The China Problem

This article is not about the Chinese people. They are our brothers and sisters in Christ; made in God’s image as we are. It concerns China’s leaders and government. Their ideas result in corrupt immoral actions. Witness their influence in institutions such as the World Health Organization. China’s leaders allowing 9 million Chinese to leave the country when they knew there was a serious health crisis is irresponsible. But these are only the most recent in a long train of abuses. The Chinese people also suffer under their leadership. And yet many in our media advocate on China’s behalf. Obama’s Education Secretary praised their education system saying, “There is much we can learn from them.” Do we really want to model such ungodly immoral behavior? Actions showing a complete lack of love and compassion for our fellow man and God. I think not. But what should we do?

We must understand their government and economy. Both are quite different from America’s. While in school I had the opportunity to serve for a year as an analyst/consultant for the university’s Center for International Business Education and Research (CIBER). One of my tasks was a research project on China for a client. Although it was not recently done, that doesn’t matter as China has changed little since it was written. I’ll begin with a brief overview.

China’s Government and Economy

China’s government controls much of its country’s society. In business, if labor is needed the government can provide the workers. It is estimated today that only India has a larger slave population than China. If equipment is needed, the government provides it. If capital is needed, you guessed it, the government provides it through China’s banking system. The state owns almost everything.

A quick example. During my time at college, China was mining copper and providing it on the market for next to nothing. This action resulted in bankrupting many copper mining companies in North and South America, and the rest of the world. They next started to make wire with the copper and provided it on the market for much less than the rest of the world could make it. This action created even more bankruptcies. They next turned to manufacturing basic products requiring copper. My client made basic products using copper wire, and they were unable to compete, because the playing field wasn’t level. China’s government provided the means for its businesses to continue operations, whether they turned a profit or not.

An economy like China’s requires several things to sustain itself. The first is a high growth rate. This puts increasingly larger amounts of currency in circulation, much of it directed by China’s government. Another thing it needs is large amounts of foreign currency. The foreign currency provides a basis for exchange with other countries, and liquidity for its own economy. China’s government recognizes this. This is one reason why it has made extensive foreign investments including; minerals, land, businesses, and technology. These provide another source of foreign currency for their use.

Two Simple Solutions

China’s leaders haven’t listened to reason or moral arguments—and won’t. They are corrupt; their character shaped by their ideas. They care about power. But their economy has several weaknesses.

Deprive Them of Foreign Currency

The country requires high export volumes to bring in foreign currency. But it is our choice whether we buy from them or not. We simply decide not to buy what they produce, while at the same time rebuilding our own capabilities. This is the perfect time as we restart our economy. It will mean new/different opportunities, some of which will require training. I believe we have the opportunity to unleash a boom even greater than what we were experiencing before the virus outbreak. But we will need courage, conviction, and compassion to be successful.

This action is just. Justice concerns accountability for one’s actions. Much of China’s products either work poorly or are harmful. Just a few examples. Consider all the toys where lead paint was used, all the tainted medicines and medical materials they’ve distributed, or all the medical equipment it recently sent to Northern Italy that didn’t work. We should consider more than price when buying from China. By creating our own products once again the foreign currency they need dries up and we become independent. It’s a no brainer.

Paying for Damages

The Chinese government’s immoral actions at the outbreak suggests another recommendation. They knowingly tried to keep the world in the dark about the outbreak. A doctor trying to blow the whistle even died. China’s government not only prevented the rest of the world from knowing about the outbreak, they allowed people with the virus to leave China. Many of them going to Northern Italy and America. China’s government bears responsibility for its actions. If its leaders had acted morally, the outbreak quite probably would have been contained.

Our government just approved a $2 trillion dollar aid package to lessen some of the virus’s economic damage. It will not undo the damage. China owns over $1 trillion in U.S. treasury bonds. I suggest we offset those bonds against the virus’s economic costs their actions created. China would bear some of the costs their actions created. These recommendations concern accountability for one’s actions—justice. Justice is a virtue and moral.

A Likely Response

It’s estimated America invested about $117 billion in China from 2000 to 2018.[1] China’s government could confiscate those holdings in response to the above suggestions. However, that action would likely be short-term, if it happened at all. Here’s why.

China’s U.S. Investments

China’s direct foreign investment in America between 2005 and 2019 is estimated at about $180 billion.[2] They have more to lose by such actions. But Americans have another investment in China most know nothing about. Investment funds put more than $400 billion in Chinese securities in 2019, and index funds added another $100 billion.[3] If you have a mutual fund, you likely have holdings in China. Does that position make sense, given their behavior? These positions should be unwound, and likely would as China’s economy slows.

China’s Economic Weakness

China must import large amounts of foreign currency. Reducing trade, eliminating U.S. foreign investment, and offsetting treasury bonds remove important sources of funding needed for China to sustain its economic model. Finally, America is China’s largest trading partner. By producing our own products again, we remove another funding source.

Again, China’s leaders recognize their economic weakness. But instead of changing their behavior for the better, they seek to increase their power. This is another reason for all its purchases of land, natural resources, and operations outside China. Much of China’s foreign investment is through state owned enterprises. These give China’s government, and therefore its economy, foreign income sources valued at over $2 trillion.[4]

Our leaders should make the case for other countries considering similar actions. Europe has been especially hard hit by the virus; a by product of China’s European investments. Follow China’s foreign investments, and you’ll follow much of the virus’s outbreak. Countries impacted the most include; America., Spain, Italy, Germany, France, Iran, Great Britain, Turkey, Switzerland, the Republic of Korea, Canada, and Brazil.[5] They have as much at stake in this as we do. Oppressive leaders are never content with just keeping what they have; they always want more.

China Needs the World, More Than the World Needs China

With reduced foreign currency inflows, China’s economy will slow. It doesn’t need to go negative. Even slow growth will result in its economy starting to crumble. It’s economic model is unsustainable under those conditions in the long-run.

To retain their power, China’s leaders will need to change their behavior. They will choose to at least change their actions in order to keep that power. Once their economy slows, they will need to focus on it. They will still be bad actors, but ones who know they are being watched and held accountable. If they change their character, then they will be welcomed and some normalized relationship can develop. The outcome will be based on their actions. This too is justice, but to achieve it we must do the right things for the right reason. We must act morally with faith—and without fear.

Footnotes:

[1] Statistica, Direct investment position of the United States in China from 2000 to 2018, https://www.statista.com/statistics/188629/united-states-direct-investments-in-china-since-2000/. Accessed April, 2020.

[2] American Enterprise Institute and the Heritage Foundation, Chinese Investments in the United States, https://www.aei.org/china-tracker-home/. Accessed April, 2020.

[3] Foreignpolicy.com, Americans Are Investing More in China—and They Don’t Even Know It, January, 14, 2020, https://foreignpolicy.com/2020/01/14/americans-investment-china-emerging-markets-united-states-trade-war/. Accessed April, 2020.

[4] American Enterprise Institute, China Global Investment Tracker, https://www.aei.org/china-global-investment-tracker/. Accessed April, 2020.

[5] World Health Organization, Coronavirus disease 2019, Situation Report – 77, April 6, 2020. https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200406-sitrep-77-covid-19.pdf?sfvrsn=21d1e632_2. Accessed April, 2020.

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Dan Wolf

About Dan Wolf

Dan Wolf is a researcher and analyst; examining complex, abstract topics. His writing’s premise is based on one simple idea. We do not receive the benefits of God’s gifts unless we are turned toward Him. Each generation needs to learn this lesson to pass on what’s important. What are those gifts? Freedom, faith, and grace among others. Our Founders considered education, religion, morality, and virtue to be the cornerstones for any successful society. Success requires an education in both the languages of reason and faith, reason alone is not enough. Unfortunately, our education system today no longer teaches what we need to be successful, so we risk losing our way. But it is not too late. In the end we each have the freedom to choose, and the ability to learn. There are many who have already blazed a trail for us; we only need the will to embrace the challenge and make the effort. Together we will restore the societal foundation that our Founder’s, and many after them, fought and died for. The choice is ours. My goal is to assist you on your way. His site is at:  http://www.livingrightly.net/