China: Unstable, Unbalanced, Uncoordinated and Unsustainable

It’s a sad irony that while China has been single handedly responsible for the strong health of the global economy over the past decade its own state of wellbeing would have even the most optimistic doctor struggling for words.

Its land is sick, its rivers are sick, its livestock are sick, its politics are sick and many of its inhabitants are becoming increasingly sick, not to mention tired, of their situation.

In the push to expand the nation’s economic interests, policy makers have under invested in the structural requirements needed to enforce proper environmental and corporate governance measures, not to mention equitable social and health initiatives.

The result is some of the daily stories you read in the press – exported products poisoning and killing people, cardboard in food, insider trading, 700,000+ premature deaths a year from air and water pollution, horrific working conditions (the recent brickwork slavery case), nepotism, corrupt local officials, bribing businessmen and almost 100,000 public demonstrations a year.

The tens of thousands of public protests every year in China are primarily due to wage disputes, social welfare problems, the restructuring of state-owned enterprises and evictions.

Globally, meanwhile, western governments take the praise in their respective territories, for – in many cases – presiding over one of the longest periods of economic expansion in history.

Yet the benign level of global inflation has been primarily fuelled by an ailing China – the world’s factory.

For the past five years the western world has been enjoying what economists have labelled ‘a goldilocks global economy’ – one that like the proverbial porridge is neither too hot nor too cold, but just right.

This “just rightness” has come about because many Governments, by and large, have seen inflation kept under wraps.

The way China has embraced manufacturing means almost everything from bicycles to bookcases are cheaper, relatively speaking, now than they were 20 years ago.

But the idea of China as a miracle economy and as a country that is emerging seamlessly and painlessly from the shadows of communism is just plain wrong.

Yes, there are 20 million plus $US millionaires in China, yes, the economy has grown at more than 9.5% for three decades and yes private companies now account for 70% of all industry – a turnaround from two decades ago when 80% of all businesses in China were state owned.

However, control of the Chinese economy at the moment appears illusive, it’s a complex country with 657 municipalities, 2,800 odd counties and more than 41,000 towns – all largely self governed and all largely measured and rewarded by GDP growth.

And growth it seems has been the focus of the entire nation – growth at all costs.

The first casualties for this single-minded focus on growth have been the people, the environment and honesty.

While it’s something of a curiosity that the Chinese government is able to regulate the Internet, it seems powerless to stem the tide of exploited workers and the irreparable damage being done to the environment.

Rivers, lakes and forests have been poisoned and lost in the relentless rush for prosperity, in some cases leaving whole cities without drinking water.

Lately the Chinese government has started to show signs it is getting serious about these problems by reigning in rogue government officials (even in extreme cases executing bribe takers) and coming to grips with the infrastructure problems within the country.

China is great at infrastructure and its bureaucracy pointed at any problem from steel smelters to the giant flawless freeways it seems to specialize in has the processes and in this case the cash reserves to deal with these problems.

The Chinese Government has $US1.2 trillion in the bank and needs to tighten up the processes to maximize the benefits of unleashing some of these reserves to overcome the nation’s growing pains.

If it does decide to address these issues, and its showing every sign that it intendeds to, then a low inflation environment is probably a thing of the past for the rest of the world in years to come, which will prove a very interesting development to the highly geared economies of the west.

However  if the Government fails to address these fundamental issues the alternative is even more worrisome, because the possible imploding China would devastate both its own people and resources along with many economies the world over.