The Coming Chinese Depression

Yes, the question  is how does this all end?  History is not generous.  We are witnessing an economic expansion driven by fiat money now on its last legs.  The reason it is weakening is that;

1                    The powers that be have and continue to enrich themselves by renting access to the printing press.  We are now running far ahead of the market in terms of cities built and rail capacity provided.  The consumer market needs to catch up.

2                    The printing press must be used to support credit to the obvious middle class so that they can take over the task of growing the economy.  Their expansion will swiftly liquidate any capacity overhang.  The same problem is presently dragging on the US economy.

The recession that is surely coming will be a nasty recession, but not a depression which would entail gross mismanagement of the printing press.  Recovery can be bottom up and quite vigorous as plenty of consumer demand exists.  It will all be about the emergence of a modern consumer society.

The present political regime will be swept away to be replaced by a fresh group of rent seekers working with the same cards but younger at least.  It would be very easy to allow the process to be managed with elections as is already happening at the local level.

The Coming Chinese Depression

Wednesday, June 29, 2011 – by Staff Report

Chinese Urbanization Putting Huge Strain On Cities ... A forest of buildings and cranes rises through thick fog above roads jammed with cars in a Chinese city the size of Austria and home to more than 32 million people. The southwestern megacity of Chongqing is bursting at the seams as authorities struggle to keep pace with its rapidly growing urban population – a situation seen repeatedly across the vast country of 1.3 billion people. – US Newstime

Dominant Social Theme: The Chinese Communist Party is running China according to enlightened Marxist principles. Therefore China will prosper indefinitely, thanks to Karl Marx. Communism cannot fail.

Free-Market Analysis: Yesterday, we discussed a speech by Chinese Premier Wen Jiabao. It was a very inoffensive speech, presented with mild words, until you deconstructed it and saw that at its core, it was a fundamentally fascist approach to human interaction. In this article, we want to discuss the ramifications, which are potentially disastrous for the world economy.

The sociopolitical and economic philosophy that Jiabao elaborated on in his speech does not seem to have a name. We called it soft fascism. It is a system in which government sets the rules; corporations function in a quasi-competitive manner within the given parameters. This is the system that America uses and the European Union as well.

When one looks beyond the soft words of Jiabao, the real-world ramifications are startling. The Chinese government has embarked on the biggest people-moving experiment ever attempted. It wants to move some 300 million rural farmers to "urban environments." In the process it is creating vast cities of 20, 30 and even 40 million people and continues to try to stimulate its economy to create an environment that will support this effort.

Nothing wrong with building cities, of course. People tend to clump in cities because it makes providing and finding goods and services easier. Cities are a marketplace phenomenon. Most cities seem to have begun for purposes of trading. But what China's old Marxist leaders are doing is something that goes well beyond reconfiguring already established cities. They are virtually creating cities – the biggest the world has ever seen.

The Newstime article, excerpted above, gives us a little bit of the sense of the scope of the changes being inflicted on the Chinese people. "More than 350 million people are expected to move to Chinese towns and cities in the coming years," the article informs us, " boosting the country's urban population to one billion by 2030, according to a report by consultancy firm McKinsey & Company."

This "urbanization" (there's an inoffensive word) will create upwards of 200 cities with a population of more than one million and include five million buildings and 50,000 skyscrapers. The Chinese are building 10 New Yorks virtually from scratch and intend to do it quickly. New York was 300 years in the making. It sounds as if the Chinese have in mind creating ten New Yorks in just a few years.

The gross insanity of this massive effort has not attracted much attention. Never in human history, from what we can tell, has a government tried to build brand new "cities" to resettle close to half a billion people. It is society-shaping on the scale of Mao's Great Leap Forward that ended up with the starvation of something like 40 million.

You would think the West's supine mainstream media would be writing about what's going on in China, given that China contains something like 15 percent of the earth's population and now intends to resettle some 30 percent of those that live within its borders. Not a chance.

The Newstime article does make a timid attempt at summarizing the potential negative ramifications. They quote Jonathan Woetzel, a Shanghai-based director for McKinsey. "There's going to be more volatility and uncertainty ... Urbanization essentially picks you up and moves you to a place where you don't know anybody nor do you have as many formal rights as you would have had in your previous residence."

Woetzel calls it "urbanization," but this is a euphemism. It is the rankest form of authoritarian arrogance. Even Woetzel is skeptical. "It means living cheek by jowl with other people who they have never met and literally don't share a common language with nor do they have the same sense of rights and responsibilities,"

One assumes Woetzel may have worked on the McKinsey "Chinese urbanization" report, which notably descends into the usual green gobbledygook. "Demand for resources is likely to double while air pollution – already severe in many cities – could reach 'critical levels' without further investment in green technology." Here's some more:

The burgeoning urban population has sparked a nationwide building boom as China spends billions of dollars developing new cities, power plants, roads, high-speed rail networks and airports to accommodate the masses.

Authorities – anxious about the widening wealth gap – have pledged to reform the controversial household registration system so migrants can access public services such as health insurance and free education when they relocate.

After 30 years of rapid growth, Chinese cities such as Beijing and Shanghai are starting to groan under the strain of populations the size of Australia's at more than 20 million. Officials are trying to relieve the pressure by restricting the number of cars allowed on the roads and urging people and companies to move inland.

But analysts say the key to successful urbanization will be maintaining the country's rapid economic growth – a blistering 9.7 percent in the first quarter – so enough jobs can be created for the new urban dwellers.

This is exactly what we've been suggesting for perhaps the past year-and-a-half now. China's 300-million-plus people moving experiment depends on the labor market. Woetzel again: "China is very much an expectations-driven environment – as long as people feel like it is getting better, then the base for fundamental social stability is there ... If you are out of work for a long period, one loses the expectation of things getting better."

The article manages to end on a positive note, quoting Paul Kriss, a World Bank urban specialist based in Beijing. "You don't see the major slums like you see in India, Cairo or Lagos or in South America. Having said that, they do have mega-challenges."

Mega challenges? Just yesterday, the well-known economist A. Gary Shilling, president of A. Gary Shilling & Co., published an article at Bloomberg predicting that China would eventually have a "hard landing." He calls the Chinese economy "white hot" and doubts that Chinese officials can properly slow it down though they've been trying for a number of months.

He writes: "By my reckoning, the Federal Reserve has tried 12 times in the post-World War II era to cool an overheating economy without precipitating a recession. It succeeded only once. Can the politically controlled Chinese central bank, and the government leaders who really call the shots, be more successful than the independent Fed? That seems unlikely. And the consequences, for China and the world economy, could be unfortunate."

The Chinese don't seem as concerned as Shilling, at least not officially anyway. We found an article in the Chinese People Daily Online, entitled "Communist Party of China has earned right to lead." The article states clearly that China's economic triumphs have proven the superior planning ability of the Chinese Communist Party.

The article begins by noting that the 90th birthday of the Communist Party of China is drawing near. "Looking back at the Party's magnificent history, a conclusion can be drawn that the Party deserves the right to lead in China given its remarkable achievements in leading the Chinese people of all nationalities to gain national independence, to enhance the comprehensive strength of the country, to promote the common prosperity of the people, and to achieve the great rejuvenation of the Chinese nation."

This is the crux of the matter. We've argued that ChiComs are entirely dependent now on China's continued growth. They starved something like 40 million people 50 years ago during the Great Leap Forward and more recently, in Tiananmen Square, they ran over a number of people with tanks. They get one more chance. If China's economy goes sour, the ChiComs are likely finished as well.

For the People's Daily Online, these are insignificant worries, as "The Party's leading position is based on scientific theories." Why are these "scientific theories" any better than ones various technocrats have failed with in the past? According to the article, Marxism itself provides the answer:

After the Opium War, countless patriots took advantage of various political theories, such as reformism, liberalism, social Darwinism, populism and syndicalism to save the nation, but all failed because these theories violated the principles of science and did not fit China's specific conditions.

Sun Yat-sen developed the Three Principles of the People and led the revolution that toppled the Qing Dynasty but failed to carry through the following democratic revolution because of historical limitations. Marxism is the most advanced and scientific ideology in human history and is the guiding ideology of the Communist Party of China. The Party integrated the basic principles of Marxism with China's specific conditions and made two significant achievements in the localization of Marxism.

The first achievement was Maoism, and the second achievement was socialism with Chinese characteristics, including the Deng Xiaoping Theory, the important thought of the Three Represents and the scientific outlook on development. The two achievements have served as a solid theoretical basis for the national independence and prosperity of China. It has been clearly proven in the past 90 years that the Party, which adheres to the guidance of Marxism and constantly promotes the localization of the ideology, has the ability to lead the revolution and reforms in China.

This article was written by someone called Ma Zuyun and must be representative of the party's larger thinking. Yet its approach is a technocratic nightmare, postulating that "science" can be applied to sociopolitical and economic developments. It cannot.

Human interaction, as Ludwig von Mises has taught us, is individual. The plans that the state makes for individuals will inevitably be contravened by human action itself. What this means, at a minimum, is the decisions that Chinese functionaries are making regarding the building and housing of 300 million people are bound to be wrong. It signifies disaster on a continent-wide scale.

Just as significantly, from our point of view, this remarkable little article seems to reveal that Chinese communism is not dead, certainly not formally. The Chinese Communist Party is taking full credit for the Chinese economy and anticipates even more "success" in the future.

Of course, the success in our view has been initiated by printing fiat dollars – money from nothing. It is the same "success" that the Western central banks had prior to 2008 and look at how that ended. One cannot grow an economy year after year at nine percent per quarter and expect anything at the end of it but an inflationary depression.

Chinese economic statistics are a case of "garbage in and garbage out." And Western power elites must be quite aware of what is going to happen in China eventually. In our view it is a kind journalistic criminality that the mainstream media does not do more to alert the West about what is in store. When the Chinese economy crashes, the rest of the world will not be immune.

What is going is perverse; we have speculated in the past that it is being done on purpose. The Anglosphere elites behind the world's current psychopathic system of central banking – which is nothing more than monetary price fixing – must surely understand the ramifications of what is now aimed at China and the world.

Perhaps the idea is to create such a large economic catastrophe that the only remedy will be a world government and a world currency. Of course, this won't be the only choice, but it will be presented as such.

Do we sound apocalyptic? The world's largest economy is apparently being managed by Malthusian classical economists, circa 1700. The Chinese central bank has printed so much money that the country has raging price inflation on its hands. The economy is so distorted that people think buying empty apartments in empty cities is a good investment.

Conclusion: The seeming inevitability of the coming Chinese Crash is surely the largest and most significant economic story of the upcoming decade. Look for concerted, regular coverage in your local newspapers and periodicals ... Not.