Revanchism in Russia and China Drives Out Investment and Threatens Economic Futures
To understand the nature of such geopolitical risk, look no further than the debacle of revanchist Russia’s taking of the Crimea and large chunks of Eastern Ukraine at gunpoint. In the wake of Russia’s gambit, its trade with the West has been sharply curtailed, tough economic sanctions remain in force, the Russian economy is in recession, and, most importantly from a geopolitical-risk perspective, any foreign company with a major Russian exposure—from Poland and Italy to Germany—has taken a very heavy hit.
For anyone who thinks this geopolitical risk scenario can’t repeat itself with an equally revanchist China, think again. Indeed, the canary in the coal mine for a much larger economic catastrophe may be found in the aftermath of the violent 2012 anti-Japanese riots across more than a hundred cities in China.
… After these nationalists burned Japanese factories, smashed storefronts, stormed the Japanese Consulate General’s headquarters, and tipped over Japanese cars in 2012, the business community of Japan collectively got the message that the better part of wisdom might be to take their FDI elsewhere. In the wake of that 2012 meltdown, Japanese FDI in China has fallen sharply, while it is popping up all over the rest of Asia, e.g, for the third straight year Japan’s FDI in Southeast Asia has risen and the pace is accelerating.
Japan is hardly alone in diverting its FDI to, if not richer, than certainly far less risky geopolitical climes. Writ large, Japan’s FDI gambit may, in fact, be the far better bet for much of the rest of the world.
China rose on foreign direct investment (FDI) after Deng Xiaoping’s 1978 economic revolution, and it can just as quickly fall on loss of FDI caused by China’s international bullying and rapidly deteriorating environment for foreign investors.
It doesn’t take a rocket scientist or a Harvard MBA to realize that it is just plain stupid locating a new factory or large parts of your supply chain in a country that looks increasingly like it is willing to go to war in order to rewrite the maps of Asia. That’s [the] way FDI is increasingly being diverted from China to other destinations in Asia—and at least partly why the Chinese economy remains stagnant…
… Once-naïve business executives are now slowly but surely beginning to reevaluate the mounting risks of locating factories or parts of their supply chain in China—or even opening new markets on the mainland.
In fact, once the rose-colored glasses are lifted, this is a simple risk calculation. On the one hand, China continues to dangle the prospects of cheap labor, lax regulations, illegal export subsidies, and one of the world’s largest masses of humanity spending like drunken sailors in an orgy of consumption.
On the other hand, Beijing’s autocrats are imposing increasingly onerous conditions of market entry. These include the requirement of a local “joint venture” partner, the forced transfer of one’s technology, and stringent currency controls. In addition, wages that used to be cheap are rising, already severely polluted water is in increasingly short supply, and air quality continues to deteriorate further from abysmal levels. Dickensian England never looked this grim or gray.
There is also this stark risk factor: Any company that does business with China risks having all forms of its intellectual property stolen. Sadly, this risk starts from the moment a business executive takes a laptop or a cell phone through Chinese customs and has one’s data stripped clean—most S&P 500 companies don’t even allow their executives to bring their laptops or phones to China. __ National Interest
Russia is the same way, of course. Anyone foolish enough to buy into Russia risks having it all taken away by an inner circle of criminals that has no regard for property rights or rule of law.
Both Russia and China are quickly becoming banana republics without the bananas. Instead, they are growing deadly crops of nuclear missiles and submarines — and governments that are run by bullying kleptocrats all wanting to become “the king of the world.”
As these two belligerent empires take neighborhood bellicosity to new levels to achieve regional pre-eminence, they are creating a sudden friendliness toward the United States among most nations in their neighborhoods. And when all the pretence is scraped away, despite all protestations of friendship, they are each others’ greatest natural enemies.
Russia will continue to suffer from the effects of declining oil prices. The revenue from this commodity had been used to sustain internal cohesion. With this revenue now severely drained, Russia will devolve into a confederation or even fragment into secessionist parts by 2040. The future of Russian nuclear weapons will become a crucial strategic issue as this devolution takes place.
In Asia, as the decline of China’s competitiveness in the export market continues, high unemployment will become a significant challenge to the Chinese president. The regime will attempt to survive the economy’s downward spiral by tightening its grip on power and sliding back into dictatorship. However, the regional divergences in China are too widespread and not easily suppressed by dictatorship. Therefore, by 2040, China will see a return to regionalism, accompanied by turmoil. As China weakens, a power vacuum will emerge in East Asia __ https://geopoliticalfutures.com/the-road-to-2040-a-summary-of-the-forecast/
Both China and Russia have had opportunities for peaceful emergence as regional — even global economic powers. But by choosing military buildup and confrontation, by abandoning property rights (intellectual and other), and by failing to support meaningful rule of law — they have gone over to the dark side of descent and dissolution. China’s government is less than a century old, and Russia’s is barely a quarter century old. Each nation has grown accustomed to violent collapse over the past century, and both are likely to repeat their painful lessons in horrific manner until they either fragment once again, or suffer a more devastating fate.