China's Economy Requires Massive Stimulus: Natixis
China's economy is currently in deflation and severely affected by overcompetition, according to Natixis Chief Asia Pacific Economist Alicia Garcia Herrero. China will need to stimulate its economy "big time" in order to avoid a massive slowdown, she adds. She is speaking on Bloomberg's The Asia Trade.
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What would it take for the United States to lose its hegemony to a rising power like China? Right now, America appears to be ahead economically and militarily. However, there is a stark difference between America's national strategy (insofar as one exists) and China's. The US under President Trump calls for regression. It seeks to restore a manufacturing economy that peaked in the 1950s—like an elderly man trying to restore hair where it hasn't grown for decades. It is doubling down on domestic oil, gas and coal. Through tariffs, disparagement of NATO and aggression towards allies like Canada and Denmark, the administration has alienated partners that long supported a US-led world order. China, meanwhile, has a tremendous lead in developing the economy of the future. It has a near monopoly on rare earth minerals, which are needed for electronics, renewable energy systems, defense technologies and more. 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AI, data centers and industrial robotics powered by fusion would produce goods and services at much lower costs than value chains dependent on fossil-fired electricity. Militaries built on swarms of small, cheap, electronic drones and robots—powered by small, distributed fusion facilities deep underground, safe from attack—would have an edge over competitors using large, expensive, petroleum-powered vehicles with vulnerable supply chains. I cannot overstate the ramifications of China developing fusion first. As an analogy, imagine if Japan and Germany had uncovered vast reserves of oil at home in the 1920s. American and Soviet oil gave the Allies a strategic advantage over the Axis powers. Had the situation been reversed, World War II could have ended differently. While private fusion companies in the West have raised about $8 billion total, China is investing at least $1.5 annually into fusion projects—double what the US government spends. Japanese and German investments in fusion don't even come close. Canada, for the record, has no fusion funding strategy. Moreover, the government of British Columbia, home of industry leader General Fusion, seems not to understand the value of this crown asset.* On all fronts nuclear, China is leaping ahead. In April, its scientists added fresh fuel to an operational thorium molten salt reactor—a first. The thorium reserves found in Inner Mongolia, an autonomous region of China, could theoretically meet Chinese energy demand for thousands of years. The kicker: this reactor design originated in the US. As project lead Xu Hongjie put it, 'The US left its research publicly available, waiting for the right successor. We were that successor." Moreover, in January, China's Experimental Advanced Superconducting Tokamak (EAST) sustained a fusion reaction for 1,066 seconds, setting a new record. Its Burning Plasma Experimental Superconducting Tokamak (BEST) fusion reactor could come online by 2027 and is expected to produce five times the amount of energy it consumes. When BEST announces this milestone, Western fusion companies may be announcing that they've run out of funding. To China, fusion is not a startup project—it's a matter of national interest and security. Its scientists are patenting more fusion-related technologies than any other single country and graduating more doctorates in fusion-related fields. And because China is the top refiner and exporter of the critical minerals needed in fusion reactors (e.g., for magnets), no external force is going to slow their progress. In the meantime, China has a cheap gas station next door—Russia—supplying all the fossil fuels China could need in exchange for support in its war with Ukraine. That support includes critical minerals needed by Russian arms manufacturers. Is fusion energy, along with other Chinese-dominated technologies, enough to end US hegemony? In 1988, historian Paul Kennedy published The Rise and Fall of the Great Powers, a book that tried to explain the relative success (and failure) of powerful states. According to Kennedy, their rise and fall '…shows a very significant correlation over the longer term between productive and revenue-raising capacities on the one hand and military strength on the other.' Essentially, states must balance economic prosperity with strategy. Technological breakthroughs are vital to both. Innovation creates wealth, which enables the state to invest in defense and win wars. While underinvestment in defense leaves the state vulnerable to other powers, overextension and overspending on defense can run an economy into the ground, leaving it unable to sustain a strong military. Now, picture a great power—China—with a military to rival the US and fusion reactors that provide virtually unlimited energy. Imagine the clout China would have in establishing ports, military bases and consumer markets around the world if it could license that fusion technology. A China that exceeds the US in energy, industry, intelligence, mobility and defense is positioned to usurp it. Of course, China could bungle its advantage. Authoritarian regimes have a habit of mismanaging internal dissent, falsifying reality and making preventable mistakes. The rise of China is inevitable, but the self-inflicted decline of the US and its allies isn't. Rather, it's a choice reflecting how societies invest their resources and envision their future. *Disclosure: The author is an investor in General Fusion and sits on its board of directors.
