Article

2004-07-07 China-Japan-Koreas

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Posted by Chuck Simmins 2004-07-07 11:38:45 AM|| || Front Page|| [1 views since 2007-05-07] Top

#1 Oh man I was fearing this... this is really bad news. The last thing we need is a desperate china. If thing get bad and we start to see a civil uprising china may end up taking several steps backwards towards communism and totalitarianism. Granted it was only inching forward... at least it was moving in the right direction.

Posted by Damn_Proud_American 2004-07-07 12:15:56 PM|| [http://brighterfuture.blogspot.com] 2004-07-07 12:15:56 PM|| Front Page Top

#2 The thrust of this article is the difficulty that the Chinese financial managers are having in transitioning from a command economy to a market driven economy and their attempts at trying to control inflation. It's not really a sky-is-falling sort of piece in spite of what the excerpted paragraphs imply. China is going to take a few more years to get into serious trouble. Their time of troubles is coming, it's just not here yet.

Posted by RWV 2004-07-07 12:35:17 PM|| 2004-07-07 12:35:17 PM|| Front Page Top

#3 If thing get bad and we start to see a civil uprising china may end up taking several steps backwards towards communism and totalitarianism.

China is already a totalitarian one-party dictatorship -- the recent economic liberalization (without accompanying human or political rights) only interests people wanting to make a profit out of it. I see no real worth in it as pertains on democracy and human rights.

Its economic collapse will be as much a good thing for the region and the world as the collapse of USSR was. Yeah, it will cause lots of upheaval, same as the collapse of USSR did, but in the *end* it'll be a good thing.

For one thing it's the only chance of seeing the North Korean dictatorship overthrown -- if the Chinese dictatorship collapses first.

Posted by Aris Katsaris 2004-07-07 12:50:45 PM|| 2004-07-07 12:50:45 PM|| Front Page Top

#4 I hope they can manage to slow the economy without a crash but it's not looking good. They refuse to set their exchange rate in the free market and they refuse to increase interest rates. It looks like they are in the midst of realizing that they have a massive oversupply of just about everything (except power which is undersupplied). This could get really bad really quick. All it takes is for the world financial community to view china as a falling economy and you will see it's markets tumble, it's access to capital dry up and it's FDI plummet over night.

Posted by Damn_Proud_American 2004-07-07 12:53:48 PM|| [http://brighterfuture.blogspot.com] 2004-07-07 12:53:48 PM|| Front Page Top

#5 Aris, capitalism will lead to democracy as the population gets richer and more sophisticated they will demand it. That's the theory anyway ;)

A chinese collapse could have seriously negative consequences and I don't view it as synonomous with the soviet collapse. China, while is not a friend of ours, is not our outright enemy. They're in a murky in between place (more on the antagonist side obviously). The soviets actively called for the end of the US and fought many proxy wars against us... nothing like that with china.

I totally disagree that north korea will have to wait for china to fall. I think we can take care of NK with China there and they won't stick their neck to far out for lil kim.

Posted by Damn_Proud_American 2004-07-07 12:57:18 PM|| [http://brighterfuture.blogspot.com] 2004-07-07 12:57:18 PM|| Front Page Top

#6 the recent economic liberalization (without accompanying human or political rights) only interests people wanting to make a profit out of it. I see no real worth in it as pertains on democracy and human rights.

Then you're a fool Aris. The desire for economic liberty often goes well before the adoption of high minded ideals. It's no coincidence that the wealthiest nations also tend to be the freest while the poorest tend to be the most repressed and corrupt.

Posted by AzCat 2004-07-07 12:57:21 PM|| 2004-07-07 12:57:21 PM|| Front Page Top

#7 Then you're a fool Aris.

Want y'all to make a note who started the ad-hominems in this thread.

It's no coincidence that the wealthiest nations also tend to be the freest

I agree that it's not, but you have it backwards IM(very)AO -- freedom leads to wealth, it's not wealth that leads to freedom.

The desire for economic liberty often goes well before the adoption of high minded ideals

Yeah, all those people murdered in Tiannamen square were not protesting for freedom and democracy, they just wanted free market. They didn't erect a statue to the Goddess of Democracy, they erected a statue to Free Market instead.

What you *meant* to say is that *your* desire for economic liberty comes before high-minded ideals. Checking the message of those protests, I can't say the same holds for the Chinese people.

Posted by Aris Katsaris 2004-07-07 1:15:01 PM|| 2004-07-07 1:15:01 PM|| Front Page Top

#8 China's history is a series of empires followed by fragmentation. That is their current direction, though I would suggest not for a couple of decades.

The costs of doing business in China, interest, energy, shipping, have been held down by the central government, leading in part to the wild, almost unheard of, economic expansion. In the first quarter of 2004 China was importing 30% more crude oil than last year, as an example.

China makes its foreign currency by exporting. The United States stands nearly alone as importing more than it exports to China. Most other industrial nations run a trade surplus with China. So, we have been providing the cash to fuel the expansion. As the dollar dropped in the Spring, so did China's ability to buy with dollars. Oops!

China imports massive amounts of oil and food. In an economic collapse, people will starve and freeze. Before that, the 50% of loans that are bad will cause bank failures. The military, which is China's largest industrial employer, will demand resources be devoted to its factories first and rationing will come in to practice. Unrest will begin in the industrial and trade centers of the South and East, and the millions of people who left their farms to find work in the cities are forced into unemployment.

The Chinese military will be unable to completely repress nationwide protests, so they will be forced to look for quick solutions. The Russian East, Taiwan, and Southeast Asia all have resources which the People's Army may decide can be taken. Think Japan in 1941.

Can the Chinese take enough resources to stabilize the situation as their economic heartland crumbles?

Posted by Chuck Simmins 2004-07-07 1:16:34 PM|| [http://blog.simmins.org] 2004-07-07 1:16:34 PM|| Front Page Top

#9 With state-owned banks suddenly restricting what had been a flood of loans...

This is not alarming and actually was expected. It's part of China's attempt to slow down the overheating economy and clamp down on runaway lending.

For excellent background info, see "Headed for a Crisis?" , Business Week, May 3rd, 2004.

Posted by Rafael 2004-07-07 1:20:34 PM|| 2004-07-07 1:20:34 PM|| Front Page Top

#10 I'm afraid I have to agree with Aris on this one.

For starters, what's the point of a "capitalist" revolution when "capitalism" is reserved, to a large extent, to the relatives of high party officials? (What's more, high communist party officials).

Posted by Phil Fraering 2004-07-07 1:31:07 PM|| [http://newsfromthefridge.typepad.com] 2004-07-07 1:31:07 PM|| Front Page Top

#11 Oh my God! Stop the Presses! Hell has frozen over! I agree with something Aris said.

Well put, Aris.

Now back to my regularly scheduled trolling.

Posted by badanov 2004-07-07 1:48:46 PM|| [http://www.rkka.org] 2004-07-07 1:48:46 PM|| Front Page Top

#12 what's the point of a "capitalist" revolution

Somebody has to make the BMWs, build their villas etc... All that money spent on luxury tends to trickle down to the lower levels. I doubt that the relatives of high party officials are keen on hard physical labour.

Posted by Rafael 2004-07-07 1:49:30 PM|| 2004-07-07 1:49:30 PM|| Front Page Top

#13 The desire for economic liberty often goes well before the adoption of high minded ideals

There's some truth in that. My parents escaped communist Poland not because they had an unrelenting desire to vote, but because they wanted to be better off financially. All of the escapees we met during The Great Escape did it for the same reason.

Posted by Rafael 2004-07-07 1:56:11 PM|| 2004-07-07 1:56:11 PM|| Front Page Top

#14 Somebody give Zenster a pat on the back, he's 'owned' this story on Rantburg for quite a while.

Posted by Steve White 2004-07-07 2:08:12 PM|| 2004-07-07 2:08:12 PM|| Front Page Top

#15 Rafael, you took the words out of my mouth. The first thing on peoples' mind is "do I have enough money for me and my family to live comfortably?" after that comes "I want my civil rights." and after that comes "I want to choose our leaders."

Chuck, you paint a bleak picture... but I fear that it's a real possibility.

Posted by Damn_Proud_American 2004-07-07 2:20:02 PM|| [http://brighterfuture.blogspot.com] 2004-07-07 2:20:02 PM|| Front Page Top

#16 In Aris' defense, both Korea and Taiwan became wealthy before they became free. I think that the actual progression is 1) Rule of law, 2) Wealth 3) Freedom. There have been many "enlightened despots" who kept corruption and exploitation low and who had very wealthy kingdoms. The problem has always been that when the enlightened despot dies and his successor is a scumbag, the wealth goes away. Representative governments solve this problem by having relatively tranparent institutions that are subject to constant audit and thus can sustain wealth creation over many generations.

Rule of law always leads to wealth creation. Wealth creation doesn't always result in freedom. But when it does, wealth creation really takes off since all the premiums associated with the uncertainty of succession (royal or dictatorial) go away and direct investment increases.

Posted by 11A5S 2004-07-07 2:36:01 PM|| 2004-07-07 2:36:01 PM|| Front Page Top

#17 If the Chinese bubble bursts now, one can only hope that they'll take the right lessons from this instead of jumping to finger-pointing and vilification. But the populace has already gone too far down the latter road, I'm afraid.

Posted by someone 2004-07-07 2:37:29 PM|| 2004-07-07 2:37:29 PM|| Front Page Top

#18 11A5S: Of course, China doesn't exactly have the rule of law either.

Posted by someone 2004-07-07 2:39:41 PM|| 2004-07-07 2:39:41 PM|| Front Page Top

#19 China is already a totalitarian one-party dictatorship -- the recent economic liberalization (without accompanying human or political rights) only interests people wanting to make a profit out of it.

Close. The CCP (like the Soviets) wants the benefits of economic stimulation without giving up political control. Hence those who want to make a profit are useful to the CCP at this point. If it gets out of hand, well, the CCP figures they've done "kill the landlords" routine before.

Will China collapse? Who knows? I'm inclined to echo Chuck Simmins. If it does, it could end up a military dictatorship or a collection of warlords. Given my limited experience with them, that could be a lot worse.

Posted by Pappy 2004-07-07 2:50:43 PM|| 2004-07-07 2:50:43 PM|| Front Page Top

#20 Agreed someone. I would place them in the same category as indonesia before the Asian financial crisis in 97.

Posted by 11A5S 2004-07-07 2:57:12 PM|| 2004-07-07 2:57:12 PM|| Front Page Top

#21 Point to you, someone, for sure ...

Unfortunately, I'm far less optimistic about the desire of mainland Chinese for political freedom, but the two main concerns I know of are corruption and that the wealth is concentrated totally in the southeast, mainly Shenzhen and Hong Kong ...

Posted by Edward Yee 2004-07-07 3:04:53 PM|| [http://edwardyee.fanworks.net] 2004-07-07 3:04:53 PM|| Front Page Top

#22 11A5S, You nailed it. Rule of law is what allows for wealth creation because investors won't invest if there aren't rules on the books that are obeyed governing transfer and sale of equity. Democracy has nothing to do with wealth creation... it just ensures that some wacked out autocrat doesn't come along and ruin the laws that allowed for wealth creation.

Posted by Damn_Proud_American 2004-07-07 3:12:26 PM|| [http://brighterfuture.blogspot.com] 2004-07-07 3:12:26 PM|| Front Page Top

#23 Good heavens pro Aristotle posts!

But(and not related):
1) Rule of law, 2) Wealth 3) Freedom.

I figure 1)Rule of Law 2)Liberty 3)Who cares about three?

Posted by Shipman 2004-07-07 3:12:50 PM|| 2004-07-07 3:12:50 PM|| Front Page Top

#24 Shipman> Good heavens pro Aristotle posts!

Wonders never cease. :-)

A somewhat off-topic sidenote (begging your indulgence)>

"If it does, it could end up a military dictatorship or a collection of warlords."

"The Chinese military will be unable to completely repress nationwide protests, so they will be forced to look for quick solutions. The Russian East, Taiwan, and Southeast Asia all have resources which the People's Army may decide can be taken."

Whoa... I find this future history creepy for a different reason than its predictions alone: A year or so back I had written a short story set a decade or so in the future. The story itself is nothing much, but the point is that near its end it included a reference to a military junta in China that had indeed invaded and conquered large parts of southeastern Asia... (And what was left of a radiation-filled Korea as well.)

*g* Ofcourse got several comments in the reviewer section from readers offended by the fact that I portrayed China as aggressive... Oh, no, never China. :-)

Posted by Aris Katsaris 2004-07-07 3:46:24 PM|| 2004-07-07 3:46:24 PM|| Front Page Top

#25 Aris, you do fanfiction? My, my, you're full of surprize...

Posted by Anonymous5089 2004-07-07 4:13:31 PM|| 2004-07-07 4:13:31 PM|| Front Page Top

#26 Aris, you do fanfiction?

Once in a *long* while. Not a very productive writer.

Posted by Aris Katsaris 2004-07-07 4:51:18 PM|| 2004-07-07 4:51:18 PM|| Front Page Top

#27 Sorry someone, I was running out the door and gave a snappy answer. The question is whether China has generated any true wealth. As in the Indonesia example, I would argue no. Both are attempts by kleptocratic regimes to create wealth without rule of law. They are Ponzi schemes. In the short term, they can get away with this but eventually external market pressures will destroy the wealth as in the case of Indonesia and as many here are speculating about China. Something similar, but milder happened in Japan. Within a rule of law framework, they tried to jig things to grow wealth at an unsustainable rate. There were all sorts of unsustainable practices within the keiretsus. Money was lent below market rates. Parts were shipped at a loss. Surplus employees were "hidden" within keiretsu subsidiaries. Eventually, someone has to get paid in full. At that point, the whole thing collapses.

China and Indonesia are worse than Japan because there is no transparency and no fungibility of capital assets. You cannot control capitalism. Adam Smith's blind hand always intrudes. In the end someone always has to get paid. That's the conerstone of wealth creation. I only invest in China because I expect to see a return on that investment. China, like all Ponzi schemes, will collapse when someone demands to get paid his return on his investment. George Soros played that role in '97. In Japan it was banks looking to get paid by land developers. I don't know who it will be in China's case, but when it happens, I suspect that the Kleptocrats won't pay and that there will be a time of troubles afterwards that will affect us all.

I think that my original point stands. Korea, Taiwan and Chile all experienced rule of law before wealth creation. If you will go back to me original post, you will note that I never mention China. I was only posting in response to Aris' critics, not the situation in China.

Other countries have gone through periods of rule of law and wealth creation only to turn away at the point ot freedom. Stolypin's Russia, Weimar Germany, and Argentina (several times!) all come to mind. Essentially, they all ran into the wall of succession and failed to achieve multi-generational wealth creation.

Shipman: Your point is well taken and certainly applies in the case of the US. However, I would point out that the US was a colony of a country that had already solved the rule of law and succession problems during the Glorious Revolution of 1688. As such, the colonists already came equipped with the tools, expectations and institutions to establish liberty in short order. A look at English history would show that it had previously experienced many Enlightened despot/rule of law/wealth creation/succession/wealth destruction cycles prior to 1688 and the ascendancy of Parliment.

Posted by 11A5S 2004-07-07 5:45:16 PM|| 2004-07-07 5:45:16 PM|| Front Page Top

#28 Clarifying: I agree with Aris that China's capitalism without democracy (or, IMHO, the rule of law, as 11A5S also points out) isn't quite all it's made out to be.

I am not, however, eager to see the results of the collapse. (I don't know about Aris, but I figure he can speak for himself).

Rafael writes:

Somebody has to make the BMWs, build their villas etc... All that money spent on luxury tends to trickle down to the lower levels. I doubt that the relatives of high party officials are keen on hard physical labour.

Well, if factory workers and factory owners and party officials are all parts of different "castes" governed by different laws, and some animals are more equal than others, the effects of trickle-down economics may be different than in the west.

Posted by Phil Fraering 2004-07-07 6:04:50 PM|| [http://newsfromthefridge.typepad.com] 2004-07-07 6:04:50 PM|| Front Page Top

#29 Phil> I am not, however, eager to see the results of the collapse. (I don't know about Aris, but I figure he can speak for himself).

What is the alternative? I can't wish for China to remain a tyranny, so I must wish for the tyranny to collapse. No matter how painful the process will be. I can only hope that the neighbouring Asian nations will be ready to defend themselves when that happens. Or atleast the *democratic* neighbouring Asian nations, because I couldn't care less about what happens to similar tyrannies like Burma or Vietnam or Laos.

China's rulers haven't shown to me any hint of being able (or even interested) to reform their country into a freedom-loving democracy. Or if they have shown any such interest, I have failed to notice it. So that's one option down.

China has nukes, so it's not a country that can be invaded and reformed by force from outsiders. Not to mention its size. So that's another option down.

China's current leadership isn't as person-oriented as Kim's or Castro's is or Saddam's was, so hoping that a death by old age will bring down the establishment doesn't work either...

Only option remaining is internal collapse, possibly because of economic reasons. Anyone have any better ideas?

Posted by Aris Katsaris 2004-07-07 7:47:43 PM|| 2004-07-07 7:47:43 PM|| Front Page Top

#30 Anyone have any better ideas?

Yes. Leave them alone. Free markets and communism are two divergent ideas. Sooner or later they will have to swing one way or the other. Having just a taste of capitalism, even the card-carrying party officials might not want to go back to the good ol' days. And then...collapse.

Posted by Rafael 2004-07-07 7:59:13 PM|| 2004-07-07 7:59:13 PM|| Front Page Top

#31 Free markets and communism are two divergent ideas.

I damn sure hope you're correct, but this isn't the USSR, this is the big leagues, the Middle Kingdom. I'm not certain what theories apply here.

Posted by Shipman 2004-07-07 8:12:16 PM|| 2004-07-07 8:12:16 PM|| Front Page Top

#32 Free markets and communism are two divergent ideas, by definition (I should have said). Trust me. They will one day have to revert, or if they lose sufficient control, they will let go of the reins. What happens after, is another matter :)

Posted by Rafael 2004-07-07 8:27:38 PM|| 2004-07-07 8:27:38 PM|| Front Page Top

#33 ...cont'd
Communism isn't very good at creating wealth (money). The reason communists have what they have is because they can order their own citizens to build stuff, and pay them didly squat (or nothing at all).
If communists wish to buy the better goods from free market economies, they have to pay a fair price, which unfortunately for the commies is usually much higher than didly squat. This means you need a plentiful natural resource (or oil, wink wink, Saudi Arabia) to sell to the world, or you have to make money at home (capitalism).
The question is whether the die hard commie ideologues have decided that they can't live without their 10 BMWs. If they can't, they will be forced to introduce free markets and all the reforms that go with it.
The reason why this will be a slow process in China's case, is, ironically, because of international trade. The money that pours in from foreigners buying Chinese products, is currently being used to pay for those 10 BMWs. Once this trade levels off, or declines, we can expect some sort of action on the part of the communists (reversion to hard line communism, or...conversion to something else).

Posted by Rafael 2004-07-07 9:41:28 PM|| 2004-07-07 9:41:28 PM|| Front Page Top

#34 uh, that's 10 BMWs per communist head, not the total for the whole party to share :)

Posted by Rafael 2004-07-07 9:44:23 PM|| 2004-07-07 9:44:23 PM|| Front Page Top

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