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China Plays Chess, While America Plays Checkers

Recently, there has been a great deal of press regarding the degree to which China's economy may be slowing. Opinions range from "actually it's accelerating" to its primed for a hard landing. I think many of these views underestimate the country's long-term strategies. China may well be slowing down. It might even be experiencing a hard landing, but none of this will matter in the longer-term. China is playing the global economics game like a grand Chess master with its eye on the end game, where the policy makers in developed countries are hyper focused on short-term results.Perhaps China's communist structure allows it the freedom to make decisions with less bureaucratic red tape than its democratic counter parts. It would seem one of the advantages of communism is that decisions can be made and action can be taken as long as the central party backs it.

The Chinese long-term strategy can be seen all around us. Our recent Blog post, The Chinese Propaganda Machine, highlights how China is trying to manipulate western perception of the country as darn right neighborly. My assumption is that these actions are part of a bigger strategy to keep its large trading partners in the dark as to its true intents, to slowly emerge as the worlds' main center of influence.

Take for instance Chinas strategic acquisition of natural resources. If the human population continues to climb the earths' capacity will be stretched and everything from land, water, industrial metals, energy, and fertilizer will be at a premium relative to today. Recently, China has tried to take claim of the ocean bed in an area known as Scarborough Shoal, an area currently controlled by the Philippines. Even though its claim to the region are ridiculously weak (see wsj article) they have sent fishing vessels to the area as though it was their own already. It has been documented that China and Japan are both combing the sea floor in hunt of industrial and rare earth metals (recent Japanese discovery) and it should come as no surprise that China is trying to tie up as much of the earth's crust as possible. There are even rumors of China hoarding a rare earth stock-pile, in anticipation of supply shortages. American politicians squabble over the debt ceiling, while China is in a land grab of massive proportions; the chess master at work.

Similarly, a good deal of China's economic success has been engineered from the start. By holding the Yuan peg ridiculously low for decades, they have basically engineered a long term hollowing out of manufacturing in the west and a steady transfer of manufacturing to the East because the cost of labor is so much cheaper. This has had profound implications well beyond job loss in the West. In fact, I expect jobs to return to the West if indeed China does experience a hard landing, but the damage will already be done. Along with jobs, Westerner's have brought modern manufacturing technology to China with such ideas as lean manufacturing, six-sigma, and just-in-time manufacturing. Also, it does not appear coincidental that China has notoriously week intellectual property laws. Not only did Western's bring manufacturing best practices know-how, they brought specific technical knowledge with them, much of which holds the keys to competitive advantage in the West.

As in our piece, A Renaissance View of Deleveraging, we plead with American policy makers to take a longer-term perspective. While our original piece was focused on the need for policy makers to take a longer-term view of growth and budget deficits, here we focus on the need to focus on the longer term when it comes to foreign policy. Indeed the game is chess and China is playing like a master, meanwhile the West seems to be playing checkers.