Cromwell Was Right

October 19th, 2024

Oliver Cromwell, not one of the most pleasant fellows in the last 6,000 years, nor the most friendly to those with whom he disagreed, was, however, a smart and very competent leader. Cromwell is apocryphally credited with having advised to “Trust in God, but keep your powder dry.”

Looking around the world right now, this may be even better advice than when first given (Cromwell reportedly made the comment to some of his officers as they prepared to invade Ireland.)

There is just a lot of “stuff” going on. If you’ve been hiding in the north woods for the last 9 months you might have missed it, but there’s all sorts of economic turmoil: here in the US tariffs are up, and so is the GDP, and deficits are down, and we are in the process of building nuclear reactors and starting our own rare earths production lines. But elsewhere, things are strained: Russia’s economy looks shaky, Europe’s arguably looks worse, and strange stories are coming out of Beijing, with all sorts of rumors, and the Chinese Communist Party seems a little worried about the resurgent USA.

China has the second largest economy in the world, built on two things: lots of exports AND lots of increased internal demand as their population - 1.4 billion people - has grown increasingly well off. But there has been some concern that China’s population is beginning to decline (India has already passed China as the most populous nation), and the United Nations has forecast that China’s population could fall to 1.3 billion by 2050.

Except there are now reports that the normal bureaucratic fudging of data has taken a new turn. Data now suggests that China’s real population is currently 1.2 billion - or less, and falling. Research by a demographer at the University of Wisconsin-Madison, Yi Fuxian, cites low fertility rates, and an aging population as the root cause. This, coupled with a tightly controlled bureaucracy both at the national level and in the provinces, and federal funding based on number, has both provided incentives for over reporting and prevented any sort of auditing or accurate count. 

Interestingly, studies on China’s population by Russian and Japanese think tanks over the last 7 years suggest similar or even greater differences between the official population and the actual population; the Japanese study suggests the real population might already be as low as 800 million, and is at least below 1 billion (estimated at 986 million). Yi insists that the data justifies that assessment: less than 1 billion.

Xi presumably knows the real population. But up until now he has been successful in hiding it, in keeping various programs moving so that consumer spending seemed a reflection of a much larger population.

But problems are starting to show, with more reports of empty malls, empty apartment buildings, etc. After all, if your domestic economy is based on the needs of 1.4 billion consumers, and only 1 billion are actually present, there’s a problem. 

This would mean that Xi’s need to reopen the US market to Chinese goods is much more serious a problem than it first appears; good for us, and good for deterrence.

Meanwhile, President Xi fired 9 generals, to include the #2 general on the Central Military Commission, accusing them of corruption.

The folks who study China a great deal have come down hard on one side or another concerning these firings: either Xi is losing control of his army and is struggling to regain control, OR Xi is purging his army and thereby establishing greater control.

Not lost in all this is the war in Ukraine, which seems headed for its 4th winter and rumors of each side preparing for a winter offensive. China is a major supplier of technology to Russia, and is the major purchaser of Russian oil; China imported 800 million barrels of Russian oil in 2024 (almost $50 billion), but that number has been inching up; in August China imported $6.7 billion in oil from Russia and estimates for September suggest that imports are higher still; that money funds Putin’s war machine.

So?

Each of these issues: What is China’s real population and is it shrinking? How healthy is China’s economy? Is China’s army (the PLA) “at war” with Xi? Etc., each has surfaced before. But not at the same time, and before there was a compliant Europe and an America that was happy to keep buying Chinese. 

Suddenly, all that has changed. In particular, there’s an American president who wants to reshuffle the entire deck.

But Xi wants a lot of things, and this strange world situation could easily make Xi desperate. And desperate leaders do desperate things. Like most major political figures, Xi has a large ego, he wants to be the guy who makes Taiwan part of China; he wants to be recognized around the worlds as the great leader, he wants to enjoy some years as  Number 1. 

But with all the above, Xi is, arguably, in uncharted territory. Some might argue he will be more cautious. But might he not think that his time is running out and he needs to act? I think one could argue it either way.

And I would suspect it annoys the heck out of him that Trump has dragged all the spotlights onto him - away from Xi.

Which means?

Which means the US - and that includes Congress - needs to be focused on those national security issues that might deter Xi before he does something rash: consider moving theater nuclear weapons to the Pacific, keep pushing improvements to readiness, find the bottlenecks in our weapons manufacturing and restock our armories, sit down with the shipyards and the aircraft manufactures and focus on streamlining the building of ships and aircraft; no more changes right now, get these aircraft and ships built. We don’t need perfect plans in 12 months, we need good plans aggressively executed now.