CHINA’S ECONOMY and GOVERNMENT WILL BE IN SERIOUS TROUBLE WITHIN DECADES

WHY CHINA’S ECONOMY WILL BE DEVASTATED WITHIN DECADES

[China’s economic boom has dazzled investors and captivated the world. But beyond the new high-rises and churning factories lie rampant corruption, vast waste, and the elite with little interest in making things better. Forget political reform. China’s future will be decay, not democracy.]

Since the 1980s, the Chinese government has focused on developing an export-driven economy supported by an artificially undervalued currency. Foreign direct investment was severely encouraged while domestic consumption was limited. Massive infrastructure projects were initiated, fuelled by a growing trade surplus, with cities sprouting up in the hinterlands like some mythical phoenix. For years, the Chinese economy benefited from these policies with double-digit gross domestic product growth, vast foreign currency reserves, and ever increasing capital inflows.

The Fact is, State enterprises are miserably unprofitable. In 2003, a boom year, their median rate of return on assets was a measly 1.5%. More than 35% of state enterprises lose money and 1 in 6 has more debts than assets. China is the only country in history to have simultaneously achieved record economic growth and a record number of non-performing bank loans.

In reality, the only thing rising pertaining to China is the hype about China.

Following is the summarization of basic points as to why Chinese Economic Model is a blatant fiasco.

Well, most of the reasons for China's short-term Economic Growth are also the reasons it is most likely subject to failure.

➀ Their economy is significantly based on EXPORTS, particularly to the west, so if North Americans and Europeans cease to buy shoddy Chinese stuff, China's economy suffers an irrevocable damage.

➁ There are HUGE inequities between the poor and the worker class and the moneyed class in China, there is the old Churchill truism that the “vice of capitalism is the unequal distribution of its benefits and the virtue of socialism is the equitable distribution of its misery.” It's like that. Education, science, infrastructure are all based on the middle 60% of Chinese populace who are still extremely poor when compared to those in other countries (US/EU/Japan).

➂ A small segment of Chinese society (5-10% of the whole) may try and to a degree succeed in achieving something approaching the lifestyle of those in the west, (cars, houses/apartments, office jobs, good education) but there will be a LARGE majority which not only “won't” but could never achieve this lifestyle, they will be pissed off.

➃ Environmental devastation, in the DEVELOPED Countries particularly environmentalism gets short sheet unless something truly tragic happens (Hurricane Katrina, Exxon Valdez , drought, etc) in China, stuff like that happens EVERY DAY, whole river systems have become so toxic, that people get chemically burned by touching the water , let alone drink it or use it for cooking etc. This has gone on for the last 20 years or so. Desertification, water pollution, air pollution, ambient toxicity in the environment (lead/dioxins etc in everything in the environment)

➄ The Environment 2.0 - With global climate change/warming whatever, it may not matter that polar bears go homeless, polar bears don't have nuclear weapons so it doesn't much matter if they are desperate communist party members too.

In China that matters a great deal as you somehow have to keep 1/2 your people fed reasonably consistently (with all the problems mentioned above). Its more than likely you could understandably become somewhat emotionally sensitive to Pakistan or India or someone else laying claim to your water reserves. Wars have begun for less.

➅ Regional conflicts spilling over, Whether it's The Head of the state of North-Korea, Pakistan Chief, some Russian disaffected Generals or Nationalists in Japan or Indonesia there are going to be 4 and potentially as many as 7 nuclear armed states right next door and at least 2 of which (at the least) are not entirely friendly to Chinese interests. This is NOT an entirely happy situation under any circumstances. Any conflict between these states (India/Pakistan) , (Indonesia/Philippines), (Russia & Anybody), would be bad news and invariably involve China.

➆ Straight economics, the Chinese "stock" market is laughably corrupt, a single US citizen with a 401k may have holdings in dozens of companies in a reasonably well diversified portfolio. In China with 1.6 billion people, there are approximately 100 companies traded on their stock-market, more than a few of these are tied to the government somehow, and there is not even a semblance of the accountability that exists in other countries in the EU , US or elsewhere.

Finally, Developed countries’ (esp. USA, German, France) national destinies are linked at the hip with China’s national destiny.

➇ Eventually one of two possibilities will come true with US debt-

A- US citizenry may wake up and demand the government put a 20 year plan or something to retire 80% of the debt.

B- US citizenry does NOT demand the government retire the debt.

Either way , China will be in serious trouble,

“A”, is obviously preferable for all concerned but that's just NOT very likely (This only really hurts China a very little bit).

“B” Is far more likely and will have bad consequences, because China and Japan and most recently India are starting to buy strategically significant amounts of US debt.

The problem is that US politicians currently have an addictive relationship with tax-cuts and debt and they clearly aren't all that serious about actually paying that debt so if the intention to default on that debt became obvious for some reason there could be a RUN on US debt. US citizens would not buy stuff and the economy could be in for a nasty shock. This would ENDANGER China gravely since they've bought so much of US debt, coupled with the exports/trade hit and resurgent concern about US national interest. US would be in danger too but that pain would hurt everyone else along with us.

Alternatively, the thinking is that you can drop an economic "bomb" on the US economy by demanding debt payment or dumping that debt onto the market , either way you bite the hand that feeds and things could get ugly, if the US economy was significantly affected, you would see citizens rioting in the streets to at least appear to get an "A", situation started.

➈ Further Redounding to an already pretty gloomy future of China is a High Dependency Ratio coupled with a very High Sex Ratio. These are bound to cause VERY serious problems for Communist Party of China! Then there are political problems with Tibet and Taiwan!

Age pyramid for China. Each box denotes a five-year age group,
starting with 0-5 years in the bottom box.
Effects of the one-child policy result in smaller age cohorts in recent years.

According to Wang Feng, a professor of Social Development at Fudan University:  

“The consistently low birth rate since the 1990s will cause a noticeable contraction in newly available labor. The section of the population between 20 and 24 years of age will decrease sharply from 125 million in 2010 to just 68 million in 2020 – a 50% decline in only 10 years.”