	Generational Dynamics
	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 31-Jan-2010
31-Jan-10 News - US-China relations deteriorating

Web Log - January, 2010

31-Jan-10 News - US-China relations deteriorating

Japan's economy also deteriorating.

US-China relations continue to deteriorate since Copenhagen climate change summit

China's defense ministry has announced measures to retaliate for the US administration's announcement on Friday that it would sell $6.4 billion in arms to Taiwan, according to The Guardian. The measures include suspension of military exchanges with the US and sanctions on companies selling arms to Taiwan.

The arms sale will cause severe damage to overall China-US cooperation, according to Xinhua. The article points that the US is violating a joint communiqué issued on August 17, 1982. Indeed, the communiqué states:

"6. Having in mind the foregoing statements of both sides, the United States Government states that it does not seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in qualitative or in quantitative terms, the level of those supplied in recent years since the establishment of diplomatic relations between the United States and China, and that it intends to reduce gradually its sales of arms to Taiwan, leading over a period of time to a final resolution. In so stating, the United States acknowledges China's consistent position regarding the thorough settlement of this issue.

7. In order to bring about, over a period of time, a final settlement of the question of United States arms sales to Taiwan, which is an issue rooted in history, the two governments will make every effort to adopt measures and create conditions conducive to the thorough settlement of this issue."

A lot has happened in the 28 years since the joint communiqué was issued. The US policy is to do nothing to disturb the status quo. China has repeatedly threatened war with the US, and is militarily preparing to take control of Taiwan by force. The US justifies the arms sales to Taiwan as necessary to balance China's military threat against Taiwan, so that the status quo can be maintained. Everyone recognizes that a China-US war over Taiwan could start at any time.

It's thus worthy of note that US-China relations have deteriorated significantly in just the last seven weeks, when Chinese President Hu Jintao snubbed Barack Obama at December's climate change conference in Copenhagen. Since then, the US State Department has sided with Google in their dispute with China, and has openly criticized China's lack of internet freedom. Now the Taiwan arms sale and China's announcement of retaliation have made relations even more tense.

You can see one of the reasons why I've been so critical of Barack Obama before and after the election. He gives these great oratorial speeches where he makes absolutely ridiculous promises and commitments that can't be fulfilled. (See "After a week of foreign policy disasters, President Obama's entire program is adrift.") Now some of those promises are really biting him in the ass, and we're all paying for it.

American analysts are 'befuddled' by China's change

A Washington Post analysis of the deterioration says that China's actions have "befuddled Western officials and analysts," who wonder whether it's a change in policies or just a change in tone. The article offers the following explanation:

"Analysts say a combination of hubris and insecurity appears to be driving China's mood. On one hand, Beijing believes that the relative ease with which it skated over the global financial crisis underscores the superiority of its system and that China is not only rising but has arrived on the global stage -- much faster than anyone could have predicted. On the other, recent uprisings in the western regions of Tibet and Xinjiang have fed Chinese leaders' insecurity about their one-party state. As such, any perceived threat to their power is met with a backlash."

From the point of view of Generational Dynamics, this explanation is bizarre in its naïveté. China is going through a major generational change, just like the US. The top level leaders are from the generation of survivors of the the last crisis war, Mao's Communist Revolution, and they're like our Silent Generation, looking for compromise and conciliation. But more and more, younger generations are making all the day to day decisions, just as Generation-X is doing in the US. And those younger generations are going to be more confrontational and less conciliatory.

That's why we're seeing a change in tone from BOTH the US and China. BOTH sides are being more confrontational. BOTH sides are moving closer and closer to "crossing the line."

This is not a "yo-yo" kind of trend, where things get bad for a while and then get better for a few years. There are minor ups and downs, of course, but the major trend is toward greater and greater confrontation, shock and anger. Generational Dynamics predicts that China and the US is headed for a "Clash of Civilizations" world war, and that could be triggered at any time.

Japan's plunging consumer prices risk a deflationary spiral

Japan's consumer prices in December fell at the fastest rate since records began in 1971, leaving many analysts worrying that Japan is in the midst of a new deflationary spiral, according to the Financial Times. Furthermore, preliminary data from January shows that declines are accelerating.

I'm actually surprised by this. In 2007 I wrote "Japan's real estate crash may finally end after 16 years." Recall that Japan had an enormous real estate bubble in the 1980s, so large that at the time it ended, the nominal value of Tokyo's real estate was greater than the nominal value of all the property in the United States.

By 2007, 16 years had passed since the bubble burst and Tokyo's stock exchange had crashed. I felt that Japan's deflationary spiral must finally be over, and prices would start increasing again. But this week's news caps a period of increasing deflationary pressure in Japan.

My explanation for this is the same as I wrote last April in commenting on theories of Richard C. Koo, Chief Economist at Nomura Research Institute. (See "Fiscal stimulus programs in 1930s and today.")

Even though Japan went through a major financial crisis, including stock market and real estate crashes, they were able to avoid a great deal of suffering simply by developing an export economy that took advantage of the economic bubbles in China and the United States.

Apparently their financial crisis hasn't yet been painful enough, and there is a lot more to come.

Additional Links

Critical infrastructures worldwide, especially oil and gas, electrical, and telecommunications companies, are under constant cyber attack, according to Dark Reading, and the threat is growing. The cost of downtime incurred from an attack is $6-8 million per day.

France is very close to permanently banning women from wearing a veil or burqa, according to France24. This has spurred a national debate about discrimination against women and discrimination against Muslims.

Learning a foreign language is easier and cheaper than ever, thanks to courses offered over the internet, according to NY Times. Firms offering courses include Rosetta Stone, TellMeMore, Livemocha, Babbel and the BBC.

(Comments: For reader comments, questions and discussion, see the 31-Jan-10 News - US-China relations deteriorating thread of the Generational Dynamics forum. Comments may be posted anonymously.) (31-Jan-2010) Permanent Link
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