China is Losing the New Cold War

In contrast to the Soviet Union, China’s leaders recognize that strong economic performance is essential to political legitimacy. Like the Soviet Union, however, they are paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race with the US.

When the Soviet Union imploded in 1991, the Communist Party of China (CPC) became obsessed with understanding why. The government think tanks entrusted with this task heaped plenty of blame on Mikhail Gorbachev, the reformist leader who was simply not ruthless enough to hold the Soviet Union together. But Chinese leaders also highlighted other important factors, not all of which China’s leaders seem to be heeding today.
.. But overseeing a faltering economy was hardly the only mistake Soviet leaders made. They were also drawn into a costly and unwinnable arms race with the United States, and fell victim to imperial overreach, throwing money and resources at regimes with little strategic value and long track records of chronic economic mismanagement. As China enters a new “cold war” with the US, the CPC seems to be at risk of repeating the same catastrophic blunders.
.. China spent some $228 billion on its military last year, roughly 150% of the official figure of $151 billion.
.. the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US. Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.
If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither.
.. China’s growth is likely to continue to decelerate, owing to rapid population aging, high debt levels, maturity mismatches, and the escalating trade war that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs.
.. while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US. The main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment.
.. the CPC is that SOEs play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets.
.. Dismantling these bloated and inefficient firms would thus amount to political suicide. Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the CPC’s authority will become.
.. The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach. About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidize deadbeat “allies.”
.. Exhibit A is the much-touted Belt and Road Initiative (BRI), a $1 trillion program focused on the debt-financed construction of infrastructure in developing countries.
.. An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela to Russia – that offer little in return.
.. from 2000 to 2014, Cambodia, Cameroon, Côte d’Ivoire, Cuba, Ethiopia, and Zimbabwe together received $24.4 billion in Chinese grants or heavily subsidized loans. Over the same period, Angola, Laos, Pakistan, Russia, Turkmenistan, and Venezuela received $98.2 billion.
.. Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.

What if Trump Did Actually Shoot Someone on Fifth Avenue?

President Trump stopped his motorcade in Manhattan today, jumped out of his limousine and shot a man on Fifth Avenue who was shouting anti-Trump epithets. The shooting was recorded by the White House press pool as well as by dozens of bystanders with cellphones and by security cameras in the area. When asked for his reaction, House Speaker Paul Ryan said, We will need more information than is available at this point.”

Senate Majority Leader Mitch McConnell said through pursed lips that he was not going to comment on every up and down with this president.House Intelligence Committee Chairman Devin Nunes said he already had information indicating that the man whom Trump shot worked for the Clinton Foundation and may have been a relative of former Hillary Clinton aide Huma Abedin.

Fox News did not cover Trump’s shooting at the top of its broadcast, which focused instead on the killing of an Iowa woman by an undocumented immigrant. Fox’s only reference to the fact that the president shot a man on Fifth Avenue was that a New York City man died today when he ran right into a bullet fired by the president.

Senator Lindsey Graham quipped that Trump shoots as well as he puttsand that this incident would not cause the South Carolina senator to cancel his coming golf round with the president at his Bedminster, N.J., course.

White House spokeswoman Sarah Huckabee Sanders told reporters that she was looking the other way when the shooting happened so she had no comment, adding: I haven’t had a chance to discuss it with the president. I’ll get back to you if I have something. But the president has stated many times that he could shoot someone on Fifth Avenue and get away with it. So he’s just keeping a campaign promise. He did nothing wrong. There are no charges against him. And even though I have no comment, and he has no comment, we’ve commented on this extensively.

Hours later, though, the president tweeted: Actually, some people are saying that a man who looked a lot like Barack Obama did the shooting. I’m not saying that — but some people are. It also could have been somebody sitting on their bed that weighs 400 pounds who fired that shot. Like Rudy said: Truth is not truth — unless I say so.

Jerry Falwell Jr., a top evangelical leader, announced that his movement would be holding a vigil this evening, praying that the president had not stressed himself too much by having to shoot a man on Fifth Avenue. Falwell added, “This would never have happened if Jeff Sessions were doing his job.”

The day ended with Education Secretary Betsy DeVos declaring that the fact that the president could shoot someone on Fifth Avenue in broad daylight only proves again why we need to arm all our schoolteachers.

My biggest challenge in writing all of the above? Worrying that readers wouldn’t realize it was made up.

.. America, we all know, won the Cold War. Our values and economic system proved superior to Russia’s. But what is at stake in the 2018 midterms is who is going to win the post-Cold War.

.. what we are seeing in the behavior of Trump and his toadies in the G.O.P. is the beginnings of the Russification of American politics. Vladimir Putin could still win the post-Cold War.

.. Because the Soviets claimed to have built a worker’s paradise, it was important that we had strong unions, a strong middle class, less inequality and an adequate social safety net. The Soviets did not have the rule of law. So we had to have it more than ever.

“I came here from Russia in ’75,” Gorbis added, “and it was remarkable to me that in this society there were laws and norms and principles, and people abided by them. The idea that people actually paid their taxes was kind of remarkable to me.” In the Russia she grew up in, said Gorbis, “we did not have that; if there was a law, there was always a way to bribe and get around it.”

.. But with the Cold War now far back in our rearview mirror, Trump has not only insisted on bringing America closer to Putin’s Russia geopolitically, but also politically.

.. Trump still refuses to show us his tax returns long after his “audit,” which can only mean he is hiding something. His campaign chairman Paul Manafort is a convicted tax cheat who was trying to keep Putin’s stooge in power in Ukraine. Trump’s lawyer Michael Cohen is another confessed tax cheat.

.. And the first two House Republicans to endorse Trump in 2016 — Duncan Hunter and Chris Collins — were both just indicted on corruption charges.

.. one has a stronger feeling than ever that with a moral vacuum at the heart of the Trump White House — and with the president assaulting the media and the judiciary on a regular basis, not unlike Putin — everything goes, so grab what you can, because no one’s looking.

.. “The Russification of America under Trump, it’s not just about collusion, corruption and money laundering,” said Gorbis. “It is about his behavior” — crass language, simplistic slogans reminiscent of the Soviet rhetoric, use of terms such as “enemy of the people,” and his insistence on personal loyalty over loyalty to the Constitution or institutions.

.. There are other parallels between Trumpism and Putinism: the glorification of oil, gas and mining over science and technology; the elevation of white, Christian, nationalist values; and the neutering of the legislative branch — today’s G.O.P.-dominated Congress behaves just like the rubber-stamp Russian Duma. Worse, this Russification of politics is also spreading — to the Philippines, Turkey, Hungary, Poland and maybe soon to Brazil.

.. A few more years of this Russification of America and the rot will be everywhere. Russia will have won the post-Cold War

Last chance, Republicans

We can be grateful for some unlikely gifts this week. We’re lucky, as it turns out, that U.S. District Judge T.S. Ellis III was so sharp in criticizing prosecutors in the Manafort case that an upset lead attorney, Greg Andres, protested at one point, “The court interrupts every single one of the government’s [direct questions], every single one.” After Ellis’s interjections, it will be difficult for Trump’s defenders to argue that the trial was biased in favor of special counsel Robert S. Mueller III and his team.

We’re probably fortunate, too, that the jury reached a split verdict, convicting Manafort on eight of 18 counts. Reportedly because of one holdout juror, the panel was not unanimously convinced by the entire case presented by the government. For a divided America, this outcome ought to evoke our national icon of justice — blindfolded and holding a balance in her hand to weigh the evidence fairly.

And however odd it seems, we should celebrate the fact that Cohen, the man who did Trump’s legal dirty work for so many years, decided that he wanted to cop a plea — and, in the process, to present himself as a man seeking to serve his country by telling the truth at last about his former boss.

.. But interestingly, Russia does figure in Cohen’s motivations, according to Davis: After watching Trump support Russian President Vladimir Putin against U.S. intelligence agencies at the news conference following the Helsinki summit, Cohen “worried about the future of the country with somebody who was aligning himself with Mr. Putin,” Davis told NBC on Wednesday.

As Trump’s world collapses around him, the danger for the country arguably increases. Trump could lash out at his tormentors, reasoning that a constitutional crisis is his only possible salvation; the partisan fever in America could spike even further, with angry people on both sides taking to the streets; and foreign adversaries could seek to exploit our troubles.

.. For Republicans, there is a last chance over these next two months to finally show some guts and principle by separating themselves from Trump.

Putin’s Unlikely Ally in His Standoff With the West: His Central Banker

Elvira Nabiullina has earned an unusual degree of freedom to buttress an economy buffeted by sanctions

After Russia’s central-bank chief, Elvira Nabiullina, moved to shut down a large lender last year for allegedly falsifying accounts, the nation’s top prosecutor’s office issued an order to leave the bank alone.

She closed it anyway.

In her five years in office, Ms. Nabiullina has closed hundreds of weak banks, stymied the exodus of Russian wealth abroad and transformed monetary policy to bring inflation to record lows. That has earned her an unusual amount of freedom to make tough decisions, even if that means treading on powerful interests.

.. As President Vladimir Putin bids to return Russia to great-power status, challenging the U.S. and Europe from Syria to Ukraine, it’s her job to shore up the economy against volatile oil markets and sanctions. Russia’s ability to continue its quest rests in large part on whether Ms. Nabiullina can keep the financial system stable.

Ms. Nabiullina has earned public praise from

  • Mr. Putin, who rarely commends subordinates, as well as from abroad. Last year at the Kremlin, Mr. Putin told her that “under your leadership, the central bank has done a great deal to stabilize the economic situation.” Managers at big investment funds, from
  • Pacific Investment Management Co. to Pictet Asset Management, call Ms. Nabiullina one of the world’s most skilled central bankers.
  • Christine Lagarde, managing director of the International Monetary Fund, lauded her in May for setting “standards of quality for macroeconomic policy.”

.. In 2006, the central-bank official responsible for revamping the system, Andrey Kozlov, was shot dead in his car. Russian financier Alexey Frankel, whose banking license Mr. Kozlov had revoked earlier that year, was later convicted of organizing the killing.

.. She has earned a reputation for bookishness, personal honesty and fixation on detail

.. Industry veterans said that before Ms. Nabiullina took over, banking licenses were mostly used as mechanisms to funnel money abroad and process insider deals.

.. “We used to open a newspaper in the morning and look at the banking deals and said—that’s capital flight, and that’s asset stripping,” said Sergey Khotimskiy, co-founder of one of Russia’s largest private banks, Sovcombank. “The dodgy enrichment schemes were obvious to everyone.”
.. When she took over the institution, banks and companies were moving $5 billion out of the country every month, and inflation topped 7%.She shut down 70 banks in her first year.

.. Ms. Nabiullina stopped a longstanding policy of spending billions of dollars from the country’s reserves to try to prop up the ruble. In December 2014, with the ruble continuing to fall, the central bank nearly doubled its key lending rate to 17% at an emergency late-night meeting.

.. The rate increase restored calm to markets but strangled the country’s consumer-fueled growth. The country’s emerging middle class, which had become used to foreign vacations and European cars, is still feeling the effects of the ruble’s collapse.
..  Since she took office, she has halved the number of Russian banks, shutting down about 440 lenders. She has reduced capital outflows by about 50% to $2.5 billion a month.
.. Many of the banks she closed had been considered untouchable, analysts said. Some, such as Promsviazbank, counted lawmakers and state-company executives among its shareholders and held money for national oil companies and the Orthodox Church.
.. Others, like Bank Sovetskiy, had served political objectives, providing banking services in Crimea, the Ukrainian region the Kremlin annexed in 2014.

.. When the central bank took over Yugra last June following repeated warnings, it said it found a $600 million deficit in its balance sheet masked with bad loans. Just hours before the bankrupt bank’s license was due to expire, the prosecutor’s office ordered a halt to the closure, calling the bank “a financially stable credit organization.” Ms. Nabiullina rejected the order.

.. “It was a test of will, and she won,” said banking analyst Mr. Lukashuk.
.. In January, inflation hit a record low for the post-Soviet period of 2.2%, a result of Ms. Nabiullina’s decision to keep interest rates high after the Crimea sanctions. Some tycoons have urged a faster reduction.
.. Still, she has struggled to regulate Russia’s lesser, underperforming state-owned banks, whose executives often treat them as fiefs, analysts said. These banks are kept afloat by constant injections of state funds, which the executives have funneled into unrelated assets ranging from supermarkets to railroad cars.
.. Almost a trillion rubles of public capital, about $16 billion at today’s rate, went to just three state-owned banks—
  1. VTB,
  2. Gazprombank and
  3. Rosselkhozbank—

in the first four years of Ms. Nabiullina’s central-bank term, according to Fitch Ratings. All are still saddled with bad debts or illiquid assets.

.. Her modest economic forecasts have consistently lagged behind Mr. Putin’s goals, which she said can only be achieved through deep, unpopular changes to the system.

Even if the price of oil rose to $100, from around $65 today, she said, “it’s very unlikely that our economy can grow above 1.5% to 2%” a year.