Hello everyone, Peter Zeihan here coming to you from Colorado. I hope everyone had a great Thanksgiving and I hope it kicked off a fantastic holiday season for everyone…holiday, Christmas, Hanukkah, Kwanzaa. Whatever you call it, whatever makes you happy, just not somebody else’s culture war issue. Today we’re gonna talk about something significantly more significant…sure…and that is the end of China, which is moving out of the realm of the theoretical and the historic, into the here and now. 

What’s going on right now is there are protests involving thousands of people against the government that are at least nominally about COVID restrictions. Now extensively, there have been two triggers for these sort of mass…. semi-coordinated protests. The first was a fire that occurred in the western city of Urumqi that killed people who were under COVID quarantine. According to Chinese laws, when it comes to quarantine, people can’t move and it doesn’t matter if your building is on fire. And it also meant that the fire service couldn’t get into the building to do battle with the fire. Anyway, it’s policy in China to weld people into their homes in their buildings whenever they’re under quarantine. So toss in a fire and shrug. 

Second, the World Cup. 

China is an information state, and part of that means that the state lies to you about anything it finds inconvenient, like the fact that most of the world has found a way to move on from COVID. Well the World Cup’s live broadcasts show tens of thousands of cheering and booing fans without masks. And well, folks got cheesed off. So we now have protests in every major city. The overall number is at least in the high tens of thousands of people participating. And it’s difficult to know more detail than that, because it’s an information state. China is a bit of a black box for policy because China is a one-man state, but that one-man state is becoming overwhelmed with non-compliance. And the government just doesn’t have the bandwidth to come up with policies that most people would consider normal, but I think the best word we can use here is creative. One person only has so much bandwidth. 

And so we’re seeing institutional freezing and breakdown. Because this…this isn’t the United States, where a bunch of suburban housewives descend maskless on a food court and start yelling “let’s go Brandon,” or a few yahoos glue themselves to a museum wall. We can obviously get through crap like that. But it isn’t clear that China can. 

It has to do with a different structure. The United States has different levels of authority: Local, state, national, legislative, judicial, executive, neighborhood, business, academic and so on, independently garnered, constitutionally guarded, community created, overlapping sometimes clashing, often messy. But interests generate power, generates authority, generates durability. Not in China. China is a one-man state because it is nearly the only way that China can exist.

This isn’t Sweden or Denmark, or France or Argentina or Korea, where the bulk of economic and political power exists in one city. So it’s easy to come to a degree of consensus. 

China’s population is spread out on a huge swath of territory comprising everything from near-Arctic to fully tropical and regional disparities abound as you would expect. But this also isn’t the United States, where our definition of inequality means that the average person in Maryland is about twice as wealthy as an average person in West Virginia. China’s regional disparities are a 10-to-1 span, nor is this a country like Germany or the U.S. or Japan or India or Indonesia, where geography was kind enough to enable physical integration via either waterways or easily-maintained road and rail networks. And so where you have integration, you have commonality. You’ve never had that in China. 

The North China Plain has its own region. The Yangtze basin is an industrial powerhouse with few connections to the north. And the cities of the southern coasts have always looked abroad for their welfare, their safety and even their food. The only way to make China work is to force it to, and these many disconnects show up in Chinese institutions. The Chinese constitution is a joke. It isn’t even referenced by Chinese courts. There’s no rule of law, there is law by rule and that rule is whatever Xi the chairman says, and he is a horrible delegator even within the Chinese Communist Party.

The COVID restrictions in play right now are part of that milieu. They all draw their authority and power not so much from the Communist Party or the Chinese state, but from Xi personally. That’s how you get neighborhood HOAs enforcing COVID lockdown so brutal that fire escapes are welded shut to ensure enforcement, ensuring that people die and easily preventable tragedies like what happened in Urumqi, or city authorities thinking that they’re doing the will of Xi and…removing street signs with the word emergency in them because they just

assume that’s what Xi wants in order to smother citizen awareness. If we see meaningful resistance to any Chinese policy, China goes one of two directions. Option one, you get a rolling series of government breakdowns as Xi’s authority is challenged, and there’s no one to step in to replace him because he has purged the system so completely.

COVID has only one Chinese policy that feels a bit out of place. What about the social monitoring system that has created an information state tighter than Cold War East Germany? What about limiting controls that have contributed to real estate distortions two orders of magnitude larger than America subprime? What about laws against the VPMs that allow you to share your kids photos without them being entered into a national database? What about the deliberate cultural destruction policies for the Uyghurs and Tibetans? A crack in Xi’s personal authority isn’t simply a crack in the facade, but a fissure to the core, which would unleash a torrent of dissent that would wash away everything.

We’re already seeing the protests spread to non-related issues. University students are getting in on it. Opinions are being aired on dictatorship versus democracy, economic growth, housing, how good or how bad a job Xi personally is doing. In a country where any sort of common coordinated public outcry is viewed viewed as treason, we are already hip deep. Or there’s always option B. Xi puts a stop to it. Xi is a child of the Cultural Revolution, a 10-year-long internal repression so intense, it killed at least 40 million people and gutted what would then pass for the Chinese economy.

Neither of these are great options. But both of them are emblematic of the long run of Chinese history. Either China becomes too tightly wound and controlled and it descends into an orgy of self destruction, or central authority breaks and China spins apart in an…orgy of self destruction. And just in case you haven’t been paying attention, neither of these outcomes are particularly good for business. 

We’re now at a point where it’s not so much that if you wanted to divest away from China, it’s too late to do so in a way that enables you to salvage your facility. We probably past that point over the summer. Now, the issue is that if you lack an evacuation plan for your key employees, you might not be able to get them out at all. And just so no one overlooks the other issue: China’s domestically generated COVID vaccines don’t work against omicron, and previous lockdowns within China have kept COVID out of the general population. So very few Chinese have any natural resistance.

And now, now China has already experienced several days of mass super-spreader events. China has higher rates of diabetes than the United States. And China’s health care system is absolutely atrocious. It is difficult to put into words, which part of what is about to happen is worse for the People’s Republic.

So everyone have a great holiday season and I’ll see you soon. Bye.