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A Crushing Experience

The Village Explainer
A Crushing Experience
By Dan McGarry • Issue #58 • View online
The Village Explainer is a semi-regular newsletter containing analysis and insight focusing on under-reported aspects of Pacific societies, politics and economics.
In this issue, we look at China’s decision to clamp down on tech, criminalise cryptocurrency trading, and the implications for the Pacific and the developing world.

When he crushed Jack Ma‘s Ant Group under the heel of the Party, Xi Jinping make a clear statement about the primacy of the CCP’s self-interest. Only a couple of years ago, Alibaba was positioned to become the dominant online marketplace in Asia and Africa. This would have created a perfect opportunity to subvert American dominance in global finance, effectively creating a Surround Caterpillar moment for the company.
When CEOs sit around the campfire each evening after a hard day of plunder and downsizing, they tell the story of Komatsu. Legend has it, the Japanese CEO carefully studied the US construction equipment giant Caterpillar, and planned his company’s incursion into the US market by first winning over its competitors and dominating all the marginal markets.
By the time Caterpillar realised the threat Komatsu represented, it was too late.
Ant Group could done that. They could have taken stolen a march on Amazon, using the company’s complacence and relatively slow expansion into new currencies and markets against it.
Honestly, if Xi was sincere about a Digital Silk Road, this would have been it. He could have had half the world backstopping the Yuan—and using a China-backed digital currency—in less than a decade if he wanted. He could have supplanted the Euro as the single greatest rival to American global financial dominance.
But he didn’t, of course.
Xi has shown he’s willing to forego virtually every opportunity in order to avoid creating new rivals.
So it should come as no surprise that China has criminalised trading in cryptocurrencies.
China says all cryptocurrency-related transactions are illegal and must be banned – TechCrunch
Now, in fairness, China will almost certainly not be the last to fence in the heretofore open range of crypto trading. The Euro and the US dollar will have digital counterparts before too long, and most national currencies will follow suit.
As they roll out, trade in un-backed, borderless currencies will be relegated to the role (and value) of store coupons. They’ll be interesting and useful for niche purposes, but translating them into actual wealth will require translating them into someone else’s currency somewhere. And when that happens, you’ll be subject to regulation, oversight and control.
That control could have been China’s.
It’s hard to express how big an opportunity this was. China could have tied the fortunes of countless countries to its own economic success. It could have leveraged that influence not merely to supplant the current Rules Based Order, but to write the rules for the next one.
Emphasising finance as their main weapon in the campaign to subvert American dominance would have given China a significant advantage. But of course that would have put the two nations into a complex and costly dance replete with compromises. And it would have allowed Jack Ma and his ilk a place at the table.
Prospects for peace are reduced as a result. Without a solid economic lever to pull, the military one becomes more attractive. Also reduced are the economic prospects for countless traders large and small throughout Asia and Africa, and especially in the developing world.
Alibaba is—or was—the best hope for Pacific island merchants. There are effectively zero e-commerce options for the overwhelming majority of small businesses in the region. Sure you can buy things online. If you live in a city. And have a bank account. And a credit/debit card. And don’t mind waiting a few months.
But heaven help you should you want to sell anything. Or buy something from someone on the next island.
So now we’re two steps back again, waiting patiently for the stars to align, for the credit companies to deign to allow us merchant gateways. For online stores to recognise our currencies. For Google and Apple to even admit that our countries exist. To slog futilely through hopelessly sclerotic legal rackets just to sell a song or a story.
Why? Because our markets are small. Our currencies are risky. Our laws are poorly enforced. We’re the place where corruption thrives, because our corrupt haven’t the skill or the wealth to carve out a place for themselves in respectable joints like the City of London or Deutsche Bank or HSBC.
Countries like Vanuatu and RMI have become magnets for second- and third-tier crypto cowboys lately, and we’re likely to get punished for that, too.
Vanuatu has certainly not read the room terribly well, introducing a more crypto-friendly regulatory regime at almost the exact moment the global financial powers are ready to begin bringing the industry to heel. Now it’s going to face pressure from East and West alike for its welcoming stance toward crypto-traders, crypto-friendly currency exchanges… and their wealth.
There’s a fair amount of investment money coming into Vanuatu from China that derives from questionable—and in one famous case, outright criminal—digital trading schemes. In that case, Chinese authorities grabbed them up and shuttled them back to China without more than a passing glance at rule of law.
It wouldn’t surprise me if a couple or more fledgling investors here have a sudden change of heart about stashing their wealth here, given the circumstances.
For the rest of us, we can only return to the crushing experience of watching others make millions, even billions in international commerce, and knowing that kind of opportunity is not for us.
Not now at least, and not any time soon.
Did you enjoy this issue?
Dan McGarry

The Village Explainer is a semi-regular newsletter containing analysis and insight focusing on under-reported aspects of Pacific societies, politics and economics.

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Dan McGarry - Port Vila, Vanuatu