On a day when the yuan and the A-shares market rallied on reports of a possible breakthrough in deadlocked US-China trade negotiations (a report that was eventually rebutted by none other than Trump chief economic advisor Larry Kudlow), Real Vision demonstrated an ironic sense of timing by releasing a discussion between two of the most notorious China bears in the West: Hayman Capital founder Kyle Bass, who has staked his reputation on a massive short-yuan position, and former White House Chief Strategist Steve Bannon.
Filmed more than a month ago in an undisclosed airplane hanger, the interview involved Bass quizzing Bannon about the former Trump campaign chief’s hostility toward China and why President Trump is justified in taking a hard line against the Middle Kingdom not just in his trade policy, but in the strategy of military containment that Trump has propagated, and how that contrasts with his predecessors “pivot to Asia.” Bass started to the interview by asking Bannon about China’s “grand strategy” and how it cuts against US interests.
The “grand strategy” isn’t a difficult concept to grasp, Bannon explained. Through it, China is leveraging its economic resources to wage a concentrated war of influence against the US. It’s the most ambitious geopolitical strategy that we’ve ever seen, Bannon said. And right, now China is winning.
Their grand strategy is very simple. It’s to be a hegemonic world power. You can see it through One Belt One Road. You can it see through Made In China 2025. You can see through everything they’re doing like their strategy of being the East India Company in Sub-Saharan Africa, what they’re doing to the Caribbean, now what they’re doing in Latin America. What we call all forces of government– all areas of government focus on the economic war against the United States and their military build up.
For some bewildering reason, Wall Street and the Davos set have managed to wilfully ignore the threat posed by China by telling themselves that China isn’t territorially ambitious. But on this, they’re wrong – and China’s continued development of the South China Sea is all the proof one needs to understand that China is a geopolitical threat.
A lot of the Wall Street, City of London, and Frankfurt crowd have kind of said, oh, well, they’re not territorially ambitious. They’ve never been an expansionist power. Well, they’re a geopolitically, expansionist power. And it’s quite extraordinary what they’re doing. And they’re doing it at the same time.
But perhaps the most galling aspect of the West’s preference for appeasement over confrontation when it comes to China was the Obama administration’s willingness to accept China’s claim that its development in the South China Sea was for strictly peaceful purposes.
Three years later, what were uninhabitable reefs only recently have been transformed into 10,000 “stationary aircraft carriers.”
They call them reefs. These are stationary aircraft carriers– Mischeif, Scarborough Reef. All these– these reefs are basically aircraft carriers. And what they’ve done is they’ve put fire control, radar, search radars, and combat planes on them. These things can go.
The problem with Americans’ perception of China, as Bannon explained, is that most people don’t understand the significance of the South China Sea. In terms of trade, it’s a superhighway. And whoever can exercise unilateral control of that region can exert amazing influence on world trade. One-third of world trade – some $5 trillion annually – flows through the region.
My point. When people say the South China Sea, what you have to understand is it’s a superhighway of commerce. They have the biggest ships in the world 24/7, 365 days a year.
That’s why Bannon believes that the South China Sea is one of three flashpoints that could trigger the start of World War III.
You asked me what’s going to happen. I said on my radio show five years ago they would be in a shooting war. The situation in Qatar, and the Persian Gulf, and the South China Sea are the two greatest hotspots of the world for global conflict to start. OK? It’s not Korea. Korea’s a vassal state of China. The whole Korean thing is nothing but a Chinese drama. OK?
And while China prefers to spin the South China Sea as a purely domestic issue – since, in their view, it is unquestionably Chinese territory – the US has everything to lose if it allows itself to be pushed out.
And they will tell you, no, it’s a vital thing. We need America. We need America here because if we lose the South China Sea, we will lose any type of commerce. China would control the whole place. And the Chinese understand that. That’s where they’re trying to push us out. And they’re starting to already have the psychological warfare of exactly that. Hey, it’s 12,000 miles away. It’s really Asia. What are we involved here for? This is another debacle.
China was able to cover its ambitions from Western scrutiny by leveraging its powerful checkbook. It didn’t cultivate allies in the American and UK business communities by force. Instead, it suborned them with investments that Bannon essentially views as bribes.
This is a direct confrontation with China to say, we’re not going to take it anymore. You’ve been in economic war with us. And we’re going to reassert us. Your question about how they ingratiate themself. They’re the guys wrote the biggest checks. They wrote checks to the universities. They’ve essentially bought off the city of London, Wall Street, and the corporations. I say this in a sense of kind of anger. The great investment banks in London and in New York became the investor relations department for this regime.
That’s why, when Wang Qishan visited the US in August to meet with Treasury Secretary Steven Mnuchin, he demanded some face time with US captains of industry. And when they demurred, fearful of finding themselves in the middle of the trade war debacle, Wang reminded them that he wasn’t asking.
Being on their back foot by the Trump strategy, they kind of said, hey, we need a financial advisory panel to help us understand what the United States wants and what the United States needs. And it was Paulson, and Schwarzman, and all these characters. And it’s interesting. When they need somebody to come over and help intermediate with the United States, they go to the same guys who have been profiting on this. My understanding is that people came back and said, hey, the UN General Assembly is happening. It’s opera season in New York. My schedule is full. And Wang Qishan said, hey, boys, I don’t think you’re listening. We’re having a meeting. I want everybody to show up.
When people look back on this period, Bannon said, they’re going to be stunned by how easily everyone went along with China’s wishes. But the economic threats emanating from China aren’t solely related to its “grand strategy”. There are also significant risks, as Bass would no doubt agree, in China’s financial sector, which Bannon likened to a house built on sand. And just like with China’s aggressive military posture in the pacific, Western institutions have enabled this as well. And when the reckoning comes in the form of a brutal debt crisis, the fallout will be even worse than what we saw in 2008. And what’s worse, the exact same culprits – the global investment banks and their bosses – will be to blame.
What we’ve seen, and I happen to believe, is that the Chinese economic system is built on a house of sand. And I think it’s going to lead us to a greater financial debacle than 2008 ever was in the exact same culprits that led to the financial crisis in 2008– the investment banks, the commercial banks, the hedge funds, and the government entities. It was the same elites that led to that financial crisis and got bailed out. They had no responsibility and no accountability. They’ve been the same exact actors that have exacerbated the situation in China.
And so yes, the reason the world’s elites – the Party of Davos, the people on Wall Street, what I call the IR departments of China, which are the investment banks, particularly Goldman Sachs and some commercial banks, the lobbyists for China, which is basically the 25 or 30 largest corporations that deal in China today – their lobbyists in Washington, DC. And the big private equity guys like Schwarzman and these guys are all going to have to be held accountable for what went on in China.
Regardless of what happens with the trade war, Bannon believes Trump is doing the necessary, if difficult, work to hold China accountable and to try and slow the global widening of its sphere of influence. China has already infiltrated our intelligence services and our military, they’ve infiltrated our financial system, and now they’re seeking to break apart unquestioned US hegemony over Latin America.
Unless dramatic action is taken, it won’t be much longer until America has been completely boxed in.
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