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Why China won’t own the World anytime soon

Posted on Sunday, 20th May 2012 @ 05:08 PM by Text Size A | A | A

They’re a one-party communist State and you actually believe their figures. Are you nuts?’

 

Now, God knows (if he, she or it exists), I’m not an economist. Anybody looking at my personal accounts would immediately realise that. My true ‘economic genius’ lays in spending money that I haven’t actually got rather than in money-management, a trait I share with China so feel well qualified to comment. Let’s start with a few basics.

 

China is a one-party state with centralised control. If you want to get ahead, even today, you still have to toe the party line. What is that party line? Basically the party believes in large, state-run industries. It became apparent some twelve or so years ago that these industries, created in the early nineties (1990s) in an attempt to emulate the West and much of Asia, were being run inefficiently, were going broke or were technically broke already and were a series of gaping ‘money pits’. The State could not allow these industries to fail, precisely because they were state-run and the State could not be seen to fail, nor could they afford to keep pouring money into them, otherwise the State would be seen to go broke as they ran out of money. The solution? In part creative accounting, in part some sham privatization and in part coercion of Chinese banks. The latter were ‘invited’ to loan vast sums of money to bail out failing industries and in return they were given stock in what were essentially failing or failed businesses as security. Some of that stock was then passed to other state-run banks as security on inter-bank loans. Some security! The problem was (and is) that the basic underlaying situation did not change, the industries continued to be run in the same old way, perhaps by new people, perhaps by the same. Of course, state-owned banks couldn’t be seen to fail either (what would the growing number of Chinese depositors make of that) so China today is playing ‘pass the empty parcel’ on a scale that even Wall Street would find impressive, if anybody wanted to be the one who just happened to notice that the emperor’s ‘bit’s were waving in the wind.

 

So what about the much-vaunted Foreign Investment? China made much of joining the WTO (World trade organisation), but less of their obligations once they had joined. In the early days foreign investors found that they were severly restricted in the percentage of Chinese companies that they could own and even more restricted (if that were possible) in influencing how the companies were run. That has eased somewhat, and of course Foreign Investors were/are blinded by the fact that that there are potentially 1.2 billion ‘consumers’ in China, who were all desperate to buy ‘doo-hickies and thingies’ to enrich their luxury-starved lives. Hell, Germany sells more luxury cars in China than anywhere else in the world (Rolls Royce being regretably a volkswagen Beetle with a different body shell these days, but that’s another story. Yes I know Volkswagen licenced BMW to form the Rolls Royce Motor Company, but it’s still a damn Beetle at heart and no I’m not a ‘Little Englander’). To get back to the point, whilst there might well have been 1.2 billion people who wanted some luxuries in their lives, for the majority of them luxury consisted, and still does, of a second bowl of rice. Well never mind, we’ll create these huge State-run concerns, invite Foreigners to invest in them, produce ‘whatever’ using cheap labour and export it. To attract and reassure these Investors, we’ll allow and encourage private companies to develop. Of course, we’ll not publicise a few inconvenient truths. Let’s not mention that we are in the habit of taking back privatised concerns under the state wing, don’t mention that most successful Chinese entrepeneurs take their money out of China by the suitcase-load and for ‘Mao’s sake’ don’t mention that we are still a communist country. Talk-up private enterprise, talk up cheap labour, talk-up how modern and ‘freer’ China is becoming, but don’t mention the war!

 

To what am I referring to when I say ‘the war’? How about the Chinese peoples’ right to restricted Internet access (definitely don’t mention Tianomen square, the Peoples Party would never send troops against the people, now would they?). How about fairly frequent riots against heavy-handed authority in various parts of the country? How about massive unemployment outside of the industrial sector (and within it now, with exports faltering)? How about China’s growing inability to feed itself due to failed agricultural techniques? No no, don’t mention any of that. Talk about how China is introducing democracy ‘from the bottom up’. Sounds great, doesn’t it? A one-party undemocratic state says that they now hold elections at village/district level where voters have a choice of candidates. And on some well publicised but infrequent occasions, one of the candidates might not actually be a party member. Wow! True democracy in action and you know what, in fifty years the party says that all elections will be this way. They said that in the early 1990s (50 years to go to a transition to democracy) and they’re saying it today, 2012 (50 years to go and still counting?). Reassuring eh? Now ask yourself how many one-party repressive states have ever volutarily transitioned to a form of democratic government. Having difficulty thinking of even one? How about the former Soviet Union then? No wait, didn’t they start to loosen the reigns then there was a revolution, the effects of which are still being felt? The centralised state lost control, the Soviet Union disintegrated and Abramovitch started contacting yacht brokers when he wasn’t buying football clubs.

 

Back to China, who of course will pull-off something never before done in human history, or will they? Historically for China to exist as a single political entity there had to be a strong unifying central power. Could that strong central power be democracy? Don’t ask me ask Tibet, but consider this, there are (depending on exactly how you classify it) up to seven different languages in China, at least four of which are mutually incomprehensible. We’re not talking accents or even dialects here, we’re talking separate languages. At least if the mythical Scotsman, Englishman, Irishman, Welshman and Liverpudlian met in a railway carriage they could swop mutually understandable insults before punching each other. A conservative estimate indicates that a half a billion Chinese would simply have to jabber at each other, assume they’d been insulted and then punch each other. A unified country? Please excuse my hollow laughter.

 

But China’s wealthy, innit? Wot abart all them hexports then, hey? Ah yes, cheap Chinese exports. Well my dears, travelling around the Pacific region, the place is positively littered with broken-down pieces of Chinese equipment of various sorts. Broken? Well take it back to the dealer and get it fixed under warranty then. Alas no, not according to many (OK, ALL) people I’ve spoken to. There are importers who will import ‘stuff’ and flog it to you, but there are no agents who arrange repairs under warranty. Mainly because there seem to be no manufacturers warranties. Broken ‘thingie’ Squire? Chuck it away and buy another one, they’re really cheap you know. Anecdotally, ‘it’ might be cheap but ‘it’ may not work when you take it out of the box. Certainly in Fiji, a place I’m getting to know quite well, there is a growing tendency, where economically possible, to spend more and buy European or American products which work and carry a warranty that is honoured. Sorry Ocker, Australian products don’t have a particularly good name either, mainly because they’re expensive because of the exchange rate. New Zealand? Who? Oh yeah, good rugby team and dairy products. India? We don’t talk about India in Fiji, but rumour has it they also have a way to go in quality control.

 

Yeah yeah, well they’ve fooled most of the people most of the time and now they’re a rich country, right? Er, sort of. True they earned lots and lots of ‘luvverly-jubbly’ foreign currency, which they immediately invested in improving Chinese Industry, updating the country’s infastructure and generally improving the lives of Chinese people. Oops, no what I meant to say was they immediately set about buying other countries debts. Some of these debts have acquired the status of junk bonds in recent months and the value of the debt has consequently fallen through the floor, as has the ability of certain countries to service their debts, so that was a good investment strategy then. They brought the Australian mining industry virtually lock, stock and mineshaft, only to find that they had to employ Australians who unacountably wanted to be paid a decent wage, have holidays and other company perks. That worked out well then. You’ve ‘secured’ your raw materials at the cost of buying foreign industries and employing expensive foreign workers. If (or most probably when) China goes bust, head to Australia for lots of cheap property (and a newly-available mining industry). Yes, but all these other countries owe China money, so China must be in a strong position? I ‘owe’ Martin the Meknic’ F$950 for screwing my two engines back together again (or at least I will once he’s actually done it and hopefully that’s screwing back and not up). That’s my problem and Martin is in a strong position if all I can cough up is blood and excuses. If I owed him F$950 million, I’d be sleeping nights but he certainly wouldn’t! Same for China, they actually ‘own the problem’ but they haven’t figured it out yet because for them, under the communist system, the (or a) state cannot fail. In the real world, banks and even states can and do fail.

 

The final figure that makes total nonsense of Chinese financial and budgetary reporting is the military expendidure figure. Presumably somebody somewhere knows how much is spent on the military, but they’re keeping very quiet about it. Of course, as a one-party state dependent on the military to remain in power, you’re going to keep them happy. ‘Happy army happy dictator’, just ask Assad of Syria (but hurry, catch him whilst he’s still alive and talking). The only problem with this strategy is the military now has lots of ‘toys’ to play with. If the general populace is for the moment tolerably acquiessent and you can’t justify (even to yourself) shooting them en masse, where do you go to amuse yourself by slaughtering people?

 

Well, I know I said don’t mention the war, but the PLA (Chinese Army) would rather like to go to Taiwan for their summer holidays, they’ve actually come out and said this publicy on numerous occasions. Not just junior private Wang but senior general Hang-Lo. After all, the Chinese government ‘retrieved’ Hong Kong and Macao without the help of the PLA and they’re feeling a bit left out. Taiwan is that small island off China that has had the temerity to hold democratic elections and openly say that whilst they’d like good relations with ‘the Mother Country’, all things considered they’d like to continue to be a small independent island off the coast of China. And they have friends you know, America for one. The American Navy get to play with lots and lots of toys, some of them are called carrier battle groups. The pride of the Chinese Navy is an extremely ancient ex-Soviet aircraft carrier that was small in its day, let alone now. The communist party is going to have a tough enough time explaining away the coming financial whirwind and preventing a revolution, never mind having to explain the rumours on the restricted Internet that most of the Chinese Navy is sitting on the sea bed of the South China Sea.

 

China the dominant economic power of the twenty first century? Late twenty-first perhaps, but then again most probably not, they’ll be too busy clearing up the mess after the revolt against one-party rule and trying to decide if they can remain one country.

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