China? Thumbs Up or Thumbs Down?

What happens to a huge and impoverished that country relies on exports when a worldwide depression hits, especially if that country is totalitarian with a ripe history of riots? According to Gerald Warner writing in the ScotlandonSunday,

In default of a multi-party system, people riot as the only form of protest available to them: in China, rioting is a substitute for elections. The regime no longer has the authority to repress its people, but it refuses to surrender its monopoly of power. That is a fatal situation. Thanks to modern technology, the people of China know what has happened to communist parties elsewhere in the world. If the economy falters seriously, the party will be overthrown and the absence of an alternative government will convulse this massive nation in enduring anarchy

The situation now?

Recent figures show Chinese industrial firms’ profits standing at 2.41 trillion yuan, a 4.9% increase on the year, but this compares with a 36.7% rise over the same period in 2007. The Chinese economy is slowing down inexorably and no matter how many hundreds of billions of dollars it holds in US bonds, that will not prevent massive unemployment and social unrest.

The complacent orthodoxy a year ago was that China could ride out a recession even over two years because of the size of its internal market. That, however, confuses demographics with markets. Entire provinces are dirt-poor: their populations do not have the disposable income to compensate for the loss of exports. The extremes of wealth are extravagant. This is a communist country in which wealth is concentrated in the hands of a small minority, while the poor remain not only impoverished but, increasingly, uprooted. The flow of hundreds of millions into cities from the countryside, often evicted by corrupt property developers in concert with party officials, is a ticking time-bomb.

Even over the past decade, regarded as a time of plenty, China was in a state of undeclared anarchy. In 1994 there were 8,700 “mass incidents” (ie riots involving thousands of people); by 2005 there were 87,000 riots, since when the government has stopped publishing the data. In 2003 alone, three million people were involved in riots. This in a one-party state that prides itself – or formerly did – on enforcing strict Leninist social control. [Italics mine.]

I have often taken the “complacent” position that China is well situated to ride out the coming storm. It is flush with cash. When the recovery hits, it will be back to business as usual: Rely on exports for the on-going big leap forward. The alternative scenario–a real Chinese crash–is equally plausible if we have a depression lasting a couple of years.

If a recovery of sorts does miraculously occur and China reverts to export business as usual, then that recovery will be temporary, for its vast export machine will drive the world under water–an on-going cycle. I have often likened the U.S. as a slinky, churning its way down the stairs. After hitting one stair, it seems to be rising again; but, alas, only to dip further down. Given our past history of exuberance, I see no cause to alter this view, even with the charismatic Obama at the helm.