Print this article
China is a country of hyperbole. There's scarcely anything you can say about it that doesn't end with 'est'. In some ways, it is the world's oldest society. In other ways, it is its newest. It is the world's richest – with more than $2 trillion in reserves. It is also the poorest, with 200 million people who get by on less than $5 per day. It has the world's fastest-growing economy. It has the world's biggest population. Perhaps it has the world's greatest problems too.
What's most striking about the People's Republic now is that it is so serene, stable and growing. It is all boom and no bust. If you believe the financial reports, it is always summer – all yang, all the time. Where's the yin? We don't claim to be able to foretell China's future. But we know how the seasons work.
Even in its calamities, China is second to none. People inside the Great Wall were about as rich as people outside it, man for man, until the 19th century. Then, China missed the industrial revolution. Japan missed it too but quickly corrected its mistake – it kept the barbarians at arm's length, but managed to pick their pockets. But the Chinese believed the barbarians had nothing to offer.
In the early 19th century, traders from Britain and America bought porcelain (china), silk and tea. Trouble was, they had nothing to sell. The trade balance with China went negative, with China building up substantial monetary reserves (in silver). In 1830, a Chinese merchant, Hao Gua, who enjoyed a near monopoly on trade with the gweilos [foreign devils], was said to be one of the richest men in the world.
Then, the English unlocked the box. They found something the Chinese would buy – opium. The fruit of the poppy was popular in many countries but the Chinese overdid it. First, it was a favourite of the leisure classes. Then, it trickled down to ordinary workmen. Soon the coolies were neglecting their labours. China was in crisis. The authorities tried to stop the drug trade, the English opened fire, humiliating the government and draining its resources. By mid-century, half the country was in open revolt. A Christian revolutionary had set up the "Heavenly Kingdom" in Nanjing. He raised armies and challenged the Qing Dynasty to battle. For a time, it looked like he might win.
In the north, the Nien Rebellion threatened Qing rule too. Infanticide of female babies had become common in Nien territory; by mid-century, one out of four young men couldn't find a bride – bare branches, they were called. By 1855, these bare branches were ready to break. They armed themselves and drove out government forces. They controlled a large part of the country before they were finally put down. Between natural calamities and war, some experts put the 19th-century death toll at 200 million. Then came the 20th century. The Middle Kingdom staggered forward, from error to accident to catastrophe, from the Boxer uprising to the Japanese invasion. And just when it seemed things couldn't get worse, along came Mao.
China didn't begin to pull itself together until 30 years ago, when Deng Xiaoping announced: "To get rich is glorious." Then began a race to riches, running along the path that had already been trodden by the Japanese, South Koreans, and Taiwanese: save every penny. Build factories. Cut prices. Beat the barbarians at their own game.
The Chinese got the yang of capitalism faster than any people ever had. But again, they exaggerated. While Americans built shopping malls, the Chinese built factories. Capacity grew, then went into surplus. They kept building. Then came the "greatest collapse in world trade in history", says Nobel-winning economist Paul Krugman. Their biggest customers rediscovered thrift. You might think China would realise it has too much capacity and back off. Instead, it rolls more steel. It builds more factories and offices. And it borrows more for capital expansion. Its stimulus programme is more ambitious than America's. Loans are rising by about 40% of GDP a year. The money supply is soaring at nearly 30% a year. "We estimate that [fixed capital formation] accounted for 70% of China's growth in 2008 and close to 90% of China's first half of 2009 growth," says a report from Pivot Capital.
It's just a matter of time until this capital spending bubble blows up. But China is full of bubbles. In one of its great leaps of central planning, the Chinese made the ancient practice of infanticide state policy. One couple – one child. As people counted on their (male) children to work their fields, they sometimes chose to kill a female child and try for a boy. This left a lot of little girls missing. When the boys grew up, they discovered that their brides were missing too.
And we'll bet that when the current generation grows old they will find that their daughters and daughters-in-law, who typically take care of old people, are also not there. The working-age population of China is collapsing. There were seven workers to every old person in 1990. Now, there are barely four. By 2035, there will be two. What happened to the workers? They are the missing children of the missing girls who became missing mothers. Where this leads, we don't pretend to know. But bare branches bend... and then they break.
• To read Bill's daily thoughts, sign up for The Daily Reckoning free email at Morefrombill.co.uk.
Published in
Economics
| More
articles
by
Bill Bonner
Related articles
-
By Cris Sholto Heaton, Feb 07, 2012
-
By Merryn Somerset Webb, Feb 07, 2012
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.