Peak China

Peak China

by David Archibald, author of Australia’s Defence, Twilight of Abundance, and American Gripen: The Solution to the F-35 Nightmare

18 November 2016


The U.S.-China Economic and Security Review Commission has released its annual report. Better than anything else, one graph suggests that peak China is now in the rear view mirror:

China 2016

Figure 1: China fixed asset investment (percent change year-on-year)

Private fixed asset investment has fallen to 2.8% growth year-on-year, down from ten times that level just four years previously. It seems that the Chinese government panicked at the fall-off in private investment and opened the credit floodgates to state-owned firms in order to take up the investment slack. All this is to keep people employed building things of limited utility such as the road and train networks to Central Asia. It is like another hit for a speed junkie.

The second graph of interest is this one from the report’s executive summary:

China 2016

Figure 2: U.S. China goods trade, 2005 – 2015

The United States has a new President who has talked of placing punitive tariffs of up to 45% on Chinese goods because of unfair trade.  The Chinese trade with the United States is about five percent of its GDP.  The flow-on effects may make it worth perhaps 10 to 15 percent of the Chinese economy. If that US$500 billion of trade was made in the United States, it would be worth about eight million jobs perhaps. That is one thing.

The United States has put up with a certain amount of bad behaviour from China in the hope that China will decide that being rich and happy in the community of nations is better than the alternative — poor and reviled and an outsider from the club of good countries.

Eventually the United States will give up on waiting for China to change its outlook on the world, especially given that China is using its enormous trade surplus with the United States to build up its military to the point at which it can attack the United States.

The United States military buildup coming is wholly so as to be able to prevail in a contest of arms with China. Allowing China to run an enormous trade surplus makes that task so much more difficult and will increase the amount of American blood shed.

Coming back to the subject of speed junkies, the report speculates, reading between the lines, that China is making methamphetamines precursor chemicals in great quantities to supply the meth labs in Mexico in order to degrade U.S. society.

Of course this is the reverse of the Opium Wars but with strategic intent rather than for commercial gain. Degrading the U.S. economy was the intent of China going along with President Obama’s climate charade. China was going to increase coal consumption while President Obama send power bills through the roof, as he promised to.

Lastly, this graph is also of great importance:

China oil

Figure 3: Chinese oil production, 2013 – 2016

China produces half the oil it consumes and imports the rest, apart from near one million barrels of synthetic fuels from coal. Oil production peaked in mid-2015 and is now in steep decline.

The steep decline could be as a result of high cost fields being shut in due to the low oil price, or it could be due to a number of large, old fields watering out simultaneously, as those in Mexico did.  Or a combination of both.

The current rate of decline is 12 percent per annum.  Nobody knows when it will bottom out. The war mongers who run China now would be aware that this decline rate is impeding their freedom of action, just as Japan realised that they would run out of oil unless they seized some oil fields early after their entry into World War 2.

They would also be aware that the impression of invincibility from a constantly growing economy is also important to maintain. This would be a big factor in their choice of timing.  China is a self-selecting enemy and the timing of their self-indulgent war is theirs to choose.