Thread by @Noahpinion

1/So, with Chinese troops massing for possible protest suppression in Hong Kong, I thought it might be time for a pessimistic thread about China.

bloomberg.com/news/articles/…

2/For many years, as China's power grew, people wondered if and when China was going to try to "take over the world", as rising powers of the past almost all did.

Yet China never made a move to establish itself as a hegemon. Why?

3/China appeared to be following the strategy of Deng Xiaoping, articulated in 1990:

"Observe calmly; secure our position; cope with affairs calmly; hide our capacities and bide our time; be good at maintaining a low profile; and never claim leadership."

4/But why wait? Why hide and bide?

The answer might have to do with a famous introductory economics problem: the problem of when to cut down a forest.

5/Suppose you're growing a forest for timber, and you want to know when to cut it down. Basically, you wait until the growth rate of your forest is less than the interest rate, then cut it down.

In other words, when growth is fast, you don't harvest.

6/For decades, China's economy was growing very very fast. If China had made a bid for global or even regional hegemony while that growth was ongoing, it might have endangered that growth, by prompting a breakdown of trade and investment.

7/But China's growth has slowed substantially since 2012.

8/And now, with the trade war and various economic challenges, it may be slowing more.

bloomberg.com/news/articles/…

9/So the opportunity cost of making a potentially disruptive bid for hegemony -- i.e., the amount of growth China might forfeit -- has gone down, and is still going down.

That means there's less to lose from, say, invading Taiwan.

10/Additionally, Trump's trade war lowers China's opportunity cost of geopolitical disruption even further. If trade wars and protectionism were the main thing China feared...well, now those things are happening anyway, no matter what China does.

11/Thus, with its economy slowing and the U.S. already launching a trade war, China seems to have less reason to "hide and bide" than ever before.

That may mean crushing Hong Kong and making it fully part of China...it may mean invading Taiwan...it may mean lots of stuff.

12/In any case, China's leaders are saying some disturbing things along these very lines.

ft.com/content/05cd86…

13/With this theory of "forest-cutting" in mind, I've always worried about what would happen when China's growth slowed down...and it looks like now that day has come, and we'll get to find out.

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