There are growing suspicions that China may be heading for a collapse. The first inkling of this was in Stratfor.com’s chief George Friedman’s book, The Next 100 Years . My review of the book is here. Here is an excerpt:
His analysis of Russia and China seem very astute and correlate with other reliable sources such as the columnist “Spengler” with the Asia Times. I hadn’t thought about the population distribution of China until I looked at the map on page 90. He does not mention the very recent unrest in China although he predicts it. There have been 70,000 factories close in China in the past year with 20 million suddenly unemployed . I don’t believe this sort of insight is available at this price anywhere else.
Now we havethis warning .
“Purchases of U.S. consumers cannot be as dominant a driver of growth as they have been in the past,” Treasury Secretary Timothy Geithner said during a trip to Beijing this spring. “In China, … growth that is sustainable will require a very substantial shift from external to domestic demand, from an investment and export-intensive growth to growth led by consumption.”
That’s one vision of the future.
But there’s a growing group of market professionals who see a different picture altogether. These self-styled China bears take the less popular view: that the much-vaunted Chinese economic miracle is nothing but a paper dragon. In fact, they argue that the Chinese have dangerously overheated their economy, building malls, luxury stores and infrastructure for which there is almost no demand, and that the entire system is teetering toward collapse.
A Chinese collapse, of course, would have profound effects on the United States, limiting China’s ability to buy U.S. debt and provoking unknown political changes inside the Chinese regime.
The China bears could be dismissed as a bunch of cranks and grumps except for one member of the group: hedge fund investor Jim Chanos.
Chanos, a billionaire, is the founder of the investment firm Kynikos Associates and a famous short seller — an investor who scrutinizes companies looking for hidden flaws and then bets against those firms in the market.
His most famous call came in 2001, when Chanos was one of the first to figure out that the accounting numbers presented to the public by Enron were pure fiction. Chanos began contacting Wall Street investment houses that were touting Enron’s stock. “We were struck by how many of them conceded that there was no way to analyze Enron but that investing in Enron was, instead, a ‘trust me’ story,” Chanos told a congressional committee in 2002.
Chanos has some disturbing data.
First, they point to the enormous Chinese economic stimulus effort — with the government spending $900 billion to prop up a $4.3 trillion economy. “Yet China’s economy, for all the stimulus it has received in 11 months, is underperforming,” Gordon Chang, author of “The Coming Collapse of China,” wrote in Forbes at the end of October. “More important, it is unlikely that [third-quarter] expansion was anywhere near the claimed 8.9 percent.”
Chang argues that inconsistencies in Chinese official statistics — like the surging numbers for car sales but flat statistics for gasoline consumption — indicate that the Chinese are simply cooking their books. He speculates that Chinese state-run companies are buying fleets of cars and simply storing them in giant parking lots in order to generate apparent growth.
Another data point cited by the bears: overcapacity. For example, the Chinese already consume more cement than the rest of the world combined, at 1.4 billion tons per year. But they have dramatically ramped up their ability to produce even more in recent years, leading to an estimated spare capacity of about 340 million tons, which, according to a report prepared earlier this year by Pivot Capital Management, is more than the consumption in the U.S., India and Japan combined.
This, Chanos and others argue, is happening in sector after sector in the Chinese economy. And that means the Chinese are in danger of producing huge quantities of goods and products that they will be unable to sell.
This is not the time for us to double the US national debt.
“This is not the time for us to double the US national debt.”
No it’s not. But “we’re” doing it. Mike… you and I ain’t in charge.
(*SHRUG*)
As for China…
Yes. There’s a great deal of truth in the “cooking the books” charges and “paper dragon” charges as far as the Chinese CONSUMER economy is concerned.
“…the Chinese have dangerously overheated their economy, building malls, luxury stores and infrastructure for which there is almost no demand…”
True. But again, that’s the CONSUMER economy. The industrial might… the power generating capacity and infrastructure… the potential military might of China is firmly in the hands of what ultimately still counts as a “command economy” and as an American that’s what concerns me.
China isn’t Gorbachev’s Soviet Union and certainly not Yeltsin’s Russia. Don’t expect a “soft landing” should the CCP start losing control of China, let alone if China as a single geographic entity starts to implode.
Anyway… just some points to ponder.
BILL
Bill, I have felt for some time that China was not a threat to us except financially. They are not a military threat. I highly recommend Friedman’s book, the Next 100 Years. For example, I did not realize that China’s population is all near the coast and there is an enormous area inland with low population density. The one child policy will turn out to be a catastrophe. Fortunately, until now, our leftist ideologues never had any power. Zero population growth was a bunch of nuts instead of the ruling party.
“Bill, I have felt for some time that China was not a threat to us except financially.”
(*SMILE*)
Yeah, Mike… and Chamberlain thought he had brought Europe “peace in our time.”
(*SHRUG*)
In other words… you’re wrong.
“They are not a military threat.”
They’re not, huh? Hmm… I seem to recall a small “incident” back during Bush’s first year in office – pre-9/11 – where the Chinese felt confident enough to engage in an actual act of war against us via forcing one of our military aircraft which had been operating in international airspace to land in China – effectively “capturing” our plane. This was in 2001 and back then they were already strong enough to get away with such behavior. It’s now eight plus years later and China is relatively stronger than ever both financially and militarily.
“I highly recommend Friedman’s book…”
No thanks; Friedman is an over-hyped faux “expert” on international affairs; in my view he’s a clown. (And I – unlike Friedman – know what I’m talking about.)
“I did not realize that China’s population is all near the coast…”
Your point…???
(Where do you suppose most of OUR population is concentrated?)
In any case, Mike, we seem to have a basic difference of opinion here. That’s cool. It happens. Sooner or later you’ll come around!
(*GRIN*)
BILL
I don’t understand your comment about Friedman’s book. Large corporations pay a lot of money to Stratfor for intelligence that is probably better than the CIA product.
My point about the Chinese population was that the majority of China is lightly populated and poorly developed. I guess you knew more about it than I did. China, as one authority has said, will get old before it gets rich. The one child policy was a disaster and, among other things, will restrict their military age population, unlike the Arabs.
“I don’t understand your comment about Friedman’s book.”
MY BAD…!!! I saw “Friedman” and my mind immediately fixated on THOMAS Friedman!
(*RUEFUL RED-FACED SMILE*)
That aside…
“…corporations pay a lot of money…”
How much did Coke pay to develop “New Coke?”
(*SMILE*)
As is my want, using humor to make a point… there’s a difference between cost and value. Companies – and governments – spend lots of money for lots of stuff… not all of it cost beneficial. (You’d acknowledge that I hope.)
As for Stratfor…
Yeah. I respect Stratfor. (As noted above, my mistake in seeing “Friedman” and immediately jumping to the WRONG conclusion that you were talking about TOM Friedman.)
(You agree with me on TOM Friedman – right…???) (*GRIN*) (*WINK*)
As for China…
Mike. Think about it. Do the math. One child policy or not, there are – and will continue to be all during any forseeable future – quite enough “bodies” for the Chinese to meet their military manpower needs.
That said… it’s not a land war against Chinese infantry that concerns me.
Furthermore… in terms of right now… YEAH… if push came to shove and President Obama ordered the U.S. military to wage total war against China with the objective being to pretty much totally defang the PRC… yes… we could do it… we could “win.”
But that’s not the type of situation I’m worried about. I’m worried about “limited” military conflicts with China occasioned initially by an economic or political adversarial conflict going to the next level.
I’m also worried about 10-15-20 years down the road.
BILL
Twenty years down the road, China will be in trouble. One of my students was a graduate of Beijing University. Her mother was a professor. Her father was a mechanic although trained as a physicist because he was a Christian. She has a brother. When I asked her about the one child policy, she said, “Oh, they aren’t very smart.” I have since learned that some families were allowed a second child if the first was a girl. She told me that she came to the US for medical school so that she could take care of her parents as they got old. That was not possible in China.