People don’t want to do business where the whole system is rigged. Sure lots of legal graft can be tolerated if the location for whatever reason is especially good. California comes to mind. But eventually capital, human and otherwise, leaves. People are only going to be jacked for so long.
One of the ways people can be stolen from is through externalities like pollution. As Charles Hugh Smith explains, pollution in China is dumped on the people because the polluters – which are in partnership with the government in many cases, if not all cases – can do whatever they want. There is no market mechanism, no social market mechanism, no real property rights, to address the problem. The state has decided it will pollute and so it will. (Of course the state can screw up the other way too. Just ask anyone in West Virginia.)
The only choice then is to leave. If one can.
China is going all coo coo bananas here lately. Not that arresting journalists and other people is outside the norm for The Ultimate Crony Capitalist State, but still. Tianjin, the yuan devaluation, the stock crash, this new explosion, the big military parade on the 3rd. Lots of stuff going on. Lots to keep the jailers busy.
Why is the stock market turning down now? Why the current carnage?
The point we’ve made with China, The Ultimate Crony Capitalist State, is that much of the “growth” the country has seen has been driven by central planning, which in the end is doomed to fail. One can not centrally plan an economy the size of China’s over the long term.
Self dealing. Fiat declarations from on high. Accounting which probably barely passes for accounting. The problems are immense. The Chinese “miracle” isn’t looking so miraculous.
Are we saying that China is now going to revert back to the 3rd World? (Though much of China is still very much 3rd World.) No, definitely not. But we are saying that China faces a systemic crony capitalist problem and that the gaps within the Chinese economy which are filled with lies will and must collapse if China is to go forward in the way China wants to go forward.
Please note that I say how CHINA wants to go forward, not how the Chinese Communist Party wants to go forward.
China, the country we often refer to as the Ultimate Crony Capitalist State is in the midst of serious upheaval. Its stock market has been in precipitous decline, the government has devalued the currency, and now this, a truly massive explosion in a vitally important port city a stone’s throw from Beijing.
Initially reports were suppressed by the government but footage is hitting the broader world. So, in case you missed it, here it is.
This will have impact (so to speak) on the already tenuous Chinese economic situation. At this point that’s all we can say.
In case you haven’t noticed things aren’t so hot in China. In fact the country, the Ultimate Crony Capitalist State is in serious trouble. Today it devalued the yuan, its currency.
We have been sounding the alarm on China for a very long time. Not that we’ve been the only ones. That China has been headed for real trouble has been obvious to many for quite a while, years. Regardless, trouble is here now. The world’s second largest economy is pretty much in crisis mode, or very near it and this state of affairs will have an impact (it already has) globally.
What should also be understood is that this is not a separate episode from the initial financial crisis which hit much of the world in 2008. China, Greece, Japan, it’s a continuation of the Great Recession. We’re not out of it. Indeed, some believe that we likely have not seen the worst of it.
A few posts ago we made the point that we should all count our lucky stars that we were not some newly middle class guy in China who leveraged his home to play the stock market.
If however you are that guy and you are reading this know that at the very least you have our sincerest sympathies. Though that doesn’t pay the margin call we understand.
The Ultimate Crony Capitalist State is feeling a bit unstable right now. Instability is the great enemy of the Chinese Communist Party. The market mechanism continues to bleed through all across the Chinese economy and Beijing is getting (more) nervous. The state “capitalism” miracle is looking a lot less miraculous these days.
The Chinese stock market is off over 20% since mid June. (Though still up more than that for the year.) A property bubble continues to pop. Exports have slowed. Change is in the air. Of course it’s been in the air before.
Now it looks like China may have deployed its own version of the “Plunge Protection Team” to hold back reality. Thing is reality is reality.
I remember seeing this image on TV as a kid. I remember the thousands of students in the square. The paper mache statue of liberty they’d erected. There was a feeling that communism was about to come crashing down in China.
Then the army came and laid waste.
He who is prudent and lies in wait for an enemy who is not, will be victorious. – Sun Tzu, The Art of War
Being unconquerable lies with yourself; being conquerable lies with your enemy. – Sun Tzu, The Art of War
As we’ve said before, the SHTF moment to watch for is the day the dollar loses reserve currency status. As we’ve also said, this day is still probably pretty far off. But one gets the sense that things are very fluid and increasingly so in the global money game these days. It’s almost like a financial “cold war.” Nothing happening which is too hot. Which forces any drastic moves. But a war is being waged none-the-less. The US and dollar dominance are under sustained attack and unfortunately we have exposed ourselves thanks to our profligate ways.
Can we get our act together? Can we act like adults in coming years? I don’t know. We take too much for granted. We’ve been fat and happy for a very long time. Perhaps we aren’t hungry enough.
I do think America can be hungry (in the good sense) again however. But there needs to be fresh blood in leadership – political, financial, and elsewhere.
This is a big deal and reflects the profound lack of confidence the world has with the current global banking regime. That Britain would do this, in spite of our general objection, is very significant.
As we have said in the past, an important thing to watch for is the moment the dollar is no longer the “world reserve currency.” When that happens the game fundamentally changes. We can’t print forever any longer and the reality of the market hits. We are still far from that point, but Britain joining the Asian Infrastructure Investment Bank certainly is a solid move toward a post-dollar reserve currency world.
China is the ultimate crony capitalist state, surpassing even Russia (see the previous post) in that regard.
I recently had the pleasure of talking with an economist who specializes in China and who works for the US government. He said that getting some types of business done in China, particularly anything around energy is nearly impossible. The Chinese government sets a price for energy, tells the plants how much to produce whether or not that works with the set price (which it typically does not) which then creates all sorts of downstream distortions in other parts of the economy.
Charles Hugh-Smith writes of the dimming of the “Chinese Dream.” Introducing the “Ant Tribe.”
China is an amazing political and economic entity. Watching it is fascinating.
Is it slowing? How much? Is it a lot? Is it a lot more than even the pessimists think? Is the Chinese banking system looking at a “black hole moment”? Can the banks be bailed out by the Chinese central bank without setting off a worldwide economic wildfire? No one knows the answer to these questions, including the powers that be in China.