I’m not trying to blow my own horn, but I’ve been saying for a very long time that the Chinese economic model is unsustainable. There is no way that an economy can double in a short period and survive. The Fed in the US freaks out if the economy exceeds 3% expansion in a year. China has exceeded 100% a few years and recently has sustained a rate of well over 50% annually.
Why would this be a bad thing? It seems to not make sense on first look, as expansion is always a good thing. But unbalanced economic expansion is a very dangerous thing for a society to face. Money behaves somewhat like water, and an economy is like a large radiator system with thousands of different chambers, pipes, reservoirs and pumps to move the water through. It is a very delicate system made mostly of paper, however, and if water rushes in to quickly, or part of the system freezes, the radiator becomes damaged in some places, slowly the flow in others and causing more pumps to fail and more internal walls to collapse or tear away. Water in a delicate system needs time to settle to prevent damage, and new money in an economic system needs time to settle as well to prevent damage.
The Chinese government has made the mistake of trying to control its economy and expand it as fast as possible, even when the gains were just artificial. They have been engaging in illegal (by the rules of the WTO) trade practices from the day they filed their application, suppressed the natural inflation of their currency and generally encouraged an environment of unchecked expansion, unchecked foreign monetary input but artificially maintained domestic economic prices.
Why would you not want the effects of all this new money in your economy to be felt? Because if the Chinese allow their new wealth to suddenly reflect, then the yuan would increase its value. If the yuan increases its value, then suddenly the X amount yuan you pay a worker for Y number of working minutes stops being worth only a few US dollars and is suddenly worth a lot of US dollars. That means that your product now instead of costing a few US dollars in the US now costs a lot of US dollars in the US. Which might make your export prices higher than those of Mexico, Sri Lanka, other filthy places or even, heaven forbid, domestic US products.
If that happened, then suddenly you would have to compete. As in, compete fairly.
Fair competition is something the Chinese have never been interested in.
That being the case, the national playbook for economic expansion has generally read “screw the rules and gag the economists we don’t want to hear from right now”. With that mentality, they have ignored the problems they are soon going to face. What happens if you artificially keep your money de-valued so you can always have the cheapest labor on the international market, but at the same time you are giving your people a taste of the good life, the technologies you’ve been stifling inside your country for so long, teaching them that money is good? Eventually, more value, more products, more physical wealth existing in an economy with an artificially low national currency will develop inflation problems. Massive inflation problems.
The inflation is slowly, but surely, starting… and that is what prompted me to write this article.
Now that inflation is beginning in China, China has an ugly choice:
- Raise the value of the yuan inside and outside of the country. [Already happening, the government is just trying to stifle the trend as much as possible]
- Subsidize all domestically sold products. [Impossible for very long because you very quickly reach a point where you’ve returned to the original communist economic balance that wrecked the country to begin with years ago. General subsidy = redistribution of wealth gone weird]
- Keep the yuan artificially low, but allow companies to compensate by raising the number on the price tags across the board. [This amounts to the same thing as allowing the value of the yuan to rise. The difference here is that a higher-looking price tag will freak the consumers out and they’ll go bananas, wrecking economic predictions because consumers are suddenly not behaving in their normal way. I should point out here that China is in a completely new phase and is not capable of predicting the “typical consumer’s” habits, as they have never in their history had consumers like this. They are in uncharted economic territory, and cultural, educational and social educational gaps between the controlled (but now nicely controlled) Chinese population and other typical populations of un-controlled people will behave differently.
In the end, this is a losing battle for China.
Which brings me to the conclusion I made a long time ago… and unfortunately do not have posted anywhere on the internet anymore… Beginning with the presupposition that: Asia is fundamentally more important than the US or Europe. That is, if everyone in the world observed the same culture, had the same education and the same political systems in place, etc. then Asia would be more important. This is only because Asia has more remaining resources, more deep water ports and more people. Asian cultures, however, tend to stifle their people in the personal interest of their leaders (Kim Jong Il would be an extreme, unchecked version of this, but South Korea, for example, is not far behind). The only places that do not demonstrate this are Japan and – now that Thaksin has been tossed out… finally – Thailand.
(Singapore is an interesting place, but it is an anomaly. It is one city, and resources are something they have never had. They have focused exclusively on a few niche aspects of economics without having to worry about the rest, as they simply can’t. “You can’t make a stone bleed” and Singapore is pretty much one large man-made stone block… er… concrete anyway.)
Asia is viewed as more important by only one nation, however: China. Other nations, while being behind the times socially (India, Philippines, Pakistan, Vietnam, etc.) do not have the dangerous view that there is something horribly wrong and imbalanced with the world. China has a highly skewed view of earth in general and its importance in the world specifically. The word for China in Chinese is: ??. That means, literally, “center country”. Historically, within their limited zone, they are correct. But the public knows that, but for the wrong reasons with an absolute lack of true knowledge of their real history (read about Mao’s remaking of Chinese history to exclude things he didn’t like). They know whatever the government allows them to know. The government only lets them know that they reason they are not on top in the world is because of Japan and the US. The reason things are difficult for them is because of Japan and the US. The reason you got sick last week is, somehow, directly tied to Japan and the US.
Many think that China has always been a major power, but this is not actually the case. China has undergone many serious upheavals, had several centuries of absolute social and political disruption, and has been a huge, but highly disorganized place lately. In their recent history there have been pretty much nothing but blunders and socio-political stupidity to speak of. The great culture of the past is just that, in the past. The China of today is very different and in Mao’s making, very detached from its true history. That being said, today’s China is powerful and truly a “sleeping giant”, but not in the ways the government would have the Chinese believe nor for the historical reasons the government maintains. Saying that China should run things in Asia because it makes historical sense is like saying that it would make sense for Italy to invade everybody in Europe, unite them into a loose whole under threat of national genocide and invade south and east as far as Fate will let them go. That just silly, though, since the Italians of today are simply not the Romans of 2000 years ago, and the same tribes are not running things they way they were 2000 years ago, the political systems and structures are different, the society and culture is different, and significantly Italy’s neighbors are all in radically different situations than they were 2000 years ago. China is no different.
Hatred drives a lot of trains in China. (interesting, though occasionally uninformed, discussion here) Trying to understand Chinese people today without understanding what they have been trained to hate is a lot like trying to understand Korea (North or South) without understanding what they have been trained to hate. An interesting exercise now made easier by the internet is to find a Chinese, a Korean and a Japanese. Ask the Chinese or Korean what they think about Japan, 90% of the time you will easily produce long-winded hate-filled speeched filled with state-sponsored “facts” regurgitated with ease. Ask A Japanese about China or Korea… the outcome is absolutely different. Weird… but then again, there is a lot of money in hating Japan and pretending to still be a victim, but there’s nothing Japan will gain by holding China or Korea in contempt (and obviously gain nothing by apologizing either). Note that government reparations are only a part of the equation here, among other things protectionist treaties and tariffs against WTO agreements slide on these grounds too.
The Chinese economy is going to suffer a huge collapse sometime in the near future. The public is going to be told that this is a direct and intentional result of Japanese and US interference in China. You are suffering right now because of Japan and US, you are not able to afford eggs right now because of Japan and US, etc. Who to blame? Of course, Japan and the US! Blame everything on them! Its not so different from how Democrats in America (and even some Republicans now) view George Bush. Logic be damned! I’ll blame that guy! The problem with this reasoning is that it stirs up a lot of hate, which helps get people organized and gets things done in the short-term, but suffers from the same myopic flaws as China’s original economic program…
If you think you can always screw the piper or just pay him on credit, he’s got a little surprise for you. He will get his, one way or the other.
All that being said… I predict that China will not alter its trade practices anytime soon. China is already facing an economic collapse. Not the sort of collapse that Americans always claim to be so scared of where a little bit of paper wealth falls away, some numbers on the TV look bad and we can talk shit about each other for a little while. I mean a real, no-kidding economic collapse on the scale of the Great Depression. An unavoidable cascade of events is going to happen, each predicted and precipitated by the other in China’s economy. China will blame it on Japan and the US and suddenly have a use for all this contrived social angst. This will probably be coupled with some military posturing to show the people that they are doing something against the “Coalition of Evil” (as the Japan-US military mutual assistance treaty is often referred to within China). This military posturing will get out of hand and as things continue to deteriorate inside China, the critical thinking skills of those in power will eventually pop loose and there will be a real war.
There are deeper reasons for this, one of which is that China’s current plan is to develop its economy in the same artificial way, then use its military and economic muscle to bully everyone around into being vassal states of China and having to accept control by proxy throughout every level of their society. As scary as that sounds, that and using the booming artificial economy strictly to support military technological development and fiscally sponsor the military is actually publicly posted and stated Chinese national policy. The economic muscle required is enormous, but China is gaining it as quickly as it can right now for the specific reason of flexing it later so that an actual war of conquest will not be necessary. When China’s economy collapses the engine driving the conquest will have died… and that means the will have get out and walk the old-fashioned way… which in this case means accomplishing intentional conquest the old-fashioned way, which is to leverage your people’s state-granted hate and having a good old-fashioned war.
(It is important to note that intentional and unintentional conquest are two distinctly different things, and they should be discussed somewhere else… if I ever remember… which I won’t, because nobody cares about these subjects until events in the world are already overwhelming them personally…)
I’ve already written too much for a blog post. I should try to shorten this as much as possible, make things more concise and probably cut out at least half of the paragraphs… and then roll the complete idea along with everything pertinent I didn’t mention here into an essay and post it somewhere. Which I’ll never have the time to do. So don’t worry about it. Its funny, the Chinese meltdown and social anger-wagon and the future assault on Europe and subsequent European ass-whipping of everything Middle Eastern are the two most significant socio-political imbalance-correcting events in our time. But nobody seems to care about them very much. everything is short-term politics… but then again, this makes sense as there is a lot of money tied up in the business of coming to power for 4 to 6 years at a time in the US, and this money is what funds most media and publicly-consumed social media education. Hrumph…