Posted on 04/17/2004 5:48:29 AM PDT by RusIvan
All signs point to an approaching Chinese economic crisis.
Given the lack of transparency, the impact of the coming “landing” is even less predictable than such economic developments elsewhere.
There are daily announcements by Communist leadership aimed at cooling an overheated economy. But most are fictitious, a cover for bottlenecks in some sectors, unrestrained speculation in others. So any divination is just that.
There is no denying the remarkable last decade’s progress. GDP growth figures are probably exaggerated. The truth is nobody really knows. [One cannot forget an angry ex-Prime Minister Zhu Rongzi publicly dressing down regional officials for giving him manufactured figures.] Given the fact that 80 percent of China’s more than one billion do not share in success of the effort to introduce a liberal economy in a totalitarian state, we have little history to judge the whole experiment.
But here is intelligent Shanghai gossip:
Despite all restrictions, held in place by occasional draconian prosecution [executions], for corruption, illegal “hot money” has poured in. Theoretically Beijing has control of its currency. In fact, in 1997, Zhu, with controls and by juggling export subsidies, spared China the effects of the East Asia Financial Crisis. But that was eons ago in Chinese economic development. Once again, the Chinese have proved their phenomenal entrepreneurial talent. The central bank’s hard currency reserves are now reaching an incredible trillion dollars. That, in turn, introduces inflation with the exchange of imported dollars for renminbao.
Speculators believe, despite all government statements [and the hard line Chinese leaders took with Vice President Cheney this week on American demands for reevaluation], upward movement will come. They want a slice – when they trade back into dollars.
China is suddenly facing an overall trade deficit – nearly $9 billion in the first quarter and likely to grow exponentially. That is despite its enormous U.S. trade surplus. – probably as much as $142 billion last year, and probably growing even more rapidly as U.S. consumer confidence sucks in more consumer goods. The overall trade deficit, likely to snowball so long as China’s export boom continues, results from a growing import bill for raw materials [and components for assemblies China exports]. Ironically, China itself pushes world prices. China has become the world’s second largest oil importer [after the U.S.] with prices rising. [China’s oil imports increased 38 percent last year; predictions were for a fuel imports doubling this year.] China’s pull has inflated world prices – for example, benchmark hot-rolled-sheet price jumped 80 percent to $500 a net ton, a 15-year high.
All this has pressured China’s claptrap financial system. Despite repeated statements by the authorities to brake lending, China’s four main banks probably have increased it by 10 percent just this year. That’s despite signs some sectors are piling up inventories – Shanghai and Beijing real estate, household appliances, automobiles. Again nobody knows, but nonperforming loans may be 50 percent or higher. And, again despite repeated statements, banking practices have not changed. One important reason: China’s huge, Soviet days white elephants, so-called state-owned enterprises [SOEs], are bleeding the banks with their enormous political influence and the fear of additional unemployment were their bankruptcy finally faced. [Recently, Prime Minister Wen Jiatao trotted out the argument their maintenance in the Northeast rustbelt was a matter of national security.] One danger, of course, is of a run on savings institutions by China’s incredibly frugal savers when a switch back to dollars after a postponed reevaluation.
China’s economic fragility is not just a problem for Beijing. As the Chinese maw has grown, it has become a growing market for its neighbors. Thailand, Singapore, Malaysia, Philippines and Australia have seen their exports to China – including manufactures – grow by as much as 50 percent. Japan is coming out of its decade of stagnation, in part because of the fillip Chinese exports have given its still only partially reformed export-led economy. South Korea, caught in political and economic crosscurrents, counts on its “China boom” for its high tech exports to buoy it until domestic demand returns. Even the U.S., however much it might complain over the loss of jobs to China, continues to have a lower inflation rate in part because Beijing [as well as Tokyo, Seoul, Taipei and Hong Kong] gobble up its treasury notes, halting any “crowding out” of private sector borrowing in capital markets.
Beijing’s new leadership, noted for its non-risk-taking past, is caught in the headlights. It dare not fiddle with the currency tied to the dollar, its only stable economic tool. On the other hand, even if no one else does, Chinese Communists remember their rise to power owed as much if not more to runaway inflation in the last years of the Chiang Kaishek regime as to battlefield victories. [The Chinese “inflationphobia” is as great as the Germans who remember the 20s inflation that brought Hitler.]
An hour of decision is approaching rapidly.
Sol W. Sanders, (solsanders@comcast.net), is an Asian specialist with more than 25 years in the region, and a former correspondent for Business Week, U.S. News & World Report and United Press International. He writes weekly for World Tribune.com.
Even with huge and enormous help of United States the socialist economy of China may go under. Another obvious prove that socialism is economically unsound.
No! Go on! Get outta here! I can't believe that for a minute!
The current Chinese economic system has very little to do with socialism. In many ways it's less socialist than the US system.
Fascism: A totalitarian government led by a dictator and emphasizing an aggressive nationalism, militarism and often racism.
While NOT in the (above) strict definition of Fascism, I usually include a direct collusion (and a blurring of the lines) between the government and the private sector ala the Nazis like munitions manufacturers and capitialists that profited by cheap non-union labor. Herr Schindler's use of death-camp laborers, among others, comes to mind as an example with regards to the latter point.
The imminent collapse of the Chinese economy will set loose the forces of total freedom.
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