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The Single Most Important Issue For the Power Elite In China… And What It Means For the Global Economy

Phoenix Capital Research's picture




 

As noted previous articles… the global central banks have begun to realize that the success of their reflationary efforts has resulted in yet another speculative bubble in asset classes, specifically stocks and real estate.

 

Nowhere are these issues more evident today than in China.

 

Many commentators have spent a great deal of ink proclaiming China to be the next great economic power. While it is true China has seen dramatic improvements in its economy over the last 30 years, my view has been and remains that most of the “growth” of the China “miracle” is just a debt-fueled bubble built upon a loose foundation of Government corruption and fraud.

 

The reason 99% of investors fail to see this is because:

 

1)   They believe Chinese economic data as gospel.

2)   They fail to understand China’s economic policies from a political perspective.

 

Regarding #1, Chinese economic data is absurdly gimmicked to the point of making the US’s look clean in comparison (no small feat).  Indeed, back in 2007, no less than current First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALL Chinese data, outside of electricity consumption, railroad cargo, and bank lending is for “reference only.”

 

Put another way, one of the top-level Chinese politicians admitted in private that China’s economic data is a total fiction. However, the reality is even worse than this admission. The truth is that even China’s electrical consumption data is dodgy at best as it has become a political tool for the Chinese Government to illustrate its “growth” much like China’s GDP.

 

The reason for this economic gimmicking pertains to #2 above: the political perspective of China’s economic data. As a communist regime, China’s government has one focus and one focus only. It’s not economic growth for growth’s sake, nor is it improving the quality of life for China’s population.

 

No, China’s Government is obsessed solely with remaining in power.

 

The reasoning for this is that a Government job remains the easiest, cushiest means of becoming wealthy in the People’s Republic. Case in point, last year Chinese officials are known to have stolen at a minimum the equivalent of $157 billion.

 

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

 

To put the above numbers in perspective, this theft is equal to roughly 2% of China’s total GDP. On a per official basis, we’re looking at roughly $15.7 million… not over the course of a decade but in ONE year.

 

In contrast, the average college graduate in China makes $2,500 per year. So you’re talking about an average theft equal to over 6,250 years’ worth of work for a college educated Chinese civilian.

 

A few other indications of just who is getting ahead in China:

 

  • Immediate family members of Premiere Wen Jiabao control assets worth at least $2.7 billion.
  • Gong Aiai, a deputy chief of a county bank, (not even a major bank) was found to have assets worth $160.2 million.
  • Zhang Xiuting, an anticorruption official, is currently under investigation for amassing 19 properties along with his former wife.

 

In simple terms, many, if not most of the people who have gotten wealthy in China over the last few decades were corrupt Government officials or those close to them. In this light, you can see that China’s Governmental policies are all really aimed at one issue: keeping the Government in power by keeping the Chinese population content enough not to demand real change.

 

All other issues (economic growth, improved air quality, stimulus projects, etc.) are secondary to this issue. And the single biggest threat to Chinese officials’ abilities to live high on the hog is inflation.

 

Nearly 40% of China lives off of $2 a day. Your average college graduate in China makes just $2,500 per year. In an economy such as this, a rise in prices in costs of living can be devastating for the population.

 

Inflation is a stealth tax and one that is terrifying officials in China. Note the recent publicity campaigns to crack down on corruption and maintain price stability. Whenever things reach a boiling point, we could very well see a “China Spring” similar to the Arab Spring that shook the Middle East in late 2010/ early 2011.

 

This concludes this article, swing by www.gainspainscapital.com for a number of FREE investment reports including Protect Your Portfolio, How to Buy Gold at $273 per Ounce, and What Europe’s Crisis Means For You and Your Savings.

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

 

 

 

 

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Thu, 04/03/2014 - 19:20 | 4623159 kurt
kurt's picture

Mao's Thousand Flower Revolution... all over again wherein he declared "Let a Thousand Flowers Bloom" which was an invitation to artists, alternate thinkers, counterculturalists to RISE UP. Well, they did. And when they were at their height, out came the sythe, and he lopped off their heads!

This new version captures and kills the scummiest and most hated of all in a COMMUNIST country. When the sythe comes out, think teenage girl with red arm band and lots of plastic bags and ditches. In short these suckers be going down, Bejing shin deep in blood.

Thu, 04/03/2014 - 17:03 | 4622608 lesterbegood
lesterbegood's picture

They're all broke! All the corporate 'countries' and their financial backers...all broke. There is no value left in the system due to theft and fraud, and they keep pushing the currency reset button and nothing happens.

Stock up on beer and popcorn...the finale approaches.

P.S. Where is the gold, and who moved the cheese?

Thu, 04/03/2014 - 16:53 | 4622586 Conax
Conax's picture

The international LPS system is profitable and self-replicating,

(Lie, Print, Steal, Lie, Print, Steal, Lie..)

Thu, 04/03/2014 - 16:08 | 4622445 ebworthen
ebworthen's picture

China has learned the American way very well, it would appear.

Thu, 04/03/2014 - 19:26 | 4623181 kurt
kurt's picture

Pigs float down river in China.

Thu, 04/03/2014 - 18:12 | 4622920 TheReplacement
TheReplacement's picture

America was doing just fine until we started importing ideas like socialism and central banking.  Looks like you can go blame someone else.

Thu, 04/03/2014 - 15:44 | 4622346 combatsnoopy
combatsnoopy's picture

BULLSHIT.  China exaggerates their problems.  Why don't you guys have a fucking clue yet?  Oh wait, libertarians don't think that the banks can't create their own currency without the Federal Reserve like they have during the subprime scandal. 

Thu, 04/03/2014 - 18:13 | 4622924 TheReplacement
TheReplacement's picture

Just like every other country in history that has tried to do this?  Oh wait, you non-libertarians refuse to think.

Thu, 04/03/2014 - 13:52 | 4621795 therevolutionwas
therevolutionwas's picture

The Chinese know all this, thus the feverish gold, silver, real estate and anything tangible buying frenzy.  The bigger question for me;  is this part of some plan of theirs toward a larger goal?

Thu, 04/03/2014 - 13:27 | 4621668 earnulf
earnulf's picture

So are the shelves stocked?     Are people trying to spend money and find nothing to buy?   It's not a bubble until things suddenly go missing.   As long as you can stuff crap on shelves that people will spend to get, you have a functioning economy.

When the people stop buying, you start having problems.

When the government that replaced the people stop buying, you get your panties in a bunch.

I understand that pitchforks are kinda like Gold at that point....

 

Thu, 04/03/2014 - 18:16 | 4622936 TheReplacement
TheReplacement's picture

Word is that the shelves were stocked in Venezuela too, until they weren't.  Now be a good samaritan.  Print your comment and mail it to someone in Venezuela.  Word is they need TP.

Thu, 04/03/2014 - 13:14 | 4621615 elwind45
elwind45's picture

If you look at the outside day on Monday in the dollar it looks more like shorts covering than a collapse in price? Tomorrow should be a good day to pickup value in a longer dated Corp. Bond and utilities? For risk takers American listed Chinese company on that wishlist should reach buy targets?

Thu, 04/03/2014 - 13:06 | 4621584 LawyerScum
LawyerScum's picture

...my view has been and remains that most of the “growth” of the China “miracle” is just a debt-fueled bubble built upon a loose foundation of Government corruption and fraud.

So they are just exercising the exact same economic paradigm that the U.S. currently enjoys.

Thu, 04/03/2014 - 12:46 | 4621513 elwind45
elwind45's picture

Last night the government offered a stimulus that was targeted to the railroads? It was not well received from market commentary? However stimulus to Rails would shore up machinery and iron collateral backed loans but announcing such a limited stimulus toward railroads and little else smells fishy? Why not a massive package they have all that CASH just laying about or a currency swap with the Central Banking Mechanism to scare everyone into the RMB? You see that dollar makes the collateral worth less notice said action lately?

Thu, 04/03/2014 - 12:01 | 4621393 GoldIsMoney
GoldIsMoney's picture

"No, China’s Government is obsessed solely with remaining in power."

And the difference to the US is? Are you kidding me?

Thu, 04/03/2014 - 18:20 | 4622948 TheReplacement
TheReplacement's picture

Where in the article did the author suggest or state that the US was clean? 

Why is it that people can't read something about China, Russia, or Europe without immediately saying something along the lines of "The US is doing it too!"?  On that point, the US is doing it too but the Chinese have gone and supersized it a couple of times.

Thu, 04/03/2014 - 12:30 | 4621462 Emergency Ward
Emergency Ward's picture

"The reasoning for this is that a Government job remains the easiest, cushiest means of becoming wealthy in the People’s Republic. Case in point, last year Chinese officials are known to have stolen at a minimum the equivalent of $157 billion."

Re: the difference from the US Peoples Republik?  Right, there is not much.......

Thu, 04/03/2014 - 16:46 | 4622569 MillionDollarBoner_
MillionDollarBoner_'s picture

"last year Chinese officials are knownto have stolen at a minimum the equivalent of $157 billion"

Wow! That much!!

Eeerrr...thats about one month of QE if you include the "Indirect Buyers" bullshit (pssst...the FED in drag ;o), the POMO, the PPT, Kevin Henry, etc....

Low ambition, low self-esteem, these chinky fellahs...:O)

Thu, 04/03/2014 - 11:57 | 4621383 yellowsub
yellowsub's picture

You can change China to US and modify a few numbers.

Thu, 04/03/2014 - 11:16 | 4621239 messystateofaffairs
messystateofaffairs's picture

Does this mean China really isn't the worlds 2nd largest economy and won't be leading the world economy like Japan was supposed to? Does this also mean America might not be the worlds largest economy and we really don't know who is what?

Thu, 04/03/2014 - 18:23 | 4622960 TheReplacement
TheReplacement's picture

All the numbers are fake and have been for a long time.  There is no way to know the true sizes.  It's sorta like the stock markets.  You have to deduct all the HFT activity to see how much real trading is going on. 

Thu, 04/03/2014 - 12:31 | 4621470 Emergency Ward
Emergency Ward's picture

the Rising Sun done Set too soon.....

Thu, 04/03/2014 - 10:59 | 4621169 Sudden Debt
Sudden Debt's picture

How to Buy Gold at $273 per Ounce

 

YOU JUST KNOW YOU CAN TRUST THIS GUY... right?

Thu, 04/03/2014 - 14:51 | 4622101 Citxmech
Citxmech's picture

Sure - he screws "the other guy" and passes the savings on to you!

Thu, 04/03/2014 - 09:51 | 4620929 laomei
laomei's picture

"In contrast, the average college graduate in China makes $2,500 per year."

 

Wrong actually, average monthly is about 3378RMB a month, which is, by the way tax-free.  Add in the standard annual bonus of a "13th month" and you're looking at more like $7k a year.  But of course, this article is more about hyping gold and hocking a shitty newsletter than it is about facts. 

Thu, 04/03/2014 - 18:27 | 4622984 TheReplacement
TheReplacement's picture

Ahem, using your numbers...  3378 RMB = $544.

Fri, 04/04/2014 - 06:41 | 4624181 laomei
laomei's picture

And $544*(12+1)=$7072.  Your point is...?

Thu, 04/03/2014 - 11:00 | 4621172 Sudden Debt
Sudden Debt's picture

and the average manager makes 3/4 of what a american manager makes.

so: lower American wages and you're at par with China really soon!

Thu, 04/03/2014 - 09:43 | 4620905 Global Observer
Global Observer's picture

What the government of China cannot manufacture or fudge is their imports and exports. There are real goods being exported from China and China has been accumulating trade surpluses for over 20 years.

You don't want to invest in China because their numbers are fudged? Feel free! China may actually welcome it. The foreign investment China adds to China's accumulation of foreign currency reserves, which is actually a problem for them given the potential of the US$ to lose value.

Thu, 04/03/2014 - 16:21 | 4622492 zaphod
zaphod's picture

Exactly, china's exports represent a very real manufacturing base that has been created over the past 20 years. This is a fact supported by every "made in china" label you see. This manufacturing base represents real power for china and lost power for the west.

At the same time, a manufacturing base is only as useful as the political system around it. The chinese system is corrupt to its core and if/when we have a global fiat paper money meltdown and trade stops, china's massive corruption will mismanage their manufacturing base and potentially leave nothing. Just look at what happened to china's factories during and after the cultural revolution. 

Thu, 04/03/2014 - 09:26 | 4620834 The Wisp
The Wisp's picture

The Biggest fear in Chinese Government is Civil Unrest , which is why they stockpile warehouses full of food items to  keep shocks from the population.. Money collapse is no big deal,  hoards running thru the streets burning government building,   that worrys them.

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