The world continues to believe that China is somehow this economic juggernaut that will not only push through any recession but will even bail out those less solvent countries and save the world.
My view is quite the opposite. China hides its federal debts by dumping them into its state-owned-entities. The REAL Chinese Debt to GDP ratio is north of 200%. And the country is witnessing a property bubble in several of its major cities that will do what all property bubbles do: burst and wipe out millions in its citizens’ capital.
Aside from this, China has two major problems from an economic standpoint: unemployment and inflation.
Regarding #1, China cannot risk a severe economic slowdown. There are already over 30 million Chinese who have lost their jobs, left the coastal cities, and are moving back to the countryside. These are hungry mouths looking for food.
Moreover, during times of economic turmoil, civil unrest grows. Since 2006, China has averaged 90,000+ "mass incidents" (riots and protests) per year. In 1993, during the boom years, this number was less than 10,000.
Suffice to say, an economic slowdown is a MAJOR problem for China's Government. And it brings with it civil unrest.
This is most recently clear in the village of Wukan, which in September began a series of protests based on the fact that the Government took away the villagers' farmland and fishing rights (thereby removing their primary means of earning a living).
Wukan began a mass sit-in/ protest. The tiny village of 13,000 has since become such a headache (thanks to the international press) that China's Government actually let the villagers vote on who should be their local officials.
This is absolutely unbelievable. China... a totalitarian regime… letting a village vote on its leadership. This should give you some idea of just how tenuous the Chinese Government's control over the general population is.
China’s other economic problem is inflation.
China’s inflation rebounds in January, renewing pressure to control living costs
China’s inflation rebounded in January as food prices soared, renewing pressure on Beijing to control surging living costs as it tries to boost slowing growth in the world’s second-largest economy amid warnings of a global downturn.
Consumer prices rose by an unexpectedly strong 4.5 percent over a year earlier, up from December’s 4.1 percent, data showed Thursday. Food prices jumped 10.5 percent, accelerating from the previous month’s 9.1 percent.
China has a major inflation problem on its hands. With over one third of its population living off $2 a day, these price increases are a recipe for major civil unrest.
Finally, China has a third problem that is more social than economic in nature: the Chinese population is beginning to realize that the Government is losing control. People are willing to go along with a regime as long as they can “get by” under it. But as soon as it becomes impossible to survive… then situations like Wukan happen.
There will be a LOT of Wukans in the coming months and years in China. Whether it’s by inflation or an economic contraction brought about by Europe’s collapse (Europe is China’s largest trading partner), civil unrest and “mass incidents” will be on the rise in the People’s Republic as the Chinese realize that the current system and the supposed wealth it will create for them are in fact a giant fraud.
Indeed, I personally believe China is much less an economic juggernaut and much more akin to the Soviet Union during the Cold War: everyone from the outside thought it was this unstoppable force… then the whole thing collapsed in a matter of a few years. What followed was an oligarchic state. We’ll likely see the same thing in China in the next few years.
I realize that my analysis flies against reports that a Chinese economist just claimed China might invest as much as $100 billion in Europe. However, this claim comes from an academic economist who holds no Government or Central Banking position by the way. On top of this, China completely pulled out of buying European bonds back in October and only hinted at providing more capital if Europe agreed to major concessions.
My question then is as follows: is Greece any more likely to take orders from China than it is from Germany?
Also, the following news story doesn’t exactly indicate that China and Europe are the best of friends:
China Carriers Won't Pay Fees For Emissions
China on Monday said it prohibited its airlines from paying for carbon emissions under the European Union's new system to limit greenhouse emissions, in an escalation of Beijing's opposition to the plan.
http://online.wsj.com/article/SB10001424052970204369404577206613592210638.html [11]
So let’s just say the “China will save the day” thesis is delusional at best. And with Germany getting closer and closer to leaving the Euro every day… sooner or later, Europe is going to have to “take the hit.” When it does, we’re talking about numerous sovereign defaults, hundreds of banks going under, and more. It will be worse than 2008. Guaranteed.
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