Why Russia did not follow the path of China
The USA as the bearer of the “economic miracle” in satellite countries
Some countries suddenly became leaders of the world economy, having accomplished an “economic miracle” in their time.
Why did it suddenly arise in South Korea and not in Vietnam: what's the difference?
Before World War II, the United States helped the USSR, but also Germany, planning their clash, and after the war, it helped Japan, Germany, and South Korea as anti-socialist projects in defiance of the USSR. Despite the import of technology, the development of the USSR was exclusively a specific Russian product.
And Japan?
After the end of World War II, the United States governed Japan for almost a decade, which received about $1953 billion in loans from the United States until 4,5, invested in industrial development. During the Korean War (1950–1953), Japan's factories were overwhelmed with military orders for the US Army, which amounted to about $1,1 billion or 43,7% of Japanese exports. At the same time, the United States placed military orders in West Germany, helping the “German miracle.” From 1954 to 1959, the United States provided approximately $1,5 billion in subsidies and “development loans” to the Korean government.
Japan followed the same path as China, first copying, then developing its own technologies. But without markets in the US, all this was pointless. As now, the US feared the rise of Japan's power, contributing to its end. The overheating of the Japanese economy ended with the 1990 crisis, and the Japanese miracle became a thing of the past. But China is not Japan, and it is extremely difficult to destroy it.
Most importantly, the United States transferred technology, invested and opened its markets. Without this, there would simply be no “Japanese” or “Korean” miracle.
The Marshall Plan, the modernization of Poland in the 80s are all from the same series. Couldn't orders for the production of VCRs during perestroika have been placed in Russia instead of Poland? But the United States had its own plan: strengthening Beijing and weakening Moscow: that’s why they have an industrial workshop, and we have a raw materials quarry. However, after the showdown with China, US views are increasingly turning to India, which is increasingly reducing cooperation with us and looking towards the United States.
USSR and China: friendship forever?
The older generation remembers the slogan: China and Russia: brothers forever! While China was at war with Japan, the USSR helped them in every possible way. During the period of economic recovery of the PRC (1950–1952), the USSR provided technical assistance to China in the restoration, reconstruction and construction of more than 50 largest industrial enterprises. With the help of Soviet specialists, a five-year plan for the development of the national economy of the People's Republic of China for 1953–1957 was developed.
Of the 600 main national economic facilities built in the PRC during the First Five-Year Plan, 211 of the largest, which accounted for about 40% of capital investments in industry, were built with the assistance of the USSR. For the construction of 156 enterprises, which were the core of the first five-year plan, 50–70% of the main equipment was supplied from the USSR at prices on average 20–30% lower than American and English prices, and prices for heavy industry equipment were even 30–60% lower. Help from the USSR created the basis for the further development of the PRC.
In the 50s, the Chinese leadership took a friendly position towards the USSR and the entire socialist community as a temporary tactical step. This step, from Mao Zedong’s point of view, was necessary to initially strengthen China’s position. During the 1960s, relations between the USSR and the PRC after Khrushchev's exposure of Stalin deteriorated, economic ties were reduced, and things even turned into a direct clash on Damansky Island in 1969.
Soviet researchers came to the conclusion that in the period 1960–1966. There was an open turn in the policy of the CPC leadership towards the Soviet Union, its departure from the socialist principles of foreign policy, direct ideological and political attacks on the CPSU, the USSR and the entire socialist community.
America as the creator of the Chinese miracle
Unlike the USSR, China would never have risen to this level if it were not for importing technology from the United States. America is the creator and patron of the Chinese miracle.
The United States nurtured the Chinese miracle as an anti-Russian project.
How did reforms begin in China?
In May 1978, Z. Brzezhinski came to Beijing and met with Chairman Hua Guofeng and Deng Xiaoping, Deputy Prime Minister of the People's Republic of China.
As the NYT wrote:
During the visit, officials said, Mr. Brzezinski sought to demonstrate that the United States and China had similar interests in countering Soviet influence around the world.
"On the first day, Mr. Brzezinski said: 'Friendship between the United States and the People's Republic of China is vital and beneficial to world peace'...
This was meant to emphasize that both sides consider normal relations to be strategically important to counter the Soviet Union."
"On the first day, Mr. Brzezinski said: 'Friendship between the United States and the People's Republic of China is vital and beneficial to world peace'...
This was meant to emphasize that both sides consider normal relations to be strategically important to counter the Soviet Union."
In January 1979 there was historical Deng Xiaoping's visit to the USA, where he also received a very warm welcome. The PRC eventually took the place of the USSR in the world, and we were thrown far back.
China, EU and USA: only one should remain
The economies of the US and China are so closely linked that they were at one time called “Chimerica” (Niall Ferguson):
“This is a partnership between big saver China and big spender America.”
The United States provided investment and technology, in response, China increased its trade deficit with the United States and became the world's first holder of its public debt.
But the US didn't think China would be so successful. They not only copied, but also produced their technologies through the priority development of science and education. The Chinese are extremely cunning and enterprising. In Europe they know that not only their cars, but also souvenirs will definitely be copied in the Middle Kingdom. As eyewitnesses described: if an investor built a factory in China, a copy of it often immediately appeared. China is not a Christian nation, and its national characteristics fit perfectly into the model of capitalism with local characteristics.
At one time, the United States contributed to the crisis in arrogant Japan, now it is quarreling China and India, offering the latter cooperation in development. Obama started moving industry back to the US, Trump started trade wars. The US is using the Taiwan issue to escalate tensions between countries.
Globally, the United States faces three main tasks, the solution of which, in their opinion, can support its hegemony.
1. Knockout of Europe as a potential economic competitor due to excommunication from trade with Russia and the war in Ukraine. The game was a success, the US has fairly decent economic growth, and the EU is in recession. Business from the EU is pouring into the US.
This is how, according to the website ru.tradingeconomics.com, the GDP growth rates of the USA and the EU year on year look like.
US GDP growth rate
EU GDP growth rate
2. Fragmentation of Russia as the main ideological competitor through sanctions and war in Ukraine (Statfor report, 2016). Sanctions accomplish the dual goal of reducing our export earnings and depriving us of needed goods by restricting imports and isolating trade.
Sanctions will not be able to destroy Russia, but the blow to Russia’s resource-based economy will be quite painful. Here are the Federal Customs Service data: our foreign trade balance for January–November 2023 decreased to $126,9 billion from $310,1 billion for the same period in 2022. Russian exports during this period decreased by 40% – to $385,9 billion from $538,1 billion. Russian gas supplies abroad over the 11 months of 2023 decreased in physical volume by 34% in annual terms, revenue from Russian gas supplies year-on-year decreased by 69%, and oil by 7%.
In order to help exporters and the budget, the ruble was devalued in the second half of 2023 by approximately 30%, which led to the Bank of Russia raising the rate to 16%, which will cause a reduction in GDP growth rates in 2024 to the usual 1,0–1,5%. In turn, inflation increased, hitting the growth of household incomes.
Added to this is the problem of settlements with India, whose rupees we do not need due to their illiquidity. There is another problem: at the end of 2023, our gold and foreign exchange reserves amounted to almost 600 billion dollars, despite the fact that our gold and foreign exchange reserves in Europe were stuck in the amount of 330 billion dollars or 55%.
Having become dependent on imports, we have become too dependent on them, and even the 8-year period since 2014 has not given us the opportunity to restore our technical and industrial potential in the most important areas. And the period of the Northern Military District, although it dispersed our military-industrial complex, but what was previously bought in the West is now in the PRC, and the automobile market is a clear confirmation of this. We cannot start production of our aircraft, although there are developments. During the 80s, the West was able to bankrupt the USSR, and the inability to rebuild the economic model led us to a huge commodity deficit, which caused discontent among the population, to whom both privatization and the market were sold.
3. Slam China as the main economic competitor - through trade wars, attacks on financial markets and stimulation of a slowdown and crisis in the PRC against the backdrop of creating tension in Taiwan. This is what China's economic growth looks like (y/y).
Trade with the US fell under Trump in 2019-2020 due to trade wars from the summer of 2016 to 2019, as well as the coronavirus pandemic. But already under Biden in 2022, the volume of trade in goods between the United States and China reached a four-year record level - the total value of imports and exports of goods amounted to $690,5 billion, which is higher than in 2018, when the peak was recorded. Trade with China is in deficit: US imports from China are $536,75 billion, exports are $153,84 billion.
But by the end of January–November 2023, trade between China and the United States decreased by 12,2% in annual terms, amounting to $607,01 billion. The EU economy is slowing and imports are falling. The Chinese economy is focused on exports to the USA and the EU, and with a fall in exports, production also falls, the PRC economy slows down, and at the same time imports also fall. The PMI index is clearly falling.
China PMI Index
Therefore, the factor of weakening the EU also plays against China: the United States has calculated everything. The growth of trade with Russia compensates for losses in exports, but the USA and the EU are China’s key markets.
The PRC is catastrophically dependent on the United States: the presence of a huge volume of government securities, trade, including the import of equipment, and investor funds in the stock market. Until 2018, China was the largest holder of US government debt - with more than $1,1 trillion in bonds, but already in 2019 it gave way to Japan. Now this figure is gradually decreasing and has reached about 782 billion dollars. Taiwan's problem is, first of all, a battle for the possession of unique technologies for the production of microelectronics, primarily chips.
The PRC understands the complexity of the situation, both with trade wars and Taiwan. The PRC is trying to solve the problem, both through the growth of the domestic market and through external expansion in Africa, in the BRICS organization, where it is pushing its currency as the main one; Shanghai cooperation and expansion into Russia, i.e. the creation of its own pole of the world.
China is reducing trade turnover with the United States and increasing it with other countries, including Russia. The states are increasing imports from Mexico and Vietnam, moving production to Latin America and Mexico. But the US dependence on imports from the Middle Kingdom remains critical.
The main hope of the PRC is that America, under the weight of the burden of the hegemon and insoluble internal contradictions, can collapse, and then the PRC can become the “mistress of the mountain.”
India was also once our “friend” - it bought weapon, collaborated in various fields. But India, critically dependent on trade with the United States and dreaming of becoming a second China, is quite realistically turning towards the United States, buying oil from us for now because it is profitable.
America began to openly attack China after they realized that the Celestial Empire began to really compete with the United States in the field of microelectronics. Back in 2008, the US government accused Chinese companies Huawei and ZTE of posing a threat to American security. Many sanctions were imposed against China, which prohibit the sale of Chinese equipment to the United States, and bans were also introduced for some large companies from China to use the services of companies from the United States. Many restrictions were introduced against the largest Huawei, which was prohibited from collaborating with all manufacturers of components for smartphones; Google also refused to work with them.
In December 2017, in the new US National Security Strategy, the threat posed by China was placed on the same level as international terrorism, and China, along with Russia, was named as the main strategic competitors and threat to the security of the United States.
Epilogue: the decision on development is always a political decision
Why was the USSR an empire, the second economy in the world, and China at that time was a poor, backward peasant country? Why has China now become number 1 in the world in terms of PPP, India – number 3, and Russia – only number 5 and, at the current pace of economic development, will never be able to make a breakthrough?
Russia is an amazingly rich country, the reserve of the world's most necessary resources of oil, gas, metals, gold, uranium, wood, water and grain production is so large that it is possible to live without “buying everything abroad.” But China and India do not have such a “paradise”. Therefore, India is one of the leaders in economic growth rates, but we are not. Therefore, in space we are losing our leadership position, and India is approaching us.
We need to produce something, that is, develop. But development requires a source of technology, which the USA became for both the USSR and China. The decision to develop is always a political decision. Elites can always parasitize their country, such as backward African and Latin American regimes, but the decision to develop is a matter of wisdom, ideology and vision.
The secret of the PRC's success is the creative use of the experience of the USSR and the Asian "tigers", which made it possible to build a regulated economy and financial system in which there is a powerful public sector that ensures low production costs, and a powerful private manufacturing sector. Unlike Russia, the Chinese elite used Keynesian and neo-Keynesian approaches as the basis for managing the economy, rather than liberal dogmas.
On the contrary, initially Russia and its elites agreed in the 90s to a model of external control and colonization of the country, which led its economy to degradation, geospace to compression, and population to extinction.
The experience of the PRC shows that the main thing in the economy is not the issue of ownership, but the principle of management. There was no privatization as such in the PRC. The public sector was preserved and transferred to the private sector with extreme caution. Instead of our reformers' dead-end idea of privatization, which actually produced nothing, the Chinese stimulated the development of new businesses. You want to become millionaires - we will give you land and money, but we will not give you ready-made assets. Create assets: build factories and produce - and then only get rich.
The thinking of our business elites is the export and development of raw materials, low-processed products, including grain, investments in real estate, seizure of assets and their primitive conversion. And for the country to become rich, it is necessary to produce goods with added value: there is none in raw materials. The same agriculture: the fruits of the earth. With raw materials, everything is simple: it is “eating up” natural rent or capital.
In Moscow in the 1990s–2000s, everything was bought up, factories were destroyed, land was obtained, and shops and business centers were built. All the land is being developed, and developers continue to receive decent rent. Moscow is already not enough, they expanded it to the Kaluga region. The so-called “humanitarians” – people are uncomfortable, but it’s good for business – the density of “revenue” is high. Everything is being built up. But the number of enterprises being built is miniscule. Sooner or later this will end in transport or infrastructure collapse. We have so much territory, why put all your eggs in one basket: we need to develop the regions.
China is developing its economy through the development of science, education, new technologies and products - we are developing through land and real estate, oil, gas, metals and grain growing. Wasn’t it the same in Tsarist Russia, where land was also the main asset?
There was no shock therapy or sharp price increases in China. On the contrary, our liberals, together with the IMF, bankrupted the country and deprived the population of savings, so that there was no business or investment, but everything was bought up by foreigners and local nouveau riche. This is how initial capital arose in Russia: but it did not bring any benefit to the country.
America used China as an industrial workshop to increase the profits of its companies and destroy its own middle and working class, at the same time displacing the USSR. Therefore, China has grown, but our population is declining, development is marking time.
The average rate of economic development of Russia for the period from 1992 to 2023 was only 0,89%, while the average growth rate of the economy of the Russian Federation within the USSR from 1950 to 1990 was 6,6%.
Over the same period, China's GDP grew 14,5 times, and US GDP almost quadrupled from $4 billion to $5 billion.
From 2013 to 2021, the PRC economy grew at an average of 6,6% per year, and the economic growth rate of India's GDP from 2000 to 2017 was 7,1%. Average growth rate of the world economy for a sample of 250 countries for the period 2013–2021. amounted to 2,5%.
At the end of 2022, the excess of Russia’s GDP level over the 1991 figure was only 30%. Russian industry in 2023 for the first time in 33 years has crossed the mark of 100% of the 1990 level.
Russia’s share in world GDP is continuously decreasing; if in 1992 our contribution was 4,854%, then in 2022 it will be 2,918%.
There are many changes for the better in Russia.
There has been an advantage in our direction in the Northern Military District, and arms production has increased. There is a construction boom in the country, excellent roads and infrastructure are growing. The shops are full of everything.
But we still cannot move on to the active development of industry and technology. The population is declining. Large cities are developing - the horse is not lying in the outback. More than 60% of the population is surviving rather than living. People's nostalgia for socialism is growing. The continuation of the raw materials economy and a turn to the East will cause further degradation of the economy.
Russia has in many ways challenged the West and is waging a direct war with it for its ancestral Russian lands. This is a huge, colossal step forward, and it will take us to the restoration of our former greatness.
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