Will China Collapse? And What happens if it does?

[Snipe]

I read a very interesting piece the other day on China, and I wanted to share.

Many people think China will be the next World Power, and indeed I think they already are. Many think that they will surpass us, but I never agreed with that. China has a lot of problems. Here is the piece (I recommend you click and read the whole thing):

The Hard Long Slog (http://sinostand.com/)

If you just read that piece, it may be an eye-opener to the problems that they have.

I have talked about China before. They have some real problems. One of which is Demography. In the 1970s they instituted the One-Child policy which told people that they could only have one child. They were the poorest country on the earth, and they needed to reduce the number of poor people by limiting reproduction. The idea does have merits in some respects, but now they are starting to deal with the unintended consequences of an inverse pyramid of reproduction. They have lots of old people, and very few young people.

Now this is happening across the world in lesser respects. It is happening in Europe and America. It is happening in Japan, with Japan actually losing population every year (they don't allow immigration or refugees). In Europe, they wouldn't have population growth without those Muslims that produce at spectacular rates. And those Muslims are a true boon to the economy, as you might well imagine.

The thing is that America, Europe, and Japan are all advanced countries with wealth, and China is still an emerging country with a per capita gdp that ranks behind well over a hundred other nations. China has done well, but they are still on the aggregate very poor, crushingly poor.

That isn't China's only problem. They abort women more than men, and the boys born to girls born ratio is 118-100. Now that is only 18 more than the 100 you might think, but China is a land of 1.3 billion people. It ends up being tens of millions of men that have no chance at women. At the apex in your lifetime an estimated 40 million Chinese bachelors will have no chance at finding a wife. They might not like that.

Men that are married have lower testosterone than men that are unmarried. And men that are married with Children have even lower testosterone. It seems like we all can change our chemical balance without even taking drugs. I think that our genes may change too, or at least cause some genes to activate vs. lay down.

China could be much more aggressive, or so they say because of this imbalance.

[Snipe]

Here is a passage on Chinese Pollution:


But the most frightening implication of China’s pollution is what it’s doing to the food and water supply. Wall Street Journal reported last week that “anywhere between 8% and 20% of China’s arable land, some 25 to 60 million acres, may now be contaminated with heavy metals. A loss of even 5% could be disastrous, taking China below the ‘red line’ of 296 million acres of arable land that are currently needed, according to the government, to feed the country’s 1.35 billion people.”

[Snipe]

3. The Water Shortage


Demand for water in China is skyrocketing, while at the same time supply is dwindling and being contaminated. The Tibetan glaciers, which supply the water for all three of China’s major rivers – The Yangtze, Mekong and Yellow – are disappearing by as much as 7% per year.


About half of the rivers that existed in China in 1990 have already dried up, and of those rivers and lakes that remain, about 75% are severely polluted. 28% are so polluted that their water can’t even be used for agriculture.
The water shortage will also have severe effects on industry. As much as 17 percent of China’s water is now used by the coal industry and other power stations. And as you can see, China’s coal use has been shooting upward for the past decade with no promise of slowing any time soon.

I had no clue that had happened. Half of their rivers have dried up in the last 25 years. If that was happening here, it would be full borne apocalypse time. They are in a world or hurt. Could you imagine? I could not. They won't be able to feed themselves.

I don't think that China will ever pass us. They are still poor and desperate. They could however take other (aggressive) actions. Will China Collapse? I don't know. But their Communist government will be tested. If they do collapse it might be bad for everyone, including them.

I see the future, and the future of China is not good. Expect more of this to follow, and it won't be pretty.

[paulxu]

Did you see the piece on 60 minutes last night about their own real estate bubble?
Fascinating stuff. Many people have taken a couple generations of savings, which have very few places that can be invested, and used them to fund a construction boom...of entire cities where no one lives because they can't afford the price of an apartment.
Empty cities, malls, wide expressways with no cars on them...brand new ghost towns.

[ChicagoX]

Did you see the piece on 60 minutes last night about their own real estate bubble?
Fascinating stuff. Many people have taken a couple generations of savings, which have very few places that can be invested, and used them to fund a construction boom...of entire cities where no one lives because they can't afford the price of an apartment.
Empty cities, malls, wide expressways with no cars on them...brand new ghost towns.

There is a new show that aired earlier this year on HBO called Vice, and they also featured China's ghost towns. There were miles of beautiful new condo towers and retail developments and literally no one in sight. I remember seeing something like 40 units in an entire city of new construction actually have tenants in them. At some point, their housing bubble is going to burst and it won't be pretty.

If you haven't watched any episodes of Vice, I would highly recommend it. Their stories and reporting from all over the planet are highly intriguing. They were the people behind Dennis Rodman and the Globetrotters going to North Korea to play a scrimmage and that episode was really interesting, too. It was recently announced that the show was renewed for a second season in 2014, and I really look forward to it.

[nuts4xu]

If China crumbles, the price of our goods will skyrocket. I don't like the way China runs their country, with the pollution and communism, but if they can't work their kids to death, the price of the next Ipad or Playstation could be $5000. It could cost $850 for a pair of Nike running shoes.

I don't like the Chinese, but I don't want them to stop producing either. We need their unfair labor prices to keep some goods affordable.

[Muskie]

Is there some sort of executive summary I could read? That article is much too long for my tastes on a Monday morning after a work conference. If I was more awake, I could probably parse the Nuts and Snipe comments into something, but not today.

[LadyMuskie]

If China crumbles, the price of our goods will skyrocket. I don't like the way China runs their country, with the pollution and communism, but if they can't work their kids to death, the price of the next Ipad or Playstation could be $5000. It could cost $850 for a pair of Nike running shoes.

I don't like the Chinese, but I don't want them to stop producing either. We need their unfair labor prices to keep some goods affordable.

I've noticed that some of the stuff we buy now is being produced in Bangladesh and Vietnam - particularly shoes and clothes. I agree with you, that if China crumbles we'd see prices rise, but I wonder for how long before we just moved the sweat shops to another part of Asia. I mean, before China it was Japan that made all of the stuff we Americans just couldn't live without. It seems there's always going to be third world countries for us to exploit in the name of materialism (of which I happily partake).

[paulxu]

Is there some sort of executive summary I could read? That article is much too long for my tastes on a Monday morning after a work conference. If I was more awake, I could probably parse the Nuts and Snipe comments into something, but not today.

Wal-Mart to run campaign for new slogan.

[GuyFawkes38]

It is kind of odd how Americans and the rest of the world do not appreciate the poverty of China. Instead China is falsely viewed as a wealthy country that continues to get wealthier.

Cuba and Mexico have higher per capita GDPs than China.

I blame Tom Friedman.

[Snipe]

Did you see the piece on 60 minutes last night about their own real estate bubble?
Fascinating stuff. Many people have taken a couple generations of savings, which have very few places that can be invested, and used them to fund a construction boom...of entire cities where no one lives because they can't afford the price of an apartment.
Empty cities, malls, wide expressways with no cars on them...brand new ghost towns.

http://www.cbsnews.com/video/watch/?id=50152767n

link (http://www.cbsnews.com/video/watch/?id=50152767n)

Great find Paul, and well worth the watch.

I went to Detroit this summer and was astounded at just how quiet and vacant most of it is, while it is in ruins. This is creepy in the opposite way, first class developments that are unused and dying on the vine.

One thing that strikes me as a landlord is that tenants are your first defense to defending your property. If a roof starts leaking, I hear about it. I hate windstorms, because they cause little leaks, which become big leaks if left unattended. When I watched that video, I just kept looking at all of those unoccupied roofs. I know many are leaking. I also know that China is corrupt and when builders are building housing that nobody will live in they will cut costs because nobody is going to complain. Given shoddy Chinese work practices, corruption and the lack of tenants, many of those buildings would not take long from going from new to condemned.

And the scale that they are building these immense cities that no Chinese can afford to live in blows my mind. It won't take a genius to figure out that any populist worth his salt will want to fill them with "the poor" (most Chinese, that is why they are vacant). Occupy Free City! We talk about disparities among rich and poor. China is a poor country that builds first rate cities that nobody lives in, and then leaves them vacant. That might be way more creepy that Detroit.

It was to me.




There is a new show that aired earlier this year on HBO called Vice, and they also featured China's ghost towns. There were miles of beautiful new condo towers and retail developments and literally no one in sight. I remember seeing something like 40 units in an entire city of new construction actually have tenants in them. At some point, their housing bubble is going to burst and it won't be pretty.

If you haven't watched any episodes of Vice, I would highly recommend it. Their stories and reporting from all over the planet are highly intriguing. They were the people behind Dennis Rodman and the Globetrotters going to North Korea to play a scrimmage and that episode was really interesting, too. It was recently announced that the show was renewed for a second season in 2014, and I really look forward to it.

Thanks for the recommendation. I will look for Vice when it gets out on DVD.

Sounds like a great show. This is one screwed up planet. Lots of people out there in far away places are batshit crazy. That is why we need immigration reform.

[Snipe]

If China crumbles, the price of our goods will skyrocket. I don't like the way China runs their country, with the pollution and communism, but if they can't work their kids to death, the price of the next Ipad or Playstation could be $5000. It could cost $850 for a pair of Nike running shoes.

I don't like the Chinese, but I don't want them to stop producing either. We need their unfair labor prices to keep some goods affordable.


I've noticed that some of the stuff we buy now is being produced in Bangladesh and Vietnam - particularly shoes and clothes. I agree with you, that if China crumbles we'd see prices rise, but I wonder for how long before we just moved the sweat shops to another part of Asia. I mean, before China it was Japan that made all of the stuff we Americans just couldn't live without. It seems there's always going to be third world countries for us to exploit in the name of materialism (of which I happily partake).

China's international monetary strategy is to manipulate their currency (the Yuan). They make sure that the Yuan is lower than it should be, so that they can have a manufacturing edge. Because of the currency manipulation, China pays their workers lower wages than Mexico or even Honduras. They just can't compete with Chinese slave labor. That is their strategy, and it has worked well for them in some ways. In other obvious ways it has not. China makes all their people work for slave labor, a plus for us but not for them. I love cheap Chinese products. Often they have good quality, or at least quality for the value. They ship those products overseas, and still they crush everyone else on price. It is amazing how cheap they can sell out their own people.

Some people think China can "take over the world". What a laugh. Their strategy consists of making their own people slaves and paying them nothing by manipulating their own currency. It sucks for manufacturers in the US, or Mexico and Honduras, but it is great for consumers, and most of us are consumers vs manufactures.

It is not fair for sure. Life is not fair. We should enjoy the ride while we have it though. We all benefit from Chinese slave labor. Let that ride another 20 years. I hope they don't come undone soon.

[Snipe]

I should add now that the reason that those cities are vacant is on one level because of the Yuan manipulation and the slave labor factor. Chinese can't afford to purchase in great quantities, because they are paid on average less than people in poor Central American Countries. You don't see great vacant cities lining Honduras, and that is for a reason.

[Strange Brew]

China's international monetary strategy is to manipulate their currency (the Yuan). They make sure that the Yuan is lower than it should be

Coming to a dollar near your wallet soon....The Chinese are not alone in their devaluation strategy. The U.S. has been doing it since Nixon, and at an accelerated pace over the last 6 years.

[Snipe]

Is there some sort of executive summary I could read? That article is much too long for my tastes on a Monday morning after a work conference. If I was more awake, I could probably parse the Nuts and Snipe comments into something, but not today.

1) One Child Policy Demographics. (inverse pyramid)

2) Female abortion Demographics. (118-100)

3) Extreme Pollution

4) Desertification. Arable lands are becoming desert. 50% of rivers have dried up in the last 25 years.

The last one is the real problem in my opinion, because I could propose real life solutions (that may not work) for all the other problems. But when you just lost half your rivers in the last quarter century, you may have some problems my policy solutions might not address.

Not all problems have solutions. China is a ticking time bomb.

That is my synopsis.

[Snipe]

It is kind of odd how Americans and the rest of the world do not appreciate the poverty of China. Instead China is falsely viewed as a wealthy country that continues to get wealthier.

Cuba and Mexico have higher per capita GDPs than China.

I blame Tom Friedman.

I agree it total. Great post.

When China started all these policies that I call out for the unintended consequences, they were living in the 1970s. In the 1970s, China was the poorest county on earth. Chairman Mao killed sixty million of his own people during that debacle. Him dying and someone taking charge set them free to a great extent. Communism has killed over a hundred million people in the last century. It is despicable that Marxists are still allowed to be proud, let alone university Professors. They litter our campuses.

China is doing well today, but they have crushing poverty.

[Snipe]

Coming to a dollar near your wallet soon....The Chinese are not alone in their devaluation strategy. The U.S. has been doing it since Nixon, and at an accelerated pace over the last 6 years.

I would agree with that for sure, but we also have to deal with the international markets. Mostly, the US Dollar competes with the EURO, and the Yuan. The EURO is screwed beyond belief, and the Yuan is artificially manipulated to stay low.

The Gold Standard was a nice thing, and we got rid of it.

Since 1970, we don't have a gold standard, and inflation has rung.

The US has a devaluation strategy too, because that is how we will pay the debt.

[Masterofreality]

interesting commentary by Andy Xie from Beijing that can be accessed on Marketwatch.com


"Most tier-two and -three cities already face market disaster. They have built a massive amount of properties without population growth. Even though their average prices are relatively low, about three months of wages per square meter, they cannot sell them.

Properties are worth something if the people living in them can earn enough to pay off the mortgage loans. But most of these cities don’t have the competitive industries to support a large enough workforce to justify the size of the property market."

"In modern economic history no property bubble has survived a prolonged weak economy. China’s current economic downturn will last for years and end only after serious structural reforms that are yet to begin. I suspect that the adjustment will take five years. Even if the government wants to support the property bubble in a weak economy, there will not be enough resources to make it last."

"After 1992, Japan didn’t reform and suffered two decades of stagnation. After the 1998 financial crisis, South Korea reformed quickly and has since become an Organization for Economic Cooperation and Development country. The path China should take is obvious".

Yep. Trouble in River City. Will they reform?

[bobbiemcgee]

Damn, we'll have to sell our T-Bills to Yemen.

[Kahns Krazy]

Here is a passage on Chinese Pollution:

https://lh5.googleusercontent.com/-0Gv4txprY-Y/UPrihWHR0NI/AAAAAAAAIeo/uUZ1H5dZ-Sg/w506-h344/wave%2Bwith%2Bgarbage.jpg

This is actually Indonesia, but the level of filth on that side of the globe is gross.

[ammtd34]

https://lh5.googleusercontent.com/-0Gv4txprY-Y/UPrihWHR0NI/AAAAAAAAIeo/uUZ1H5dZ-Sg/w506-h344/wave%2Bwith%2Bgarbage.jpg

I saw those pictures yesterday. Crazy.

[Snipe]

interesting commentary by Andy Xie from Beijing that can be accessed on Marketwatch.com


"Most tier-two and -three cities already face market disaster. They have built a massive amount of properties without population growth. Even though their average prices are relatively low, about three months of wages per square meter, they cannot sell them.

Properties are worth something if the people living in them can earn enough to pay off the mortgage loans. But most of these cities don’t have the competitive industries to support a large enough workforce to justify the size of the property market."

"In modern economic history no property bubble has survived a prolonged weak economy. China’s current economic downturn will last for years and end only after serious structural reforms that are yet to begin. I suspect that the adjustment will take five years. Even if the government wants to support the property bubble in a weak economy, there will not be enough resources to make it last."

"After 1992, Japan didn’t reform and suffered two decades of stagnation. After the 1998 financial crisis, South Korea reformed quickly and has since become an Organization for Economic Cooperation and Development country. The path China should take is obvious".

Yep. Trouble in River City. Will they reform?

Japan and South Korea are very different than China. People speak about how Japan didn't reform and paid the price, but Japan is still a wealthy country with a high standard of living. Life is good in Japan. Life is good in South Korea. Life is good for the rich people in China, and many of the emerging middle class, but they have a segment of the population which would quantify as larger than the United States that lives in absolute squalor.

50 years from now, Japan is still going to be one of the best places to live on the planet. When I lived there, they didn't have any "no go" zones, or bad parts of town that tourists were advised to avoid. The whole country was a safe and nice place to live. More people die in Chicago through violent crime every year than in whole of Japan. You could go there, get drunk and walk through the poorest part of any town at 3 am in the morning with complete certainty that nobody would harm you. They have an efficient and ordered civilized society. They do have problems. Their debt to GDP is like 235%, which is massive, but they make it work. And what is more, though they are in debt, they tended to spend that money well. They actually invested it in real assets. We just blew through 800 billion in 2009, and what shiny new things do we have to show for it? Spending the money well is a huge deal.

[Snipe]

Damn, we'll have to sell our T-Bills to Yemen.

Right now we are not selling out T-Bills to the Chinese, or anybody. The Fed is just printing money.

It is a great system. We can always just print more money.

Things that can't go on forever, don't.

[Snipe]

https://lh5.googleusercontent.com/-0Gv4txprY-Y/UPrihWHR0NI/AAAAAAAAIeo/uUZ1H5dZ-Sg/w506-h344/wave%2Bwith%2Bgarbage.jpg

This is actually Indonesia, but the level of filth on that side of the globe is gross.

So that is not a fake? Wow.

I like to trash environmentalists when I can have some fun at their expense, but pictures like that make me proud that Richard Milhaus Nixon created the EPA.

[Snipe]

I bet we get some wealthy Chinese immigrants as time will come. If they see what is happening, they will react. Expect a load of Chinese that are all much smarter than you and you kin.

[Masterofreality]

I bet we get some wealthy Chinese immigrants as time will come. If they see what is happening, they will react. Expect a load of Chinese that are all much smarter than you and you kin.

That's Ok with me. Anything to reverse this "dumbing down" trend.

[GoMuskies]

That's Ok with me. Anything to reverse this "dumbing down" trend.

There am lots of real dum-dums out there these dayze.