02 January 2009

China's New Economic Ice Age

For most common people in China, their lives will become harder in the next few years. As the economic crisis worsens in China, more of the elite ruling class will flee China, taking with them more capital. By then, the Chinese economy will be even more devastated. _EpochTimes
In a two - part article (part I, and part II), sociologist and sinologist Ching Xiaonong lays out the problems facing China's economy over the next decade.

Ching sees serious problems arising from the rising costs of Chinese exports, and from the precipitous flight of "foreign capital" out of Chinese enterprises and banks. According to Ching, China's political leaders and China's wealthy have reaped almost all of the benefits of the past 30 years of half-reform.
... after World War II, it took Japan about 30 years to become one of the strongest industrialized countries in the world. By the 1970s, Japan was already one of the leaders in the world economy.

Other examples of rapid reforms include Korea and Taiwan. What about China? Unfortunately, the last 30 years of reform only brought a facelift and attracted foreign companies and capital. However, these companies have not truly brought substantial progress to the broader Chinese economy. The main reason is that the foreign companies are in China primarily for its cheap labor.

On the other hand, Chinese-run companies have not really changed their management systems or invented into many new products or technologies in the last 30 years. Without foreign technology, Chinese firms lack accomplishments in both consumer and industrial manufacturing. Although there are many cars made in China today, most of the core technologies, used in domestic car manufacturing, depend on foreign patents. Chinese auto companies have failed to create new technologies. The exception to this Chinese companies manufacturing quality products that can compete in the international market.

It took Japan only about 20 years to reach the stage of technological independence. Thirty years have passed for China, yet there is no sign of innovation. _EpochTimes
Much of the Chinese economic miracle has been based upon a rapid infrastructural build-up which was more of a "face-lift" to impress international investors and investment analysts -- a Chinese "Potemkin Village" as it were. A great deal of the construction has been shoddy and subject to premature failure. Like a stage set, it was only meant to last for the duration of the play, or the filming. Tough luck for the people who will be living and working in the structures, or driving across the bridges, or living downstream of the dams.

The current economic recession and reduced energy costs may reduce Chinese wages and other costs of exporting enough to attract overseas factories back to China -- temporarily. But the same forces that have been making it costlier to manufacture in China -- rising wages, high costs of shipping product, corruption and uncertainty over government policy changes, and more -- are guaranteed to return with a vengeance at the first sign of global economic recovery. Smart investors and manufacturers will look for an easier way.

Gordon Chang is another student of China who is predicting large - scale problems for the Chinese government and economy in the relatively near future. China's authoritarian government is simply unable to monitor and control all of the "whiplashing" dynamics of the Chinese economy. There are several different factions within the CCP, and corruption reaches quite deeply into the governmental apparatus.

Economic depressions can be very unstable times for such over-stressed governments as the CCP is becoming. The growing numbers of homeless, temporarily unemployed, and permanently impoverished in China adds considerably to the instability which the government must deal with.

Stressed governments often look to foreign adventures as a way of taking their citizens' minds off of local problems. Let us hope that China's government does not jump into a diversionary military invasion as a type of pressure relief valve. Under the circumstances, such a move would likely accelerate the coming breakup of the Chinese Empire.


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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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