China Outbreak

The coronavirus is rattling China’s political and economic system at the worst possible time. 

Although still growing at slightly over 6% (this quarter’s numbers notwithstanding), the country’s economy is expanding at its slowest rate since 1990. And this trend started long before anyone heard the word coronavirus. 

Now, with factories across the country slow to re-open, or operate anywhere close to maximum capacity, all eyes in China and around the world are focusing on Chinese President Xi Jinping and his brethren in Beijing.

This is a major problem for a country with one political party and little individual freedom. One whose legitimacy is solely based on the ability to “outperform the global market”. 

Populations around the world have proven willing to sacrifice certain democratic rights for better livelihoods. However, as we have seen recently throughout Latin America and the Middle East, when the government fails to uphold its side of this social contract, citizens demand transparency and accountability. 

Without a formal mechanism for redress, chaos can ensue. 

In need of a savior, crypto and blockchain may provide the catalyst and relief valve that China needs. 

It Had All Been Going So Well

Although many scholars have long felt that democracy, personal liberty, free markets, and capitalism go hand-in-hand, since its founding in 1949 the People’s Republic of China has proven otherwise.

In fact, looking at how political discourse in the U.S. is devolving into what one might expect from toddlers (even if they are eloquent), bureaucrats and citizens in China believe, perhaps rightfully, that their model of state capitalism is the future.

It has been hard to argue with the numbers. China is now the second-largest economy in the world, accounting for 16% of global GDP. Even if official statistics are taken with a grain of salt, China’s “real” GDP has growth rate has been between 6-8% in the last decade. In comparison, over the same time period, the U.S. GDP never topped 3%. Furthermore, China’s overall GDP is almost 9x larger than it was during the 2002-2003 SARS outbreak. 

But Like All Good Things

This breakneck economic growth was never going to last, and in recent years Chinese leadership has tried to downgrade consumer expectations without sabotaging their reputation as the only group of politicians and technocrats able to steer China’s economy.

Democracies have inherent fail-safes when citizen expectations are not met. Elections may not always lead to prudent outcomes, but they at least give people a voice and offer the ability debate ideas in an open format. If nothing else, they are a very public check on elected bureaucrats.

In countries such as China, where the political and technocratic classes are not filled by meritocratic and democratic means, citizens become suspicious of official government statements and wonder if they are getting the real story. They also start to care much more about government excess and rising inequality between the working classes and the wealthy and elites.

Income inequality is not limited to market-based societies. In fact, from 1985-2010 China’s Gini coefficient (which measures inequality – a score of 0 reflects total equality/1 means complete inequality), grew 67% from 0.30-0.50. This measurement is actually higher than that of the U.S. over the same period.

 Doubling-Down on the Economy

Given that China is not opening its political system anytime soon, their strategy is to reach into the historical playbook and recreate the famed Silk Road with its “Belt and Road Initiative (BRI)”. Launched in 2013, the BRI aims to link China with Central, South, and Southeast Asia, as well as the Middle East and Europe through an overland Silk Road Economic Belt and the Maritime Silk Road. As of January 2020, more than sixty countries—accounting for two-thirds of the world’s population—have signed on to projects or indicated an interest in doing so. 

The thinking behind this strategy is two-fold – both in service to Chinese President Xi Jinping and the Chinese Communist Party. First, many of the countries captured under BRI are indebted, impoverished, and struggling under the current macroeconomic climate. This gives China the opportunity to lock these countries into its orbit on very advantageous terms.

An incidental benefit, but not immaterial is that China can use BRI to restore its global reputation, one in which many people are fearful of its rise.

Although hard numbers are difficult to come by, China is expected to invest hundreds of billions, if not trillions of dollars in loans and financing in the coming years. Morgan Stanley estimates that total expenditures will reach $1.2-1.3 trillion by 2027.

Raising the Stakes – and the Risks

There is a chance that BRI rejuvenates the global economy and ushers in a new era of Pax Sinicabut could also worsen and expand the predicament facing Chinese leadership. Pouring billions or trillions of dollars into countries that struggle to follow the rule of law and have compromised justice systems can exacerbate corruption. In time, this could come back home to China and a citizenry that sees BRI as just another avenue to enrich the privileged at the expense of the people.

Enter Crypto and  Blockchain

Crypto and blockchain technology can help ensure that this does not happen. The technology can help with everything from reducing black market transactions that facilitate criminal behavior and reduce unpaid taxes, to adding transparency and immutability to reported economic and financial figures. It can add additional transparency to loan negotiations and supply chain and trade finance operations.

But above all, it can provide documented to proof to all who ask that the BRI is being operated fairly and efficiently.

China Needs Blockchain With Its BRI – and the World Needs China to Recover

Some people in the Western Hemisphere are hoping that China’s precarious economic situation will lead to the downfall of the CCP and usher in a new era of democracy in East Asia’s biggest country. History teaches us that these transitions to do not happen often, and definitely not easily (see Venezuela, Libya, Iran, Syria, and North Korea). Other times a country ends up trading one authoritative regime for another (see Egypt).

Further complicating the picture, China is integrated into global supply chains, on both the import and export sides, on such a scale that there is zero chance that a China under chaos will not leave collateral damage. If the damage to manufacturing across automobiles, electronics, and a host of other industries from the coronavirus is any indication, a truly destabilized China would be devastating to the global economy.

Blockchain might be its closest port in the storm, let’s hope they take it.

 

 

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The coronavirus is rattling China’s political and economic system at the worst possible time. 

Although still growing at slightly over 6% (this quarter’s numbers notwithstanding), the country’s economy is expanding at its slowest rate since 1990. And this trend started long before anyone heard the word coronavirus. 

Now, with factories across the country slow to re-open, or operate anywhere close to maximum capacity, all eyes in China and around the world are focusing on Chinese President Xi Jinping and his brethren in Beijing.

This is a major problem for a country with one political party and little individual freedom. One whose legitimacy is solely based on the ability to “outperform the global market”. 

Populations around the world have proven willing to sacrifice certain democratic rights for better livelihoods. However, as we have seen recently throughout Latin America and the Middle East, when the government fails to uphold its side of this social contract, citizens demand transparency and accountability. 

Without a formal mechanism for redress, chaos can ensue. 

In need of a savior, crypto and blockchain may provide the catalyst and relief valve that China needs. 

It Had All Been Going So Well

Although many scholars have long felt that democracy, personal liberty, free markets, and capitalism go hand-in-hand, since its founding in 1949 the People’s Republic of China has proven otherwise.

In fact, looking at how political discourse in the U.S. is devolving into what one might expect from toddlers (even if they are eloquent), bureaucrats and citizens in China believe, perhaps rightfully, that their model of state capitalism is the future.

It has been hard to argue with the numbers. China is now the second-largest economy in the world, accounting for 16% of global GDP. Even if official statistics are taken with a grain of salt, China’s “real” GDP has growth rate has been between 6-8% in the last decade. In comparison, over the same time period, the U.S. GDP never topped 3%. Furthermore, China’s overall GDP is almost 9x larger than it was during the 2002-2003 SARS outbreak. 

But Like All Good Things

This breakneck economic growth was never going to last, and in recent years Chinese leadership has tried to downgrade consumer expectations without sabotaging their reputation as the only group of politicians and technocrats able to steer China’s economy.

Democracies have inherent fail-safes when citizen expectations are not met. Elections may not always lead to prudent outcomes, but they at least give people a voice and offer the ability debate ideas in an open format. If nothing else, they are a very public check on elected bureaucrats.

In countries such as China, where the political and technocratic classes are not filled by meritocratic and democratic means, citizens become suspicious of official government statements and wonder if they are getting the real story. They also start to care much more about government excess and rising inequality between the working classes and the wealthy and elites.

Income inequality is not limited to market-based societies. In fact, from 1985-2010 China’s Gini coefficient (which measures inequality – a score of 0 reflects total equality/1 means complete inequality), grew 67% from 0.30-0.50. This measurement is actually higher than that of the U.S. over the same period.

 Doubling-Down on the Economy

Given that China is not opening its political system anytime soon, their strategy is to reach into the historical playbook and recreate the famed Silk Road with its “Belt and Road Initiative (BRI)”. Launched in 2013, the BRI aims to link China with Central, South, and Southeast Asia, as well as the Middle East and Europe through an overland Silk Road Economic Belt and the Maritime Silk Road. As of January 2020, more than sixty countries—accounting for two-thirds of the world’s population—have signed on to projects or indicated an interest in doing so. 

The thinking behind this strategy is two-fold – both in service to Chinese President Xi Jinping and the Chinese Communist Party. First, many of the countries captured under BRI are indebted, impoverished, and struggling under the current macroeconomic climate. This gives China the opportunity to lock these countries into its orbit on very advantageous terms.

An incidental benefit, but not immaterial is that China can use BRI to restore its global reputation, one in which many people are fearful of its rise.

Although hard numbers are difficult to come by, China is expected to invest hundreds of billions, if not trillions of dollars in loans and financing in the coming years. Morgan Stanley estimates that total expenditures will reach $1.2-1.3 trillion by 2027.

Raising the Stakes – and the Risks

There is a chance that BRI rejuvenates the global economy and ushers in a new era of Pax Sinicabut could also worsen and expand the predicament facing Chinese leadership. Pouring billions or trillions of dollars into countries that struggle to follow the rule of law and have compromised justice systems can exacerbate corruption. In time, this could come back home to China and a citizenry that sees BRI as just another avenue to enrich the privileged at the expense of the people.

Enter Crypto and  Blockchain

Crypto and blockchain technology can help ensure that this does not happen. The technology can help with everything from reducing black market transactions that facilitate criminal behavior and reduce unpaid taxes, to adding transparency and immutability to reported economic and financial figures. It can add additional transparency to loan negotiations and supply chain and trade finance operations.

But above all, it can provide documented to proof to all who ask that the BRI is being operated fairly and efficiently.

China Needs Blockchain With Its BRI – and the World Needs China to Recover

Some people in the Western Hemisphere are hoping that China’s precarious economic situation will lead to the downfall of the CCP and usher in a new era of democracy in East Asia’s biggest country. History teaches us that these transitions to do not happen often, and definitely not easily (see Venezuela, Libya, Iran, Syria, and North Korea). Other times a country ends up trading one authoritative regime for another (see Egypt).

Further complicating the picture, China is integrated into global supply chains, on both the import and export sides, on such a scale that there is zero chance that a China under chaos will not leave collateral damage. If the damage to manufacturing across automobiles, electronics, and a host of other industries from the coronavirus is any indication, a truly destabilized China would be devastating to the global economy.

Blockchain might be its closest port in the storm, let’s hope they take it.

 

 

(Excerpt) Read more Here | 2020-02-18 01:56:34
Image credit: source

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