great fall of china

8/4/2019 Great Fall of China

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THE GREAT FALL OF CHINAChinas Zombie Economy and the Coming Crises

Before too long, hundreds of billions of dollars will be lost in China and in Chine

companies around the world.

Many think that the future belongs to China. It certainly does appearto be true.

But recently, some sharp observers have begun to think otherwise.

Are envy and jealousy the source of such criticisms? Some may say that.

However, close observation of China, the global power, reveals great dange

just ahead.

No part of China will be unaffected by these dangers. Nor will any part of the wor

will remain unaffected.

But the impact of the coming crises will hit China so hard that it will never be th

same again.

Now, this may be hard to believe. After all, China is an economic giant in the wor

today. And its true; its economy is massive and far reaching.

But China is already becoming a zombie economy, resembling the walking dea

The scary part is that the Chinese leadership knows it. And their actions have alread

begun to reect the reality that a new China Crisis is dead ahead.

But it wont be just one crisis that China will have to handle, but many; and at th

same time or in quick succession. There will denitely be a domino effect in play

the crises overlap and magnify the impacts of the others.

Chinas collapse will begin with an economic slowdownwhich is already here.

Hundreds of billions of dollars in wealth will be wiped out in a very short time spa

But lets take a brief look at China today to understand where it is headed and wh

The Great Fall Of China


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2An Absolute Wealth Report


he Rise of ChinaIn only a few decades China has risen from a backward rural economy to becoming the worlds

leader in manufacturing. And, by some estimates, Chinas Gross Domestic Product (GDP) ap-

proaches, or perhaps even passes, that of the United States.

There is no debate about Chinas place as one of the top economic powers in the world today. Itinvests billions of dollars in countries around the globe, and nances similar amounts for joint

ventures within China. It exports everything from steel to dry wall, from hi-tech computers to

high fashion, to every market imaginable.

China is now also the single largest foreign holder of American debt, to the tune of about $1.22

trillion or about 9.8%, and has been a key player in keeping the American economy aoat.

They recently surpassed Japans holdings of about 9.6%.

But all that is about to change.

Chinas appetite for natural resources to feed its growth is voracious:

It leads the world in steel production and consumes more than twice the United States. In

2003 China consumed 258 million tons, the US, 104 million.

It produces 97% of the worlds rare-earth minerals and consumes about 30%

It produces 7.4% percent of copper in the world but consumes about 34% (6.8 million tons)

Its oil consumption is 8 million barrels a day and rising, compared with 29 million barrels

a day for the US

Is the worlds largest producer and consumer of gold

Consumes 48% of the worlds iron ore

Consumes 47% of the worlds coal

The human and environmental costs of Chinas explosive industrialization are unprecedented.

And, as its industrial needs grow, Chinas behavior in international trade and the resource mar-

kets is becoming more adversarial and destructive.

Militarily, China has nuclear weapons, the missiles to deliver them, and the guidance systems

to put them where they wish. It also has a standing army of 2.85 million men, with reserves

that bring that total to well over 4 million. And it has a blue water navy for the projection of

its power throughout the Pacic, with advanced surface and submarine eets.

Chinas intention is to challenge US military power and inuence in the region. That is why

these China crises are so dangerous for the world, and not just for China.


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China certainly appears to be a superpower

But a successful superpower must not only be rich, but also have nancial stability as well as

internal and political stability. It must be able to feed its population and relate well with the

international community.

The crises China will soon face will cause great internal instability and up to half of its wealthwill vanish in the chaos

he Economic DemandAs noted above, Chinas crises will be triggered by an economic slowdown

Signs of it are already here. China has experienced its second year of year decline in deals

priced and dollars raised in the global IPO market, and has acknowledged that the external

environment for Chinas development grows complicated.

That means that China knows its export-driven economy is already in trouble.

In an article earlier this year, the French Investment Bank Socit Gnrale said that:

it fears China has lost control over its red-hot economy and risks lurching from boom to bust

over the next year, with major ramications for the rest of the world.

Others are saying the same thing, and worse.

Noted hedge fund manager, Jim Chanos, who alerted Wall Street to Enrons awed model, and

Harvard Universitys Kenneth Rogoff, both warn of a crash in China:

China is on a treadmill to hell because its hooked on property development for driving

growth. As much as 60 percent of the countrys gross domestic product relies on construction

Thats right; China is creating its own false economic demand and employment by building

vast construction and infrastructure projectsthat nobody uses or can afford.

Is this true?

It is.

Many ghost cities now exist in China. Ghost cities are complete urban areas with high riseofce buildings, condominiums, luxury mega malls, parks, and utilities. They can be found

all over China.

And they are empty.

No one lives in them. In fact, there are 64 million vacant luxury apartments in China right now.

That is twice the number of apartments in the United Kingdom.


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At the same time, tens of millions of workers live in slums, ten to a room, and work for

slave wages

How long will this continue?

It is utter madness, and it is the madness of the Chinese leadership running the economy by a

plan known as the Beijing Model, into total ruin.

Even, Ge Zhaoquiang, Senior Researcher at China Merchant Bank, recently warned of:

Serious risk of an economic downturn unprecedented in past thirty years with possibly dam-

aging consequences for Chinas social and political stability.

The downturn is here now, and its getting nasty.

he Beijing Model

The Beijing Model is a creation of the Chinese leadership. Its sole purpose is the rapid indus-trialization of the country by leveraging all advantages of open international markets, currency

manipulation, and other adversarial trading practices. Admirers credit the Beijing Model for

Chinas economic record of 10% annual growth for the past decade.

So be it.

The Beijing Model has the following factors:

Authoritarian political structure

State control of banks and capital

Massive and sustained foreign investment

State owned industries to reward cadres

Privately owned industry to copy and steal from

A huge source of cheap labor to exploit

But Chinas growth has been fueled largely by:

A) Large amounts of foreign investment and

B) Chinas cheap labor

C) Chinas Central Bank policy of articially low exchange rates


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But over reliance on these factors have badly warped Chinas economy.

For instance, as a country grows wealthier, domestic consumption should rise as a percentage

of GDP. In China, this hasnt happened. Overall domestic consumption has dropped by 20%

in the past ve years alone, even though labor costs have doubled.

Mass domestic consumption has also been stied by Chinas undervalued currency, slave levelwages, and restricting foreign rms access to its domestic market.

A middle class has emerged in China, but is not large enough to raise domestic demand.

So, what does this mean?

It means that China can only run its economy this way for so long; and that time is running

out. As Western economies crumble and cut back in the global recession, foreign demand for

Chinas products will dry up. So will foreign investment.

That means fewer and fewer dollars will be going into China.

As unlimited foreign investment and cheap labor come to an end in China, its economy will crash.

The Beijing Model will be dead.

The after effects this crash, however, will be bad for China; very, very bad.

Factories will close. Massive layoffs will occur. Civil unrest will rise among the hundred of

millions of Chinese factory workers across throughout the country.

Hyper inflationOne big problem for China will be ination. A lot of it. As its economy produces more and

more, demand for resources rises, leading to rising costs for all kinds of goods.

Also, a false real estate market has also led to ultra-high prices.

In response, the Chinese Central Bank, which dictates the value of theyuan, has raised interest

rates four times in the past eight months in an effort to control ination.

But economic growth is still at almost 10%, which is not normal in a global recession. But so

much of the demand, as noted above, is false.

Other prices, however, are held articially low. Rising food prices, for example, have been

stopped by price controls. This is only temporary, and creates the appearance of control, but

also a slingshot effect for hyper ination in the future.

Also, Socit Gnrale has already warned that runaway ination in China will push gold

higher yet, but take prots before year end. That doesnt leave much time, does it?


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For reasons we will see later in this up to date report, there has been hyper-ination in some

areas, such as property, but not in others. However, as noted above, food prices in China will

soar in the near future.

The dilemma for China is that to control ination, it must raise interest rates to slow down the

economy.

But any slowdown in the economy will quickly deteriorate into economic collapse.

China is trapped.

he Real Estate CrashAs noted above, property prices are grossly inated, and the bubble is about to burst. Perhaps

it already has, as many real estate ofces have closed due to low demand.

How did Chinas real estate prices get so inated?

In China, the government owns all the banks. State owned banks lent huge sums of money

to state owned industries and local governments. This is a recipe for broad and deep corrup-

tion. Although state owned banks are not allowed to lend to local governments directly,

local governments cleverly formed investment companies to receive loans from the state

owned banks.

But what did the new investment companies own as collateral?

These investment companies were collateralized by land that was usually seized illegally by

local governments from farmers. This trick articially drove up land values to astronomical

levels, which allowed larger loans to be made and received. As land values rose, loan amountsdid too.

But why would this occur?

Land and other collateral values were inated not only to show that goals have been met, but

to also line the pockets of ofcials and corporate ofcers. False reporting, waste and fraud

are rampant in China and caused the real estate bubble. But government bankers, municipal

authorities and state owned rms got very, very rich.

Now, however, China faces an avalanche of bad debt that it is trying to hide, misplace, and

otherwise wish away.

But it will not go away; it will be a major factor in Chinas nancial crash.


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he Domestic Debt CrisisLike the US, China engaged in its own stimulus program. It put hundreds of billions of dollars

into the economy.

Chinas debt crisis is directly related to Chinas State ownership of all banks and the real estate

bubble, but it also a result of the massive fraud and corruption in China between banks andState owned enterprises and local governments.

But where did all that money go?

As noted above, it went into all kinds of fake companies selling seized land at ultra high prices,

or into the stock of state owned rms, articially driving up the values of those companies.

This is not a mystery; its just that not many really want to talk about it because the ending is

not a happy one.

But even Chinas prime minister, Wen Jiabao, admitted in 2009 that:

Structural problems are causing unsteady, unbalanced, uncoordinated, and unsustainable

development.

Those structural problems include but are not limited to the corrupt relationships between

State owned banks and State owned rms.

State owned rms, however, are a big part of it.

The Economistmagazine says that all but three of the forty-two mainland Chinas global For-

tune 500 rms are owned by the government. These rms receive large amounts of moneywith no accountability and earn no prots. Chinas state owned enterprises net return on equity

is negative 1.42%.

They are, in fact, destroying wealth, not creating it. Thats what happens with widespread corruption.

The bottom line?

Economists now see a tremendous domestic debt bomb waiting to explode in the faces of--you

guessed it--Chinas State owned banks. A major default on domestic debt is inevitable.

Sound familiar?

Can this any worse than the US debt crisis?

Yes, because the scale of Chinas debt crisis is much larger; relative to total GDP its more than

twice the size of that of the US.

Estimates of Chinas domestic debt crisis range from 25% to 80% of GDP, and will make the

US debt problem seem trivial in comparison.


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Lawlessness and Foreign FirmsSoon, all foreign investment and capital in China will be at risk, if it is not already. Foreign

assets will simply be stolen outright, as is happening now, if not totally stripped of their value.

How can this happen?

One reason is the nature of the Chinese Communists Party.

The State seeks control over all parts of China, especially those privately-owned companies,

including foreign-owned ones.

Why?

Because foreign or privately owned rms represent a challenge to the Partys authority and the

ofcial policy of Collectivism.

Western inuence is a big problem for the Chinese. They know that foreign ideas threaten theirlegitimacy.

You see, as the Wall Street Journal points out:

The Party regards collectivism as the key to power in China and privatization as foreign and

wrong. And why wouldnt they? They owe their wealth and position to the power of the State

which has been built upon the backs of the repressed collective masses. Collectivism works

great if youre at the top. You dont even have to lift a nger.

Not only that, but China limits foreign access to the Chinese market. That is reserved for Chi-

nese rms.

That is known as protectionism, a tactic of Adversarial Trade.

Even Chinas State Council afrmed in 2010 that:

Foreign companies have increasingly felt unwelcome in China because of what they be-

lieve are discriminatory government policies, inconsistent enforcement of laws and increased

protectionism restricting foreign investment in certain sectors. Also, rising labor and logis-

tics costs, lack of available land and surmounting levels of pollution in Eastern China have

prompted regulators to create rule to further optimize foreign investments.

These conditions will only worsen with Chinas economic slowdown.

But as economic conditions in China worsen, shouldnt this make China weaker?

Yes. Thats the second reason why China grows more lawless in its relations with foreign rms.


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Weakness begets recklessness. Such weakness explains why China now steals whole factories

from Western companies, without legal recourse. They are grabbing from the West what they

can, while they can.

This has become a huge and open problem:

There is a growing number of similar trade cases involving American companies. I see Chinagoing backwards. I have never seen so many complaints over outrageous stealing of intellec-

tual property and making folly over the rule of law. It is seizing entire US companies without

due process or recourse. House subcommittee Chairman Don Manzullo (R-IL)

Even Chinese rms listed on the US are markets are rampant and brazen in their fraud and theft.

As Floyd Norris writes in his recent article, The Audacity of Chinese Frauds, with US listed

Chinese companies

The audacity of these frauds (Chinese CEOs and banks providing auditors with false num-

bers), as well as the efforts to intimidate auditors, stand out. If investors such as GoldmanSachs and Hank Greenberg cannot fend for themselves, something more needs to be done if

Chinese companies are to continue to trade in American markets.

The coming China crises wont just leave China in a world of hurt, it will also cause the stock

values of Chinese companies anywhere in the world to sink like a stone. Billions of American

investors dollars will be lost in the US alone.

But lawlessness and brazen behavior have become the norm in Chinas trade relations, as it

sees the world in a zero-sum context and knows that deep trouble lies just ahead

A good example of this is when China promised to get rid of rare earth export controls when itjoined the World Trade Organization (WTO) way back in 2001. It gave in a little along the way,

but in 2011 it has returned to its initial posture. It has 30% of worlds supply but 90% of worlds

exports. The WTO has ruled against China, but China has yet to comply with the ruling.

This is not surprising. Whether it is stealing American rms factories, stone walling on trade

issues, ripping off US technology, or illegally burning DVDs, theft and corruption are a way

of life for China.

Only now, they are more brazen about it.

The truth is, however, acts of lawlessness are acts of weakness, not strength.

It is true that the Chinese leadership governs with thuggery. But China also knows that its days

of false prosperity are numbered. Although the Middle Kingdom feels culturally superior to

the West, its nancial misery will be much worse. This will only afrm its historical fear and

paranoia of the West scheming to break up China once again.


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Rural and Urban ProblemsChina is entering a prolonged period of civil unrest from State created problems.

Land reform has always been big in China, and usually involved the deaths of millions of

people and the imprisonment of millions more, with extended periods of no food.

And for the past decade, theyve been at it again, big time, only without the mass deathsso

far. But the riots are coming fast and furious.

In rural areas, a major cause of unrest is the illegal seizure of farm land.

A recent report from the Chinese Academy of Social Sciences states that 60% of farmers in 1564

surveyed villages in 17 provinces and autonomous regions said that their land has been conscated:

Illegal land conscation has become the biggest threat to Chinese farmers land rights, and

conicts related to land have become a threat to the stability of Chinas rural society.

Another report noted that since the 2005 push to build a new socialist countryside about two

million farmers per yearhave been were forcibly dispossessed of their lands by local govern-

ments and herded into apartments to free up their land to be used as collateral for state owned

bank loans or sold to developers.

To add insult to injury, a system known as hukou denies these rural newcomers to the cities the

same social benets as urbanites. This has created immediate and deep class conicts.

Another cause of unrest is the favoritism, whether it is the hukou system or preference shown

to State owned rms. Even though those rms waste money and show no prot, they are paid

the much more than private protable rms for doing the same thing.

Whats more, regular workers share of the economic pie shrank from 61% in 1990 to 53% in 2007.

Rising expectations of the emerging middle class are also a problem. Chinas new middle class

reject traditional Chinese way of life. Their new way of life is base upon wealth and individual

expression, not tradition.

Traditional marriage markets where parent arranged weddings for their children are going

away. Modern dating and online dating are now the norm for this group.

TV dating shows are also very popular, with emphasis on wealth. Will these young Chinese

yuppies be willing to cede their way of life when things go south?

This important because although the middle class has no political freedom, it pays more in

taxes. When times worsen, it will be asked to pay even more. The middle class will surely be

demanding greater say in what happens in their lives.

The problem they will face is that the Communist Party will not give it to them. Or then again,

maybe it will.


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Eploding Ciil UnrestHow high are social tensions in China right now?

Public demonstrations against the government in China number in the tens of thousands every

year, with tens of thousands actively protesting.

And the frequency and size of these anti-government riots are increasing.

As Chinas economy crashes, more and even larger levels of civil unrest will follow.

Rising food prices and shortages will be another major source of this unrest. When the crash

comes, mass food shortages will be everywhere. Food prices will soar, and there will not be

enough.

The crash will set different parts of the economy at each others throats. It will pit the private,

entrepreneurial, middle class against state-owned enterprises; urban-against-rural populations,

poor against middle class populations, and possibly even different branches of the communistgovernment against one another.

And just how will the Communist Party react?

Crackdowns, Imprisonments, and EecutionsOf course, the Chinese are aware of its growing civil unrest. In response, internal security

budgets have grown and China has reinstituted the Mao-ist practice of neighbors spying on

neighbors to root out trouble makers.

Even today, large numbers of people in China regularly disappear.

The Chinese government is wary of the political expression of the Arab Spring and the auster-

ity riots in Greece. Mass protests against bad government seem to be quite the political fashion

these days; and the Chinese authorities are worried.

Or if theyre not, they should be.

Certainly they are determined not to lose control like the Arab leaders have.

However, as the Chinese economy crashes hard, there will be a crisis of mass civil unrest. As

crises after another hit China the riots will get a lot worse and very quickly.

The Chinese government will respond to the above just as they did during the Great Leap Forward,

The Cultural Revolution, or for that matter, the Tiananmen Square Student Massacre of 1989.

The bloodshed will be horric.

The starvation toll will be in the tens of millions because just as it has in the past, China will

use food as a political weapon and starve to death its opponents.


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If you know history, you know that repression, scarcity, and starvation have been recurrent

themes in China, as well as other Communist societies, like the USSR, North Korea, and

even Cuba.

It is not a question of when the crackdown will come, but when and how brutal.

However, China might nd that crushing domestic rebellion may prove more difcult todaythan in the past. Like the old Soviet Union in its Glasnostperiod, (when Soviet Russia allowed

a little more openness and Western ideas in its society, only to see its empire disintegrate) the

Chinese may soon nd that the forces tearing it apart are greater than the forces they can muster

to keep the country together.

Also, China may also have to ask the rest of the world to help it make it through the dark days

to come. The Slaughter and starvation of tens of millions of its people to maintain political

control will bring a level chaos and calamity to China that hasnt been seen since the Cultural

Revolution, or worse, and might make Chinas requests for assistance in the midst of such ter-

ror a very hard sell indeed.

Widespread FamineAs if the foregoing werent enough, theres more. Even as you read this, Chinas leadership is

pushing the country into another Great Famine.

Sadly, the Communist Party in China has a history of making mistakes on a huge scale in China

that end up starving tens of millions to death.

The Great Leap forward in the 1950s was meant to grow Chinas industry. It resulted in

500,000 political executions with as many as 40 million people starving to death by 1961.

Another brilliant Communists Party government scheme, The Cultural Revolution of the

1960s, led to another 30 million deaths from starvation and executions and millions more

imprisoned.

China has a horric history in this area, but you have to admit, when the Party chooses a policy

for China, it goes all the way.

Can you imagine what would have happened to foreign companies, foreign owned capital in

China during those times?

Well, those times are returning to China.

The Beijing Model will bring about a Mega-Famine in China.

How will this come about?

It will happen because China is systematically destroying its ability to grow crops by its poli-

cies of mass urbanization, removing millions of productive farmers from their elds, and sell-

ing the elds off for quick prot to developers. (See the prior sections of this report)


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In fact, a recent article in TheEconomistmagazine reports that Chinas agricultural efforts are

(already) insufcient and rural development of power plants, dams and factories have wiped

out millions of hectares of arable land.

Wheat, rice and corn imports are growing dramatically. Domestic food production cannot meet

demand.

And, as recent history shows, great famines in China are not new. Nor are they rare.

They are repeatedly caused, or made much worse, by command economies like Chinas and

the old Soviet Union, that disrupt the natural productive energies of human beings and force

them to toil in slave-like, inefcient communes or hell-hole factories, overproducing shoddy

products in order to meet an arbitrary industrial goals.

They occur because Chinas efforts toward rapid industrialization inevitably results is massive

shifts in labor and land usage, not according to natural needs of sustenance, but according to

arbitrary production matrixes and political corruption.

Mass hunger and suffering has resulted from Chinas earlier attempts, this time will be the

same, only worse. The Beijing Model will prove to be an even more horrible and tragic waste

of human potential in the near future than is has been up to now.

China has made this same mistake again and again; and now today, again.

As noted in above in this report, China relocated of millions of farmers and sold productive

farmland to developers to build cities that no one will live in!

You may recall that thousands of years ago, the Romans defeated the Carthaginians, and then,

to make sure that they stayed defeated, poured salt onto the Carthaginians elds so they couldnot feed themselves. It proved to be the end of the Carthaginians.

Thousands of years later, the Chinese are doing the same to themselves.

What will also make the next famine so terrible is not just millions of hectares of farmland

have been destroyed by the greed of short term developers and speculators, but that in the pro-

cess of its massive economic growth and industrialization, China has poisoned the countryside

and its fresh water sources with pollution levels not seen in the history of mankind.

Death By PollutionLike all command economies, China is really not too concerned with controlling pollution

levels. The main concern is building more factories, dams and power plants. The cost to the

environment, and by extension to the Chinese people, is apparently not important to the Chi-

nese government.

But the impact on the nations ability to grow food has, like the rest of the economy, has be-

come dangerously warped and headed for disaster.


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Judging by what is happening, there are no real legal or government constraints on what is

dumped in Chinas streams, rivers, lakes and oceans.

The truth about Chinas water pollution is staggering:

About one third of the industrial waste water and more than 90 percent of household sewage in

China is released into rivers and lakes without being treated.

Nearly 80 percent of Chinas cities (278 of them) have no sewage treatment facilities and few

have plans to build any. Underground water supplies in 90 percent of the cities are contaminated.

About 11.7 million pounds of organic pollutants are emitted into Chinese waters every day,

compared to 5.5 in the United States, 3.4 in Japan, 2.3 in Germany, 3.2 in India, and 0.6 in

South Africa.

Water consumed by people in China contains dangerous levels of arsenic, uorine and sulfates.

An estimated 980 million of Chinas 1.3 billion people drink water every day that is partlypolluted.

More than 600 million Chinese drink water contaminated with human or animal wastes and 20

million people drink well water contaminated with high levels of radiation.

A large amount of arsenic-tainted water has been discovered. Chinas high rates of liver, stom-

ach and esophageal cancer have been linked to water pollution.

About 260 million Chinese are threatened by seriously polluted water. Eight of 10 Chinese

coastal cities discharge excessive amounts of sewage and pollutants into the sea, often near

coastal resorts and sea farming areas.

Sea life has disappeared from wide areas of Chinas coasts.

Half of Chinas population lacks safe drinking water. Nearly two thirds of Chinas rural popula-

tionmore than 500 million peopleuse water contaminated by human and industrial waste.

Water pollution and shortages are a more serious problem in northern China than southern

China. The percentage of water considered unt for human consumption is 45 percent in north-

ern China, compared to 10 percent in southern China.

As a result, water shortages and water pollution in China are so bad that the World Bank warnsof catastrophic consequences for future generations.

The World Bank is dead wrong! There will be catastrophic consequences forthis generation

of Chinese.

Air pollution, too, is a major problem for Chinas people. A report by the New York Times in

2007 said:


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Environmental degradation is now so severe, with such stark domestic and international re-

percussions, that pollution poses not only a major long-term burden on the Chinese public but

also an acute political challenge to the ruling Communist Party.

In fact, the Chinese Ministry of Health admitted that industrial pollution has made cancer

Chinas leading cause of death.

Ambient air pollution alone is known to cause the deaths of hundreds of thousands every year.

The air quality in Beijing itself is known to be foul, severe, and a health risk

Even with all the environmental concerns and information available, China is polluting its

country at an amazing rate with devastating levels of toxicity. An estimated 750,000 people

die each year in China as a direct result of the pollution levels. The Chinese government sup-

presses such information from the people for fear of civil unrest.

Chinas poisoning of its water, air, and countryside will magnify the intensity and duration of

the coming Great Famine by geometric proportions.

War, Ciil War, and DisintegrationGiven that China will face very dire circumstances in the near future, it will inevitably feel

compelled to play the war card.

Civil war will be rst. As explained above, China has shown through its Great Leaps and Cul-

tural Revolutions that it knows how to make war on its own people with a rare level of gusto.

But once that bit of housekeeping has been accomplishedif it has beenChina will still need

to restock the pantry since it has already destroyed or poisoned a large percent of its own foodproduction capacity.

But it will not only be in great need of food and resources; it will also need to unify the country

behind what will be left of the China ag.

Its not original, but it workssometimes.

The question is, With whom will China go to war?

The answer is, With anyone it can, but preferably against Western interests, specically

American if possible, whom it will likely blame for all it problems. That is because the US

will have defaulted on its debt by then.

The rst likely target?

Taiwan.

The US ally, a free and democratic island nation of ethnic Chinese has long been a thorn in the

side of Chinas communist rulers. Although heavily armed, attacking Taiwan would scratch


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an itch that has tormented the Communist Chinese government since its founding. It will also

give it access to Taiwans food and relatively clean water.

Total domination over Hong Kong and other coastal, ex-colonial economies by Beijing would

be a given as well, in a naked grab of their wealth.

An aggressive policy towards Japan may also be in the mix, if for no other reason than to settlescores dating back to World War II.

Military adventures in the Western Pacic would not be surprising either, following the ex -

ample of Japans trail of imperialism in years leading up to the Second World War.

The loss of wealth, status, stability as well as the strife and famine in China will be enormously

difcult to endure. Initiating wars in the region, however will only make things worse.

China Diided

What is more likely than a unied China making it through these crises is a disintegration ofChina into smaller, regional Chinese entities.

These regional nations may well be based upon language and dialect, culture, and natural

boundaries. These smaller Chinas will be in harsh competition for food and resources, and

may well be engaged in ongoing warfare with the Communist Party led Beijing region.

Keeping Up AppearancesChina aims to appearlike a modern capitalist country, but has no use for individual freedoms

and market mechanisms that guide an economys growth and a societys development.

As we can see from the Credit Crisis in the US and Europe today, when economic laws are

broken too often and for too long, there are painful consequences to endure.

No nation is immune from these laws. Not even China.

China, like other communist governments, seeks to compete with the West, enjoy the eco-

nomic success of the West, but without putting the basic necessities of a market economy,

like individual liberty, private property rights, and the price mechanism to determine supply

and demand.

Chinas leadership is big picture oriented, but without fundamental understanding of market

economies. Unlike large Western market economies that evolved organically, from agrarian to

industrial societies over hundreds of years, China wants to take short cuts.

Hence, today, it has achieved vast wealth in a short period of time, but it is only a caricature

of a successful economic system. It is like a Beijing karaoke singer perfectly mimicking the

words to A Hard Days Night, but with no comprehension of the meaning of the words.


19/22



Once this fact is realized, everything else becomes clear.

The Chinese promise of lasting prosperity is a ction. China warps its economy and society for

temporary gains and lies to itself, and to the world, about it.

It is like the ridiculous numbers the old USSR used to put out about their own GDP, defense

budgets, capabilities, and the like.

That is what must be kept in mind when reviewing Chinas economic gures, or reading their

latest reports. They all are overly optimistic because their reports are created by colluding

cadres in the banking and corporate sectors each protecting the other.

For instance, China reports a hefty rise in car sales. But what dont we see? Correlative chang-

es in gasoline consumption.

China reports its annual concrete production. What dont we see? Correlative consump-

tion of concrete. Chinas reported concrete production was three times above the worlds

annual demand.

Why would China do this and what does this mean?

The why is simple:

China wants to conceal its great weaknesses from the outside world. It is more dependent upon

exports and foreign investment than it wants the world to know.

It means that China truly feels great weakness with respect to large, foreign economies.

The reality is that Chinas domestic consumption is much less than reported.

This weakness drives to China gorge itself on military hardware, saber rattle its neighbors, and

grow more brazen in its adversarial trading practices.

Political ChangeChinas leadership will change in 2012. They do not plan to undertake any new policies until

that happens. They hope that no hard decisions will have to be made until that time either.

Doubtless the current leadership hopes things will hang together until they can get the hell out

and let the younger generation take over. But they may not have that luxury.

Political transition to the younger generation, too, is risky. Younger leaders are often less con-

servative than their elders. They often look to make their mark and are untested and unac-

customed to the harshness of conict between, or within, nations, but showing their weakness

is their greatest. These factors often lead to even more aggressive and ill-advised policies at

home and abroad.

As this point it is all speculation; but time will soon tell.


20/22



ConclusionIt is my belief that China will experience the many crises outlined above. It will result in China

becoming much less connected to the West in general and to the US in particular.

The most powerful point in this report is that the crises outlined are not new; they have already

occurred in China in one form or another, at least twice in the past fty years.

The common thread is Chinas government and its behavioral patterns of political paranoia,

social and economic disruption, and enormously destructive industrialization policies.

As a result, these crises, hundreds of billions of dollars of wealth will be wiped out quite rap-

idly both in China and in the US, as well as around the world.

It is ironic, or maybe not so much, that the Eastern philosophies of Zen and Taoism provide

a clear way to assess China. The concept of seeing what isntthere helps us to understand the

nature of what is there. What we dont see, what China tries to hide, helps us to better assess

what we do see, or what the next paranoid would-be superpower, allows us to see.

Perhaps China will see what it desperately needs to see, and change its path. It need only look

to its own greatest thinkers.

Liberalism has roots deep in Chinese philosophy; it is a shame, however that the Communist

Party has convinced too many Chinese that it is a foreign idea. But its not. Individual freedom

and limited government are unmistakably Chinese as well.

It was Huang Zongxi, the father of Chinese enlightenment, who said, Is it that heaven and

earth with all their magnitude are destined only in favor of one person or one family among all

the people?

And it was Laozi, founder of Taoism, who observed, Rule a great country the way you fry a

small sh. That is, dont stir too much.

It is also great shame that so many admire todays China that has gained much, and yet will

soon lose so much, at such terrible costs.

True, lasting wealth of China will come about only when its people are free. Lasting wealth

and well being will not be had from the Beijing Model or from Chinas Communist leadership.

Sadly, its admirers like Wei-Wei Zhang of Fudan University in Shanghai, smugly predict that

the Beijing Model will replace the Wests liberal democratic capitalist model:

China had the capacity to learn from the West, but the West does not have the capacity to

learn. We need new thinking, and China can humbly offer some wisdom.

But it is apparent that China has actually learned very little from the West, or about market

economies. It has broken basic economic rules because the Chinese leadership only under-

stands appearances, not market economics.


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It may prove wise for Professor Zhang to learn just a little bit more from the West; perhaps

a verse from the scriptures? The one that warns that, pride goeth before a fall would be a

good start

Because that is whats happening to China.

And those areThe Gorrie Details.

JRG


22/22

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