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A ruthless new Chinese plan that is grinding the West down

CHINA

Intro: China is single-mindedly building enough industrial might to supply the world with just about every major manufacturing product it needs

The most important economic story of our time, by far, is seriously under-covered by both the media and our political class which has largely been ignored. Preferring to obsess, debate, and divide over mere fripperies while a clear and present danger gathers momentum to our economy, our prosperity, and our very way of life.

The scale of the threat is now unmistakeable: China is single-mindedly building enough industrial might to supply the world with just about every major manufacturing product it needs.

Beijing has more capacity than it needs to meet the demands of its domestic markets. Yet it is still adding more at a rapid rate – all of it geared to exports.

It is the clear policy of President Xi Jinping to make the rest of the world dependent on Chinese exports, destroying much of Western business in the process.

It is no less than a bid for global economic domination, with all the global political power that would follow – without the necessity of a shot being fired.

And, so far, partly thanks to the entrenched myopia of feckless politicians on both sides of the Atlantic, it’s proceeding apace without hindrance.

What’s new? you might say. Isn’t it apparent that we have already lived through what we now call China Shock 1.0, an era which started about 25 years ago when Beijing was granted access to global markets?

The world was quickly flooded with cheap Chinese products that not only drove down prices but also drove many Western companies out of business and workers out of jobs.

Well, yes reader, we have and, despite all the pain and disruption it caused, there was never much pushback from the West. True, there were losers, from America’s mid-West to the textile towns of northern England, where blue-collar communities suffered.

But undoubtedly there were more winners from the lower prices and our political masters on both sides of the Atlantic thought what China was exporting – clothes, toys, furniture, household appliances – were not the sort of goods advanced economies in the 21st century should be involved in making anyway. So we just grew to live with it. China Shock 1.0 became the status quo.

It’s now being superseded by China Shock 2.0, an even bigger disruption and far more of a threat because it targets the advanced industries in which the West thought its future lay.

TWO

We’re talking the sort of sophisticated, high-end manufacturing of goods such as precision machine tools, robotic arms for assembly lines, electric vehicles (EVs), the new breed of batteries they require and a new generation of pharmaceuticals.

China is long past the stage of contenting itself by creating the capacity to supply its own needs for these products. It’s building enough to supply the world. A pipe dream? Far from it – it’s already happening.

China can already build enough EVs to supply the entire European market. That’s ten million cars a year. It will soon have enough capacity to meet the global demand for EVs – and the batteries that make up so much of their value.

Indeed, such is the size of Chinese capacity in EVs and their batteries, not to mention their competitive edge, there is really no scope for anybody else to enter the market at scale. We are approaching an age in which the vast majority of EVs and nearly all the key components in them will be Chinese.

That’s already true of solar panels. Fifteen years ago, Europe – especially Germany – had a thriving solar panel industry. Then China entered the fray. There is now no European solar panel industry worth talking about. Wind turbines will be next.

Perhaps most concerning of all, China is building up an unbeatable lead in the market for precision machine tools and advanced industrial robotics. That’s what makes the threat of China Shock 2.0 so much more existential than China Shock 1.0. We’re no longer talking about cheap clothes for teenagers or toys for children. We’re talking about the industries of tomorrow.

To understand more clearly what’s happening, let’s go, briefly, to two places.

First, Dongyuan in Guangdong Province, just north of Hong Kong. This town used to be full of factories churning out cheap toys, shoes, clothes, and appliances for Western markets. No longer.

Now it’s a “factory for factories” making high-value capital goods for global industry from machine tools to robotic arms and microchips – exactly the sort of advanced manufacturing Germany and Japan used to dominate.

Now let’s go to Dresden in Germany, home to Volkswagen’s showcase plant known as the Transparent Factory, so called because it was designed with glass walls to let the public watch workers and machines assemble VW’s world-beating cars.

Except there’s no point going there – because car production ceased last December. Reeling from China Shock 2.0, VW is now slashing tens of thousands of jobs in Germany, closing plants and, to cap it all, is opening an export hub in China from which to supply global markets. Just days ago, VW announced that 50,000 workers will lose their jobs. The company’s share price reacted favourably.

The plight of VW is the plight of German industry. Last year, Germany lost 150,000 skilled, well-paid industrial jobs. This year, it’s still losing them at a rate of 10,000 a month.

THREE

Politicians in Baden-Wurttemberg, Germany’s hitherto prosperous manufacturing heartland, now speak openly of it becoming the “Detroit of Europe”. This is a reference to the US city nicknamed “Motown” thanks to its domination of car manufacturing, which saw its population decline from close to two million in the 1950s to just over 600,000 in 2020 as the car giants moved out.

That prospect tells us something else about China Shock 2.0. Whereas the first shock took more of a toll in America, where there was more low-end manufacturing than in Europe, it is advanced manufacturing in Europe that will bear the brunt of the second Chinese wave.

We can date the start of China Shock 2.0 to 2021 when, in the wake of the world’s biggest ever property crash, President Xi decided it was time to move resources out of property and into advanced manufacturing. That was only five years ago. And yet there’s already been an explosion of Chinese exports to Europe.

The European Union runs a trade deficit with China of one billion euros per day. It’s heading for an annual deficit of half a trillion euros next year – twice the pre-Covid deficit. And, even though we’re only in the early days of the shock, it’s already exacting a grim economic toll.

Bankruptcies and insolvencies in the EU are at a ten-year high. European growth is sluggish. Industrial production is actually declining. Germany now imports more sophisticated capital goods from China than it exports to China – Shock 2.0 in action.

America erected trade barriers to China Shock 2.0, including a 100 per cent tariff on Chinese EVs. Other Chinese products face tariffs of around 25 per cent, far higher than European tariffs where, par for the course, the EU has dithered in its response to China. It’s still dithering, making Europe a much softer target.

It’s not as if the EU hasn’t been warned. France’s official planning agency starkly reported earlier this year that, without action, Europe was heading for “industrial devastation”.

Entire chunks of European industry – cars, machine tools, wind turbines – would go the way of European solar panels. “Rapid industrial wipeout in under a decade” beckoned, with 55 per cent of European manufacturing at risk (60 per cent in Germany).

But what of the UK? The good news (in relative terms) is that because we don’t have that much advanced manufacturing we are less exposed than the EU in general and Germany in particular.

The bad news is that we’re governed by politicians who have no idea there is any kind of threat or, if they do, simply ignore it.

In fact, it’s worse than that. Far from even modestly protecting our interests, we’ve reduced tariffs on imports from China to facilitate the Government’s bizarre dash for Net Zero.

As energy secretary, Ed Miliband actually embraced China Shock 2.0 to further his own green goals. We stuck with a standard 10 per cent tariff on cheap Chinese EVs because he wanted people to buy them.

And, not content with making it easy for Chinese EVs, the Government decided to penalise our own carmakers for not selling enough EVs.

In July, British vehicle output was a mere 64,000 units, down 12 per cent on the year. A decade ago we produced 1.5 million vehicles a year.

This year it is expected we won’t produce even half of that. In 2025, we managed under 720,000, down 8 per cent on the year before. Thanks to China Shock 2.0 and our own Government’s folly, we probably will not have a car industry at all in ten years’ time.

As for so-called “green jobs”, we already have precious few of them. Thanks to the Net Zero obsession, our green supply chains for all manner of things – batteries, cathodes, anodes, solar/wind turbine components, critical minerals – are already China-dominated.

Had we taken our time, we could have fostered more domestic suppliers. Instead, the Government decided to embrace cheap Chinese green tech to meet its artificial climate targets, which have taken precedence over everything else.

There is no coming back from this. We have favoured China and sacrificed any hope of a new industrial base, while jeopardising our security. So much for industrial policy, despite rampant talk of it in Labour circles. Not so in China, where industrial policy is paramount. The scale of the commitment is breathtaking – even frightening. There was a time when Chinese industrial policy was confined to backing a few favoured sectors.

No longer. The whole might of Chinese Communism – state-owned banks, state-owned companies, local government – has been mobilised in pursuit of what’s being called “the industrial policy of everything”. China’s economic growth, which secures the continued dominance of the Communist Party, is increasingly dependent on exports.

China’s currency, the yuan, is manipulated down against other currencies to make these exports even more competitive – and to make goods that China imports more expensive.

There you have another key feature of China’s second shock: it isn’t just the biggest export drive the world has ever seen, it’s a strategy to reduce China’s dependence on imports. Investment has been showered on those parts of advanced manufacturing which Beijing perceives to be over-dependent on imports.

Replace imports with homegrown production, keep the currency cheap to favour exports and, voila, you have a modern mercantilism – an ancient economic doctrine which promotes exports above all else and which fell out of favour years ago.

President Xi has revived it and combined it with autarky, a policy of national self-sufficiency. Those who think we can live with China Shock 2.0 because China’s massive domestic market will still be open to our exporters really have no idea what they’re talking about.

First, it was never open in the first place. Second, the shutters are coming down. Third, President Xi thinks autarky works.

FOUR

China now runs a traded goods surplus of $1.2 trillion (£900 million) with the rest of the world, with bigger surpluses to come. Xi isn’t doing this just because he can. He’s doing it because with economic dominance comes global political power.

When you dominate global trade the way China envisages, you dominate global supply chains. Just as America has projected its power and influence through its effective control of the global financial system so China aims to do the same through its control of global supply chains.

It’s already flexed its muscles. Japan learned how vulnerable it was to Chinese supply chains when it recently had the temerity to stand up for Taiwan.

The EU fears retaliation if it takes a tough line against China. Even America has backed off confronting China on trade. Say hello to the shape of things to come.

We are in no position to deal with it. The EU is rudderless. America is run by a President who prefers to pick fights with allies rather than build the united front needed to confront China Shock 2.0. Our own political leadership could not be less equipped to rise to the challenge.

By the time they grasp the implications of 2.0, we’ll be on to China Shock 3.0. It’s already stacking up. This won’t involve Chinese exports of EVs or robotic arms. Not a single container ship will be involved.

It will be the export of the operating system itself. Chinese-built AI models embedded in the software running Western factories, Chinese-standard batteries and chips wired into the next generation of Western infrastructure and EVs. Chinese firms setting the technical rules the rest of us will have to follow because, by then, there will be no alternative supplier left standing.

Beijing will own the plumbing of the modern global economy. Domestic politicians in the West will be left talking about issues that have little or no significance.

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Business, Government, Politics

The West’s hypocrisy on corruption is amoral

DUPLICITOUS STANDARDS

Intro: Westerners have no right to feel morally superior over those in developing nations

The West likes to believe corruption is something that happens elsewhere. It is presented as a pathology of poorer countries, weak institutions, and unstable governments. In much of Africa, corruption is routinely cited by Western politicians, the media, and international organisations as evidence of failed governance. It is used to justify conditions on aid, scepticism towards investment and, increasingly, a broader sense of moral superiority.

Yet the uncomfortable truth is that many of the same behaviours exist in Britain, Europe, and the United States. The difference is not always the conduct itself. The difference is often the language we use to describe it. In Western democracies, power rarely operates through crude bribery or overt illegality.

Instead, it works through relationships, access, networks, and privileged information. Outcomes are shaped quietly, informally, and often entirely within the rules. Those closest to political and financial power gain opportunities, protection, and influence that others do not. We prefer to call this lobbying, networking, or simply “how things get done”. But if similar systems operated elsewhere, we would often call them corruption.

The global pandemic exposed this contradiction particularly clearly. Between February and November 2020, more than £3.7bn of UK PPE contracts were channelled through a “VIP lane” for companies with political connections. Those firms were significantly more likely to secure government contracts, even where they had limited relevant experience.

Had a similar process emerged in an African country – where politically connected individuals were fast-tracked for lucrative state contracts during a national emergency – Western governments and media outlets would almost certainly have described it as corruption. In Britain, however, the language was notably softer: “urgency”, “extraordinary circumstances”, “procurement challenges”. The same behaviour, but a different use of language and vocabulary. What increasingly troubles the public is not simply individual scandals, but the perception that elite networks operate by different rules altogether.

The Epstein affair reinforced that suspicion powerfully. It exposed the extraordinary proximity between convicted offenders and some of the most influential political, financial, and social figures in the Western world.

The main focus of accountability for the sexual abuse was rightly directed at Jeffrey Epstein himself and later Ghislaine Maxwell. But many others associated with Epstein – some of whom knowingly enabled, tolerated, or benefited from the network of influence and privilege surrounding him – have emerged largely untouched.

For many people, this reinforced the belief that wealth, influence, and proximity to power can create a form of informal immunity. Not necessarily from the law itself, but from the level of scrutiny and accountability that would apply to ordinary people – or indeed to public figures in other countries.

When access, relationships, and privileged information determine outcomes, public trust is inevitably eroded – regardless of whether formal rules have been technically breached.

If confidence in democratic institutions is to be rebuilt, it will require more than compliance processes and carefully managed optics. It demands a far more honest recognition of how power actually operates within Western systems.

Because the real danger is not simply that corruption exists elsewhere. It is that the West has become extraordinarily skilled at defining its own behaviour in ways that prevent it from recognising corruption when it is closest to home.

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Artificial Intelligence, Business, Digital Economy, Technology

The next casualty of the Iran War has arrived

GLOBAL DIGITAL ECONOMY

Intro: The Iran War has led to shortage of helium, vital for AI but also for many of Britain’s smaller businesses. If the Strait of Hormuz blockade continues, a chip shortage could well be on the cards

The world has lost 40pc of its helium supply since the start of the latest war in the Gulf, first from Qatar and then from Russia.

We will soon find out whether the global digital economy can shrug off losses of such a critical gas on this scale and whether our political leaders will allow the AI boom to keep gobbling up an ever-greater share.

Industry cannot make advanced AI chips or semiconductors below 10 nanometres without ultra-high purity helium to cool the wafers and stabilise the plasma for etching. Even workhorse chips for cars and computers require lower-grade helium at 99.999pc purity.

But we also need helium for other high priorities: in nuclear power, advanced weaponry, aerospace, fibre-optic cables, quantum computing, chromatography, or to cool superconducting magnets in MRI machines. There are no easy substitutes. Liquid helium is the coldest known substance on Earth, with a boiling point of -269°C. Hence, why everybody is scrambling around trying to scoop up whatever they can find in the world.

It cannot be synthesised artificially – it comes from the radioactive decay of thorium and uranium – and is hard to store. China has strategic stockpiles of everything but not for this one vital input.

Helium is a small cost for digital behemoths with the deepest pockets, relying on “fabs” or foundries that cost $20bn (£15bn) a shot. Wafer fabs are not going to close, so with supply shortages, the larger conglomerates will be prepared to pay more than anybody else.

Another insidious process is at work. The semiconductor industry is in effect hoarding its scarce supply for the most lucrative AI fabs while rationing helium for routine “mature-node” chips that play a far bigger role in the day-to-day economy.

Triaging has taken hold. The industry reserves what they have for AI accelerators, high-bandwidth memory, and advanced logic chips for data centres.

There is less left for chips in cars, laptops, and the consumer electronics that we all rely on. Everybody is talking about petrol prices but nobody is talking about helium.

The fear is that there could be a repeat of the chip shortage that shut down European car factories during the pandemic. A Covid lockdown at a plant in Malaysia caused crippling losses on the other side of the globe. If a semiconductor factory anywhere in the world says that it won’t be able to supply more chips, then implicitly, the car industry is going to have big problems in the third and fourth quarters.

Qatar normally supplies a third of the world’s helium, a by-product of natural gas production at its giant North Field. Not a single shipment has moved through the Strait of Hormuz since the war began.

Some 200 cryogenic containers are stranded in the Persian Gulf and are slowly heating up, causing gas to leak out through the pressure valves to avert a lethal explosion.

Vladimir Putin has compounded the shortage by imposing what amounts to a ban on helium exports outside the Eurasian Economic Union, purportedly to secure supply for Russia’s domestic economy and fibre-optic industry. This endangers another 9pc until the end of 2027.

For once, it is China that is taking the immediate brunt of the supply chain shock. It produces barely 15pc of its own helium needs. All the rest comes from Qatar and Russia.

America is sitting pretty in one sense. It is the world’s biggest helium producer with two-fifths of the market.

But that does not shield the US from the larger supply-chain consequences any more than US oil supremacy spares it from rising crude prices and mounting shortages of jet fuel and diesel, leaving aside fertilisers, sulphur, and aluminium.

The US subcontracts most of its chip production to Asia. Its share of global semiconductor output has collapsed to 10pc from 37pc in the 1990s. It will be years before the US chips act and manufacturing rearmament turn this around.

More than 75pc of the world’s semiconductors are made in the Far East. Nvidia either makes or finishes all of its most advanced Blackwell chips at TSMC plants in Taiwan, while Samsung makes high-bandwidth AI chips for Google in South Korea. Both countries normally rely on Qatar for two-thirds of their helium.

Large volumes of workhorse chips for just about everything else are made in Vietnam, Malaysia and Thailand, often at arms-length operations for China.

Analysts say the world had plenty of helium before the war broke out and can probably cover half the loss from Qatar at a pinch.

The industry has an informal system for allocating scarce supply to the most critical needs. The top of the food chain are MRI machines, chip manufacturing, aerospace, and nuclear power. At the bottom end are things like welding. There is no doubt that some people are going to get badly hurt.

One thing we should have learnt from Covid is that once the world’s just-in-time (J-I-T) supply chain goes into convulsions, with ships scattered to the four winds and stuck in the wrong place, the effects can be drastic, long-lasting, and out of all proportion to the nominal value of the goods.

If the war drags on for a few more weeks – as it may do so since both Donald Trump and Iran’s Revolutionary Guards think they are winning – there are only two solutions. Either the market destroys demand in its own ruthless way or governments step in with emergency measures and make hard choices, something that Britain seems incapable of under Sir Keir Starmer.

For aviation fuel, diesel, or naphtha, it may mean a taste of wartime rationing. For helium, it may soon be a question of whether liberal democracies allow billionaire tech giants to outbid everybody and hoard scarce gas for unpopular AI expansion.

Do politicians finally face down the hyper-scalers and redirect helium supplies to the urgent priorities of military and energy rearmament, as well as to sustain routine sectors that employ infinitely more people?

Just days ago, Marco Rubio, the US secretary of state, more or less, admitted that Iran’s regime now has enormous power to do harm and that Washington has no coherent plan to restore the status quo ante, let alone to reach a better outcome that vindicates the war. “The Strait of Hormuz is basically an economic nuclear weapon that they’re trying to use against the world,” he said.

But what is to be done about it?

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