September 11, 2011

ITS CAPITALIST FLAWS ARE TRIVIAL COMPARED TO ITS SPIRITUAL ONES:

Crisis Convergence: Why the global economic crash, the rise of the Tea Party, the Arab Spring, and China's coming fall are all connected. (GEORGE MAGNUS, AUGUST 31, 2011, Foreign Policy)

China's capitalist model has delivered unprecedented economic success over the last quarter-century. But it is a model that is now flawed. The slump in Western demand caused China's export industries to shudder in 2008 and 2009, with exports declining by over a third in the year to the first quarter of 2009. Thousands of factories in the Pearl River Delta shut down, and 20 million migrant workers were reportedly forced to return to rural areas for lack of work.

China recovered quickly due to a stimulus program worth about 14 percent of its GDP and the global economic bounce last year, but exporters now face a very different world dictated by anemic Western consumption and growth prospects. Moreover, the explosion of credit creation since 2008 and the unsustainable rise in investment and residential real estate spending are sowing the seeds of rising inflation. The instability that will likely follow may remain in abeyance until after the Chinese Communist Party's leadership change in 2012, but China's economy is already slowing to a growth rate of around 8 percent.

In some ways, this July's high-speed rail tragedy on the newly opened Beijing-Shanghai line serves as a metaphor for China: It's a high-speed economy with (capitalist) design faults that, sooner or later, will result in an accident. There are already strong signs that the quality of investment, and of investment financing, is deteriorating. Left unaddressed, these trends might well validate Marx's prediction that investment booms, endemic in capitalism, end up in overproduction and underconsumption, and then social conflict.

China has limited time to effect a radical political and economic shift. It has to take power and privilege away from state-owned companies, coastal regions, and regional party elites. It must also de-emphasize capital investment, which currently accounts for an unprecedented 50 percent of GDP. And it has to prioritize a bigger economic weight for household consumption, which accounts for a mere 35 percent of GDP, a fairer income distribution, better employment for China's annual flow of 6 million graduates, the rights of rural migrants, and the neglected countryside.

If this shift doesn't start in earnest soon, the Chinese economy will succumb to a credit and investment bust from which significantly slower growth would follow. This will be especially sensitive in a China where incidents of social unrest are increasing significantly in number, intensity, and breadth. In the absence of the rule of law and other critical social institutions, the state's assurance of steady and persistent annual growth of 8 to 10 percent represents a social contract. If it is broken, China could suffer significant political repercussions.


What would be a good investment in a state that is imploding demographically before it even has a social welfare net in place?


Posted by at September 11, 2011 12:58 AM
  

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