Super-China v Real China

Imagine you lived in a country where Government retirement funds averaged $30 per month for most of the population; where for most of the population medical services were free unless you wanted to see a doctor, and education universal provided your goal was to spend your life working in subsistence agriculture.

In this imaginary country, the prudent person would save as much as possible with the result that over 50% of total GDP would be on deposit in government owned banks where real interest rates on saving are below 0%.

With all that money coming in, and so little going out, Government in this imaginary country would have few constraints on expenditures. When the economy shows weakness, the national government could step-in with massive infrastructure project.

At the same time, provincial and local governments in this imaginary country would do their part to raise infrastructure investment.  Not only could they borrow money from the government banks at preferred interest rates (which in many cases would never be repaid), they could also force their local citizens off their houses and farm, offer little or no compensation, and in turn resell that property to speculators at profits at great profit

The state owned enterprises (SOE) could also play a role.  In this imaginary country these SOEs account for about 70% of all industry, and as with their government counterparts the SOEs would be able able to top up their coffers at the nearest local monetary filling station.

Working together Government, banks and SOEs provide an unlimited number of jobs and mountains of cash for the new aristocracy.

Welcome to the wonderful imaginary world of Super-China

The difficulty is that what works well in imaginary Super-China just might cause serious difficulties in Real-China.

In Super-China annual GDP growth rates were among the highest in the world, often reaching double-digits; supported by flourishing exports, a booming property market and the world’s highest government infrastructure investment. There was money for everything.  Everybody benefitted, although some benefitted more than others.

In real-China GDP growth rates are declining.  Export growth is at best uncertain.  The property market is in a state of collapse. National and provincial government infrastructure investment is resulting in rising non-recoverable debts, which eventually the state banks must write off.

Super-China was created in a world where the economy grows in a seemingly never-ending upward spiral — money for everyone and everything:  a world where the rich get richer, the middle class gets richer and where the underclass gets richer

Real-China may be entering a new world were the economy may become trapped in a seemingly never-ending downward spiral — where there is no longer money for everything and everybody:  a world where choices must be made and some groups will have to make sacrifices.

We may now be entering a new world where Super-China and Real-China are converging.

The middle class is unhappy.  They have seen much of their savings wiped out by the double-barreled loss in the stock and property markets.

The under-class is unhappy.  They are no longer willing to remain supine while they re kicked off their property or cheated out of their wages.

Only the aristocracy remains happy:  However, some do recognize that a government constituted to protect the benefits of the rich at the expense of everyone else, may not work-well in the workers state.

The problem may not yet be serious.  So far the economic data does not look bad at all. Perhaps the economy is doing better than expected; or alternatively the data and reality have diverged.

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One Response to Super-China v Real China

  1. Aurelia Mitchell Durant says:

    Insightful information regarding the actual state of China’s economy.

    Aurelia Mitchell Durant is the Legal Analyst and Expert in International Business Law and International Intellectual Property Law at AMD Law: AMD Law is a boutique law firm specializing and international business law, international intellectual property law and corporate compliance consulting. Aurelia Mitchell Durant is also the President and General Counsel for KDBM International: KDBM International is an international business/international trade management consulting firm. She can be found on Facebook, on microblogs, and on Twitter as @AttorneyAurelia.

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