China's Economic Bubble

China's Economic Bubble
By
William Cate

In 1978, Chairman Deng launched the "reforms and opening" initiative. It privatized agriculture. Deng's reforms led to the establishment of Special Economic Zones (SEZs), the creation of individual entrepreneurs, and the attraction of foreign investment. In 1992 the government launched a new wave of reforms, opening up stock markets and expanding the sale of land-use rights. For years, China has received more foreign investment than any other nation in the world. The result has been that the standard of living in China has risen faster per year than anywhere in the world, since the beginning of the Industrial Revolution.

Unfortunately, this economic growth is built upon an unsound foundation of political, economic and environmental problems. These problems will eventually overwhelm the Beijing Government.

Examples of China's Political Problems
There is an inherent conflict between Capitalism, which has moved up the Chinese Standard of Living with its differential distribution of wealth and Communism with its commitment to an equalitarian economic structure. The gap between China's East and China's West is really very wide. Prime Minister Wen Jiabao has observed that the GDP from five or six provinces in coastal areas accounts for more that half of China's total GDP. The economic gap between the business community and the peasants is even worse. Economic inequality tends to breed social unrest.

Beijing's Prime Director is Social Stability. The Chinese government is desperate to preserve stability while at the same time pursuing economic reforms that continue to tear at the nation's social and economic fabric. The political system is feeding upon itself as it lifts the standard of living of many of its citizens while raising basic questions about the merits of China's political structure.

China is not a monolithic culture. There are about 250 million Muslims occupying more than half the country and living along China's borders with Afghanistan, Kazakhstan, Kyrgyzstan and Tajikistan. There's been an ongoing-armed rebellion in Eastern China for the past fifty years. If you think that Washington has ongoing problems with the Fundamental Islamic Movement, it's nothing compared to the problems faced in Beijing.

China is between a rock and a hard place over Taiwan. Taiwan has been a major source of foreign investment in China. Many Taiwanese want to declare their total independence from China. If Taiwan moves for independence, China loses everything. If China opts to invade, as they regularly threaten to do China's economic bubble bursts because the West will certainly stop trade with China and may respond militarily. If China accepts Taiwan as an independent country, they are fueling the fires of discontent from Tibet to almost all of Eastern China and the result could be the disintegration of the People's Republic of China. Either way, Beijing loses.

Chinese Economic Problems include:
China's banks have millions of non-performing business loans. The loans were made to the millions of money-losing, state owned enterprises. The Government has little choice but to continue to make loans to these inefficient operations. Otherwise Beijing faces a massive unemployment problem. The result is the Chinese Banking System is broke. It continues as long as the Government feeds money into the system.

China's Bubble relies on a Bull Economic Market in the West. It's Western buying of the goods produced in China that has created the Bubble. While we have had the longest Bull Market in history, it must eventually end. When it ends, the Chinese Economy must falter and probably fail.

The West wants China to float the Yuan. Beijing resists because the Yuan would rise against most World currencies and make Chinese exports more expensive and thus slow the growth of the Chinese standard of living. Not floating the Yuan will eventually force the West to take other measures to restrict Chinese imports.

Three Chinese Environmental Problems.

Water Pollution
Deforestation leads to flooding and removal of topsoils. In the 1990s, China moved to end lumbering. This policy created economic problems as the forest industry collapsed. Tree farms required borrowed funds for planting and the interest rates on the loan makes them losing investments for several years. The result is that lumber prices have risen sharply in China. High material prices hurt the construction trades. It's this compounding of problems that keeps the bureaucrats in Beijing working 12-hour days.

The runoff from denuded hills floods major rivers. In addition to the silt load, these rivers are usually toxic soups, thanks to unrestrained industrial development. The water isn't potable by Western standards. The cleanup costs would run into hundreds of billions of dollars. It won't happen.

Air Pollution
In 2000, the UN estimated that it would cost US$40 billion to cleanup the air. China is the second largest consumer of oil, behind the United States. Currently, China consumes about 6.5 million barrels of oil a day. That demand grows as China's standard of living improves. Oil demand is expected to double in the next 15 years.

China has coal reserves and uses them to fuel industrial development. There is little effort to control smokestack emissions. The result is air pollution levels in most urban areas that shorten lives and make Los Angeles' air look like that of a South Pacific island.

Desertification
As our climate warms, deserts grow in size. This is the primary source of famine problems in Africa. It's a problem that will get worse in China over the next few years.

China's Bubble will burst. It will happen in the next 10-15 years. The results will include civil unrest and possibly the disintegration of China into more than one country. China remains a good place to speculate. It's an unwise choice for long-term investors.

Semoga artikel China's Economic Bubble bermanfaat bagi Anda. Jika kamu suka dengan artikel China's Economic Bubble ini, like dan bagikan ketemanmu.