The coming collapse of China?

Interesting viewpoints expressed by China Hand on the same New Republic article by Jerry Kurlantzick that I recently sent to all my friends on the imminent implosion of China’s economy/government. There are definitely several schools of thought on this, but I have to say after living in Asia for nearly two years I side more with Kurlantzick, at least for now. All it would take to get the egg shell cracking is a run on the banks. When everything is based on the government borrowing to support creaky SOEs it is essential to keep the money where Hu and Jiang and Company can lay their hands on it. Everything in China is hard to do….except to open a bank account, which anybody can do with minimal bureaucratic stress. It’s getting money out of China that one finds far more challenging, especially when 100-RMB notes are the highest the government prints. (Later on I’ll descibe what banking is like here in Beijing. Oh yes, they have a ways to go….)

I have no authority to write about this topic, being neither economist, lawyer or political historian. But I know what I see. And what I see is that China is doing an absolutely sensational job in becoming the world’s manufacturing leader, based on its plethora of cheap labor. As to their becoming the next economic juggernaut, eventually overtaking the US, all I can say for now is that I am quite skeptical. It doesn’t take long for a newcomer here to see the vast disparity between the miniscule island of wealthy and the vast ocean of poor. Yes, there is a middle class evolving, and they are certainly this nation’s greatest hope. But they still have relatively puny spending power. And then, there are the Chinese spending habits — or rather, non-spending habits. The average Chinese saves as much as 40 percent of his income, I have been told, and while there seems to be a new Louis Vuitton and Ermenegildo Zegna boutique opening up on every other block, I literally never see anyone buying the merchandise. Window shopping seems to be the national pastime, and many of these shops are filled with lookers. Ikea, which has managed to brand itself here as a high-end furniture chain, has become such a popular hangout after work and on weekends that families have been known to bring picnic baskets and camp out on the model furniture. But precious few buy the stuff. Yes, there are more Mercedes and BMWs on the roads than there were a few years back, and the quality of life has soared, at least in the large urban areas. But again, it’s such a teensy drop in the world’s biggest population bucket, and all you have to do is head west toward the farms to see how life is for the vast majority of Chinese, who are peasants. How the government manages to juggle the disparity between this 90 percent poor farmer versus 10 percent up-and-coming Chuppies will be intriguing to watch. It is a potentially explosive situation, as students of revolution know.

I admit I am something of a dilettante when I write about these things, but I have been reading and listening as much as I can, and I do make sure to observe living conditions and attitudes wherever I am. Based on my own common sense, I see major headaches for the government in the not very distant future. Major, like mega-migraines.

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