Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands. Cults everywhere: Islam, the State, the cult of Gay and Queer, Marxism, Darwin and Evolution, 'Science', Globaloneywarming, Changing Climate, Abortion....a nice variety for the human-hater, amoral, anti-rationalist to choose from. It is so much fun mocking them isn't it ?
Tempus Fugit Memento Mori - Time Flies Remember Death
Keynesians and Marxists loved the Chinese 'miracle'. China's economic growth was impressive from the reforms of Deng Xiaoping in the 1980s until recently. China did open its pre-modern economy to capital and investment from the West. Some 300 million humans were taken out of grinding poverty into the real world. Copying technologies and processes from the West did create a thriving manufacturing sector premised on cheap labor. Finance and investments poured in. Lives became modernized.
Currently about 400 million Chinese have a Western middle class living standard or above. That was the easy part. The hard part is to keep such a rebirth alive within the confines and constraints of a totalitarian, one party state, in which government must micromanage all facets of the political-economy – mostly for their own pecuniary benefit of course.
The untold tale is that China has amassed some $30 Trillion in debts. It has $3.7 Trillion in reserves. Even New York Times editors can do the math. It is ugly. The state can leverage more debt and print more money – for a time. But at some point the ponzi scheme which is the nexus of China's Black Box comes crashing down. These facts offend Keynesians. It is clear that China is headed for contraction and perhaps even internal conflict. The great specter which haunts the Chinese elite is social unrest. They don't want to the return of yet another Mao. Chinese history however is replete with conflicts which seem to be generated every 100 years.
Some of us were not fooled, to wit, here are some postings dating back 10 years that I crafted on China:
August 2nd 2014, China's pending implosion is bad news for the world economy. Here
April 17th 2012, The myths around China and its growth. Here
November 12th 2011, China is going bankrupt with debt accumulation. Here.
May 11th 2008, We have seen this China before and it will collapse. Here
July 28th 2005, Why China's currency will eventually depreciate by a lot. Here
They Yuan was always over valued due to tight currency and investment flows [see April 12th 2012, here]. In order to 'save' its GDP growth the Chinese now need to loosen these restrictions and the result will be a huge depreciation in the Yuan which will destabilize trading and investment flows. This is always the case with a developing economy with a black-box set of statistics and controls. It was easy to predict.
The China myth was accepted in-toto by the Western world's elite, politicians and media. No one bothered to do any real analysis. Most financial and business 'experts', along with the political-media class, confidently asserted an endless rise of China's economic prowess, until it would displace the USA as the center of the world trade and its political-economy. These predictions now look entirely amatuerish and immature.
But we should not be surprised. When the 'consensus' is accepted as calibrated scientific fact, it is always, without exception, entirely wrong. The myth of China is just another example of that truism.
Chinese Communist power brokers believe that without the mailed fist of the state, that China will devolve into war and anarchy. The opposite of course will be proven as true. If you do not allow for market forces in politics, economics, business and finance, the state will be riven with corruption, fraud, conflict, and internal dislocations. The energy of the Chinese political-economy will have to be liberated. This is also true of the American. China and America seem to be converging on a corruptocracy of massive government funding its 'corporate' and political allies and repressing everyone else.
Perhaps Thomas Friedman or Barry Soetoro [Barry Obama], can opine on the wonders of unfettered government and communist power. I doubt that the 'folks' of Hong Kong, whose demonstration for democracy was recently crushed, would agree that unlimited cult power is a positive. Unleash the beast of Chinese individuality, pluralist politics and private capital and the country would soar. This is anathema to leftist geniuses and sundry mental incompetents
WSJ: “The threat to Hong Kong's capitalism comes not from democracy, but from the cronyism and erosion of the rule of law that are infiltrating from the mainland. Businessmen may want to curry favor with politicians, but it is competition that drives capitalist prosperity. Beijing foolishly believes that turning Hong Kong into a paradise for oligarchs will make it easier to control.
Beijing's real motive for Sunday's decision is fear that a demonstration of democratic success in Hong Kong would spread to the mainland. The Communist Party's approach to the territory turned harsher after Xi Jinping became chairman of the Party committee on Hong Kong affairs in 2008. So it is no surprise that as supreme leader he continues to take a hard line against democracy.” link
The biggest threat to China is not Hong Kong's idea of 'democracy' or pluralist politics, but the unbelievable accumulation of new debt by a centralized despotocracy. Historically, debt laden states which impeded private markets, political expression and individuality, imploded. The Chinese might want to revisit history.
MIT Professor Robert Solow’s work on the US economy – which has become a textbook economics lesson – explains that innovation has accounted for more than 80% of the long-term growth in US per capita income, with capital investments accounting for only 20% of per capita income growth. In other words, the United States and the rest of the post-industrial, developed world owe their epic rise in living standards to the underlying “social capital” that properly incentivized innovation, entrepreneurship, and thus technological transformation over the last two centuries.
The People’s Republic of China is running up against its debt capacity; and its consumption-repressing, credit-fueled, investment-heavy growth model is nearly exhausted. History suggests that China’s “miracle” could dissipate into a long period of painfully slow growth or terminate abruptly with a banking crisis and sudden collapse. That said, China’s modern economic transformation has defied historical precedents for decades. However unlikely, China could surprise us again. Miracles will happen in the Age of Transformation.
“What happens next depends largely on the economic wisdom and political resolve of China’s reformers, who must find a way to gradually deleverage overextended regional governments and investment-intensive sectors while simultaneously rebalancing the national economy toward a more sustainable consumption-driven, service-intensive model. The trouble is, their efforts may prove too little too late to slowly let the air out of a massive debt bubble. Even rapid productivity growth from “new economy” sectors may not be enough to overcome the debt equation.
The lesson here is powerful. It is not enough just to mobilize resources and direct investments to the “right” sectors as China’s central planners have been doing for the last few decades. Once the basic building blocks of economic development are at hand, they still need to be used creatively, effectively, and productively.
China’s State Council is responding to slowing economic growth with more of the same: (1) government spending on railway expansion and shantytown renovations (which may or may not be productive) to replace decelerating private sector demand, (2) “targeted” interest rate cuts to encourage additional credit growth (which will almost certainly be unproductive), (3) last-minute bailouts to prevent corporate defaults (which they told the world to expect a lot more of in 2014), and (4) tax breaks for small and medium-sized enterprises (which remain seriously disadvantaged relative to larger public or state-owned firms).
Since the State Council’s announcement in early April and Premier Li Keqiang’s subsequent guarantee that 2014 economic growth would top 7.5%, the so-called “mini-stimulus” has led to another surge in lending activity, slightly better real GDP growth (7.5% YOY in Q2 compared to 7.4% YOY in Q1 – according to the highly questionable National Bureau of Statistics).”
China has amassed some $10 Trillion [maybe $20 Trillion?] of new debt to finance infrastructure building of everything from cities to rail and canal systems. It is a sum of money it can never pay back unless it keeps growth rates at 10% or so for generations. At some point China needs to create a system that rewards domestic innovation, supplied by private capital. In a one-party totalitarian state, that transformation is hard to imagine.