I have written on the topic of the Chinese economy many times only to be validated by history soon thereafter! Its simple: the coming fracture in Chinese society will occur along racial, ethnic lines. China was never MONOLITHIC! This is the great lie that westerners failed to perceive when studying this great people. As the Chinese economy has heated up (currently its cooling) only those along the coastline will see vast improvements. China is a first world country along its coast. Although its infrastructure is vastly overcoming anyone else; how will the Chinese authorities manage any ‘egalitarian’ move and the social, political impact of Capitalism without having either the sound principle of the rule of law or the faith of its people? The answer is simple: China will fracture internally. Watch for the signs.
The recent strike at a Honda factory is worth looking at (June 2010), with increasing productivity comes higher wages, all set the stage for claims of social justice! China does not have a functioning legal system nor do its people trust its government. We’re going to see vicious ‘stasis’ imposed along racial lines. In effect, a civil war imploding China. The beginning of this has already begun with the weakening (the cooling) of the Chinese economy.
By pegging its dollar to ours we outsourced both our own currency, our federal reserve policy and our inflation. All our wrecking havoc on China now, witness the housing bubble throughout all of China along its coastline! But such internationalism is ending.
Let me explain.
The supply of Chinese migrant workers from within its own interior is running dry, a very large drop off in western orders from recession along with sever drought in southwest China (remember the Chinese breadbasket was always the south) are all inhibiting the Chinese economy. As its productivity increases watch for internal political, social dynamics to impede its development, not trade with global partners. This means the all those specialists that cry about currency manipulation are going to be wrong again! But then again I’ve written extensively on the errors of specialization in this blog! Our economy is implosive and inclusive, this means the analogue of mass no longer informs our ability to perceive insights. Currency manipulation from the specialists can’t hold a candle to both the plight of social justice, geological or climate problems nor the rise in Chinese productivity/wages. All will mean an increase in price! The cries of the specialists concerning either currency manipulation or protectionism in tariffs will ring hollow.
How will China deal with such immediate challenges? It will move its manufacturing base southward to cheaper economies like Vietnam or Bangladesh. This means that the ever greater call for ‘Chinese consumption’ will not happen. Again, stop listening to the specialists like Timothy Geithner, specialism is over! The current trend is toward making labor costs higher. Watch for how the Chinese respond.
The immediate problem for China now is the quality of its management. As China leaves behind the era of cheap labor, the quality of management will be critical. This will favor foreign companies that have honed the skills of global competition and in doing so will introduce another round of state owned enterprise reform!