Tuesday, August 23, 2011

So what happens when China explodes?

What an amazing year! We have seen turmoil in Yemen, Iran, Algeria, Bahrain, Tunisia, Qatar, Syria, Egypt, Lebanon, Sudan, Morocco, Oman, Mauritania and Libya. Did I leave out any? The despots in the Middle East and Africa have probably not had a worse year. Naturally, the question is "when will China blow up"? Consider the following: everywhere in the world, the Chinese are capitalists. They are the entrepreneurs, the shop keepers, the bankers, the merchant class all over the world - except mainland China. In their native homeland, the communist government is practicing fascism - big government and big business and has allowed only limited entrepreneurship among the masses. If you think the Chinese economic engine is mighty now, imagine what it would be if the Chinese people's freedom to invest, to choose, to own property were unleashed? But right now, Chinese mightiness is vastly overstated and overrated. Consider that now domestic consumption is only a pitiful 35 percent of GDP. That emphasis on exports while surpressing imports is an historically failed strategy. It harkens back to mercantilism which was derided by Adam Smith in 1776 as lowering the economic well being of the British people. The same is true today. With the Chinese so dependent upon exports, the slowdown in the world economies is leading to a sharp decline in Chinese growth. Chinese well being has not been appreciably affected by its economic growth. The Chinese poor and its rural population have benefited hardly at all. At home, Obama fuels class envy. The same is doubly true in China where there is real discord between the poor majority toward the nonpoor and the well to do bureaucrats. China's problems have been compounded by the anger of its people over its staggering losses on its holdings of US Treasurys and other foreign assets estimated to be over $3 trillion. Add to this the growing threat of inflation and revaluation of the yuan. All this means that the Chinese are in real trouble. Jealousy and envy among its people, a faltering economy, authoritarian leadership, lack of democracy and a myriad of troubles point to the inevitable - a collapse of the Chinese economy and a revolt of its amongst its people that will make the upheavals in Africa and the Middle East look like little leaguers.

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