The Fallacy of China’s Potemkin Economy

The fallacy of China; it’s a Potemkin economy, so don’t worry about it. Potemkin was the Czarina’s press person, and everywhere Catherine the Great went Mr. P. put up shiny store fronts and happy people, like a movie set. And she was satisfied that her people were happy and went back home to her palaces. Meanwhile, the place was a rotted seething mess of unhappiness and grinding poverty.

http://finance.yahoo.com/banking-budgeting/article/112616/imf-bombshell-age-america-end-marketwatch

Well, one hardly knows where to begin. Here’s this guy Brett Arends — who writes an article called: IMF Bombshell: Age of America Nears End — and says China is going to overtake us economically any day now. Well, by 2016, which is a few years away. But, get this, by buying up US dollars and relying on the US to buy their goods. Sure, that’s a plan.

And the next thing you know, the IMF itself says, whoa, not so fast — and tells the reporter he’s done a poor job with the report issued. And the reporter simply says, yah, well, China has a command economy so they’re going to make it bigger than the US, so there! Which is really the purpose of the article, to push for a state command economy, as the press does like to do.

Meanwhile, China is so dependent on the US it’s not funny, and we’re heading for a second recession, or deeper, precisely because of all that commanding of the economy here, and that will put the kabosh on China a bit. Can’t sell to people who ain’t buying, that’s for sure.

Not to mention all those boys. And not so many girls. China is simply a seething time bomb of unmarried guys who can never find a girl. They are not going to go gay. They are going to go angry. And there’s like a 140 boys for every 100 girls. Which leaves 40 very upset young men with nothing much to do but revolt. And because there’s so many boys the One Billion people are not going to be One Billion for very long, but instead, they’ll start their long inexorable decline in population. And their population is living longer too, and that will put a crimp in any growth plans. Look at Russia and Japan, nearing basket case status as their populations age and decline in numbers. Europe too. And where do people from those countries go to get away from it all? Why, right here. No one is immigrating to anywhere but here, pretty much. Oh a few to Canada and Australia, but not many.

And the US? Well, seems everyone still wants to come here, and we can expect another 100,000,000 people all making $30,000 a year or more. We’re not going to have vast numbers earning Chinese Village rates of income, that’s for sure. And no one is moving to China to take advantage of its wonders either.

And because of the commanding nature of China we’re getting their best and brightest. Indeed, the brain drain into the US from the rest of the world continues apace and shows no sign of stopping. And this Arrends fellow is sure we’ll only add $3 Trillion in output  by 2016 — but how does he know? Every other forecast has undershot the real number, why not this one?

Not to mention, that there are parts of China that are not Chinese and they want out. The costs of internal repression must be quite high, and I’m sure it could stilt some growth if it gets out of hand. And if the Uighuers and the Xian get out, well, then, that should put a crimp in the Chinese resource basket, for far west China is where anything might be, like oil and the rare earth metals they think they’ll withhold from us for a while – while where the Chinese live is not much in the way of resources at all.

Not to mention that if the Renminbi (the Chinese currency) was valued at a real rate and allowed to fluctuate then all the numbers would be different, and not for the better. Right now the RNB is sort of pegged at almost parity with the dollar, but it probably worth more like 25 cents (let it float, let’s find out, eh?) – which cuts out 75% of the alleged wealth of China fairly quickly. For something that is said to be 10 RNB is not 10 dollars, but $2.50. Might need a recount on the wealth-O-meter, eh? So their $11 Trillion dollar economy is not really that much — it’s a fake number. It’s simply propped up Potemkin wise by the “official” exchange rate. Well, let it float, and watch the tanking — who wants Renminbi in their wallets? They barely want Euros, and that was supposed to overtake us too. And as Greece, Italy, Spain, Ireland, Portugal are collapsing under Chinese style debt burdens, well, that should solve that problem.

Not to mention that so much of what China makes is trinkets and who cares? What can they do with purple plastic fuzzy balls? And if our trends switch they’ll have a few million fuzzy balls to play with, and not much else. What will those things be worth? Zero.

They have to import their basic foods and they have not many resources like oil and wood. China imports nearly everything, and thus they are actually more threatened by the Mideast fracas, for if the oil from there is cut off, oh well. And if they raise a saber at us, well, we could stop the rice – we feed those people. We make their chopsticks too.

Not to mention that they have their own savings-&-loan crisis because state banks lend to state enterprises which sell goods to state agencies which use the inventories to borrow against for more state funds — in an incestuous round robin of state control — and well, it can’t last, and it never has. And every so often they take out an executive and shoot him for the amazing corruption that takes place.

Not to mention the pollution that’s going to do a number on them soon enough. And I wonder what would happen if some SARS like thing really breaks out over there. Who knows what that will do to the place.

Not to mention, there’s not an economic number out of China that one should trust. How could we possibly know the “value” of their economy when they themselves don’t even release any real numbers? It’s all “state secrets” of course. Well, sure it is, the government there is busy telling people that things are wonderful as empty 50 story buildings are built like a Potemkin village and the farmland is gobbled up by freeways to nowhere.

Not to mention the absurd high speed rail system that is now costing a cool few dozen billions more than advertised and no one rides it because they can’t afford the $20 ticket, but ride the $5 bus. The cost of these sorts of boondoggle projects are counted, of course, as “economic” activity. Sure, not that it builds wealth, but merely moves it from here to there in unproductive ways.

China also has some 80,000 demonstrations annually against the government, according to Xinhua, the government’s own news agency. Even if it’s only 8,000 – how long can a government continue to oppress its people like that? Can’t even read something on the internet without a policeman at the door; sure, that will help move the country forward.

China is not going to be a ‘bigger’ economy than us 2016, if ever. They just play one on TV. Their average per capita income is like $1,500 bucks. And there’s not much to buy, for it’s all made for export. Already there is rising unemployment as factories move to cheaper places, too, like Vietnam. And because, weirdly, they’re going more machine intensive, which rid our factory floors of workers too. Only we had other things for them to do, and the Chinese can only say, “Well, back to the village farm.” And there might not be a “China” as we know it anyway within a decade.

Oh, I suppose in 100 years they could, if they got their act together, but they’ve got a long way to go.

But China is sort of a Potemkin Village writ big. It looks all new and shiny. But there’s little there to make it as a world power yet. Skyscrapers don’t make a world power. And their big army is going to do what? Invade Russia? That should look nice.

Meanwhile, over at http://news.yahoo.com/s/afp/20110426/ts_afp/adbasiafoodinflationpoverty

Is the news that Asia is about to be hit with a food inflation that is going to drive food riots in China — its costs rose 13% or so, and wages aren’t climbing — and food will go higher as the price of oil increases. I wonder what the real inflation rate in China will do too. That always does in some economic growth projections for sure. They claim a 9% growth rate? Yea, well, if you inflate a currency it always looks nice; but never is. In fact, our borrowing for our budget is about to push our own inflation rate high, and that will crimp our economy and thus China will suffer.

But the first article is worried like the other articles of the past 40 years were worried about the Russians overtaking us, the Germans, the French, the Japanese — everyone was going to overtake us — because they had command economies — and the more we command ours the better off we’ll be — which is the implication. No, it’s the basic premise of Arrends – we should be more like China. It’s what Paul Krugman of the NY Times calls for near daily — government direction of the economy. Sure, politicians, they’ll know what to do. Ahem. Which means that the first thing that would happen is that the government would remove Arrends from his job and rid the Internet of his web space. For the good of the people. Sure, that’ll work!

Ah, don’t worry about China, it’s a basket case in the making. Fortunately, not too many millions will be able to swim here.

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