support of terrorism in Iraq, Yemen and Lebanon.

These actions are more signs of weakness than strength, but they are dangerous nonetheless.

In the past 10 years, we’ve been through currency wars, trade wars and now pandemic.

Are shooting wars next? Pay attention to China, Iran and, yes, North Korea. They haven’t gone away either.

The world is a dangerous place — and the virus has only made it more dangerous.

Regards,

Jim Rickards
for The Daily Reckoning

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It Likely Came From Chinese Biowarfare Lab

This post It Likely Came From Chinese Biowarfare Lab appeared first on Daily Reckoning.

The stock market was up big today on news that the COVID-19 outbreak may be slowing in the U.S. That would be good news. But it’s still far too early to draw any conclusions and make no mistake — this crisis has a long way to go.

All we can do is wait and hope for the best.

Meanwhile, gold topped $1,700 per ounce today. That’s nice for gold, but it’s better understood as an early warning of declining confidence in the dollar.

I’ll have much more to write about that in the days ahead.

This is not my first financial crisis, although it’s shaping up to be the worst. I’m a veteran of the October 1987 crash, when markets crashed 22% in one day, the 1994 Tequila Crisis, the 1998 Russia/LTCM crisis (I negotiated the Fed/Wall Street bailout), the 2000 dot-com crash and, of course, the 2008 mortgage-Lehman-AIG meltdown.

These crises have different causes and played out in different ways, but they all have one thing in common — failures of financial firms on the wrong side of the trade.

It can be a bank, broker or hedge fund. Whatever the structure, there is always a leveraged player who is betting on a market that happens to be crashing. In 1987, some firms were selling put options when the options went deep in the money.

The First Domino Falls

In 1998, LTCM was short volatility when the price of volatility exploded. In 2008, Lehman had billions in securitized commercial mortgages when real estate crashed. Sooner rather than later, the market losers wash up on the beach like dead whales. And there’s never just one.

The first firm that fails is a sign of many more to come. And now, one firm, EJF Capital, has put up “gates” on withdrawal of capital from its flagship credit fund. This does not mean that the fund is bankrupt, but it does mean that investors cannot get their money out as expected.

Their money is “locked” in the fund until the manager decides to release it… which could be years away.

Of course, this is bad news for EJF investors, but there’s no need to single them out. Many other funds will do the same thing in the coming days.

These failures will keep popping up like poison weeds in a garden. Get ready for more.

I’ve warned about this eventuality for years. Now it’s happening. That’s why you should have a sizable allocation of cash. There’s no guarantee you’ll be able to access your money if it’s tied up in the financial system during a crisis.

Questions

Meantime, while COVID-19 ravages the world, most officials and everyday citizens are more focused on surviving and on how to stop the spread than on where the virus originated. That’s the right priority.

But the origin of the virus cannot be ignored if we want to avoid another, even worse pandemic.

The official Chinese narrative has been that the virus was transmitted from animals to humans through bats and other wildlife available as food in the “wet markets” of Wuhan.

(There’s another narrative spouted by some Chinese officials that the virus came from U.S. troops visiting Wuhan. That’s an outright lie and falls into the category of propaganda, but some pro-Chinese U.S. media are reporting that version).

But is the “wet market” theory just another form of propaganda? Why did the Chinese not report the outbreak earlier? Why did the Chinese arrest and detain doctors and nurses who tried to sound the alarm last December? Why did the Chinese destroy the early records of the virus spread and hide other clinical evidence?

Probably Leaked From a Bioweapons Lab

The evidence is mounting that the virus leaked from a biological laboratory in Wuhan. That would be compatible with long-standing Chinese efforts to embrace “asymmetric warfare.”

This involves financial, cyber and biological weapons in addition to conventional kinetic weapons such as ships, tanks and planes. In fact, there is a bioweapons laboratory in Wuhan. There are also two other virus laboratories in Wuhan that were working on coronavirus strains.

The idea that there are three coronavirus labs in Wuhan and the virus emerged in Wuhan independently is beyond belief. It is almost certainly the case that the virus leaked from one of these labs.

The “wet market” story is sheer propaganda.

We’ve all been inundated with the coronavirus propaganda put out by the Communist Party of China. It goes like this:

Thanks to the heroic efforts of the Chinese leadership, the virus was contained in Wuhan and a few other cities. Total cases in China were about 82,000 with fatalities of about 3,500.

This compares with 315,000 cases in the U.S. and 8,500 fatalities. Things are now almost back to normal in China, while the rest of the world struggles with far worse results. That’s the Chinese narrative.

And every part of it is a lie.

Evidence China Is Lying

The Chinese infection rate and number of fatalities were probably 10 times what they reported. Bodies were swept up off the streets of Wuhan and burned in crematoria without counting them in the official numbers.

People were captured in nets and dragged to detention centers where many died, also without being counted.

Hospital floors were covered in blood, vomit and bodily fluids. Doctors and nurses were traumatized by what they experienced to the point of tears and nightmares.

There’s ample proof that the Chinese are lying. Here’s strong evidence: China’s Ministry of Industry and Information Technology reported that the number of cellphone users dropped by 21 million in February 2020 compared with November 2019.

Cellphone use in China has expanded exponentially for years, but suddenly it dropped by 21 million. This does not mean that 21 million people died. But it allows a reasonable inference that millions either died or were infected or were associated with businesses that closed their doors and discontinued service.

Whatever the particulars, it paints an entirely different picture than the 82,000 “official” infections.

When truth is suppressed in one venue, it usually pops up in another. The Chinese Ministry of Industry was not on the front lines of health reporting. They made the mistake of telling the truth. We can draw strong inferences from that.

You can bet that the ministry won’t be allowed to make that mistake again. In their next report, they’ll start lying like the rest of the Chinese government.

None of this means that the virus was a bioweapon (it may have been, but there are other medical reasons to study coronavirus). It does not mean that the virus was leaked intentionally.

The Chinese are notorious for lack of quality control, so an accidental leak is most likely. Yet a laboratory source would explain China’s strenuous efforts to cover up the origin and push alternative propaganda.

U.S. intelligence has confirmed the Chinese lies and cover-up.

Accountability

China needs to be held accountable or this will surely happen again. In any case, the China-U.S. economic relationship will never be the same. It’s not too late to get out of Chinese stocks and China investment.

The supply chain is coming home. It was never a good idea to outsource so much critical industry to a nation like China. China is not Canada.

But that’s something we’ll have to deal with later. In the meantime, we’re all just trying to survive.

Let’s pray that we do, both physically and economically.

Regards,

Jim Rickards
for The Daily Reckoning

The post It Likely Came From Chinese Biowarfare Lab appeared first on Daily Reckoning.

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The Real China Story

This post The Real China Story appeared first on Daily Reckoning.

With China grabbing all the negative headlines lately, I thought it would be a good idea to step back and look at the big picture, highlighting the great triumphs of this country.

Some of my readers worry that I am “soft” on China, too optimistic about the prospects for freedom there and unwary of the Chinese threat to the U.S.

As one reader recently wrote, “At the end of the day China is still a communist country” that “does not recognize the right to private property” and therefore can steal our intellectual property without any twinge of conscience.

I love this comment because it gets us right to the heart of things: Is China still a communist country?

Not: Does China have lots of politicians who ritually declare themselves communists? (It does.)

Or even a few who deep in their hearts still yearn for the good old days of Mao? (They exist.)

But is China a communist country, a nation of 1.4 billion people living under anything we would recognize as communism?

My answer is: “By their fruits, you shall know them.”

Let me explain…

Not Your Average “Communist” Country

What China has achieved over the past three decades could not have been accomplished by a communist nation.

My reader makes clear in the rest of his letter that he grasps the economic power and moral imperatives of capitalism. He knows that genuinely communist regimes have always and everywhere impoverished their people, that command and control economies fail miserably and murderously, destroying more wealth than they create.

Every long-standing communist regime has survived only by tolerating some free market activity, even if only the black markets that sprout up everywhere when real free markets are suppressed.

Yet here we have China, for several decades now the fastest-growing economy in the world and now the second-largest economy, and certainly the most innovative of any large economy. (Tiny Israel dominates the welterweights.)

Wealth That Cannot Be Stolen

Chinese insurance companies are bringing diagnostic tools powered by artificial intelligence (AI) to tiny Chinese medical clinics around the country, setting up same-day appointments with medical specialists in a country in which previously many people went a lifetime without ever meeting a real doctor.

Furthermore, the Chinese internet and social media companies combine every offering of Facebook, Google, Amazon, Spotify and more and do all of them better.

Are these conceivably the fruits of communism?

American politicians love to accuse China of stealing our technology. They attribute Chinese economic growth not to the growth of freedom but the rewards of larceny.

But as upholders of capitalist morality, they should know that in the hands of a thief, all gold turns to lead and all diamonds revert to the coal from which they came.

Technological leadership is not a static thing to be stolen and hoarded. Innovation can never be completed — or the innovators allowed to rest on their laurels — for the same reason innovation can never be planned: It always comes as a surprise.

The Chinese have surely benefited from the explosion of learning in the capitalist world sparked by the invention of the transistor at Bell Labs in 1947.

Yet all the crucial advances flowing from that moment have been thoroughly documented in prestigious journals and textbooks, debated in industry conferences open to the world and pitched by sales forces whose job is not to conceal technological advances but to reveal their wonders.

That interchange of ideas — and the furious competition it powered — was not a threat to American prosperity but rather its very source.

Now come the Chinese, suddenly more free than anyone of my generation ever expected. And because they are more free, because capitalism (and Christianity) are on the rise in China and communism in any genuine sense in general retreat, the Chinese have become powerful competitors — and great innovators.

And as innovators, the Chinese are a blessing to America, challenging American companies to adopt Chinese innovations and surpass them.

This sudden, astounding change in the plot of the story — China free and rich, rather than poor, enslaved and angry — is a blessing almost beyond imagining. China enriched will enrich America and the world.

Should we regret how much China has changed in three decades or pray that the change continues?

To me, the answer is clear.

But one dynamic to worry about with U.S.-China relations is the so-called “Thucydides trap.”

Beware the “Thucydides Trap”

That’s when an established power fears that a rival is gaining in power and will soon overtake it. War is often the result.

Among the earliest of historians, Thucydides wrote 2,500 years ago about the Peloponnesian War between Athens and Sparta and the events that finally doomed both of these powers.

Harvard’s Graham Allison sums up the concept: “It was the rise of Athens and the fear that this instilled in Sparta that made war inevitable.”

He considers 16 instances over the last 500 years in which a hegemonic power such as the U.S. was confronted by a rising power such as China. War resulted 75% of the time.

In the case of Britain and the U.S. after World War II, no conflict erupted. Therefore, Allison has some hope that war avoidance is possible in this predicament. But he sees China and the U.S. on a collision course.

Chinese Influence Is Inevitable

In reality, Chinese influence in the South China Sea is as inevitable as U.S. influence in the Gulf of Mexico. To flaunt American naval power in the region is needlessly provocative and gratuitous.

Last year in the academic journal Humanitas, Villanova political science professor Lowell Gustafson explained the real “trap” depicted by Thucydides in his account of the Peloponnesian wars:

It may be that great powers do indeed desire to rule, but they learn to restrain themselves by accurate calculation of their own power and that of others. They do not engage in wishful thinking and grandiosity. Pluralism, not domination, is the proper end of power politics since power is always distributed to some degree. The trap that Thucydides worries about is not a rear-end collision, but that a great power deludes itself into seeking domination of all others.

Both China and the U.S. should take note.

Gustafson continues: “Graham Allison and American policymakers need to be as self-reflective about America as they are about the rise of China…

“If there is to be real American greatness, it needs to be drawn from the vision of an international system of free independent nations who peacefully trade with each other, learn from each other’s cultures and show restraint.”

My rule is that real threats to the U.S. come from failed states with nothing to lose, not from an ascendant country such as China with huge trading interests around the globe.

If we didn’t constantly harass the Chinese over their Uighur Islamist problem (over 1,000 incidents, 500 dead), they might well be our allies against real terrorist threats.

The best strategy for Americans is to support capitalist companies in China, not needless adventurism in the South China Sea.

I’m in China right now looking for investment opportunities — and innovations American companies can learn from.

Regards,

George Gilder
for The Daily Reckoning

The post The Real China Story appeared first on Daily Reckoning.

“1984” Has Come to China

This post “1984” Has Come to China appeared first on Daily Reckoning.

You’re probably familiar with George Orwell’s classic dystopian novel Nineteen Eighty-Four; (it’s often published as 1984). It was written in 1948; the title comes from reversing the last two digits in 1948.

The novel describes a world of three global empires, Oceania, Eurasia and Eastasia, in a constant state of war.

Orwell created an original vocabulary for his book, much of which is in common, if sardonic, usage today. Terms such as Thought Police, Big Brother, doublethink, Newspeak and memory hole all come from Nineteen Eight-Four.

Orwell intended it as a warning about how certain countries might evolve in the aftermath of World War II and the beginning of the Cold War. He was certainly concerned about Stalinism, but his warnings applied to Western democracies also.

When the calendar year 1984 came and went, many breathed a sigh of relief that Orwell’s prophesy had not come true. But that sigh of relief was premature. Orwell’s nightmare society is here today in the form of Communist China…

China has most of the apparatus of the totalitarian societies described in Orwell’s book. China uses facial recognition software and ubiquitous digital surveillance to keep track of its citizens. The internet is censored and monitored. Real-life thought police will arrest you for expressing opinions opposed to the government or its policies.

Millions of Chinese have been arrested and sent to “reeducation” camps for brainwashing (the lucky ones) or involuntary organ removal without anesthetic (the unlucky ones who die in excruciating pain and are swiftly cremated as a result).

While these atrocities are not going to happen in the U.S. or what passes for the West these days, the less extreme aspects of China’s surveillance state could well be. And while you might not be arrested for expressing unpopular opinions or challenging prevailing dogmas (at least not yet), you could face other sanctions. You could even lose your job and find it nearly impossible to find another.

You can certainly be banned from social media…

Anything seems to go on social media (primarily Facebook, Twitter, Instagram, Snapchat, YouTube and a few other platforms) — unless you’re a conservative personality or politico. That’s where the censorship begins.

Many conservative social media participants have had their acco‌unts closed or suspended, not for threats or vulgarity but for criticism of “progressive” views (albeit criticism with some sharp edges).

Meanwhile, those with progressive views can say almost anything on social media, including the implicit endorsement of violence. But nothing happens.

Other conservatives report being the targets of “shadow banning.” That’s where your acco‌unt is open and seems to operate normally, but unbeknownst to you, much of the network is being blocked from seeing your posts and popular features such as “likes” and “retweets” are being truncated and not distributed.

It’s like being a pro athlete who finds out the stadium is empty and no tickets are being sold. That’s bad enough. But Twitter took the war on conservatives a step further.

Well, one of the most widely followed acco‌unts on Twitter is none other than Donald J. Trump’s, with 68 million followers. President Trump uses Twitter to announce policy initiatives and personnel changes and to offer pointed criticism of political opponents. It’s a major platform for him.

Last month Trump issued a tweet that identified the so-called “whistleblower” of the Ukraine phone call that led to his impeachment. That’s not as big a deal as it sounds because everyone in Washington knew who the whistleblower was (you can look his name up on the web), and he wasn’t even a real whistleblower because he didn’t meet statutory requirements.

Still, Twitter blocked Trump’s tweet. Twitter blamed a temporary system “outage,” but that claim was highly suspicious. Later, Trump’s tweet was restored, but the original acco‌unt that Trump linked to had been deleted. No one ever said that politics was fair.

But Twitter’s blatant interference in the election could have adverse consequences for the company in Trump’s second term.

And a few social media companies are now de facto censors, taking over the job from the government. Given their massive media footprint, they wield extraordinary influence over the American public.

They’re in essence becoming propaganda outfits.

It’s not just here of course. Canada, for example, is actively pursuing digital surveillance to track the activities of law-abiding citizens.

A report for the Bank of Canada says that financial information gathered from digital transaction records could be used for “sharing information with police and tax authorities.”

If all transactions are digital (including credit and debit cards), authorities can track your whereabouts, buying habits, restaurant choices and much more. They could also reveal your political orientation and personal associations.

It’s not difficult to imagine the police and tax authorities using that power to make life extremely difficult for those who criticize the government or sacred ideologies like “climate change.” If you think that sounds extreme, some have actually advocated jailing climate change “deniers.”

Do you think I’m making that up?

Well, the executive director of an outfit called Climate Hawks Vote said “Put officials who reject science in jail.”

The Nation also ran an article called, “Climate Denialism Is Literally Killing Us: The victims of Hurricane Harvey have a murderer — and it’s not the storm.”

“How long,” its author asked, “before we hold the ultimate authors of such climate catastrophes accountable for the miseries they inflict?”

And Robert F. Kennedy Jr. said the Koch brothers “should be in jail,” “with all the other war criminals.”

Well, David Koch has since died, so he’ll escape Kennedy’s justice.

But their “war crimes” consisted of funding organizations that question the climate change alarmism the media  is constantly feeding us.

But guess what? There’s plenty of hard scientific evidence that refutes the alarmist view. This article isn’t the venue to get into it, but the scientific case against climate alarmism is much stronger than the case for it.

But if you dissent against the official view, today’s tech censors will silence or marginalize you, no matter how valid your point.

The problem is, the trend is moving very quickly in this direction and it’s difficult to stop. And sophisticated surveillance technology to monitor citizens is already in place…

For example, cameras with the latest surveillance technology can spot and match millions of faces in real time with an accuracy rate of over 99%. They’re touted as anti-terrorism and anti-crime tools, which they certainly are.

But as Stalin’s ruthless secret police chief Lavrentiy Beria said, “Show me the man and I’ll show you the crime.” It’s easy to see that power being abused to target everyday citizens.

(By the way, Beria would ultimately prove his own point, as he was later arrested and executed for treason).

And actually, many people welcome intrusive surveillance technology on the grounds of convenience. As an example, look at microchipping, where people are injected with a small microchips beneath their skin. Microchipping has been associated with an Orwellian nightmare in which Big Brother constantly monitors your every move.

Well, over 4,000 Swedes have already happily volunteered to have it done.

In addition to acco‌unt information that negates the need to carry cash or credit cards to pay for goods, these chips can contain personal information. It’s all happened fairly quickly. Just a few years ago, the very idea of it would have sent chills down the spines of most people.

But that’s how fast Big Brother can go from nightmare to reality, and appear benign or even beneficial.

Big Brother’s on full display in China right now, but he could be on his way here before too long.

Regards,

Jim Rickards
for The Daily Reckoning

The post “1984” Has Come to China appeared first on Daily Reckoning.