A Chinese general judges America’s leadership of the world economy

Summary: This series of posts provides excerpts from a recent speech by Qiao Liang, a Major General in the People’s Liberation Army. They give a glimpse into the thinking of China’s elites, unlike the US-centric perspective provided by our news media. Here the General looks at America’s leadership of the world economy, and its effects on emerging nations. He judges us harshly.

Globe and China Flag

Speech by Qiao Liang (乔良): part 2
Major General in the People’s Liberation Army

Given at a study forum of the Chinese Communist Party, April 2015
Reported and translated by Chinascope
Reposted with their generous permission.

B. The Relationship between the U.S. Dollar Index Cycle and the Global Economy

This financial economy (using money to make money) is much easier than the real (industry-based) economy. Why will it bother with manufacturing industries that have only low value-adding capabilities? Since August 15, 1971, the U.S. has gradually stopped its real economy and moved into a virtual economy. It has become an “empty” economy state. Today’s U.S. Gross Domestic Product (GDP) has reached US$18 trillion, but only $5 trillion is from the real economy.

… Many people think that imperialism stopped after the U.K. became weak. Actually, the U.S. has conducted a hidden imperialism through the U.S. dollar and has made other countries its financial colony.

… A lot of U.S. dollars went to Latin America … {creating} the economic boom in Latin America in the 1970s. The U.S. dollar index started climbing in 1979. Dollars flew back to the U.S. and other regions received fewer dollars. Latin America’s economy boomed due to an ample supply of dollar investment, but this suddenly stopped as its investments dried up.

… The Latin American economy dropped to the bottom. … Some {Americans} took the money they just made and went back to Latin America to buy the good assets whose prices had just fallen to the ground. The U.S. harvested handsomely from Latin America’s economy.

If this had happened only once, it could be argued as a small probability event. As it has occurred repeatedly, it indicates an intended pattern.

Qiao Liang

In 1986, after the first “ten years of a weak U.S. dollar following six years of a strong dollar,” the U.S. dollar index started to decline again. Ten years later, in 1997, the dollar index started climbing. This time, the strong dollar also lasted for six years.

During the second ten-year weak U.S. dollar cycle, U.S. dollars went mainly to Asia. What was the hottest investment concept in 1980s? It was the “Asian Tigers.” Many people thought it was due to Asians’ hard work and how smart they were. Actually the big reason was the ample investment of U.S. dollars.

When the Asian economy started to prosper, the Americans felt it was time to harvest. Thus, in 1997, after ten years of a weak dollar, the Americans reduced the money supply to Asia and created a strong dollar. Many Asian companies and industries faced an insufficient money supply. The area showed signs of being on the verge of a recession and a financial crisis.

A last straw was needed to break the camel’s back. What was that straw? It was a regional crisis. Should there be a war like the Argentines had {Falklands War in April – June 1982}? Not necessarily. War is not the only way to create a regional crisis.

Thus we saw that a financial investor called “Soros” took his Quantum Fund, as well as over one hundred other hedge funds in the world, and started a wolf attack on Asia’s weakest economy, Thailand. They attacked Thailand’s currency Thai Baht for a week. This created the Baht crisis. Then it spread south to Malaysia, Singapore, Indonesia, and the Philippines. Then it moved north to Taiwan, Hong Kong, Japan, South Korea, and even Russia. Thus the East Asia financial crisis fully exploded.

The camel fell to the ground. The world’s investors concluded that the Asian investment environment had gone south and withdrew their money. The U.S. Federal Reserve promptly blew the horn and increased the dollar’s interest rate. The capital coming out of Asia flew to the U.S.’s three big markets, creating the second big bull market in the U.S.

When the Americans made ample money, they followed the same approach they did in Latin America: they took the money that they made from the Asian financial crisis back to Asia to buy Asia’s good assets which, by then, were at their bottom price. The Asian economy had no capacity to fight back.

The only lucky survivor in this crisis was China.

———————– End Excerpt  ———————– 


As in part 1, this shows that General Qiao Liang’s economics share many misconceptions with those of American conservatives (perhaps he talks with American generals). As with the opening of this section, about the belief that America is a “hollow” economy. It’s often expressed as “America no longer makes things.”

That’s false. Most obviously, exports have been a growth story for America, not just growing but growing faster than the overall US economy — from 5% to 13% of GDP during the past 45 years.

Exports as a fraction of GDP

As for his theory that the US grows and “harvests” the fruits of emerging economies by means of changes in the US dollar — that’s delusional. The roots of the Latin American and East Asian boom-bust cycles were largely local. Strong dollar periods often cause difficulties for emerging nations, but there is little evidence that the US causes these cycles — or that it benefits from them.

His specific assertion are also wrong. First, that the Fed increased rates during the East Asian crisis. The Fed controls the Federal Funds rate, which cycle peaked at 5.75% in July 1995. It was 5.5% when crisis began in July 1997. The Fed lowered it during the crisis, to a trough of 4 3.4% in November 1998 (raising it again in 1999 after the crisis was over).

Second, he believes that the US sells emerging nations’ assets near their peak value — and then buys them after the bust at lower values. That’s probably is fallacious. More likely, most US investors act the same as individuals and corporations do when timing their own stock market investments — buying high (during the bull phase) and selling low (in the bust phase).

He sees the US as an evil and almost omnipotent world ruler. It suggests an insular outlook, with little exposure to views of those other nations.

On the other hand, General Qiao Liang accurately sees the ill effects of the current global structure on emerging nations — especially those that follow policies of the “Washington Consensus” advocated by US and US-dominated institutions. He also accurately describes the pirate-like actions of western-based speculators like George Soros.

Other Posts in this series

  1. China introduces us to the future of warfare (asymmetric).
  2. The First Financial Empire in History.
Unrestricted Warfare
Available at Amazon.

Unrestricted Warfare: the way of 21stC conflict

One of the key texts describing 4th generation warfare is Unrestricted Warfare, published in 1999 by Qiao Liang (乔良) and Wang Xiangsui (王湘穗), both Colonels in the air force of the People’s Liberation Army. They describe the 1997 attack by western hedge funds on the currencies of Southeast Asia as an example of this new generation of warfare.

For more about this see China introduces us to the future of warfare (asymmetric).


About Chinascope

Chinascope gathers, translates, and analyzes Chinese-language media reporting and documents that are generally inaccessible to the West. … Chinascope’s candid and objective presentation allows readers to feel the pulse of PRC opinion makers. Its contents provide a unique window into Chinese policy making, official attitudes, social developments, changing perceptions of the West, and much more. Based in the Washington it is owned by Global Communications Association, Inc., an independent, nonpartisan, 501 (c)3 nonprofit organization.  {From their About Page.}

For More Information

See this note by Qiao Liang published in Xinhua describing how the U.S. is “Containing China by Agents“. Also important is his 2010 speech about China’s geopolitical strategy: “Regional Power with Global Influence“. For more about economics seen from China’s perspective: A new world comes, probably one with no place for our “lords of finance”.

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