China: Ever the Middle Kingdom?

ChinaChina is replacing the United States! China is in big economic trouble! The media seesaw proceeds; what are we to think? We are clueless as to that, you’d best do your own thinking, though we caution against too much media help. This is what we think, disagree with our blessing, so long as facts underlie your conclusions. Well, and logic. We do as we can with what we find, but we don’t know much, courtesy of an American public education and U.S. media.

Here’s China, from the American Southwest: (Laughter permitted.)

  1. China lagged, walling off technical and economic progress to protect its government from feared resulting civil disorder. It saw stability in stasis. The Europeans forged ahead and China has been playing catch-up ever since.
  2. Its totalitarian governors, unhappy with a rear seat, have forced that catch-up as best they could, abandoning the ruling socialist doctrine after WWII to do so. But,
  3. While abandoning the official doctrine, the governors clung to their totalitarianism. They freed entrepreneurs to pursue wealth while clinging tightly to economic control. (A sort of idealistic oxymoron, to us.)

The net result has been rapid industrialization relying upon both government fiat and imported capital. Semi-slave labor accelerated production that was sucked into existence by the resulting low prices on world markets. Much erstwhile production was sucked into China from higher cost producers. The economy boomed.

However, government-forced growth is inefficient and wasteful, rewarding political rather than economic needs. Totalitarian governors favor some over others; economic imbalance results. The Chinese economy is full of unbooked losses that will force themselves into unpleasant fact at some point, appearing like ants in a dirty kitchen. China has built cities that remain empty in its commitment to prevent private ownership of real estate. And its corruption assure that those wealthy enough acquire what is denied to the masses. Much is wasted or misdirected as a result.  Responsibilities fall into politically correct rather than economically effective hands, too; more inefficiency results.

The Chinese stock market recently fell massively; the government stepped in and stave off further collapse with purchases. The government, in other words, manipulates the market rather than allowing market forces to apply.

China owes some 28% of its GDP in total debt.

And huge numbers of its population have yet to experience the new wealth its growth has generated. At this point, not fully industrialized and still full of poverty, the Chinese economy is slowing because the world economy, its customer, is slowing. China is therefore buying fewer commodities; sellers of raw materials reflect that slowdown. The world economy is shrinking, China with it but its population’s needs do not shrink. That is trouble.

The Chinese government is sweating its “Mandate of Heaven” as the pressure builds. Chinese claims to far parts of the China Sea from areas claimed by Japan to the Philippines are being pressed as never before. Practice is held for invasion of Taiwan. Border clashes with India have been common, though less so recently.  Chinese  propaganda has become more nationalistic.

In spite of declining economic growth, China is pushing as large as possible a buildup and modernization of its military, just as Russia is doing. And its long standing border disputes with Russia seem to be on hold.

So, China is of neither economic size nor condition to replace the U.S. anytime soon, seems to us. But given all the decades of forced growth, neither is it about to disappear from the world economy. We see it as a bit of a Potemkin economy, less than it seems. China was able to drop Communism without replacing its government but as a price of that, still locks up far too much in government hands, preventing optimum production and wealth.

Awaiting the world’s next financial cataclysm, China is handicapped by both corruption and government-imposed inefficiency, we suppose.

China like Russia, is using nationalism to divert attention from economic decline, a dangerous game. It is not breaking out as an economic giant astride the world nor is it about to go away.

It seems clear that Iran has figured out that the U.S. cannot continue its role as the world’s policeman; Russia’s Putin and now China see it no less. While the lion lies ill of debt and overspending, the wolves come out to play. That’s the human condition and ever has been, we think.

But a sick lion remains a lion nor are the wolves immune to the international financial pathogen. The international pecking order seems likely not to change much, but for newly nuclear players coming out. That can’t be stopped, as President Obama’s attempt to put a good face on Iran well illustrates. The financial luck is winding down as well, raising the chances for war via miscalculation.

The Communists brought China out of its stasis into modernity of sorts over millions of dead Chinese. It appears to us, another such mega-change will be needed before China moves significantly up or down the world’s pecking order.

However, as we are often reminded: What the hell do we know?


About Jack Curtis

Suspicious of government, doubtful of economics, fond of figure skating (but the off-ice part, not so much)
This entry was posted in Economics, Foreign Policy, Government, Politics and tagged , . Bookmark the permalink.

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