Monday, 21 January 2019 14:20

Blain: "China Is Juggling Half A Dozen Flaming Hand Grenades While Walking On A High Wire"

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Blain's Morning Porridge, submitted by Bill Blain

I got up early to see the Super Blood Wolf Moon this morning. It hung in the western sky, a baleful dark pink ball in the sky - caused by the earth eclipsing the moon. Reading the headlines about Chinese growth this morning – annual growth at 6.6% is the slowest since 1990 - I can’t help but wonder if the Blood Moon was trying to tell us something? (Its going to be a quietish day – US closed for Martin Luther King holiday. Actually US is closed anyway.)

Wow: 6.6% Chinese growth? Any occidental economy would rejoice to even achieve half that number. What’s to worry about?
Well… quite a lot.

Taken at face value, there is nothing particular in China to cause undue concern. The slowdown can be explained in terms of weaker than expected numbers reflecting businesses scaling back to counter any negative trade war events, related knocks to consumer and business confidence, slowing orders for consumer tech (like falling iPhone orders), and are all a natural reflection of the cycle. (I was about to write business cycle - but I’m not sure that’s what it is.) For years the likelihood of China economic collapse of has been one of the most overstated market threats.

But the world is changing and evolving. It’s worth considering the whole picture and outlook for China in light of just how different the world functions today.

China is a state juggling half a dozen flaming hand grenades while walking on a high wire suspended above a pit of hungry tigers - just like any other government, attempting to deliver peace and prosperity. But, China’s basis is very different to other economies, and it’s now approaching a critical period in its history - the next few years could see China evolve into something very much darker and different.

The reality behind 6.6% China growth is an economy now showing signs of deep internalised trouble. The party has to balance a host of factors from last week’s liquidity injection to stall a credit/debt crisis, the consequences of long-term out of control local government spending, environmental degradation, while managing the implicit pact with the population to provide rising living standards, jobs, accommodation and wealth in return for citizens turning a blind eye to repressive government. If that pact between state and citizens fractures, then tanks on Tiananmen square will be the least of China’s worries.

China is learning that controlling an economy is a very difficult thing. It sorts of works in the West because political competition ensures the rule of law as a check and balance - if politicians or businesses cheat, they tend to get caught and punished. A lack of political completion breeds corruption - and that remains the key reason why Socialist/Communist economies have failed to deliver socialist paradises and become kleptocracies instead. It’s basic...

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