China Faces a Rough Road Ahead
China is nothing less than a historical phenomenon. In just 30 years the country has moved from being a closed, communist country with a rural economy to one of the most economically powerful countries of the world. It is the first country in history to move from the Agricultural Age to the Industrial Age to the Information Age and now to the Shift Age in 30 years. The U.S took 200 years to do this. This must always be kept in mind when looking at China.
It would be impossible to move this rapidly without significant problems, disruptions and upheavals. These must be expected to occur when such change occurs with such lightening speed, historically speaking. I have written several times about China and the problems they have. Back in August of this year, when the Beijing Olympics was a topic of conversation, I forecast that, with the Olympics over, major problems would emerge in China for the next year or two. [This prediction and others I have made can be seen at the bottom of this page.]
There are three forces that are and will cause disruption in China for the next 18-24 months. The first is the parental love of a child and the boundless rage a parent feels when that child’s life is taken due to incompetence and corruption. The Chinese government mandates that parents can only have one child. Certain levels of government in China allowed schools to be built with below standard shoddy construction. The results of that were felt by all of us last spring after the earthquake as we watched agonized parents wondering if their one child would come out of the collapsed school. Parents claimed the schools had been shoddily constructed. The government at first denied this and then later, when evidence was overwhelming, confirmed that government officials had known this and had taken bribes to allow this to occur. Parental rage was so strong and universal that China’s government apologized, made amends and promised that the construction of all schools would be checked.
In the months after the Olympics the parents in China found that many infants became sick and died because of tainted milk. It soon became clear that evidence of tainted milk had been found months before the Olympics but that this was kept secret until after the Olympics as the Chinese government did not want to be at the center of the world stage with this problem front and center. How outraged would you be at the government who knew but did nothing if your infant died during this six month time period? Losing a child is one of the greatest tragedies a human can suffer.
The second force that is causing disruption in China is the censorship of the media. It was widely noted up to and during the Olympics that the government had â€˜opened up the web’ allowing many formerly blocked web sites to be seen by the general web surfing public. Well, guess what? Many of these sites have again been blocked now that the eyes of the world are elsewhere. The government claims many of these sites are â€˜illegal’ but cannot specify what is illegal about them other than they do not conform to the government’s point of view. It is an axiom that people who taste freedom greatly miss it when taken away.
The third force that will cause disruption, at least for the next year, is that the Chinese economic miracle has been based upon exporting cheap products to the rest of the world. This is the primary reason for the rapid growth that China has experienced in the last 15 years. Well, now that the world is in the beginning of an economic contraction that is the worst since WWII, there is a plummeting demand for Chinese goods, no matter what the price. Thousands of factories that produced goods for export have closed. Hundreds of thousands of workers have been laid off. These are all the people that left the land and went to the cities for manufacturing jobs. Many of these people have never experienced a major economic downturn. Social unrest is expected. The problem is that the internal Chinese economy is not yet big enough to pick up the consumption slack created by the loss of demand from around the world.
Think about it. The government allows you only one child and then does things to endanger that child. The government censors what you can read or consume and you know it. The expanding economy that seemed as if it would go on forever is contracting and there are fewer jobs every day. Unlike other countries that have gone through recessions before and have created various safety nets, China has not gone through such an experience and has therefore no safety nets in place.
The Beijing Olympic Games will go down in history as one of the best ever due to its beauty, scale and originality. It was a triumph of national will and commitment. Now there will be a one to two year rough patch where that will and commitment will be tested in ways never experienced by China since it emerged from its xenophobic isolation 30 years ago. It will be interesting to watch.