Musings 23 February 2023
China, 40 years ago in its best wisdom decided to become the world factory. Collective West, obliged. China introduced “One Child Policy” in 1980s, caving in to propaganda that ever increasing population is a problem. Chinese worked hard, CCP governed with the iron fist and the country seemed to have benefited. They spent most of what they earned and created fantastic infrastructure. Seamless manufacturing facilities and disciplined work force was a super achievement and is widely talked about in western press with admiration. The country came out of poor-country tag and became a middle income country. They saved well too, reflected in Chinese and HK foreign currency reserves. Both put together, they amassed USD 3.5/4 Trillion. Everything was working fine until something (XI Jinping?) happened. In 2015, China started reversing “One Child Policy” in stages.
World came to a stand still due to Covid in 2020 and people got chance to refelect. Chinese factories stopped and general population there was put on restrictive movements for an extended period. This was not a co-incidence but was a well thought out strategy. CCP got overhauled in the meantime and all its western sympathetic members were thrown out, some even unceremoniously.
XI Jinping became President for life and we need to listen to him (like we need to listen to Putin). He has clearly defined the future policies. China does not want to be world factory anymore. They will continue to produce en mass but first they will create and satisfy internal demands and then they will export to like minded countries. The exports to the West will be the last priority and eventually would come down to virtually zero. “One Child Policy” has been scrapped completely now. They have announced other related measures which complements above mainly decoupling them from the West completely.
The Chinese realised, of course after waste of a generation, that the game is always rigged. During last 5 years only, West printed USD 13 Trillion! Chinese hard work of a generation got check mated in just one single stroke!! They have realised now that they were fooled and lost all the leverage they thought they had. Faulty Globalisation theory was sold by the West and they fell for it.
Ukraine happened and when the West seized Russian Reserves, that was the last straw. The system is so rigged that West controls the trading currencies, trade methods, banks, rates, clearing mechanisms, institutions and even governments in some cases. All this while selling dreams of globalisation. Global south in general and China in particular were sold these loaded concepts.
Global South has resources/ commodities and production facilities. They control the supplies. Now, collectively they have decided to fight back. They have also started developing what they don’t have. First, they have already announced R5, a new currency. (Remnibi, Ruble, Rupee, Rial & Rand). The blue print is expected to be out in Aug 2023 BRICS conference. They will also announce a robust clearing mechanism. India going international with UPI is part of that programme. Other mechanics are also being worked out and announced like Remnibi being used for international trade settlements, bilateral currency swaps and others. BRICS bank will become Global South’s bank as their answer to World Bank and IMF. The supposed new currency will have weightage of all participants and some commodities like Gold, Silver and others. Chinese, Russians, UAE and Saudi Arabia have stock-piled huge gold reserves in last few years, whereas India has preferred Silver.
With this, Global South is expected to stop measuring their trades in Western currencies. Global South now expect West to pay them fair price in the currencies and through the system not controlled by the West/consumers. This will also effectively end the requirements for countries to have western currencies as reserves. This will have life changing impacts on the global financial system. World is simply unprepared for this barring few governments. The ones who are will benefit immensely.
The West has realised this and they are trying to take counter measures but the time does not seem to be on their side. To really fight this, west will need to create their own factories and production facilities to satisfy their own population’s demand. But, this will take time. The Reserve Currency status allowed the West to freely print their currency at will and out of thin air and also export inflation at the same time. This has stopped now with globalisation coming to stand still. The west has started feeling the heat of inflation for the first time in 3 decades. West will reel under hyper inflation which has already raised its ugly head in last one and half year. To Simply put, West will not be able to afford the Global South’s exports.
Large number of global corporations have realised this and in response they are shifting their bases from west to east. Many countries in Asia, Africa and Middle East will benefit from this churn. This will have structural impacts on many industries too. The ones which are dependent on Global Reserve currency model will see big course correction. Tech job losses in USA is one classic example. The personnel arbitrage will end. The industries which thrive on local demands will benefit immensely. In nut shell, 2023-24 are going to be the years of a big churn. The Global South or the commodities producers and converters are challenging the commodities consumers, the West. This will be an ugly fight. Time to brace up……