THE GREAT GAME MOVES ON
By
Alasdair Macleod, 2021/09/23
Following America’s withdrawal from Afghanistan, her focus has switched to the Pacific with the establishment of a joint Australian and UK naval partnership.
The founder of modern geopolitical theory, HALFORD MACKINDER, had something to say about this in his last paper, written for the Council on Foreign Relations [CFR] in 1943. Mackinder anticipated this development, though the actors and their roles at that time were different. *In particular, he foresaw the economic emergence of China and India and the importance of the Pacific region.*
This article discusses the current situation in Mackinder’s context, taking in the consequences of
GREEN ENERGY, the importance of trade in the Pacific region, and China’s current DEFLATIONARY STRATEGY relative to that of declining western powers aggressively pursuing ASSET INFLATION.
There is little doubt that THE WORLD IS REBALANCING as Mackinder described nearly 80 years ago. To appreciate it we must look beyond the West’s current economic and monetary difficulties and the loss of its hegemony over Asia, and particularly note the IMPROVING CONDITIONS of the Asia’s most populous nations.
INTRODUCTION
Following NATO’s defeat in the heart of Asia, and with Afghanistan now under the Taliban’s rule, the Chinese/Russian axis now controls the Asian continental mass. Asian nations not directly related to its joint hegemony (not being members, associates, or dialog partners of the Shanghai Cooperation Organisation) are increasingly dependent upon it for trade and technology. Sub-Saharan Africa is in its sphere of influence. The reality for America is that the total population in or associated with the SCO is 57% of the world population. And America’s grip on its European allies is slipping.
NATO itself has become less relevant, with TURKEY drawn towards the rival Asian axis, and its EU members are compromised through trading and energy links with Russia and China. Furthermore, France is pushing the EU towards establishing its own army independent of US-led NATO — quite what its role will be, other than political puffery for France is a mystery.
It is against this background that three of the Five Eyes intelligence partnership have formed AUKUS – standing for Australia, UK, and US — and its first agreement is to give Australia a nuclear submarine capability to strengthen the partnership’s naval power in the Pacific. Other capabilities, chiefly aimed at containing the Chinese threat to Taiwan and other allies in the Pacific Ocean, will surely emerge in due course. The other two Five Eyes, Canada and New Zealand, appear to be less keen to confront China. But perhaps they will also have less obvious roles in due course beyond pure intelligence gathering.
The US, under President Trump, had failed to contain China’s increasing economic dominance and its rapidly developing technological challenge to American supremacy. Trump’s one success was to peel off the UK from its Cameron/Osbourne policy of strengthening trade and financial ties with China by threatening the UK’s important role in its intelligence partnership with the US.
For the UK, the challenge came at a critical time. BREXIT had happened, and the UK needed global partners for its future trade and geopolitical strategies, the latter needed to cement its re-emergence onto the world stage following Brexit. Trump held out the carrot of a fast-tracked US/UK trade deal. The Swiss alternative of neutrality in international affairs is not in the UK’s DNA, so realistically the decision was a no-brainer: the UK had to recommit itself entirely to the ANGLO-SAXON FIVE-EYES PARTNERSHIP with the US, Canada, Australia, and New Zealand and turn its back on China.
But gathering intelligence and building naval power in the Pacific won’t defeat the Chinese. All simulations show that the US, with or without AUKUS, cannot win a military conflict against China. But AUKUS is not a formal model on NATO lines which commits its members by treaty to aggression against a common enemy. While Taiwan remains a specific problem, the objective is almost certainly to discourage China from territorial expansion and protect and give other Pacific nations on the Asian periphery the security to be independent from the SCO behemoth. The trade benefits of closer relationships with these independent nations are also an additional reason for the UK to join the CPTPP — the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It qualifies for membership through its sovereignty over the Pitcairn Islands. And that is why China has also applied to join.
Therefore, AUKUS’s importance is in the signal sent to China and the whole Pacific region, following the ABANDONMENT OF LAND-BASED OPERATIONS in the Middle East and Afghanistan.
The maritime threat to China is a line which must not be crossed. We are entering
A NEW ERA IN THE GREAT GAME, where the objective has CHANGED FROM DOMINANCE TO CONTAINMENT. Having lost its position of ultimate control in the EURASIAN LAND MASS America has selected its partners TO RETAIN CONTROL OVER THE HIGH SEAS. And the UK has found a new geopolitical purpose, re-establishing a global role now that it is independent from the EU.
The French cannot join the CPTPP being bound into the common trade policies of the EU. Seeing the British escape the strictures of the EU and rapidly obtain more global influence than France could dream of has touched a raw nerve.
SINCE THE LEHMAN COLLAPSE and the ensuing financial crisis, China has been careful to prevent financial bubbles. FIGURE 1 shows that the Shanghai Composite Index has risen 82% since 2008, while the S&P500 rose 430%. While the US has seen financial asset values driven by a combination of QE and investor speculation, these factors are absent and DISCOURAGED in China. Government debt to GDP is about half that of the US. It is true that industrial debt is high, like that of the US. But the DIFFERENCE is that in China debt is MORE PRODUCTIVE while in America there has been a growing preponderance of DEBT ZOMBIES, only kept solvent by zero interest rate policies [ZIRP].
China’s policy of ensuring that the expansion of bank credit is INVESTED IN PRODUCTION and NOT SPECULATION *differs fundamentally* from the US approach, which is to deliberately INFLATE FINANCIAL ASSETS to perpetuate a wealth effect. China avoids the DESTABILISING POTENTIAL of speculative flows unwinding because it lays the economy open to the possibility that America WILL USE FINANCIAL INSTABILITY to undermine China’s economy.
In a speech to the Chinese Communist Party’s CENTRAL COMMITTEE IN APRIL 2015,
MAJOR-GENERAL QIAO LIANG, the People’s Liberation Army STRATEGIST, identified a
cycle of dollar weakness against other currencies followed by strength,
which FIRST INFLATED DEBT in foreign countries and THEN BANKRUPTED THEM. Qiao argued it was a
DELIBERATE AMERICAN POLICY and would be used against China.[v] In his words, it was time for America to “harvest” China.*
Drawing on Chinese intelligence reports, IN EARLY 2014 he was made aware of American involvement in the “Occupy Central” movement IN HONG KONG. After several delays, the Fed announced the END OF QE [Quantitative Easing] the following SEPTEMBER which drove the dollar HIGHER, and “Occupy Central” protests BROKE OUT the following month.
To Qiao the two events WERE CONNECTED. By UNDERMINING the dollar/yuan rate and PROVOKING RIOTS, the Americans had TRIED TO CRASH China’s economy. Within six months the Shanghai stock market BEGAN TO COLLAPSE with the SSE Composite Index falling from 5,160 to 3,050 between June and September 2015.
One cannot know for certain if Qiao’s analysis was correct, but one can understand the Chinese leadership’s CONTINUED CAUTION based upon it. For this and other reasons, the Chinese leadership is EXTREMELY WARY of having DOLLAR LIABILITIES and the ACCUMULATION OF UNPRODUCTIVE, SPECULATIVE MONEY IN THE ECONOMY. It justifies their STRICT EXCHANGE CONTROL REGIME, whereby dollars are NOT PERMITTED to circulate in China, and all inward capital flows are TURNED INTO YUAN by the PBOC.
Furthermore, domestic monetary policy appears deliberately different from that of America and other western nations. While everyone else has been INFLATING their way through covid, China has been RESTRICTING domestic credit expansion and CURTAILING SHADOW BANKING. The discount rate is held up at 2.9% with market rates slightly lower at 2.2%, and the only reason it is that low is because alternative dollar rates are AT ZERO and EU and Japanese rates are NEGATIVE.
It is this restrictive monetary policy that has led to the current crisis in property developers, with the very public difficulties of Evergrande. Far from being a surprise event, with cautious monetary policies it could have been easily foreseen. Moreover, the government has a SENSIBLE POLICY of NOT RESCUING PRIVATE sector businesses in trouble, though it is likely to take steps to limit financial contagion.
In their GLASS HOUSES, Western critics continually throw stones at China. But at least her policy makers have attempted to avoid contributing to the global inflation cycle. With prices BEGINNING TO RISE at an accelerating pace in western currencies, A NEW GLOBAL FINANCIAL CRASH IS IN THE MAKING. China and her SCO cohort would be adversely affected, but not to the same extent.
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