Venture capital geopolitics and China, pt. 1

As Xi Jinping officially begins his third term, the geopolitical tension between the US and China rises to another level. During the 20th Party Congress, Xi used language that suggested a possible accelerated timeline of a PLA invasion of Taiwan, an act that could very well lead to World World III. 

For now, the possibility of a third World War remains slim as the dynamics behind such an event depend on an ever-evolving situation. 

As venture capitalists and founders, this period of uncertainty is a great time to understand the issue in deeper detail so that we can make the right decisions should the global geopolitical climate take a turn for the worst. 

2027 was my original armageddon projection

If you asked me 12 months ago, I would have told you that I expected 2027 to be when World War III started—that is, the invasion of Taiwan. After all, this would mark the end of Xi’s third term, and a world war would be a hell of a good excuse to remain in power. 

Moreover, bringing Taiwan into China’s fold would also mark an accomplishment that would complete Xi’s career and ideals. It would cement his name in China’s history forever.

2020’s pandemic determined that was a lie

It’s no question that the COVID pandemic derailed the world at large, but it truly threw out Xi’s plans for infamy. 

While China seemed to be doing extremely well during 2020 and most of 2021, the country’s lack of COVID policy worked economically until it absolutely didn’t. Outbreaks began to spread in China, forcing the country into a strict lockdown in XX and sending its economy into a downward spiral. 

2022 has been a rough year for China

After the country’s strict lockdowns, China’s GDP growth fell well below the adjusted 5.5% target. 

In 2Q2022, China grew by 0.4%. Then, its 3Q2022 GDP growth data was missing—or rather, delayed—for a week, before officials reported a 3.9 % increase in GDP in one year. 

If you’re left wondering about the integrity of this data, you’re not alone. 

China’s economic decline is right on schedule

Since 1978 when China began to open up and reform its economy, GDP growth has averaged over 9 % per year. More than 800 million people have lifted themselves out of poverty. In the early-to-mid 2020s, its GDP was expected to exceed that of the US. 

Figure 1. China’s Gross Domestic Product between 1995-2027, Statista

Still, China’s growth engine has been slowing down over the past twenty years. By the mid to late 2020s, China’s growth approached that of a developing country. Regardless of covid, China’s growth will inevitably slow down. 

Figure 2. China’s real GDP Growth between 1960s-2020s, Wikipedia

Xi must make choices that keep China unified

As capitalist economies, the US and other western countries generally fail to understand that China’s biggest challenge over thousands of years has always been about domestic stability. 

Imagine for a second that Europe was united as one country. The diversity of each “state”—given the differences in language, culture, and belief systems—would create a tremendous challenge to hold the country together as one. 

China is what that road to success would look like in that it has unified all its lands as one. The challenge of stability amidst diversity is very real to China and has been since 221 B.C when Emperor Qin Shi Huangdi united the country. 

Subsequently, most wars China fought have primarily been civil and domestic in nature, making the primary goal of whoever governs the country to keep its billion citizens from slaughtering each other and ultimately destroying the country as a unified nation. 

Economic growth as a means of crowd control

Simply put, the promise of economic growth is a great way to keep people away from engaging in domestic terrorism or uprising against their government. People will care less about war if they can make money, get richer, and have a better life. 

There is less incentive to kill your neighbor for resources if resources are abundant. 

Economic growth is, therefore, a wonderful political tool that China uses to create and enhance stability. Still, this is a double-edged sword. Economic growth does not actually solve problems within the country itself; it merely distracts its citizens from them. 

Inevitably, every show comes to an end. After all, people can only look the other way for so long. 

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