OPINION:
Presidents Biden and Chinese President Xi Jinping had their summit, and Beijing got what it needed: time to put its economic house in order and continue an aggressive military modernization.
The property sector, which accounts for about one-quarter of China’s gross domestic product, threatens a long balance sheet recession. Provincial governments rely too much on land sales to developers to finance their budgets. Private builders, which took deposits for houses yet to be constructed and raised funds in the bond and investment products markets, have squandered that capital on ill-conceived projects and now can’t deliver.
Domestic entrepreneurs are investing less or fleeing the country, and net foreign direct investment has turned negative.
Mr. Xi’s crackdown on domestic dissent, paranoia about espionage, persecution of private executives and harassment of foreign businesses doing ordinary due diligence have instigated widespread fear, pessimism — consumer confidence is weaker — and deflation.
This is not Japan in the 1990s. China has a formidable export machine that is not based simply on cheap currency and subsidies. Otherwise, consumer spending would be stagnating owing to a lack of income, not simple fear about the future and the government.
China has impressive capabilities in critical industries such as solar panels and wind power, batteries, strategic materials like rare earth minerals, and lithium and electric vehicles. The West is struggling to catch up and too often relies on Chinese technology.
Japan in the 1990s faced saturated and closing markets for its automobiles in the United States and was ceding industries such as consumer electronics to China and South Korea. China has a vast European market and Global South to exploit, which was too poor to offer alternative markets for Toyota, Nissan, et al. during Japan’s “Lost Decade.”
Europe may close its market to save its auto industry, but Russia and Asia’s robust growth will offer expanding opportunities where Volkswagen and General Motors are not equipped to defeat the automaker BYD and a host of other Chinese firms.
The same repeats for solar panels, windmills and other industries. These days, China needs some Western technologies, but not as much as Mr. Biden’s prohibitions on high-end chipmaking equipment imply.
The summit will likely mean that Secretary of Commerce Gina Raimondo will tone down the rhetoric about China being uninvestable. But what matters is whether Mr. Xi prints enough money, as Washington did during the global financial crisis of 2007-2009, to bail out the property industry and dials back his hubris and paranoia.
With deflation a problem, more money to juice the economy may make sense. Curbing Mr. Xi’s dark side is another matter.
If he doesn’t do both and keeps firing hand-picked ministers and generals to settle internal policy disagreements, sooner or later, those purged bureaucrats’ successors, fearful for their own necks, will find a way to fire him.
Power is usually temporal.
Mr. Xi worries the Chinese Communist Party could repeat the collapse of its Soviet predecessor, but he would be better off worrying about how Nikita Khrushchev was ushered into retirement.
Mr. Biden got some kind words about addressing the fentanyl problem, but they recall China’s past promises to open markets — an old song Beijing is reprising. The chemicals that create the drug will keep flowing from China to Mexico.
Mr. Biden won’t get a solution for illegal immigration on the southern border — it does not appear he wants one — or stop the flow of Chinese drug-making materials until he gets tough with Mexico. It’s doubtful Mexican President Andres Manuel Lopez Obrador will seal his southern border to migrants and curb the manufacturing of illegal drugs, and why should he absent compelling U.S. pressure?
The U.S.-Mexico-Canada free trade agreement does not have to be fully honored, nor does our southern border need to be so lightly armed. Those would get Mr. Lopez Obrador’s sincere attention.
Around the Philippines and Taiwan, summits could lead to a dialing back of Chinese provocations, but the United States is too tied down in the Middle East and shoring up NATO to build the kind of naval force in the Pacific that China is assembling.
Once China has achieved maritime superiority, it will have lots of options to squeeze Taiwan from the clutches of the West and push the U.S. Navy from the South Pacific.
Thanks to American vacillation, it may accomplish this without firing a shot — for example, through a blockade the U.S. Navy can’t break — and by intimidating the Philippines into submission on territorial disputes that the Navy won’t be able to effectively challenge.
In addition, Mr. Biden is too timid to use force on Iran when it acts through surrogates. That allows Iran, for example, to derail Saudi Arabia and Israel from normalizing relations by arming Hamas to start a war in Gaza.
Mr. Biden is also too timid to equip Ukraine to win lest the U.S. military might have to act directly against a madman like Russian leader Vladimir Putin.
It all stinks of bad judgment, weakness and appeasement.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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