Monday, November 07, 2011

China Will Collapse Under The Weight of It's Own Ideology and Immorality

Over the years, my criticism of China, and my belief that it would inevitably fall, have focused on Ideological weaknesses. This post is a decent summation.

Al Fin makes the same points:

The modern Chinese empire is riding a whipsaw of a politico-economic trajectory. China's billion and a half are growing old before growing rich. And they are growing old without a social safety net to speak of. Things are growing tense in the celestial kingdom already, and are likely to only grow worse.
....more than 73% of Chinese hospitals have reported violent incidents between patients and healthcare professionals. Why? Because feelings run high when you are told that your child, your parent or your spouse cannot be given treatment because you cannot pay for it. China is worried about getting both old and sick: by 2040, more Chinese will be suffering from Alzheimer's than the total populations of all the developed nations combined.

...The bullet train tragedy, the grounding of the new Airbus made in China, and similar events add up to an enormous glitch factor as China attempts to step up the technology ladder to more complex systems. Overheard comment--an inspector on the Shanghai's vaunted subway system will not allow his family to use their trains. Whenever there is an atmosphere of fear, bad news does not get reported up the command chain.

Other countries are increasingly less willing to share their technology with China for a variety of reasons. Some businesspeople have had bad experiences, either in terms of political pressure (Google) or more commonly, theft of intellectual property. Lack of protection by China's legal system is cited as the number one structural impediment to foreign companies doing business in China.

... Chinese banks are equipped to funnel loans to the large state-owned businesses, but they do not have credit analysts who can determine whether or not a business should be given a loan on its own merits. The languishing stock market is still dominated by behemoth state-owned enterprises, so when startups need capital, they often turn to foreign investors. In spite of the glut of savings within China's banking system, all of China's major Internet firms raised funds in US stock markets--Sina, Sohu, Alibaba. Lack of access to capital has also resulted in the loss of thousands of Chinese engineers and entrepreneurs who decided to come to the US to start their businesses, to the inestimable gain of Silicon Valley.
...The scale of this work disruption is unprecedented in China’s railway history, a high-level official from a large state-owned engineering company told The Economic Observer. Once a project stops, it triggers a domino effect; many parties, including migrant workers, construction companies, and the equipment and materials suppliers are all affected, he said.

A supervisor at one construction site told First Financial Daily that he has been working in the railway industry for 23 years and has never seen anything this serious before. _EpochTimes
The Chinese government cannot afford its massive misallocation of capital into the "infrastructure to nowhere," but so many government officials are tied into the massive state owned enterprises, and are addicted to the wild profits of the last two decades, that they are willing to break all the rules to keep the good times coming -- at least for themselves and others who are well connected.
For everyone else, things are likely to become very difficult. And when you are talking about hundreds of millions of people who are essentially disenfranchised, with no voice or clout within the system, the room for unruly disenchantment is quite substantial.
Due to the One Child Policy, China’s fertility rates plummeted during the 1980’s and 90’s. In 1970, China’s fertility rate was 5.5 births per woman; by 1980, it dropped to 2.6 and in 1990, even lower at 2.3 (source: World Bank, World Development Indicators).

What this means of course, is that there will soon be a sustained decline in new entrants into the labor force. Over the past three decades, political legitimacy in China has been built on fast economic growth, which has been powered by a seemingly inexhaustible supply of cheap, young labor.

...With a virtually non-existent government pension and social welfare systems, Chinese leaders will likely need to reprioritize and shift resources away from investment and production in the coming decades. (Caixin, a Beijing newspaper, recently reported that there’s already a severe shortage of nursing services and elderly residential facilities in Beijing).

Today, China’s 65+ population is only around 8%, which is a lot lower than that of the US, Germany, or Japan (around 20% for all three). But they’ll catch up in about 30 years, when they may face the same problems that have led to Japan’s current economic stagnation: a declining labor supply, aging population, and increased public spending obligations. _ChinaTimeBomb
Can China last that long? It is debatable whether the CCP government can hold the empire together under such severe demographic stress.

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