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China’s Looming Crisis Theatens the West’s Economy

Written by Gary North on January 24, 2012

Patrick Bond gave an important speech on January 10. He is Australia. Australia is tied closely to China’s economy.

Bond took part in an 11-day study tour to south and central China in December.

He uses the language of the old Marxism. He and his colleagues lost the ideological war, beginning in China in 1978, and then in the USSR in 1991. They still can’t get over it. When China crashes, they will blame this on capitalism. They will not blame China’s central bank — point five of Karl Marx’s ten points to move a society from from socialism to Communism after the proletarian revolution. “Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.”

With economic crashes and ecological calamities so prevalent in 2011, concluding with a do-little November G20 meeting in Cannes and a do-nothing December climate summit in Durban, January has opened with intense fear of Eurozone deterioration. In this uncertain context loom the two most potent forces shaping the period ahead: China’s capital accumulation process and class struggle.

Because of the country’s uneven and combined development, within an extraordinary boom we can see the beginnings of a potentially world-scale bust, plus prodigious socio-economic battles from below alongside brutal attacks on the environment such as coal-fired power and the Three Gorges Dam (notwithstanding exceptional ‘green economy’ advances).

Some observers of China are optimistic, but they’re mostly from the Bretton Woods Institutions. Six weeks ago, opined World Bank Chief Economist Justin Yifu Lin, “China can continue its dynamic economic growth for at least another 20 years,” and six months ago, the International Monetary Fund’s Executive Board Assessment “noted that China’s near-term growth prospects continue to be vigorous and are increasingly self-sustained, underpinned by structural adjustment.” After all, “A broad-based recovery is well in train and there has been a hand-off to private investment as the stimulus winds down.”

To receive such praise from Washington should set off warning sirens. Triplecrisis bloggers Jayati Ghosh and CP Chandrasekhar are more sober: “As the housing bubble in China is pricked and real estate prices fall, this will have negative multiplier effects on all related activities.” http://triplecrisis.com/prospects-for-the-world-economy-in-2012/#more-5005 Added Paul Krugman in The New York Times last month: “China’s story just sounds too much like the crack-ups we’ve already seen elsewhere.” http://www.nytimes.com/2011/12/19/opinion/krugman-will-china-break.html?_r=1.

This is a bubble. Forget the soothing words of the mainstream media, Bond warned.

Elsewhere in China, the vast speculative housing boom, part state-driven but then joined by private investors who overbuilt, created vast ghost cities with tens of millions of empty apartments at a time worker housing was unaffordable. http://www.youtube.com/watch?v=rPILhiTJv7E In contrast to the developers’ over-priced, for-profit housing, Chongqing is building 700,000 low-cost public units for two million people in just seven years. This is critical to both labour supply management (generously state subsidised at the point of reproduction) and consumer demand, especially for appliances and other household goods.

The central government has blown the bubbles.

A crucial factor in rearranging Chongqing’s social and economic space over the last four years is the role played by Bo Xilai, son of a former deputy premier who has the vision, determination and raw power to cut through bureaucratic red tape. He has crushed protests but also made concessions such as much higher land payments to the rural dispossessed, as well as public housing – because so far, state profits from rising land prices provide the needed subsidy.

This is a classic bubble. The government inflates. Land prices rise. The government profits on the boom. It inflates. And so on . . . just as the Federal Reserve did, 2001-6.

In China, there are protests against rising prices. None of this gets reported in the West’s mainstream media. Bond reports: “Most estimates of annual protests in China are in excess of 100,000.”

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2 thoughts on “China’s Looming Crisis Theatens the West’s Economy

  1. Mayflower Decendant says:

    Gee one article toted yesterday was all about China and its boom! Did the boom go bust or what?

  2. People in the know here in the US nave been saying for quite a while China has been cooking the books just like Obama
    has been doing in this country. If you have been depending on these numbers for investing purposes your going to lose
    big time and you wonder why people are losing money in the market. Beware!!!!!!