Jim Rickards - China Is Trapped *vocalization*

The way out of the middle-income trap is to develop your own high-technology intellectual property that you can then apply yourself and license to others. The middle-income countries basically pay others licensing fees for the technology they need to grow.

It’s only when you develop your own technology that you can move to higher value-added in your manufacturing and earn fees from others. The key to forecasting Chinese growth in the years ahead is therefore technology.

Can China develop its own technology ahead of advanced economy competitors and create the high-value-added industries that come with it? The outlook here is not good for China. They have shown little or no capacity to invent or produce in areas such as advanced semiconductors, high-capacity aircraft, medical diagnostics, nuclear reactors, 3D printing, AI, water purification, and virtual reality.

The projects that China does have on display that are advanced (such as their bullet trains that run quietly at 310 kph) are done with technology licensed from Germany or France or with stolen technology. China has produced major technological advances, but it has done so in non-sustainable ways including excessive debt and theft of intellectual property.

China has done little innovation on its own. The stolen technology channel is being shut down by bans on advanced semiconductor exports to China, and sanctions on the use of 5G systems from Huawei. Even China’s ability to import high-tech semiconductor manufacturing equipment as a path to developing their own semiconductors has been cut off through export bans from the U.S. and Netherlands.

The second hurdle to growth in China is its overreliance on investment to drive GDP. A country’s GDP account consists of consumption + investment + government spending + (exports–imports).