I've said for some time that China was an accident waiting to happen. First, we have the exponential growth of the Chinese economy since the time of Deng Xiaoping that overturned the social contract established under the old governmental system established by Mao Tse Tung. Over 400 million people have been uprooted as a result of the setting up of China as the workshop of the world, and 100 million of those people have basically become homeless.
Industrial growth has used up the capacity of local airsheds and watersheds, and pollution has imposed significant costs on Chinese society. If the skies of Oregon are now visibly effected by Chinese air pollution, one can only imagine how bad things are near the factory sites of the Peoples Republic.
But this is only the tip of the iceberg. Every year, the number of civil disturbances has risen inside the PRC. My old information said that there were 30,ooo unreported civil disturbances, but updated information now indicates that last year there were roughly 115,000 civil disturbances. Why is there so much local unhappiness?
Simple. By violating the social contract that the Chinese Communist Party laid down of forced equality under the Mao system, severe inequality has resulted. Local party officials have colluded with industrialists on land deals that have forcibly removed peasants from their lands with no compensation. Everyone and their brother knows that the business frenzy of China has created too many billionaires to count. And China has a much more unequal society by money and political influence than the United States. All you have to do is to imagine the conditions that brought on the Occupy Wall Street movement, and then multiply that by perhaps a factor of ten.
One of the spinoffs from the get rich quick mentality that has infected the Chinese elite has been an exponential growth in corruption. This has creeped into every facet of Chinese life, from sitting in the classroom to recieving medical treatment.
Bribery is everywhere. However, the worst of the worst corruption has been reserved for the incestous relationship between local Chinese Communist Party officials and development projects.In many ways, corruption in China can almost be seen as a pyramid scheme, with the small fish feeding part of the percentage of their ill gotten gains to fish higher up.
It matters little whether it's Foxcomm making Ipods or the Peoples Liberation Army running their own factories for both consumer and military goods. Corruption is as pervasive as the air and water pollution.
Most recently, corruption has reared its ugly head over the sacking of Bo Xilai, former party leader of Chunquing. To hear the official press accounts, you'd think that Bo was merely one rotten apple in the barrel. I can assure you that this is government propaganda. In order to rise to the top of Chinese society, it's necessary to swim in a corrupt system. Thus, I would imagine that the old head of the Chinese government (Hu Jintao) and the new head (Xi Jinping), are as corrupt in their own way as Bo and his family were. And this corruption has spread its tentacles deep inside the Chinese military structure.
A whole rat's nest of princelings has been created in China. It's no accident that Bo's son attended high school at Harrow in England, followed by an undergraduate degree at Oxford, and that he's now in business school at Harvard. And since landing at Harvard, he's downgraded his wheels to a new Porsche. Doesn't everyone in the world recieve the same standard of education? So, instead of the 1% lording it over a now lower middle class, as it is in the USA -- China has its billionaires lording it over a society where over 1/3 of the country makes less than $400 a year. Talk about the class struggle!
And if this weren't enough, I've documented the threat of the Chinese housing bubble in my older post entitled (BEWARE! The China Scenario 4/29/11). The jury is still out as to whether this will create the conditions for a new financial implosion that would match the severity of what occurred in the United States in 2008.
The highly centralized dictatorial system in China gives their leaders significant freedom of action that would be envied by Timothy Geithner and/or the Federal Reserve Board. The Chinese government is taking steps right now to broaden types of credit by allowing for more open forms of capital investment, instead of the tightly controlled secret banking system being run by and for the benefit of various ruling famlies in the secret, underground banking system.
On top of all of these problems is the question of leadership at the top. Hu Jintao, current First Secretary of the Chinese Communist Party, is stepping down because of mandatory age requirements within both the Politburo and the Chinese Central Committee. Many veterans, who are 70 years old or older, are being forced to step down, being replaced by party officials in their 50s. This generational shift to much younger, more ambitious political warlords in place of the old greybeards is yet another variable in the complex equation as to whether the PRC will be able to transition smoothly this year.
Since the Chinese are so good at keeping significant pieces of news under wraps, it will continue to be difficult to know just what exactly is going on behind the scenes. The events surrounding Bo Xilai, I am sure, are being filtered by the other elites of the Chinese Communist Party as reported by Xinhua or other government news organs. There is no reason to believe that the counter-elites are either more virtuous or less corrupt than Bo. Only one example was the mini-coup in Beijing's neighborhood of ruling elites several weeks ago. Military and police supporters of Bo Xilai took to the streets demanding democracy. Whether there was gunfire or not was disputed in the press.
However, incidents like these are almost sure to reoccur in the summer. Whatever direction the PRC goes in the near future, there is only one thing certain. And that is, that the new government will find itself in the midst of an extremely rocky transition period.
TIP:
Enter the amount, and click "Tip" to submit!
Inverted Interrobang
kenneth houck
Paul Fassett
Donegal Descendant
Steel Breeze
l'Heure Bleue
Salon.com
Comments
:-) / r
Gotta go find out about the meteor that touched down in northeast Cali now. Shook the house this morning like King Kong on steroids.
Most people celebrated the downfall of Romania and the other communist bloc countries of the Soviet Union, with good reason. But one of the consequences was the capitalist triumphalism and the embrace of unrestrained corporate capitalism. That has led to the gutting of the middle class in developed countries and the exploitation of third-world workers -- and that has led to a worldwide recession and mountainous debt for most nations, some of which may go bankrupt -- including this one.
Should that happen, the Chinese stand to eat a couple trillion dollars in US debt. But what's worse is they will also lose their best customer. As a consequence, the millions upon millions of Chinese relocated from farms to factories (labor camps) will be left with no place to go and no social safety net. That is certain to lead to another revolution.
The promise of globalization was that it would be the rising tide that lifts all boats, but instead -- thanks to corporate crapitalism -- it has become the tsunami that sinks all life-rafts.
Strange thing about the whole economic mess the world is in though.
I have read that right now China is buying bonds in the world market in many Billions of dollars.
But they are demanding vast amounts of real estate and physical assets to back them up, NOT more paper money.
I wonder what American goodies that last visit of the Chinese head picked out when he came to visit Obama in Washington.....
I guess we will find out one day, or maybe not...
I think China's cash reserves are still too substantial to have a US-style collapse. The US banking collapse occurred because a large amount of debt was accumulated that couldn't be paid off.
“I have read that right now China is buying bonds in the world market in many Billions of dollars.”
Just to be clear, China has just under a trillion dollars of US Debt alone. Worldwide I imagine they own well north of a trillion.
“But they are demanding vast amounts of real estate and physical assets to back them up, NOT more paper money.”
Although I’m sure China owns real estate and other physical assets, when they buy US debt they are essentially buying promises. In other words, to the extent we default, China has no recourse. That doesn’t mean I’m suggesting we default, just pointing out that debt is not tied to physical assets.
Rwnutjob:
“China has some very serious problems and the US had better wake the hell up, or else.”
Outside of lowering our dependence on Chinese capital via debt sales, what do you suggest the US do about China?
China's biggest threat to America is that it will stop showing up to our bond auctions.
You might want to look up exactly what backs up those bonds of the US held by China.
Rest assured it ain't a stack of American paper bonds. China might have many problems, but buying paper assets is not something they are doing, either in Europe or this side of the water...
I also love the observation that the importance of the US to China is that we are their best customer. That's why our collapsing middle class is so dangerous to everyone - American investors who think they're safe by investing in China aren't precisely because of that link.
My guess is that the Communist regime was always exceedingly corrupt. This is why Russia's capitalism and government is pretty rotten.
It takes a lot of trust in your fellow man and your legal institutions to trust a random stranger (ie company whose head you don't know, bidding on your project). Maybe we should ask, instead, how does this rare thing manage to happen when it does, rather than assuming it is the norm.
Anyway, while I think China will collapse in the long run, I'm not willing to make any bet on whether it will take months, years, decades or longer.
While I don't know much about Romania, I'm willing to bet the communist apparatchiks were deeply corrupt, so it wasn't Reagan, but the system and society that brought corruption with them.
The point I was trying to make -- and that I'm assuming Kosher was agreeing with was that the too-rapid transition from a largely agrarian economy to a largely industrial economy without changing cultural norms and the institution of a social safety net inherently contains the seeds of revolution.
To a large extent, that holds true whether it was America from the turn of the century to the New Deal under Robber Baron capitalism, Romania and other Soviet bloc nations under Communism, or present-day China under the Neo-Communists.
It remains to be seen, but revolution is not far off here again, unless something is done to bring financial skullduggery and corporate crapitalism under control. Frankly, the odds are stacked against such reforms, but you can rest assured there will be NO such reforms should we be cursed with a Romney presidency.
The upper, upper classes could be extremely impacted in a bad way from a Chinese real estate implosion, and coupled with unrest at the local level -- this could cause a witches brew of more social unrest, factionalism at the top, etc. A Chinese real estate implosion could also affect the overseas banks and multinationals doing business in China.
Secondly, as to Chinese bond purchases of US Treasuries. The reason why China has put over $1T in T-bonds and T-bills is that this system of Wal Mart goods for Ts is mutually satisfactory. Both sides (US & China) find it to their advantage.
The USofA is about 4% of the planet, consumes 24% of natural resources (the ones that matter, anyway), and 1% of USofA citizens use most of that. The billions in India and China will never get there before the resources run out. War betwixt Us-uns and Them-uns is an interesting proposition.
On one hand, nuking Asia will relieve the population bomb for quite some time. Background: it's now understood that the plagues of the middle Dark Ages were the birth of the middle class; there just weren't enough peasants to go around. We need a new plague to remove about half of the planet's humans. I don't expect that there'll be many volunteers. Well, except may be Buddhists and some Born Again-ers.
Nixon was just dumb enough to believe his own propaganda. The Right Wingnut capitalists be sucked up to understood that cheap labour was the point.
What I was objecting to in Kosher's comment was the idea that developments in Romania were the US's fault, through Reagan's actions ("preaching laissez faire crap"). It's incredibly arrogant to assume that we had that much influence and dead wrong, too.
We've spent billions of dollars earnestly trying to build institutions and decent government in corrupt countries across the globe, from Afghanistan to Zimbabwe with dismal results.
We'd have to truly be an evil empire bent on destroying the rest of the world to have the influence we're credited with and so many years of effort with so little to show for it.
There's an interesting article in the latest Economist about the coming demographic crisis. China's one child policy makes them one of the fastest aging populations and they will not really have finished developing before they have an overload of elderly to be supported.
The Chinese call this the 4-2-1 problem. Four grandparents and two parents per twenty something. In contrast, my parents have 4 grandchildren. Whether you view this as a familial burden or a social burden, it is 1/4 of what their Chinese counterparts have to bear.
China is a very interesting country so I might just write on it too to get your feedback on my thoughts. Thanks-for the illuminating thoughts.
There is burgeoning capital productivity, at least in non-essentials (food, clothing, shelter), which is the crux of the matter. I can no longer find it, but in an article I read some years ago, an American farmer said that the Great Plains soil, once the richest on the planet served now only "to hold the plants up". The rest was fertilizer. These compounds are largely derived petro-chemicals.
This is a distribution problem, pure and simple. The mass of the second worlds will never achieve McMansions and three BMW's; there isn't enough stuff on the planet to do that. Further, what old farts want is medicine, not iPhones.
What those who wish to "take action" end up dancing around is their answer: "old folks" (defined for some age number) should stop using up resources that could be used to make iPhones for the 20-somethings. It is well known that consumer consumption is largely driven by those under 40. "Old people" should just have the decency to die on time.
Given the exponential curve of population growth, "on time" will get really, really close to 40 in less than one generation. In other words, there will come a time soon when a child will be born with a "expiration age" of X years, but end up having to "expire" at X -10 or X- 20. Consider that.
My comment really had more to do with the former Soviet Union than with Romania - I just assumed, probably incorrectly, that the issues would have been similar.
When the Soviet Union was changing over to a capitalist model, if we'd had a different administration in place it's possible to probable that there would have been two differences:
1. We'd have been much more involved in assisting them, which would have led to a far closer relationship than what we ended up with. We're more adversarial these days than we have to be.
2. We'd have presented a model with a whole lot more regulation in terms of checks and balances. Instead, the people we had in power viewed government as something that gets in the economy's way. The former Soviets didn't have experience at capitalism and they ended up with something out of our turn of the last century robber baron period. We might have been able to head some of that off.