28 February 2007

The Directivity of China

Examining China is not my stock'n'trade to say the least, and my ignorance is as vast as my thumbnail knowledge is of that vast territory and Nation. From early Hydraulic Empires to its turbulent decades of losing social cohesion due to the Opium trade to the Japanese invasion and the Red backlash which lost it Taiwan, China has not been a main focus of my interest. That said a few of the underlying principles of what is going on in China have always been at odds with the wonderful face they have presented to the world, please don't mind the bloody tank treads along the way.

In my Oil Outlook mostly upon Iran but ranging far and wide to look at social dynamics, I did put forth this on China:

China is facing a problem of subsidized fuel, a shift to the middle class and yet they still having a huge amount of their population living in rural conditions. Destabilization of its Western provinces by Islamic terrorists is no longer unknown. The Central provinces are facing population decline and economic collapse for the population that remains. Eastern and Southern China are now facing multi-prong threats as the Magic Kingdom of Mr. Kim has stolen food trains from China. China delivers the food 'aid' and North Korea says the trains are part of the package and confiscates them, too. Mr. Kim then turns around and says: You keep feeding my people or I will open my borders. Who would have thought that starving millions would be a political weapon? Finally China is coming face up to the fact that the Rising Sun is returning with modern equipment that makes theirs look antiquated. Japan has put the first of a new set of Aegis class ships out to sea. And with Mr. Kim going atomic, Japan has let it quietly be known they are thinking that option over, too... which, coupled with their existing space rocketry, makes them an instant global power with nuclear tipped ICBMs. China also realizes that if Japan does that, it will have manufacturing capability to turn those out like Toyotas.

All of that while China subsidizes a 1950's base factory system with a few spotlights on high-tech here and there. They run extremely polluting factories and are seeing things like lung cancer in cities go upwards. When a city disappears from satellite due to smog, you know you have a problem. When a yellow, noxious cloud hangs over it continuously, even after rain storms, you have an immense problem. Without a market and societal based feed-back into the industrial base, that base will be non-sustainable. Cheap gas, oil, and land have led to urban sprawl and decay, which it already had but is now spreading faster. Compress the US history between 1910 and 1960 without the sustainability of industry and you get an idea of the problems China will have. They are also getting this damned thing known as cheap telecom, which is starting to liquidize their social cohesion. Attempting to put a 'Great Firewall' in has proven that you need lots of folks to plug leaks and that some of those folks are none too trustworthy in that job. Even if that were done, the SMS cellphone capability has made distributed messages of pure text to be something easily done at nearly no cost burden at all. Add to that increasing storage capacity, processing power and cameras, and you suddenly have individuals who are their own file servers with autonomous wireless connectivity. Attempting to stop the wired internet has proven impossible *inside* China, as the low cost of computers and storage now makes redundant, off-site, fail-over possible. Pull down one server and two others will pick up at distributed locations. To end this China would have to get rid of *all* computational capability, including cellphones, which now serve as the wireless conduit into the world. To step forward they must let go, to let go is to invite disaster, to stay authoritarian invites overthrow, and to try and buy off the population just speeds the acceptance of modern digital technology which the State is not very adept at handling.
We do tend to think of China as thoroughly one Nation, when, in point of fact, it has a diversity within its peoples and religions North to South, East to West. In Western China the direct abutment to Pakistan, Afghanistan, Tajikistan, Kyrgyzstan, Kazakhstan, plus the Kashmir region of India leads to little reported but present problems with radical Islam. It is very sparsely populated out there, but the problems do crop up with border smuggling, some terrorist attacks and ethnic unrest. The populations are Turkic with some Tajik and then more in the Tibetan/Burmese range heading down along the India and Nepal borders. My look at Mountain Warfare was on Afghanistan, and the climate is drier than that and a bit higher, if memory serves, so not the best place on the planet to try and patrol and keep smugglers and radicals from infiltrating on the border. Of course it isn't the easiest place to survive in to do such infiltration, either. Be that as it may, China has been trying desperately since the failed 'Great Leap Forward', which impoverished the Nation even more than it had been, to industrialize and try to get in a better industrial and agricultural system.

Two things have been weighing against that and heavily: efficiency and people.

One of the benefits the West has had over the centuries is a small population base. When large populations of serfs were available, the feudalistic movement of Europe was one in which about 1% of the people were ruling the 99%. In Japan, during its similar period, that was 10% ruling 90%. In China it has been and continues to be a very small fraction of 1% ruling everyone else. Yes you can point to millions of card carrying Communists, but that does not mean that they have any voice in their system of governance. Quite the contrary, the Chinese Communist Party has been trying to keep that slim minority of a minority of a minority in power while trying to 'liberalize' the economic system. Factories have been built, great mining operations opened, huge construction projects going on, all this wonderful stuff to be seen and isn't it lovely that China is modernizing?

One major problem.

People.

With so many people trying to get jobs, life is cheap. Mind you it has a fractionally higher investment than the still majoritarian poor farming areas, but not *much* more value. Why open up modern production facilities that are inherently labor saving when you have so much cheap, surplus labor? And as the cities swell and you have too many people looking for too few jobs, you have a major problem of actually trying to modernize. It just isn't worth the added cost of investment to get higher output per individual, when there are so many cheap individuals to hire. The young people are, indeed, flocking to the cities, and the cities are overburdened with them and expanding at horrific rate onto land that should *also* be producing food. Cities tend to start in rich trade areas along agricultural trade routes and that worked, so long as the cities remained relatively small. As the cities grow, they encroach upon agricultural land, displace more people who have to go into the cities, who go after any job they can get, and the city grows in size, thus attracting more people.

A quick look at the China balance sheet folks at CSIS and their Facts section tells the story here. Agriculture makes up 14% of the economy and nation-wide unemployment hovers around 20%, with official estimates of 4% in the cities. The 2003 estimate has 16.6% of the population below the poverty line. The National Statistical Coordination Board of the Philippines conducted a review of Chinese poverty and found some interesting things, but mostly where to place the poverty line at. Here is a problem endemic with authoritarian regimes: they can tell you what they say is the poverty line or any statistic, and exactly how they measured it. The relationship of that to the actual thing being measured can be problematical, however. By not properly accounting for something like inflation, the 'official' poverty rate is one number and the actual purchasing power is another thing entirely. Thus a minor shift to account for that and the poverty rate jumps from an idyllic 3% to a rather different 9%. That said even using official numbers, nearly 60% of the poor live in the 12 Western provinces with the worse at about 15%. Put in the higher poverty line and then fully 9 provinces have a poverty rate higher than 15% with that worse one jumping to 33.5%.

Other problems seen are things like 'community developments', which are things held in common for a village to use. Getting a village 'access' to telephone and electrical service does not mean that anyone actually can get those services, and that only a limited number of community properties may have same. What has happened is access to roads and a drop in the illiteracy rate from 20% to 10% from 1990 to 2002. These twin developments have changed the mobility demographic from 1.4% of rural folks moving to urban settings to 18.5% migrating for jobs internally. That is a large draw-down, needless to say, but the people left behind are thus: less educated, unable to compete for industrial jobs, and poor. This is causing instability in rural China with half of the households jumping back and forth over the poverty line as those able to earn incomes leave for jobs in the cities and the higher standard of living their eats up modest pay. That in itself is a telling question for while being able to have a better standard of living, the actual type of poverty changes from rural village to urban ghetto.

What happens when large segments of the population do this and start to have access to very cheap information devices is an internetworking of individuals that are: low paid, overworked, highly stressed, and unable to support a family properly. The heavy influx of available workers does increase industry, but the type and kind of industry is not necessarily something that the West would view as 'modern'. Also lacking is something nearly every American picks up just by living in the United States: some knowledge of how to run a business. Even the lowly drug gang has the wherewithal to understand this in a basic way as seen in (H/t to Classical Values):Why selling drugs in a gang is the worst job in America. Yes a 'board of directors', franchising opportunities, merchandising, and recruitment and training, and even the gaudy excesses that are not all they appear to be are well known in gangland America. The entire basis of how to run a free-market economy, buy insurance (or 'protection'), pay off loans (or lose an arm and/or leg), and entice high school dropouts to make less money than they would at McDonald's are ALL within the sphere of knowledge of even the most basic criminal organizations of the US. In China?

Outside of the coastal cities and the obvious Far Eastern Triads and the few interior operations they have in China, mostly for gray market goods production, and some interior narcotics production, there is no real basis for understanding the very basics of how to make businesses work in China. All of the large projects and industries are either overseen by the Chinese government, run under Chinese government rules which make business owners into the rule enforces of the government or run by outside firms putting in their franchise operations into China. On 27 FEB 2007 Instapundit posted on this and also to this post by James Waterton at Samizdata. A later post at Instapundit also points to the warnings from Samizdata on Non-Performing Loans (NPL) in China being the drive of this. As Mr. Waterton pointed out, the level of NPL in China is, at best, 12% and admitted to being at 25% and speculated to be at 50%. These NPLs are a direct result of businesses that have access to ready cash in China and then no experience in actually paying off loans or even setting up a basic business structure to succeed in China. And the underlying cause of *that*? Poor economic education and an overwhelming supply of cheap labor that has no recourse against exploitation. NPL are Loans that are in default or close to being in default. And this International Journalists' Network article by Anya Schiffrin on the large role of NPLs in banking crises, points out that once a Nation gets over 9% NPL on all outstanding loans, it is starting to look at real trouble.

The Chinese government furthers this problem by restricting access to outside sources of information that could hold vital economic and training information for Chinese businesses to run effectively... but those very same sources would be pointing out that Government overhead in the way of taxation and rule enforcement, was putting businesses into non-economically competitive methods of operation. While China has been trying to 'liberalize its economy' it has retained draconian control over information, training and business spheres to hold them directly accountable to the Government. By doing so the necessary feed-back from *customers* is secondary in importance, and limited as to its realm of influence by those government rules and lack of skills base. China further makes this worse by basically handing out 'free money' in the form of NPL start-ups that fail without any attempt to make good on the loan payback. That is seen as secondary to 'advancing the business climate' while, instead, it removes a necessary feedback INTO the business climate from those holding the bag on the loans.

From George Friedman at Bananas in Pyjamas Counterpoint discussion we have this from 19 FEB 2007:
The conservative count of non-performing loans is $600 billion in non-performing loans. A more realistic estimate that comes from companies like Ernst & Young are $900 billion in non-performing loans. There are some who say that non-performing loans are in the $1.2 to $1.3 trillion range. However you look at it, we're talking about somewhere between 30% and 60% of the Chinese GDP being bound up in bad loans. To benchmark it, when Japan reached about 15% non-performing loans of GDP it began its severe generation-long recession.

When East Asia, particularly South Korea, for example, reached about 20%, 22% it began to tumble. So looking at those two prior Asian benchmarks, we look at China's bad debt problem, its non-performing loan problem, and it is already substantially exceeding that, and we're already seeing the precursor events that we saw in Japan and East Asia; profitless export surges, tremendous growth, demand for commodities, money leaving China for investment in other countries. These are things we saw from Japan in 1990, we saw it in East Asia in 1996 and we're seeing it again here.
Consider the Small Business Administration in the US and its rate of NPLs being 10% or less which, while not grand, is about par for the course in a Federal Government program that has very few dynamic inputs and hard outputs expected and that gives a wide leniency on what is expected of businesses that it works with. The Federal Reserve Board keeps track of the Charge-Off and DelinquencyRates which is where a NPL winds up, in Delinquency still accruing interest past 30 days and then as a Charge-Off to be removed from the books. Now the numbers there stop at 2001, but indicate the worst for Charge-Off is Consumer Credit Cards at approximately 4%. Commercial & Industrial loans hit down in the sub-1% range and do indicate a good capability by lending institutions to figure out who to loan to there. From there we go to the FDIC FFIEC search page for looking at Peer Group Data Reports and get loads of numbers with the pertinent ones starting to show up at page 6 and 6A for Past Due, Nonaccrual and restructured loans and leases. Yes, not exacting but it will do!

As NPLs are those that are highly delinquent and heading towards being wiped off the books, that would be the 30-89 Days Past/Due lines. As of 31 DEC 2006 the #1 area for that was Loans to Individuals at 1.46%, and coming in at a virtual draw for second was Single & Multifamily Mortgages at 1.13% and Credit Card Loans & Leases at 1.12%. And the grand total of All Nonaccrual and all Past Due as a percentage of all Loans and Leases is 1.71% So when the folks looking at China at nearly 7 times that rate at a *minimum* start to get edgy, you know why. Mind you, that is just my back of the envelope quick look at it.

Now on the other part of highly dysfunctional societies we have subsidies. In particular the US started a WTO action against China due to subsidies, and the particulars of that action should be informative. Here is a choice sample from the US Trade Representative's press release:
Several of the subsidy programs at issue appear to grant export subsidies, which provide incentives for foreign investors in China and their Chinese partners to export to the United States and other markets. These subsidies offer significant benefits and are available for all products made in China, including, for example, steel, wood, paper, and other manufactured products. The companies targeted for many of these subsidies, i.e., companies with some foreign participation, accounted for nearly 60 percent of China’s exports of manufactured goods in 2005, according to a WTO report. Other subsidy programs at issue provide incentives for companies in China to purchase domestic equipment and accessories, instead of buying from U.S. exporters.

By subsidizing Chinese exports to the United States and denying U.S. exporters a fair opportunity to compete in China, these subsidy programs unfairly impact U.S. manufacturers and their workers. Elimination of the subsidies will help level the playing field for U.S.-based manufacturers and, in particular, for America’s small and medium-sized businesses across a range of industries. The subsidies being challenged also are inconsistent with clearly stated Chinese policies seeking to rebalance China’s economy with greater emphasis on domestic consumption-led growth rather than export-led growth, and to promote the efficiency of China’s domestic manufacturers.
But a very fun thing happened on the way to the USTR's Annual Report to Congress! Yes the United States proposes something very interesting to the WTO and for all members of it in the way of subsidies:
In addition to proposing the expansion of the prohibited category, the paper also lays out a bold new proposal to address increasing concerns with foreign state-owned and state-controlled enterprises. Questioning the justification for any government investment in the private sector in countries with well-developed capital markets, the paper states that government investment decisions that run counter to the private sector’s assessment that a company is not likely to generate a market return should be made in a transparent fashion, closely scrutinized and, as appropriate, curtailed. Accordingly, the paper proposes that there be a requirement that Members notify the WTO Subsidies Committee of government equity investment, including debt-to-equity conversions. Such notifications should describe: (1) the terms of the transaction; (2) how such an investment is consistent with the usual practice of private investors; and (3) potential adverse trade effects. Moreover, additional transparency measures should be considered for all government-controlled companies as well, such that Members can be assured of a consistently commercial, arm’s-length relationship between the government-owner and the state-owned enterprise.
So, does this mean the US will FINALLY get rid of its agriculture and business subsidies, water subsidies and all the other little goodies that are stashed in the tax code for businesses and uneconomical support of same? Probably not, is my guess.

Now that was a fun! A side-light... but something *else* is of interest to me, at least, coming from the Iranian article. And that is this article from the China Daily 27 MAR 2006China's subsidies on oil and processed oil products. From that article we can see where their gasoline prices are at:
In Beijing, retail prices for 93 RON grade gasoline rose to 4.65 yuan (about 58 US cents) a litre from 4.26 yuan (about 53 US cents), and zero-grade diesel prices increased to 4.04 yuan (50 US cents) a litre from 3.74 yuan (46 US cents), the capital city's development and reform commission said in a separate statement, the Bloomberg reported yesterday. RON is the research octane number that indicates the quality of the gasoline.
As a gallon is 3.7854118 liters that gets you to $2.20/gal up from $2/gal previously. At that same point the average of all gasolines sold in the US, as seen from the Energy Information Administration spreadsheet was $2.36/gal for all formulations and this was just before the steep summer rise in prices. Chinese gasoline is mostly formulated with MTBE and little else, according to Research and Markets which a few US States have banned as seen on the EPA FAQ on Reformulated Gasoline. So that is a fair comparison of prices, more or less, but as the Chinese Government sets the prices, how well their price elasticity deals with seasonal demands is questionable. And as that article cited, the Chinese Government has been lax in keeping up with global oil prices and not wanting to set economical fuel prices as a result. By trying to stabilize fuel prices, the net result is to have uneconomical pricing which is below cost at most times, which encourages wider end use. And when the global prices go down you then get, as seen previously in this Pakistan Daily Times article on 17 APR 2005 smuggling of gasoline and other products into China. That then REVERSES when oil prices go above that level. More of this was seen via an Interfax article on 14 FEB 2007 (since gone behind its customer login):
Two diesel-smuggling ships seized off eastern China coast Beijing. February 14. INTERFAX-CHINA - Two diesel-smuggling ships were seized by anti-smuggling police in Hangzhou, Zhejiang Province, last week, according to a report released by China's General Administration of Customs.

Police seized two ships that were trying to smuggle 110 tons of diesel out of China last Friday. Six suspects on board were detained, according to the report.

This is the first oil-related smuggling case foiled by China's police force this year.

China's oil product prices are significantly lower than those in neighboring countries, which has resulted in a rise in smuggling.

Currently, a liter of gasoline is sold at about RMB 5 ($0.64) in mainland China, but its price in Hong and Europe is about RMB 14 ($1.8) a liter, said Chen Qingtai, the former deputy director of the Development Research Center, which is a government think tank affiliated with the State Council.

"Almost all airplanes from around the world want to stop over in China to refuel their gas tanks. Trucks from Hong Kong and Macau drive to the mainland to refuel too," Chen said during a conference earlier this month.

"The smuggling of oil products is another result of this price gap," Chen said.
-YSW
Thus China becomes a two-way smuggling Nation when prices fluctuate which comes down to the Chinese Government encouraging smuggling by this subsidy. Either internally when market prices are below government set prices, or internally when market prices are above that set price. Even with periodic adjustments, that starts a process of heavily fluctuating use of the refined product in those areas that are amenable to smuggling, which happens to be some of the major trading ports and cities. All of which are growing thanks to the way China is setting its internal policies for lack of rural advances and encouraging growth of those cities with poorly financed and overseen industries.

The problem, then, starts to become a bit more clear:

1) China by increasing education is making a more literate working population.

2) China by not encouraging market based finance is allowing uneconomical and poorly capitalized and run companies to start up with a poorly run banking sector.

3) These industries then need cheap labor which it gets from the poor, rural sections of China which increases internal migration even when such is not allowed.

4) By subsidizing these manufacturers that cannot properly run their businesses, China sees a high rate of Non-Performing Loans that go beyond mere Delinquency. This has been seen as a way to move money into politically connected companies, as see seen by William Plesek in this 27 FEB 2007 article at Bloomberg.com.

5) High turnover of poorly run startups allows for those business owners to pocket the differential in the export market and run their companies into the ground using cheap labor as its basis.

6) Training for highly trained labor is done overseas where such training is done well, but that then returns to China and finds a non-market driven system where their skill sets are ill-equipped to compete in it.

7) Well run foreign subsidiaries then do the mass of employment with long-term outlooks on the Chinese market, but only invest in manufacturing when their goods can be more cheaply done by the lower skilled Chinese market, with the high skill individuals going to smaller manufacturing areas within those companies or serving as interim managers for business marketing and research.

8) The resultant urban population then puts up with high pollution from industries. This has been seen numerous places, including:
17 FEB 2007 Voice of America article in which China is cited as the #1 emitter of sulfur dioxide and the #2 emitter of carbon dioxide,

28 FEB 2007 China Economic Net article by Han Ji on the problem of reducing sulfur dioxide and cites coal fired power plants, uneconomically high energy consumption machinery, increase scrubbing capacity beyond the current 1/3 of all plants (40 million mw, vice an installed base of 125 million mw), and address the increasing inefficient use of coal power plants to meet energy needs,

27 FEB 2007 China Daily with a bill being introduced to make government officials liable for pollution and 'local protectionism' which has been cited as the cause of lead poisoning of 250 children in Huixian County and factories in Hunan Province releasing high concentration of arsenides into the Xinqiang River which is a water supply for 80,000 residents,

17 NOV 2004 Wall Street Journal article put up at the Yaleglobal site on mercury pollution in China,

World Bank 28 FEB 2007 article on its support for a Second Shandong Environment Project addressing a shortage of water, inadequate wastewater collection and treatment, and lack of solid waste management facilities,

28 FEB 2007 Radio Australia article on the World Wildlife Fund citing the Mai Po nature reserve manager, Lew Young, blaming "sewage, farm waste and industrial pollution". Additionally the article cites China for dumping 52 billion tonnes of untreated waste into the river system and polluting that and the coastal sea waters,

28 FEB 2007 People's Daily Online citing $1.5 Billion in economic loss in 2004 to pollution in Beijing *alone*,

Finally a quick visit to
Nasa's Visible Earth will yield all sorts of lovely images of the air pollution over China.

Yes, this is almost Dickensian in its proportions! Polluted cities, streams, rivers, groundwater, and poor country folk trying to get into cities to get any decent job and many of the other sort that become available. Those that can get into a good company and reliable work actually get to afford an apartment of their very own, something a bit better than a bicycle, television, cellphone and computer. And it is that cellphone that is the key to China and its immediate future.

As I went through at the beginning of this, that is the asymmetrical technology aspect playing against the Chinese Government. This Government is trying to be less Communist, but is having trouble letting its hands go of the industries under its control and also unwilling to let Capitalism have free reign. Even though it no longer proposes the idea of global Communism and no longer even aspires to Communism in one country, it is slowly sliding towards something else. The hallmarks we are seeing are attempts to control information, economic enforcement of family size, using internal police mechanisms to stifle free speech, using control of banking to hold industries under the economic oversight of the Government and putting forth that the problems felt now are for a 'better future', just don't mind the crushing poverty, pollution, corruption and prisons.

This is attempted Capitalism within one Nation towards Nationalistic ends but controlled by the State. Thus the hallmarks seen are:

1) Nationalism. China has always had this throughout its entire existence, be it under a Sun Emperor, Dynastic Em porer, or Communist system. China might be defeated, but it always 'absorbed its conquerors'.

2) State Centralized economy. In the case of China via the banking system, bad loans, cronyism, and political favoritism. Also note the lack of caring about the health of the population or even such things as pollution. The Government no longer is a 'dictatorship of the proletariat' or espouses 'workers owning the means of production'.

3) Militarism is State imposed upon a population for repression and dreams of expansion, in this case towards Taiwan. Further the Government looks to bind its population so that individuality disappears. And the threat of the use of that has been seen multiple times in recent history.

4) Anti-liberal, as in the old school, 19th Century rights of man, liberal. By controlling the sources of information, personal liberties and enforcing structure from the rulers downwards, fascism negates all Western liberalism and ends it so that the State may have sole control over all aspects of individual life. No religion is brooked that has any possibility of interfering with the control of the State, as seen in the repression of Falun Gong, not allowing a vice such as gambling, and attempts to control news and ideas within the State.

The type of Government system this describes?

Fascist.


This is not an attempt to describe how the Chinese Government sees itself or purports itself as being, but a description of its activities and how it runs things. It is Communist in name only and Fascist in its outlook, control and methodology of thought. Any gloss of the Government as having any relationship to its people as individuals or even as workers has disappeared in the decades since Mao. One does not need to have a 'Great Leader' to get a Fascistic regime, and a ruling clique that decides who goes up and who does not does just as well and is the more insidious for being a clique and not a single, mortal leader. When you remove the outward, idealistic stance of Communism to be global, shear off any support, even in verbiage, of the worker, and then adhere to Nationalism, Militarism, State centralized control and go against the rights of individuals to have freedom of speech and religion, and use that all towards State centered control of production, you do not have Communism.

You do not have Capitalism.

You have Fascism.

And what technology is doing is liquidizing the last of the old Chinese culture as anything NOT disallowed is PERMISSIBLE. And the State is finding that out in spades as people now report on sexual activities, nepotism, and anything else they can get away with as well as circumventing the 'Great Firewall of China' which will be as effective at stopping ideas as The Great Wall was at stopping previous enemies. What comes of that is unstructured freedom and a dissolving of all bonds above the personal as even the family bonds to those in the countryside are degraded and lost by the current State control.

You do not get a liberal society out of that.

Nor do you get all things good and wonderful with that 'Free Trade'.

The anomic state of being that comes from this detachment is unstable as it is apparently listless and lawless. That was the state the Weimar Republic was in socially, although not politically. And the unstable elements to change that state are ones that are not easily controllable, either.

A rising Japan could easily turn China intensely militaristic.

A sudden religious shift in *any* direction could put in a religious regime bent on 'washing away the sins of the culture' as was seen in 'The Great Leap Forward' and 'The Cultural Revolution'.

A rise of radical Islam in the Western provinces could shatter the final, agrarian social cohesion there and the cracks from that would spread half-way into the Nation, provoking reprisals and possibly worse. If al Qaeda suddenly decided to declare a mountain Islamic State encompassing the autonomous territories of Pakistan, Kashmir and parts of Tajikistan, Afghanistan and China, the ability of a 'million man army' to respond out there in the highland desert would be questionable at best.

A collapse by the Government itself, into different ruling cliques would be a large scale catastrophe, no matter *what* the outcome as there are so many depending on minimal amenities in the cities and no longer a large and dispersed agricultural society to weather out storms at the top of society.

The threat by North Korea to open *its* borders to China would be a highly destabilizing blow as an economy already straining to cope with the tens of thousands of poor in its cities would then need to cope with a million or so poor AND starving individuals... or just kill them.


Those are my superficial thoughts on China.

4 comments:

bryan said...

Interesting. What does it mean for the U.S. Would a floundering China become more aggressive for instance?

A Jacksonian said...

bryan - Thanks for dropping by!

China would not necessarily become more aggressive externally, but could become that way internally if some of the internal structures on the economic side start to falter. The social structures, lacking any coherency from either the upper echelon (government) or lower echelon (families) then falls into the hapless middle where nothing substantial exists. Provincial and city administrations and cultural capabilities are minimal or even discredited amongst the population as they are the target for the ire of the folks there.

Circumstances would dictate things, and China has seen different ways in the past of what happens when it society goes downhill: from external forces like invading armies, which it just absorbs, to internal dissention which has led to revolts. Most all of China's energies are directed internally to keep cohesion, not externally in expansion. The meme of 'taking over your neighbor to prove your own superiority' has only gone so far, as Tibet can attest to. What would happen if the far Western provinces had a rebellion against poverty and started aligning with an internal group or external one is of question.

No matter what happens in China, it is always the people of China that suffer the worse and when floods can kill thousands of people at a shot and barely be worth a mention, the worth of the people is clearly demonstrated. Those that get to the cities do get cheap electronics, access to the outside world and see something wholly different than what they were taught in school and it looks successful... but the limitations of the mind-set of China for centuries is one that does not grasp the basis of Western liberalism from the 18th-19th century. That is why the T-Square uprising went down: the students and people of Beijing had not structural framework to put their ideas into. Putting up a statue and staging a massive sit-in do *not* get you a culture oriented towards personal liberty: that requires hard work and organization. When the mass of city-based unions marched in support of the students those same students did not even realize that this represented a major break with the past and were not prepared to offer a *new* structure inside the city for governance. When those that are in charge of sewage, water, trash collection and all the things that are necessary to *have* a city move to your side, the control of the city is then in the hands of those people, not the bureaucracy.

It is that lack of framework inside the Chinese social make-up that then looks internally for scapegoats and has for centuries. All of that lovely high tech does *not* get you liberty, but gets you a view of what liberty means to individuals... not how to make and safeguard it. A banking collapse could just see a national depression leading to famine and starvation with the Red Army used to crack down on uprisings. As China has no basis to get those elements out of the banking system and economic structure that do not work, the 'capitalist experiment' will continue to be a Government affair. That is Fascistic, no matter how many entrepeneurs are allowed to operate. And if the money turns worthless the first to suffer will be those that flocked to jobs in the cities: young, educated, bright and wanting a better future.

That is not a stable mix when the money dries up. And they will not go 'back to the farms' having tasted the good life unless there are guns forcing them to do so. Par for the course in China... 'Cultural Revolution'... 'Great Leap Forward'... 'Re-education camps'...

And if it starts due to Western provinces trying to declare some autonomy for *any reason* including just raising the standard of living, then that countryside that Mao depended on would not be *for* the current regime.

I thank you for your visit!

Rick Ballard said...

It's amusing to read the Economist's assessment of the Asian Development Bank's cut of their estimate of the size of China's GDP by 40%.

"Amusing" in the sense that the Economist had joined the vast majority of the uncritical press in touting China's "economic miracle". I continue to be amazed at people being so deluded by China's stockpiling of dollars rather than making the infrastructure investments necessary to raise the vast majority of China out of the third world. Southeastern China doesn't seem to want highways, railroads or even power transmission lines to the rest of China.

Perhaps because they don't wish to provide a better means to move and supply armies?

A Jacksonian said...

I read that, also, and hope this is going to lead to some serious examination of the Chinese crony banking system. That said, too many companies now depend on Chinese goods to make that likely as looking into low cost suppliers will yield up some of the worst working conditions in the industrialized world, poor quality control and management that has no need to be held accountable for those things. If a factory goes under and you have connections, you get *more* money and the debt just piles up in the economy. This is not stable. By investing in China before they institute basic human rights and liberty reforms we support this crony capitalist regime to continue on 'as-is'.

China only has need to modernize only so far as it can continue the cheap labor supply. At some point that infrastructure of a road and single telephone in a village turns into a negative transformation. Internal migration is already a headache, and the PLA now supports its own set of Triads to extort money to send people overseas for virtual slave labor. A system like this does not decay gracefully: it cracks and then disintegrates due to the scale of China. Then the question isn't of the PLA marching all over the place, but a humanitarian disaster as over 1 billion people fall into disorder. Mao killed his way to power and that worked for what it was: a regime willing to kill to get its way. My guess is that some of the PLA/Triads will shift to local control or outright warlordship between the coastal cities and central asian poppy fields. That no longer allows for a 'One China' policy...

It is not 'isolationism' to wish to see curbs on trade with China to get some impetus to reform going, it is to get the people there knowledge of how to live their lives without tyranny and form a government that is accountable internally to them. If we are a bastion of liberty, then supporting tyranny is contrary to who we are: it erodes liberty and our dedication to it.

We tried letting the killers off easy, and this is what we get: no additional freedom, little additional trade, and the support of a place that is now a disaster waiting to happen. That is why NoKo's threat of releasing starving millions into China was effective: it would have brought China down because bullets wouldn't stop them, bombs wouldn't stop them and the only thing left is nuclear deviced used on NoKo and parts of China. The West is not the only set of people threatened by NoKo, and with one reliable AQ Khan device on a NoDong II missile, that neutralizes all of China by threatening to eliminate Beijing. Without the head, the Dragon dies.

And it is already sick with cancer...