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Tricky Dick Went to China 50 Years Ago

March 05, 2022

It was fifty years ago that Richard Nixon visited China to launch a new era of interaction with the communist regime.  Jane Perlez beat Nixon to China by five years and recently provided an account of the visit and her experiences there in a Financial Times article entitled A Week That Changed the World. Nixon disembarked Air Force One on a cold day in Beijing in February 1972 to be welcomed by Chou Enlai, Prime Minister of China, who is shown below teaching Nixon the fine art of chopstick dining. Nixon’s mission was clearly to meet with Chairman Mao to drive a wedge between China and the Soviet Union. 

Just five years prior to that time, Jane Perlez visited Canton, or what is now Guangzhou, to witness the treatment of Chinese who were designated “revisionists” by Mao’s Red Guard which likely resulted in their execution. The Cultural Revolution was in full swing then and likely resulted in millions of deaths while creating a massive standstill in economic activity.  A close friend and Chinese physician described to me how his father and mother, both physicians, were subjected to similar Red Guard abuse but survived. Under their dire living conditions, the son contracted amoebic dysentery and was on his deathbed.  His parents sold everything they could spare and bought salt and sugar for him to drink in boiled water. They then captured his urine to recycle the brew. He lived and is now a famous colorectal physician in the U.S. The Red Guard, as shown below, acted at will with no restraints on them while carrying Mao’s Red Book.   

Nixon’s greatest fear was that he would be unable to meet Chairman Mao who epitomized China.  Nixon was the architect of the rapprochement policy with China though it would likely not have happened without three years of hard work by Henry Kissinger. When they finally met, Mao was on his best behavior as Nixon and Mao seemed to become “best buds.” Following the disgrace of Watergate, Nixon slipped off the page while Kissinger prospered financially with advisory and various board positions. In fact, I did a transaction with a company where he was an advisor receiving an astronomically high annual fee. Once I encountered him in a fancy private club in New York where he was eating oatmeal for lunch which made me wonder about his prowess as “cold war warrior.”  

I first visited China in the early 1980’s which began an involvement that lasted some forty years. I must admit that I did use a political connection in the beginning to pave my way though I subsequently abandoned it when I came to understand the oil industry in China. My first reaction was how primitive everything was at that time. Images like that shown below would not have made great promotional material to support the socialist system. 

Initially my objective was to evaluate oil and gas opportunities which I found to be like something out of the “stone age” as shown below. In fact, I traveled throughout China and concluded that their small fields offered little opportunity and the undeveloped future of the giant Daqing field would be reserved for PetroChina.  On the other hand, it was clear that China would be the future buyer of proven international oil properties. We ultimately sold them a discovery we made in Yemen and one we made in Mongolia.  They wired the funds for the Yemen oil field the day after Houthi rebels blew up the pipeline though we came close to a “bloodbath” to collect a contingent payment for Mongolia. 

Throughout this period, there was always the backdrop of Chairman Mao’s watchful eye, if only spiritual. Nixon had no illusions that China would ever become democratic while the Tiananmen Square massacre in 1989 provided perfect clarity. Nonetheless, his visit provided him a seven-point jump in his approval ratings. 

There has been tremendous change in China over the years from what was once a primitive environment illustrated below.  I photographed this image of a residential house that the local central committee had condemned with the occupants told to move into state-owned high-rise apartment buildings which represented a massive “land grab.” Many of the residents were offering their furnishings for sale to start over in a high-rise building that would be one of a vast number.  We looked but were not certain we could take home the entrance way doors as carry-on. 

Therefore, the core population centers in China are high-rise buildings in mass numbers that are being sold now at equally high prices. I have a Chinese friend living in the U.S. who did very well financially in the early days of high-rise private condominium apartments in Beijing. However, if you move very far out of the congested city centers, you will find images such as that shown below -- an aging population struggling to get around and survive.  Notice the elderly woman is trying to eke out a sustenance living by pedaling a taxi. 

Massive project developments and relaxed financial terms to “friends of the party” have now resulted in a wildly overextended financial market that is causing significant financial distress.  The most notable example is that of Evergrande, the second largest property developer in China, which is buried with over $300 billion in debt.  Just a glance at their property location map below might lead you to believe that they are massively over-extended geographically as well as financially. If one is close to the inner circle in Beijing, one can be afforded special consideration. Nonetheless, ultimately the final numbers provide the answer. Some years back we knew a wonderful young Chinese couple. The young man was a thriving industrialist, and his lovely wife was a Chinese Olympic gold medalist. The young man’s family was placed on the Beijing blacklist, the family’s wealth was stripped away, and the gold medalist left him.  It would lead you to believe that everything in China is rigged, including relationships. 

Recently, Putin met with Xi Jinping to stake their territorial futures at the opening of the Winter Olympic Games. Dismissing the United States, Putin likely made his intentions on the Ukraine known as well as other Former Soviet Union territory while Xi likely said Taiwan was to come back into the China fold. The two leading dictators of the world have spoken and so it shall be. 

Having worked in and around both China and Russia for many years, count your fingers when you shake hands with any of them.  What do their recent actions mean—both China and Russia have shrinking work forces, aging populations, little immigration, and a miserable outlook for the future as they exist today.  China has another issue and that is they do not have adequate oil supplies. They are developing additional coal-fired power plants but will always be dependent on imported oil. Both Russia and the United States will be oil self-sufficient with the U.S. having become independent following their oil shale development technology.  

Russia exports oil and gas while China exports manufactured products.  In the final analysis, if you have no friends and no desperate markets, you need a strong domestic market to consume your own products which China lacks. All three countries inherited historical natural assets and liabilities from their physical locations, climate, and terrain.  Of the three countries, the U.S. was the most blessed by nature and location which was buttressed by several acquisitions such as the Louisiana Purchase and Alaska along the way. If you lack something, buy it and do not try to steal it.

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