China manipulates the value of its currency. The recent devaluation is about giving China industries an advantage in competing with outside companies. And increasing the trade imbalance also gives China more working capital to apply as leverage with other countries.
And since many larger corporations have relocated production to China, for the cost savings, this devaluation also helps them because they are now effectively paying their workers even less. This disproportionately hurts smaller outside companies, but those are largely competitors with the 1%er corporations, so it’s a double win for them. China appears to have figured out that the best way to advance their ambitions is not by defeating the global 1%, but by offering them short-term riches, and by buying off their lackeys. They have invented a game of chess where instead of removing their opponents pieces, they absorb them into their own ranks. And most of their opponents don’t even realize they are in the game.
We saw a glimpse of how this is playing out last year on a rare earths mining bill in the U.S… A few decades ago, the Chinese decided that rare earths were a strategic commodity which they could gain near monopoly control over by selling at a loss for years thereby bankrupting their international competition. Then they tightened the supply for outside companies, while offering priority supply to companies which would relocate to China, so that they would wind up with all the high-tech production experience. The bill last year would have opened the door for U.S. rare earths mining while costing taxpayers nothing, and legislator support for it was strong–until the Department of Defense stepped in and killed it behind the scenes. The DoD does the bidding of their defense contractors, and all of our high-tech weapons systems that use rare earths are now produced in China. That’s a huge and obvious security vulnerability, but those manufacturers can claim that they have no choice but to enjoy all the lucrative perks that come with cheap Chinese production because there is no domestic supply of rare earths. This bill would have ruined that, and facing the expensive prospect of having to bring manufacturing back to the U.S. it was far simpler, easier, and cheaper to just pull a few strings and quietly kill the legislation before it could ever even come to a vote.
It looks like the same kind of behind-the-scenes manipulation has been going on with the British Hinkley C reactor project. On the surface, China has stepped in as the rescue financier to keep the project on track. But what China gains is a 30 to 40 percent share of supplying the equipment, they preserve an information-sharing agreement they had on this project, they build up a new area of manufacturing, gain credibility for their international sales force, position themselves as the lead candidate to build the Bradwell reactor, and after all that, the actual revenues from finance charges (what would normally be the primary reason for lending) is just the icing on the cake.
The key to the China strategy is cheapness. That means low wages, high pollution, and very lax safety standards. Somebody will be fingered and prosecuted for this explosion so that they can tell the world this was an aberration, but safety regulations won’t be tightened and the present arrangement will continue. Anything goes so long as it saves money and doesn’t hurt the China brand abroad. And if you do screw up or get caught, be sure to have a fall guy ready.