THIS Is How China Is Increasing Global Power

Capitalist Exploits's picture

By Chris at www.CapitalistExploits.at

In the movie "The International" Clive Owen plays the part of Louis Salinger, an Interpol agent trying to bring down the world's largest bank.

In this clip a banker explains things to him:

Umberto Calvini: [In explaining the "true" nature of banking in the world]

"The IBBC is a bank. Their objective isn't to control the conflict, it's to control the debt that the conflict produces. You see, the real value of a conflict, the true value, is in the debt that it creates. You control the debt, you control everything. You find this upsetting, yes? But this is the very essence of the banking industry, to make us all, whether we be nations or individuals, slaves to debt."

Debt is much like a baseball bat: neither good nor bad. You can use it to hit the ball out of the park or you can get beaten into a bloody pulp by it. How we use (or abuse it) is the determiner. Read my article on the easy and uncomplicated way to get rich to ensure you go about it the smart way.

Certainly debt can - and has been used - to control people, assets, and entire societies ever since we crawled out of the cave and began covering our bits with fur. Just ask your neighbour Billy, who's always complaining about his sh*tty job, why he won't shut up and just quit? The answer typically is because his mortgage and car payments won't let him.

I've been thinking a lot about debt lately. Not the consumer driven silliness highlighted by Billy but specifically how debt is used as a tool on an international and political level and how it affects currencies and geopolitics.

I then looked at the unfolding trends present today. Trying to see how they all fit together is, I believe, a valuable exercise, even though there's more moving parts to this than a silo full of Swiss watches.

To begin with, let's revisit some recent history of debt, currency, and deficits and how they've interacted. George Soros articulates it very well in his book The Alchemy of Finance when describing what he called "Reagan's Imperial Circle:"

Keep this concept in mind as we'll revisit it in a minute.

Trends

Fast forward to today, and there are some dramatic shifts taking place in the world:

  • Bureaucrats in Brussels, who specialise in overpriced corporate lunches and finding new ways of spending their unjustifiable annual bonuses, continue to berate the "PIGS" for not doing more about austerity. Ironic but the truth is Brussels controls the PIGS much in the same way the bankers in the movie The International controlled the world
  • Across the Atlantic we have the sexiest first lady in forever elected, and now we enjoy her orange husband bring a whole new level of ridiculous to Twitter, a space previously owned by the Kardashian's posteriors. I'm still undecided which is worse
  • On the shores of the murky isles, Brits marched boldly towards independence only to realise in shock that they had a completely inept leadership and not a single able minded option available to them. And so they did what any pissed off aggravated person would do: they began voting for Jeremy Corbyn. Not because anyone wanted him in power. Hell no! Purely in protest
  • And so, while much of the West increasingly looks dysfunctional, lost, and confused, China are embarking on the most ambitious project ever since I tried to convince my now wife that a hot girl should marry me. The project? One belt one road (OBOR), which impacts many industries and countries such as Greece.

In many ways China has many elements in their favour whereby they can use their increasing economic prowess, large trade surplus, and existing overcapacity to control the debt of trading partners, and in so doing slowly but surely influence politics and economics in a self reinforcing cycle.

Incidentally, if they're successful in their OBOR endeavours, they can hope to mitigate some of the fallout from an impending and overdue domestic non-performing loan cycle.

Commentators on OBOR seem to fall into those who are bullish... and those who poke fun at it and either don't like it or question China's ability to pull it all off. On the face of it the idea seems simple enough. OBOR promises to open up markets for Chinese exports. This is, I think, somewhat simplistic and naive.

The more I've researched the topic the more I think there is much much more to OBOR than meets the eye. The Chinese are many things but stupid is not one of them.

Let's take a look at some of their problems, their ambitions, and how and why OBOR really is front and centre for Xi.

Overcapacity

We know that too much of anything is bad for us. Just ask Chris Christie's arteries.

China suffer from too much capacity as well as too much domestic debt in their banking system. OBOR may provide a means for China to deflate this debt while exporting overcapacity.

What's more is that they can do so while providing credit (at the state level) to countries who are in desperate need of it. Greece, as I mentioned last week, fits this picture particularly well.

Deflating the Domestic Credit Bubble

China has a domestic credit problem, and they're going to have to deal with that in some way or another. Certainly a harsh non-performing loan cycle can punish GDP growth but consider this...

What if China essentially moved this domestic debt problem onto the balance sheets of OBOR partners?

How?

By the Chinese government lending these partners money for large infrastructure projects (as they've already been doing). When those infrastructure projects get built, a decent amount of the project works go to Chinese companies which provides them the ability to both export overcapacity all the while deflating some of the domestic credit bubble.

A pretty damn smart move if you can pull it off!

China has some $3 trillion of paper which they can trade for power and influence.

Think about it, which would you rather have: a pile of greenbacks (with the Fed at the helm who have shown in no uncertain terms that, when push comes to shove, they'll forego monetary stature for domestic political security) or political and economic leverage globally?

The Most Powerful Weapon Brought to Bear

China's answer is pretty clear based on what they've begun to do.

They have already been making huge loans to strategically placed and often poor countries. These loans provide jobs and infrastructure, both of which are desperately needed by these countries.

That they're structured on onerous terms and under conditions whereby Chinese materials and labour are often used is easily overlooked when one is broke and desperate (in the private investment world we call it distressed investing). And in case you've not realised it, there are a lot of desperate governments littering the planet right now.

And just like in the movie referenced, China need not have these projects even be successful. In fact, there's a case to be made to say that they'd prefer them NOT to be successful. Having the debt repaid eliminates political and economic leverage.

Case in point: Sri Lanka’s Mattala Rajapaksa International Airport, which opened in 2013, is still largely idle and empty. What does Sri Lanka now get? An empty airport and a massive debt to China which they can't repay. Pakistan's multibillion dollar Gwadar port and Greece's Piraeus port are two more.

China controls all of this debt, and by controlling this debt they can, and will, begin using this power for... ahem, "concessions".

The world should not be surprised when military submarines with Chinese symbols start using these ports and Beijing begins having a say in how these partner countries' "assets" are used and by whom, because, after all, China controls the debt.

Neither should we be surprised when Chinese warships begin providing "security" to these ports, or when "security and surveillance" aircraft belonging to the Chinese military begin providing "services" to the airports, gas pipelines, and so forth.

Realise that it's in China's interests for these countries to never ever be able to repay these debts. This provides them with extraordinary leverage at what is really a very cheap cost.

Now, I'm not that cynical that I think China doesn't want this infrastructure to help trade. I'm sure they do. But there is likely a strong political incentive here which really amounts to a bait and switch loan sharking game where countries will be forced to make all sorts of concessions in order to defray debt payments.

My readers are a sharp bunch so don't need me to point out that this is a far cheaper method than the "normal" alternatives.

Consider that the cruise missiles Trump rained down on Syria just 3 months ago cost an estimated $60 million, and the Iraq war has already cost the US government, I mean US taxpayer, $2.4 trillion.

I began doing the math on the total amount of money spent by the US government on gaining or maintaining geopolitical dominance via military interventions but my calculator started smoking and promptly blew up. But it's definitely safe to say it's a lot higher than these two numbers.

As I mentioned before, the economics of war have changed, and OBOR represents a vastly cheaper method of acquiring power and influence than does bombing the sh*t out of sand.

China, as mentioned a few weeks ago, is:

  • Asia’s largest trading partner
  • US largest trading partner
  • Germany’s largest trading partner
  • Australia’s largest trading partner
  • Russia’s second largest trading partner (after Germany)
  • Africa's largest trading partner
  • South America’s largest trading partner

OBOR is much, much more than simply establishing trading routes for Chinese goods as the MSM will have you believe. It is THE most ambitious geopolitical play of our lifetimes, and it's well worth understanding what's taking place here.

Xi's Imperial Circle?

So the question that I have for you to ponder today is this: is China able to create a self-reinforcing mechanism whereby they export excess capacity, deflate a domestic credit buildup, build an infrastructure for future export and trade all the while having many of the participants beholden (via debt) to China allowing for unsurpassed geopolitical power... and be able to do so because, in large part, the rest of the world has their own problems to wrestle with?

Does the world wake up a couple decades later when the dollar debt has been converted (another concession) to renminbi and marvel at what an amazing chess manoeuvre was played as we all realise we have Xi's imperial circle?

What do you think?

Question

OBOR Poll
Cast your vote here and also see what others think

- Chris

"Happiness does not fall out of the blue and dreams will not come true by themselves. We need to be down-to-earth and work hard. We should uphold the idea that working hard is the most honourable, noblest, greatest and most beautiful virtue." — Xi Jinping

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oncemore's picture

US DOES THE SAME.

geekz_rule's picture

#AusterityIsCode4Looting

 

Friedrich Von Hayek, Austrian economist, proposed a 4 plank plan to establish economic "freedom". Of course, that "freedom" was really only for the inbred elitists, the "rentier" class, the "new" feudal lords. These ideas support and justify the creation of absolute monopoly of the entire world's resources. Monopoly always was the real intention, the people's only real enemy. 

 

"Competition is a sin" J. Rockefeller.

 

Hayek's plan: peddled as Libertarian, supporting "Liberty", but based on the inaccurate notion that "government" is evil and root of all corruption. A self serving lie. Government is the people, but the Monopolist's use "government" as a simple false target, a straw man, a distraction, a curtain to hide behind. In practice, government today, and for generations,  is merely a puppet used as the force projector controlled by the money masters, pay to play, bought and sold to the highest bidders of the deep state.

 

Hayek's 4 Planks:

 

1) Deregulate global financial markets - DONE

 

2) Deregulate global trade - DONE  

 

3) Bankrupt all sovereigns and nations with fiat (empty, unbacked, meaningless) paper "debt" (thereby neuter a nation's capability to enforce laws - eliminate the people's ability to defend against being consumed by these 1%) - DONE

 

then lastly, the kill shot:

 

4) Privatize Everything. create permanent rent payers of even the most basic necessities of life (Air, water, food, shelter). - Almost COMPLETE

 

Implemented globally by force, using their "super sovereign" (above the laws of nations) global banking control entities, WTO, WB, IMF, BIS, etc. and of course, actually militaries.

 

We are 99.99% there. 

we are already debt slaves to a global 1%, they have monopolized everything. 

 

this condition will not, nor can not, be changed with BS "elections" run by the very 1% we seek to depose. 

 

#BankstersAreGangsters #PlantationLife 

geekz_rule's picture
#BankstersAreTheRealTerrorists - Banks "loan" money they do not have (fractional reserve lending, created "legally" out of thin air). They "loan" to people, to business, to nations, plus interest (usury). Now, after many generations of this, banksters OWN the entire world (monopoly) https://www.federalreserve.gov/monetarypolicy/reservereq.htm
http://arxiv.org/PS_cache/arxiv/pdf/1107/1107.5728v2.pdf
#HostLife  - because we have been turned into "hosts" (food source) (rent payers) for the 1% inbred parasites (leeches) (rent collectors)

#YourPerceptionIsACommodity - Most of what we "think" and "feel" about modern life is created in our minds by repeated narratives and images. US State Media (MSNBC, Fox, CNN, ABC, WaPo, NYT, etc). creates "support" or "disapproval". 

#CorruptionExplainsConspiracy - Corruption exists, it's EVIDENT everywhere, most people agree, therefore conspiracy IS COMMON, predictable, and should be ANTICIPATED, not ignored or mocked

Carpe Tutti Bastardi's picture

Short story about debtee (lender) being the master and debtor being the slave.

I seem to recall many years ago my mother, and dozens of other ladies, worked for a lady

that owned a dress shop, as a seamstress (sewing garments and clothing articles from

fabric pieces to make a finished product).

This lady, over time and on at least one ocassion closed up shop, laid off the workers,

filed for bankruptcy and started anew under a different business name. I of course don't

know what the financial arrangements were, but if you file for bankruptcy and have no

assets there is nothing the lender can attach. I'm just say'in

Who loses out on that loan arrangement?

dttmei's picture

John Perkins has written about this.  It is the same playbook that all economic powers employ to spread its influence over other nations.  OBOR is a monumental undertaking by China.  This is a strategic long game and I believe the Eurasian countries recognize this.  And, to counteract this initiative, countries have taken different action plans.  India, for example, has resisted while others have signed on.  it is all about gaining access across different sovereignties, building influences and laying a claim on natural resources and establishing trade.  Most importantly, writing the terms and rules in how trades are to be conducted.

Dwarsligger's picture

The Chinese are working towards the Global Digital financial Identity for every global citizen too, just like the IMF, World Bank, UN and many more institutions. The project is called ID2020. The Chinese government is in the process of linking this to their Social Credit System.

The Global Citizen movement for the Millennials does exactly the same thing: earning credit through approved behaviour before 'earning' access to a reward.

China is part of this combined drive towards digital control of the world. Finance is just one aspect of it. Read on and prepare to have your eyes opened. (no conjecture, just cold hard documents from the actors themselves)

http://globalcitizennews.blogspot.nl/2017/07/earning-social-credit-on-bl...

amanfromMars's picture

But you and I can't play. We are being played. ...... LA_Goldbug

Of course you can play, LA_Goldbug. The means for command and control of the memes are provided here before you and your fingertips. 

Wwwidely shared words are easily able to both either EMPower or destroy Worlds and Wannabe World Orderers. And such is the Absolute Truth which Systems Administration are terrorised by and terrified of becoming more General Mainstream Knowledge. But one cannot hold back the tides and flow of truths and information which deliver both novel future derivative paths for present placements of greater intelligence.

:-) It is the Inescapable Disturbance in the Force which All Virtual Despots fear ........ for IT Robs Them Blind of Energy and Power.

Deny it and disagree if you will, but you cannot change ITs Path.   

are we there yet's picture

I was in a bank in Russia and found that it is common for banks to sell gold coins. They were even on display to encourage buyers.

Pernicious Gold Phallusy's picture

I've been wondering whether China really wants to destroy us, or just control us. I don't see why they're supporting the North Korean nuclear program, and flooding us with fentanyl derivatives, unless they really want to destroy us. I think they view us a untrainable barbarians who will always threaten their survival. I also think they want payback for the Opium Wars.

LA_Goldbug's picture

... and we in the US are so helpless that we simply can't do anything about this ? Who moved manufacturing from the US to China ? Chinese ?

The Opium Wars were naked aggression against weak at that time China. I am certain China has learned that lesson and makes sure that people in its power structure understand it. I suspect the same goes for Russia. The Red Revolution is probable at the top of the curriculum at their War Academies and elite political studies universities.

US is not a victim today. People of the US are victims, of their own government and their power elites who have betrayed them. Not for a second will I believe that US taking down Iraq, Libya, Syria, Afghanistan is something that is good for the People of USA. Just ask the Afghanistan and Iraq veterans what they think.

. . . _ _ _ . . .'s picture

Neither. They sell their crap to foreigners and keep the best for themselves, just like eveyone else in the world does. If the west will buy toys painted with lead and pet food full of melamine, hell, why not unload it on them? They have to get rid of their industrial/chemical waste, but unlike Americans, they don't just dump it in their own environment/water/air.

They are not supporting the NorK nuclear program, they are supporting Nork, period. Much of what you hear about NorK is untrue; much propaganda just like with Gaddafi, Assad, etc. NorK is a socialist state and has no central bank so it must be challenged at every opportunity by the west. The Chinese have a much more sympathetic view.

They built a wall to keep gwai lo out. They feel threatened alright; they see what western imperialism has done to Africans and aboriginals.

If it was just the opium wars, they would have 'neutralized' John Kerry. Still not too late.

Hyjinx's picture

"They have to get rid of their industrial/chemical waste, but unlike Americans, they don't just dump it in their own environment/water/air."

 

China is one of the most polluted nations in the world... you know that right?

. . . _ _ _ . . .'s picture

"China is one of the most polluted nations in the world..."

That's a pretty vague statement, but I hear you.

Because of the fast growth of industry and huge population, pollution has become a large problem, I agree.

I was specifically referencing fluoride in the drinking water, chem-trails, glyphosate, etc. with which western governments poison their own people. The Chinese are not so tolerant of these practices.

Their corporations pollute, and the government is having trouble keeping up. This is all true. But the government does not condone, encourage, or participate in poisoning its own people. They export it, just like Canada exports its illegal asbestos.

That's what I was getting at.

Xena fobe's picture

This is really just talking about setting up puppet leaders in these poor nations and keeping them in power. Loans are a good way of doing that. As an explanation for OBOR, it makes much more sense than expectations for trade growth

In fact, the US and other industrialized nations are no different from those other poor countries.  China makes sure TPTB are aligned in their favor to get policies enacted in their favor and against the interests of US citizens. 

 

otschelnik's picture

Looking down the road, when all these 3rd world megaloans go sour - what then?   When the Sri Lanka airport starts decaying, or the price of oil falls in Venezuela where China is heavily invested?  Here the Chinese risk default and more non-performing loans on their same zombie banks.  Then what? Chinese political hegemony? I don't think so - those countries will not compromise their sovereignty.  Debt doesn't have any leverage on moochers. 

exartizo's picture

Ok. Now we're just going to skip all the bullshit and Chart Porn Chris.

I'm just going to make this very simple.

China sees the cryptocurrency (blockchain technology) market as their pathway to the Reserve Currency model they have been denied by the US Dollar hegemony.

Got LiteCoin?

Xena fobe's picture

No.  Where can I buy it? 

thisandthat's picture

"Why not both?"

Trade and politics are two sides of the same coin: you get power from trade (China), and you get trade from power (US).

. . . _ _ _ . . .'s picture

This article reads like a book by John Perkins.

Hegemon is as hegemon does.

Dragon HAwk's picture

One Great Big Global Monopoly Game...

LA_Goldbug's picture

But you and I can't play. We are being played.