The Great Fall of China

We have always felt that China's strengths are greatly overstated. It always seemed to us that glowing reviews of the PRC were editing out many inconvenient details about the nature of China, thereby making investment in China - financial or otherwise - seem like a good, though risky, venture. As the leading industrialising power in the world, the PRC garnered quite a bit of clout, especially as its economy grew at a pace which seemed to defy all natural limits. The nation produced more cheap plastic crap than the biggest spendthrifts in the world - Americans - could possibly absorb.

In the past we came up with a short list of reason why we felt China was doomed to collapse somewhere along the line: a severe disproportion of male to female citizens; no strong tradition of common law; and a totalitarian Communist government. These three things, we felt, are any one of them sufficiently problematic to deal a serious blow to the PRC.

And then the 2007 Depression happened, and the game changed completely. Communism is, in practice, a cannibalistic system: it requires constant inputs of new resources - both raw and financial - in order to keep the State-run enterprises from going belly up. This wasn't such a concern in a growing world economy, because there was always more resources to throw at bloated and inefficient industries. But now, the world economy is shrinking thanks to the Depression; the pain of which will be vastly increased by Peak Just-About-Everything.

Other factors are lining up to suggest a serious blow to China. For instance, the World Bank has predicted that Foreign Direct Investment in China is going to drop by 20% this year. Although that will not create a concurrent 20% drop in China's economy, it will help to bring down 'growth' to some degree. If 'growth' is too low, the PRC will not be able to give jobs to its vast population, and they will be very angry about that.

Additionally, we read that vicious riots have broken out in the capital city of Xinjiang, apparently brought on by ethnic tensions. This, we posit, is going to become evermore common in China in the months and years ahead. Simply put, the PRC has ravaged China in the hope of generating those stellar economic growth numbers, and now they will no longer be able to make good on their promises. The one-billion-plus Chinese are not going to be happy, especially as they find the nation's export sector is in shambles.

We also learn that the GDP of China has been overstated by about 40%; it is only a $6 trillion dollar economy. That's a serious bite out of the PRC's ability to keep its population in check via jobs and pay cheques. Even the Indian Defence Review is making noises about China's impending difficulties.

In conclusion, we have to wonder how not only China's own population expects the PRC to make good on its promises of growth and prosperity, but why much of the rest of the world is hoping that China will haul them out of recession. China has, at least by our reading, become a cornerstone to 'recovery,' a cornerstone which we think is both faulty and due to fail in less time than one might think. When China does fall, as we believe it will, all talk of recovery will end, and the world will be forced to realise that the situation in the 2007 Depression is very dire indeed.