Monday, February 05, 2007

Asian flu

As the slaughter of a mind blowingly large number of Turkeys proceeds apace in East Suffolk, the prospect of Avian flu in the UK has finally come.

Avian flu, though, is not the only dangerous threat emerging from Asia.

The economic numbers from China make for some sobering reading.

At the moment we are accustoming to viewing China as a great success story- a huge advance has been made across the country in terms of economic prosperity since the reforms of Deng-Xhouping ended the bloody debacle of Maoism. A gigantic shift in production has moved the industrial production of whole sectors into China. As a result, China has been able to acquire significant reserves.

Yet, the Emperor has no clothes. The key to much of the recent growth in China has been the state banking system. Though the free market has extended across much of the country, it has not advanced enough in the Chinese banking system. credit controls are lax, to say the least and with limited bankruptcy procedures there are many Chinese industrial behemoths that are essentially zombie companies. Chinese companies are selling motorcycles in Vietnam, for less than scrap value, so it is quite clear that gigantic bad debts are building up inside the Chinese economy, and, especially its banking system.

The willingness to take the inevitable pain that real reform would bring is simply missing- the Party, aware that it has many problems to cope with lacks the political legitimacy to tackle them. Corruption continues unabated.

There are now estimates that the total bad debts inside the Chinese economy are larger than the total external assets that China possesses.

The question now is not whether China can sustain its drastic dash for growth- it is obvious that it can not. No, the real question is how can China complete the final adjustment to incorporate free market banking and ultimately liberal politics.

In 1908, the Manchu Empire proclaimed that they would move to a constitutional monarchy by 1917. This was preempted by the 1911 Republican revolution. As the wrenching strains develop in a country where increasing prosperity is considered a right, the regime of the Red Emperors is now beginning to look unstable.

China faces considerable instability- economic and political. With the incompetent incumbent in the White House, I do not believe that the West has considered the full implications of what this could mean- for China and the World.

1 comment:

Peter Mc said...

Don't forget the growing and largely unrecognized HIV infection rate.