Week signals: The prick in Beijing
Plus: watch points for Pakistan, Israel, Ukraine, Russia, interest rates, and the UN.
Hello,
In this edition of Week Signals:
IN REVIEW. A bubble seen from China, capital formation in the 21st century, swallowing the banquet, marble boats.
UP AHEAD. Elections in Kashmir, visitors to Washington, decisions at the Fed, and the next UN secretary general.
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The Week in Review: Xi Jinping, party popper
The week began with oil at $90 and ended closer to $100. With the war in Iran stretching now to a semi-blockade in the Red Sea, and threatening to go beyond tit-for-tat strikes, oil could foreseeably end next week closer to $110 – unless, of course, we get another TACO or two.
Watching the unedifying spectacle will be Xi Jinping, who has remained publicly quiet on the war, but was put in the spotlight by Donald Trump Friday, with something of a warning not to get involved, which of course suggests he already is.
Xi, if anything, is a man who knows his history. And like his friend Vladimir Putin, he’s haunted by the collapse of the Soviet Union.
Putin famously sees this as the great catastrophe of the 20th century (a bold claim, considering what else transpired). Xi, like others in the Chinese Communist Party, sees it more as a cautionary tale. This is the view that considers Tiananmen Square to be a brutal necessity and Mikhail Gorbachev’s program of glasnost and perestroika a critical error. Yet there are other late-Soviet lessons too, no doubt, that the CCP has dwelt on.
In the analysis of contemporary Chinese thought on modern-day America (see the excellent Sinification for examples), one thing that’s striking is how – despite the advanced years of their own politburo – Beijing sees the age of US presidents, senators and representatives as a signal of Washington’s decadence and decay, in much the way that Soviet leadership under Brezhnev, Andropov, and Chernenko, was characterised as a gerontocracy, a point also made by British historian Niall Ferguson, among many others.
Less discussed is how they might, through Marxist-Leninist eyes, see the two other great trends of current US history: the build-out of AI and the fanning of its bubble-like rise; plus the diminishing of US oil reserves, as yet another war is pursued in West Asia.
Again, to any Chinese observers of the Soviet Union, the patterns might be familiar. Not only did a feeble-minded gerontocracy bring down the mighty USSR, but so did an unwinnable war in Afghanistan and an economy-sapping arms race. And what about the US in its 250th year? Nuclear space-launch platforms then. Manhattan-sized datacentres today. Yesterday’s Mujahadeen and today’s Houthis, Hezbollah, and IRGC.
Add to that the energy complex. Huge oil and gas reserves were Moscow’s saving grace, particularly as the OPEC embargo and Islamic Revolutions spiked prices in the 1970s. The US also has huge energy reserves, but also huge demand, and, for now, it remains plugged into global prices. The closure of Hormuz may slightly help a Texan shale driller, but it really hurts a Texan Chevy driver.
One other thing I suspect Xi thinks about, when not thinking about the Russian Empire, is his underappreciated success (in the West, at least) in deflating one of the world’s biggest examples of gross capital misallocation: the Chinese property market.
Xi, grounded in Marxian analysis of how markets actually work (sometimes that may be more accurate than the mainstream understanding), knows an unproductive spending spree – like the Soviet arms industry during Reagan’s Star Wars – when he sees one. Whether Russian weapons, Chinese apartments, or US hyperscalers, he may have a better idea than many Wall Street traders about the difference between boom and bubble, asset and liability. And what’s undisputed is that he has a better idea of how to prick a big, misallocative bubble.