The sense of a parting of the ways just gets stronger all the time—two worlds being created, China on one side, the West on the other. Let us look at just some of the evidence for the trend from this week:
The US National Security Council’s coordinator of Indo-Pacific affairs Kurt Campbell said in a couple of speeches that the “dominant paradigm” for US-China relations would from now on be competition and that the era of US engagement with China had come to an end. The freezing of the EU-China investment pact looked ever more like a solid impasse and was the subtext of a US-EU meeting on China issues. Huawei announced it is launching its own smartphone OS which means it will no longer use Google’s Android system. The Western world has suddenly started talking about COVID origins again and China has made it clear that it will not countenance any independent investigation. Sino-Aussie relations took several new turns for the worse and Tesla announced it is building a new data center in Shanghai so that its car data can be fully “decoupled”. Just about the most positive thing on the international front was the fact the first US-China trade meeting since Biden took office four months ago ended with nothing more than a statement that the talks were “candid and constructive.”
But the Chinese economy continues to do well, SOEs reported a huge increase in profits for Q1 this year over last year, and the RMB is up to a three-year high against the USD—around 6.4. The biggest fear at the moment is the possibility of a surge of inflation, and there are certainly signs of it. But on the other hand, Those in Command have a pretty good handle on the financial system’s buttons and levers, and we would bet they will keep it under control.
Such interesting times. It’s clear that the global map is being fundamentally redrawn, but how it looks at the end of the process is still up for serious discussion.
Enjoy the weekend.