China's Shakey Tightrope Walk

I think one day we will all wake up with as much surprise as we woke up to the Arab Spring and there will be in China what we witnessed in North Africa. Whether - we may have to wait, you know, 10 years for it, it may happen in the next six months. And the party is plainly paranoid about this. _abc.net

via NextBigFuture
China's authoritarian government attempts to project an image of strength and stability to the rest of the world. But things are not going nearly as smoothly as the CCP leaders wish outsiders to believe. A feverish rush to build "an infrastructure to nowhere" has occupied the attention of most Chinese, and drawn investment from overseas -- but it has not replaced the rich export markets which vanished virtually overnight with the 2008 global finacial collapse and its aftermath.

China's leaders have their work cut out for them, if they are to avoid a regime-threatening upswell of popular discontent among its hundreds of millions of "have-nots."

China is involved in an enormous fixed investment bubble. At this point, a very large part of this is malinvestment, and will eventually lead to deflation and a sharp drop in growth. More than likely it will trigger a financial crisis as well. Right now, China is investing nearly 50% of its GDP in capital stock, which is an astounding figure. Inevitably, this leads to many bridges to nowhere, ghost cities, unused high speed rail, and empty airports. Roubini notes that all previous recent examples of over-investment, particularly the East Asian economies in 1990s, ended up with financial crises and slow growth. _SeekingAlpha

China remains one of the great “if it’s too good to be true it probably is”. This economy is growing at a rate that is incomprehensible to most westerners. But the cracks have started to show in the facade. Between their reverse mergers, supposed GDP fraud, accounting scandals, highly flawed monetary policy and insanely inflationary fiscal policy (where they just build empty cities in the middle of nowhere) I have to wonder what breaks the back of this economy at some point? My guess is that inflation will rage in China to the point of public discontent and ultimately harsh economic repercussions. _PragCap

...given China's massive property bubble and unwarranted infrastructure build-out, the Chinese banking system is as bad a shape if not worse than other major countries. _Mish

China's runaway inflation isn't just a problem for the Chinese government or consumers in that country. It poses big risk for the global economy. _Portfolio.com

China's history is one of repeated dynasties disrupted by periods of lawlessness, outside conquest, and rule by competing warlords. The Chinese Communist Party which has ruled the country since the late 1940s can be seen as a short-lived dynasty. But the centrifugal forces are building, threatening to pull the massive population in different directions, under different powerful ruling cliques.

China's rulers are walking a shakey tightrope between a ballooning inflation and the threat of creeping collapse from the periphery moving inward. The push to build multiple massive mega-cities along the coast and around Beijing may well be an unwitting push toward national schism along the borders of the multiple power centers.

Finally, one should never forget that modern China is an empire, ruling over significant numbers of other ethnics, who feel that their own nations have been stolen from them. Unlike the Russian conquests of Asian peoples and the US / Canadian conquests of native American peoples, the conquests of the CCP's China are still rather fresh in the minds of over 100 million conquered people.

In other words, China's problems are many, occurring on multiple levels. It is really a question of when the CCP government will give way to subsequent powers, not if. And when that happens, the global fallout could be significant.

More: Brian Wang presents a more sanguine picture of China's future

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