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Corruption So Pervasive It Makes the US Look Good by Comparison

Phoenix Capital Research's picture





 

 

 

 

Over the last 30+ years, the Chinese government has maintained control of the economy by gradually implementing reforms that permit greater economic freedom to its citizens.

 

The citizens in turn have gone along with this scheme because they believed that the system would permit them a greater quality of life and the potential of getting rich before they got old.

 

In broad brushstrokes, the official data supported this view: starting with the re-opening of formal trade arrangements in 1971, China has undergone a near unprecedented level of economic transformations. The country’s per-capita income doubled from 1978 to 1987 and again from 1987 to 1996.

 

In those 20 years, more than 300 million Chinese ascended out of poverty with accompanying dramatic changes in lifestyle, professions, and diet: between 1985 and 2008, average Chinese meat consumption more than doubled from 44 pounds to 110 per year.

 

Moreover, the China consumer (which most analysts believe has been suppressed) saw a tremendous change in habits, with consumer spending rising an average of 9% a year for 30 years. Even high-end luxury goods manufacturers such as Burberry and Tiffany’s opened stores there during the boom.

 

However, this all came to a screeching halt in 2008. As the global economy collapsed, China found its export driven manufacturing economic model was terribly flawed. The Government, in a panic, unleashed a stimulus program equal to nearly 18% of China GDP.

 

This plan worked until two items developed:

 

  1. The Global Central banks let the inflation genie out of the bottle.
  2. The Chinese population began to notice that while it was suffering, many ruling party officials were living high on the hog.

 

Regarding #1, with nearly a third of its population living off less than $2 per day, any bump in food prices hits China much harder than the US or other developed nations. With food prices hitting record highs in 2008 and then again in 2011, China began to face massive civil unrest.

 

Regarding #2, China’s government has a history of rampant corruption. Between 1991-2011, it’s estimated that between 16,000-18,000 Chinese officials fled China taking 800 BILLION RMB (roughly $125 BILLION) with them. Bear in mind China’s entire GDP was just 2.1 trillion RMB in 1991. By way of perspective, imagine if members of US Congress fled the US taking $2 trillion+ with them (US GDP was roughly $7 trillion in 1991).

This corruption continues today. If anything it’s gotten worse:

 

The CDIC report, which was obtained by the Economic Observer newspaper, suggested that nearly 10,000 luxury homes had been sold by government officials in Guangzhou and Shanghai alone last year.

 

It also claimed that an astonishing $1 trillion (£630 billion), equivalent to 40 per cent of Britain's annual GDP, had been smuggled out of China illegally in 2012.

 

Economists and experts cast doubt on the figure, but said the flow of money from China was dramatic. Li Chengyan, a professor at Peking University, suggested that a total of roughly 10,000 officials had absconded from China with as much as £100 billion.

 

http://www.telegraph.co.uk/news/worldnews/asia/china/9815998/Chinas-Communist-party-cadres-launch-property-fire-sale.html

 

Let’s provide a little perspective on the more conservative number in the above article. £100 billion translates to roughly $157 billion. China’s entire GDP is $7.3 trillion… so Chinese officials stole an amount equal to roughly 2% of China GDP in 2012 ALONE.

 

An equivalent amount for the US would be if it were discovered that members of Congress fled the US last year taking $300 BILLION them. Bear in mind, if you added up the total net worth of every politician in Washington you wouldn’t come even close to $300 billion.

 

And Chinese officials stole the equivalent of this in ONE YEAR. Not over the course of a decade, but in a single year.

 

In a country where the average college grad makes $2,500 per year, this kind of corruption is a MASSIVE problem for the Chinese government. Which is why those betting on China continuing to grow at a breathtaking pace are overlooking some of the larger cultural problems the People’s Republic is facing today. With inflation on the rise and corruption becoming more and more apparent, China has MAJOR problems on its hands. And massive stimulus will only exacerbate them.

 

This type of fraud will continue in China and elsewhere until the system breaks. At that point hopefully the bad debts will finally clear from the system and we can actually lay a foundation for growth.

 

We offer several FREE Special Reports to help investors navigate this risk and others in the financial system. They include:

 

Preparing Your Portfolio For Obama’s Economic Nightmare

 

How to Protect Yourself From Inflation

 

And last but not least…

 

Bullion 101: Everything You Need to Know About Investing in Gold and Silver Bullion…

 

You can pick up free copies of all of the above at:

 

http://gainspainscapital.com/

 

Best Regards,

 

Phoenix Capital Research

 

 

 

 

 


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Wed, 02/06/2013 - 18:35 | Link to Comment redd_green
redd_green's picture

Re "The citizens in turn have gone along with this scheme because they believed that the system would permit them a greater quality of life and the potential of getting rich before they got old."  what baloney.   The Chinese citizens

Wed, 02/06/2013 - 18:01 | Link to Comment Westcoastliberal
Westcoastliberal's picture

What do you mean "imagine if"? It already happened to the tune of $2.3 Trillion!

https://www.youtube.com/watch?v=_rRqeJcuK-A

Wed, 02/06/2013 - 17:34 | Link to Comment pashley1411
pashley1411's picture

Tired of a boiler-plate discription of China's "corruption", like someone is breaking the law, or causing shock and dismay.

Its state-owned enterprises and the political class, scratching its other's butts.   The system works as designed.   It allows officials and executives to pull money out of their respective jurisidicitions, to pay themselves and their families, and buy favors with those who have similar authority.

Sure, state "capitalism" fck's up economic signals, and sure, it spawns an authoritarian and money-centered government.    It may very well mean that China never reaches the level of wealth as, say, South Korea.

Just don't pretend that this bothers the Chineese officialdom, that Deng Xiapeng was ever a James Madison or a James Mills.   It just intellectually wacked to pretend that the goals of the Chinese Communist Party have anything to do with the greater good of the Chinese people. 

Wed, 02/06/2013 - 16:36 | Link to Comment rsnoble
rsnoble's picture

Chinas #1 problem is trying so hard to be like the USA. 

Wed, 02/06/2013 - 16:19 | Link to Comment shovelhead
shovelhead's picture

No problemo.

The Chinese can designate them as terrorists and subcontract Obama to drone their asses.

Mongolian BBQ to go.

Wed, 02/06/2013 - 15:59 | Link to Comment NoWayJose
NoWayJose's picture

It's not just party officials - just ask Caterpillar and all the other global companies that have been suckered into huge losses on Chinese shell companies.

Wed, 02/06/2013 - 15:58 | Link to Comment Common_Cents22
Common_Cents22's picture

The net worth of the 70 richest delegates in China’s National People’s Congress, which opens its annual session on March 5, rose to 565.8 billion yuan ($89.8 billion) in 2011, a gain of $11.5 billion from 2010, according to figures from the Hurun Report, which tracks the country’s wealthy. That compares to the $7.5 billion net worth of all 660 top officials in the three branches of the U.S. government.-bloomberg

 

They have an average net worth of over a billion.  not a bad govt gig in china.

Wed, 02/06/2013 - 15:32 | Link to Comment willwork4food
willwork4food's picture

So, where did it all go? Vancouver? LA? Sydney? Thanks for the article George!

Wed, 02/06/2013 - 17:17 | Link to Comment Clowns on Acid
Clowns on Acid's picture

Indeed, just look at property prices in those neighborhoods....add NYC to that list..... large.

Ben Bernanke....how will history treat this guy?

Wed, 02/06/2013 - 15:30 | Link to Comment Jackfish
Jackfish's picture

"if it were discovered that members of Congress fled the US last year taking $300 BILLION them"

 

Graham, what makes you think that they aren't trying?  Stop giving them ideas. 

Wed, 02/06/2013 - 15:30 | Link to Comment Never One Roach
Never One Roach's picture

<<many ruling party officials were living high on the hog.>>

 

Yes, it's hard to see how these 'rural officals' can afford 20 apartments in Beijing and a house (or two) in California when I read their salaries are about $800 a month. Must be alot of zero down mortgages.

Wed, 02/06/2013 - 15:11 | Link to Comment digitlman
digitlman's picture

Gov't corruption is the new Black.

 

Dumbass.

Wed, 02/06/2013 - 15:09 | Link to Comment Imminent Crucible
Imminent Crucible's picture

" if you added up the total net worth of every politician in Washington you wouldn’t come even close to $300 billion."

Did you include the money hidden in numbered accounts in the Caymans, Panama, Zurich and 50 other offshore havens?

Wed, 02/06/2013 - 16:34 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Politicians don't run this country.  We're talking about the people who run the politicians.  They are worth several trillion, at least.

 

Wed, 02/06/2013 - 17:02 | Link to Comment Pseudo Anonym
Pseudo Anonym's picture

hofjuden?

...the people who run the politicians.  They are worth several trillion, at least

about right, give or take a nickel here and dime there

Wed, 02/06/2013 - 18:06 | Link to Comment Bandit und Buster
Bandit und Buster's picture

 

Read about it here: www.synagoguerising.com

 

Wed, 02/06/2013 - 15:57 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Politician is worthless scoundrel and fiat money is worthless.

Wed, 02/06/2013 - 16:16 | Link to Comment MisterMousePotato
MisterMousePotato's picture

At least in China, they have to flee the country when they steal.

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