Excellent analysis on the triple threat to emerging markets. The point about China keeping low-end manufacturing while scaling high-tech is partciularly important becuase it closes off the traditional development ladder that countires like South Korea used. What's interesting is how the Goldman data quantifies the spillover effect (0.1-0.3pp drag per 1pp Chinese boost) since it makes the beggar-thy-nieghbor dynamics impossible to ignore at the policy level.
I think overall the analysis is correct, but I have a bit of a problem with the tone/attribution. "CCP policies are deindustrializing advanced economies and erecting barriers to poorer countries ever industrializing. In the process they’re suppressing economic growth and provoking social discontent," - this wording makes other countries passive actors who are being subjected to China's will. This is hard to believe, especially on the part of former colonial powers. It's not China's fault developed nations have failed to invest where necessary, and focus more on upholding a few billionaires instead of enriching ordinary people and allowing them to contribute to growth. It wasn't China who spent the 20th century exploiting underdeveloped nations. China is enacting policies to enrich and protect itself, a sensible approach if you look at how other rich nations have treated potential rivals in the past, *including China*.
Thanks for sharing your thoughts. I think some of those points are fair, but both things can be true, they’re not mutually exclusive. Some powerful countries behaved selfishly in previous centuries, the CCP is behaving selfishly in the 21st. To be clear, criticizing China’s current policies does not somehow absolve or ignore previous exploitative policies pursued by others. It’s good to have a clear understanding of history, but the burning issue is what should policymakers do about current problems.
Of course all regimes and nations act out of self-interest, but there’s the question of degree. China’s policies are much more extreme than the vast majority of its predecessors. That’s systemically transformative and dangerous because of China’s scale.
I’m not saying that other countries should or must be passive actors. Nor am I absolving them of blame for their own failures to invest. We agree about that. Take a look at their policy responses so far (e.g. Germany), and they have been behaving far too passively. The point of this post is that they need to respond much more actively and collectively, both through domestic renewal and trade barriers, or they’re fucked.
When the other Asian tigers developed, they left enough room in the market for others to follow the “flying geese” model to develop as well. Read Joe Studwell’s excellent “How Asia Works” for a deep dive. China’s not leaving much on the table for countries in Africa, Latin America, or South Asia to make if they hope to industrialize, because they can’t compete with the “China price”. See “Why China's Ability to Make a $6 Toaster is a Big Problem for the Global South” from the China-Global South Podcast: https://youtu.be/fFqdftQvuCY?si=cpl6h2xj-f6tU3VX
For China, I question the argument that the approach is sensible, because it’s harming its companies’ customers and will lead to a shittier world overall, and may lead to war and other outcomes that will not be good for the people of China.
Thanks for your detailed response! I think i have different views on national agency (particularly on the idea of some countries leaving space for the development of others, especially those that are essentially colonies or neo-colonies of US imperialism). Or the idea that China is preventing global south development, when that was already forestalled by the mid-20th century by other powers who have no interest in the industrialisation of nations who they exploit for natural resources.
I do agree that a coordinated response is required though, and the floundering that's been going on for the past few decades has allowed China to completely dominate. Especially as a Brit, leaving Europe and relying ever more on China means its over for us for sure 😅
Wish I could disagree! And if only contemporary imperialism were limited to the US.
On national agency, seems to me if governments simply acted technocratically according to a model of the national interest that represented popular will guided by enlightened statesmanship, with transparency about political choices between advantaging certain groups or individuals over others, we might be able to say that the people of the UK or Germany, for example, exercised national agency and chose to end up where they are now ("they made their own beds and should lie in them").
Reality is more complex, and for policymakers tends to look more like putting out whatever fire on their desk looks most combustible at the moment. Moreover, they failed to reckon with the full extent of the Party-state's espionage, IP theft, foreign influence, interference, elite capture, and sectoral capture. Those things exacerbate short-term incentives on politicians and corporate executives.
Financialization of Anglo-Saxon economies made some financiers very rich. Dependence on the Chinese market made some German multinationals big and profitable, for a while. But now the UK has little industry and like other European governments, can't balance its budget. Meanwhile Volkswagen is becoming a Chinese company. Ooops! Who chose those outcomes?
Michael, compelling analysis on the geopolitical ripple effects. But as a supply chain consultant on the ground in China for 30 years, I believe Western policymakers are misdiagnosing the root cause of 'Shock 2.0'.
They focus on subsidies, but they miss the physics.
The real weapon isn't government money; it's 'Supply Chain Density.' In the Yangtze Delta EV cluster, an engineering change (ECO) that takes 2 weeks in Detroit happens in 24 hours.
We ran the numbers on 'Cost-adjusted Physical Productivity' for the auto sector. China is currently 2.9x more efficient than the US. This is a structural gap driven by ecosystem density, not just cheap labor or policy.
Tariffs can block the cars, but they cannot fix the fact that the West has become a 'High-Entropy' manufacturing environment. Re-industrialization without fixing this density problem is just fighting gravity.
I recently published a deep dive on the specific math behind this 'Efficiency Gap' and why it makes decoupling physically impossible for the auto industry.
🥱 More boring China bashing. Anyone who refers to the Communist Party of China as the CCP is a dead giveaway! Wtf does ‘over production’ even mean? If there wasn’t a market for Chinese goods, they wouldn’t be produced. If the west is deindustrialising, it’s because it’s increasingly uncompetitive (poor silly little Germany cutting off the cheap gas 😥) and China is just so much better at making, selling, and moving things. It’s 500 years of western global dominance coming to an end, and good riddance to all that.
"3. require Chinese industrial FDI to include full transfer of technology, process know-how and local employment in return for market access—with tight restrictions for national security, cybersecurity and political influence."
Respectfully disagree. That's a case of the camel getting it's nose under the tent. It will enable CCP influence operations & industrial espionage. The PRC needs to be utterly encysted by the ROW as long as the CCP is running that place. Nobody has a moral obligation to do business with China. Go back to the old USSR/Cuba model of containment.
While I sympathize with the sentiment, good luck persuading any policymaker to walk away from China. A USSR/Cuba full decoupling and containment model is too far outside the Overton window to sell to political and business elites. We have to let them try the investment route first. I share your scepticism of it working. If it fails, full decoupling might become a politically feasible option. In the meantime:
If Americans want to give away their country to save a buck, then they can all learn Chinese - but that would require some intelligence, too.
Maybe Americans already lost the country when they allowed their CEOs and senior management, with Reagan's and his disciples blessing, to outsource their jobs to China. Not that Dems would do any differently.
American military, not to mention critical infrastructure and medicine, rely on Chinese products and parts. Americans screwed Americans.
In contrast, the Big Three U.S. automakers have adopted a misguided, MBA-style management approach: R&D spending — which should function as a cost center — has steadily declined, while dividends and share buybacks have risen to an excessive proportion, typical “agent issue”. Credits to https://podcasts.apple.com/us/podcast/%E5%AD%A4%E5%B2%9B%E8%BD%A6%E8%B0%88/id1586870724?l=zh-Hans-CN&i=1000716021989
Thank you, Michael, for your clear critical thinking on what is the most challenging geopolitical issue of the decade
Excellent analysis on the triple threat to emerging markets. The point about China keeping low-end manufacturing while scaling high-tech is partciularly important becuase it closes off the traditional development ladder that countires like South Korea used. What's interesting is how the Goldman data quantifies the spillover effect (0.1-0.3pp drag per 1pp Chinese boost) since it makes the beggar-thy-nieghbor dynamics impossible to ignore at the policy level.
I think overall the analysis is correct, but I have a bit of a problem with the tone/attribution. "CCP policies are deindustrializing advanced economies and erecting barriers to poorer countries ever industrializing. In the process they’re suppressing economic growth and provoking social discontent," - this wording makes other countries passive actors who are being subjected to China's will. This is hard to believe, especially on the part of former colonial powers. It's not China's fault developed nations have failed to invest where necessary, and focus more on upholding a few billionaires instead of enriching ordinary people and allowing them to contribute to growth. It wasn't China who spent the 20th century exploiting underdeveloped nations. China is enacting policies to enrich and protect itself, a sensible approach if you look at how other rich nations have treated potential rivals in the past, *including China*.
Thanks for sharing your thoughts. I think some of those points are fair, but both things can be true, they’re not mutually exclusive. Some powerful countries behaved selfishly in previous centuries, the CCP is behaving selfishly in the 21st. To be clear, criticizing China’s current policies does not somehow absolve or ignore previous exploitative policies pursued by others. It’s good to have a clear understanding of history, but the burning issue is what should policymakers do about current problems.
Of course all regimes and nations act out of self-interest, but there’s the question of degree. China’s policies are much more extreme than the vast majority of its predecessors. That’s systemically transformative and dangerous because of China’s scale.
I’m not saying that other countries should or must be passive actors. Nor am I absolving them of blame for their own failures to invest. We agree about that. Take a look at their policy responses so far (e.g. Germany), and they have been behaving far too passively. The point of this post is that they need to respond much more actively and collectively, both through domestic renewal and trade barriers, or they’re fucked.
When the other Asian tigers developed, they left enough room in the market for others to follow the “flying geese” model to develop as well. Read Joe Studwell’s excellent “How Asia Works” for a deep dive. China’s not leaving much on the table for countries in Africa, Latin America, or South Asia to make if they hope to industrialize, because they can’t compete with the “China price”. See “Why China's Ability to Make a $6 Toaster is a Big Problem for the Global South” from the China-Global South Podcast: https://youtu.be/fFqdftQvuCY?si=cpl6h2xj-f6tU3VX
For China, I question the argument that the approach is sensible, because it’s harming its companies’ customers and will lead to a shittier world overall, and may lead to war and other outcomes that will not be good for the people of China.
Thanks for your detailed response! I think i have different views on national agency (particularly on the idea of some countries leaving space for the development of others, especially those that are essentially colonies or neo-colonies of US imperialism). Or the idea that China is preventing global south development, when that was already forestalled by the mid-20th century by other powers who have no interest in the industrialisation of nations who they exploit for natural resources.
I do agree that a coordinated response is required though, and the floundering that's been going on for the past few decades has allowed China to completely dominate. Especially as a Brit, leaving Europe and relying ever more on China means its over for us for sure 😅
Wish I could disagree! And if only contemporary imperialism were limited to the US.
On national agency, seems to me if governments simply acted technocratically according to a model of the national interest that represented popular will guided by enlightened statesmanship, with transparency about political choices between advantaging certain groups or individuals over others, we might be able to say that the people of the UK or Germany, for example, exercised national agency and chose to end up where they are now ("they made their own beds and should lie in them").
Reality is more complex, and for policymakers tends to look more like putting out whatever fire on their desk looks most combustible at the moment. Moreover, they failed to reckon with the full extent of the Party-state's espionage, IP theft, foreign influence, interference, elite capture, and sectoral capture. Those things exacerbate short-term incentives on politicians and corporate executives.
Financialization of Anglo-Saxon economies made some financiers very rich. Dependence on the Chinese market made some German multinationals big and profitable, for a while. But now the UK has little industry and like other European governments, can't balance its budget. Meanwhile Volkswagen is becoming a Chinese company. Ooops! Who chose those outcomes?
https://www.theguardian.com/business/2025/aug/06/china-overcapacity-instability-home-and-abroad-rail-housing
https://www.economist.com/business/2025/12/04/to-halt-their-decline-vw-and-others-are-turning-chinese
Spot on. 👍 It’s all just losers whinging.
Michael, compelling analysis on the geopolitical ripple effects. But as a supply chain consultant on the ground in China for 30 years, I believe Western policymakers are misdiagnosing the root cause of 'Shock 2.0'.
They focus on subsidies, but they miss the physics.
The real weapon isn't government money; it's 'Supply Chain Density.' In the Yangtze Delta EV cluster, an engineering change (ECO) that takes 2 weeks in Detroit happens in 24 hours.
We ran the numbers on 'Cost-adjusted Physical Productivity' for the auto sector. China is currently 2.9x more efficient than the US. This is a structural gap driven by ecosystem density, not just cheap labor or policy.
Tariffs can block the cars, but they cannot fix the fact that the West has become a 'High-Entropy' manufacturing environment. Re-industrialization without fixing this density problem is just fighting gravity.
I recently published a deep dive on the specific math behind this 'Efficiency Gap' and why it makes decoupling physically impossible for the auto industry.
['The Efficiency Gap' article] https://substack.com/@chinarbitrageur/note/p-182145313?utm_source=notes-share-action&r=71ctq6
🥱 More boring China bashing. Anyone who refers to the Communist Party of China as the CCP is a dead giveaway! Wtf does ‘over production’ even mean? If there wasn’t a market for Chinese goods, they wouldn’t be produced. If the west is deindustrialising, it’s because it’s increasingly uncompetitive (poor silly little Germany cutting off the cheap gas 😥) and China is just so much better at making, selling, and moving things. It’s 500 years of western global dominance coming to an end, and good riddance to all that.
"3. require Chinese industrial FDI to include full transfer of technology, process know-how and local employment in return for market access—with tight restrictions for national security, cybersecurity and political influence."
Respectfully disagree. That's a case of the camel getting it's nose under the tent. It will enable CCP influence operations & industrial espionage. The PRC needs to be utterly encysted by the ROW as long as the CCP is running that place. Nobody has a moral obligation to do business with China. Go back to the old USSR/Cuba model of containment.
While I sympathize with the sentiment, good luck persuading any policymaker to walk away from China. A USSR/Cuba full decoupling and containment model is too far outside the Overton window to sell to political and business elites. We have to let them try the investment route first. I share your scepticism of it working. If it fails, full decoupling might become a politically feasible option. In the meantime:
https://www.thewirechina.com/2025/11/23/reverse-deng-for-professionals-only/
https://www.lowyinstitute.org/the-interpreter/fighting-china-s-subsidies-means-copying-china-s-economic-model
If Americans want to give away their country to save a buck, then they can all learn Chinese - but that would require some intelligence, too.
Maybe Americans already lost the country when they allowed their CEOs and senior management, with Reagan's and his disciples blessing, to outsource their jobs to China. Not that Dems would do any differently.
American military, not to mention critical infrastructure and medicine, rely on Chinese products and parts. Americans screwed Americans.
This is such an outstanding, comprehensive analysis that I'm gonna need at least a few weeks to digest. Thankyou, and respect.