As I promised, I sent Part 10 into the CRUSADER a few hours ago. I admit taking a short break of a few hours, but we had a doctor's appointment to go to. So I am back. It is 10-21-21, and we are going to continue to discuss how badly buggered up China is compared to us, and more importantly what that is going to mean to us. Because it does mean a lot.
As discussed, China's ports are worse off than ours. More ships are backed up for longer, with the additional touch that sometimes the ports themselves are shut down because of another wave of Covid OR because they have no electricity. For the moment, we still have electricity, and if we had the will, (as I will explain in a couple of Parts) we can deal with a lot of what is happening a LOT better than we are doing now. Part of the reason that they lack electricity is because the government and Party believe that their word is reality. Real reality does not care. There are a lot of things happening in China right now that are making things worse for them and us, and you can bet that you do not know the half of it because they have worked to make sure that the news does not reach you.
Now I admit that I watch what is happening in China a lot closer than pretty much anyone. Which means that I check international sources a lot, because the American Media lacks both the knowledge and the inclination to micturate in the Wheaties of those in power when it is so much more profitable to cater to their desires. I watch China and have regularly for better than half a century. What can I say? History, politics and economics are in my blood.
On top of the list of problems above, there is something akin to a Great Depression, Chinese-style that is erupting. This is going to take a little history, and a touch of explanation of culture. Bear with me.
The Chinese civil war at the end of the Qing (Manchu) dynasty lasted from 1912 to 1949 with the Japanese invasion and WW-II in the middle of it. OUR Civil War was a skirmish by comparison. The part of China my family is from started with the Imperial Army ruling, then it was run by breakaway Imperial soldiers led by renegade General Yuan Shih-kai who dreamed of becoming emperor. They were chased out by the Nationalists (founded by Sun Yat-sen) led militarily by Chiang Kai-shek. Modern China was born near there at the Whampoa Military Academy where the Nationalists and Communists co-existed for a while in opposition to the remnants of the Empire. Said Academy was just outside what was then the city of Canton (now called Guangzhou) and said Academy just happened to be within walking distance of the village my family is from.
Basing in South China, the Nationalists began to re-unify the rest of the country. In 1934, the Communists and the Nationalists split completely (and bloodily) with the Communists being pursued by the Nationalists until they could establish and defend a Chinese Soviet Republic in Yenan, Shanxi Province (not far from the coalmines we were talking about earlier). There things stood with one other factor. Japan had control of a lot of Chinese territory, because they could take it. And they did. In 1937, they began a full on invasion of China that lasted through WW-II. During that time, incidentally, the Japanese conquered vast swathes of China including South China and killed 4,000,000 Chinese, mostly civilians. That number included a large portion of my family outside Canton. Our Civil War had 1.5 million total casualties.
But that was not all. After Japan surrendered, the Chinese Civil War resumed. The Communists won (and in the process killed a lot more of my family). When the Communists had absolute power, they forced Maoist Communism on China. It is estimated that under Mao Tse-tung the process of imposing Communism, repeated purges of those designated as enemies of the Party, screwing up both Chinese agriculture and industry, and the long term purge called the Great Cultural Revolution; that 38,000,000 Chinese were directly killed by the Chinese government under Mao himself and the economy destroyed. And yes, that included a large chunk of my family. Fortunately, we are a large family.
Mao died in 1976. China was poor, starving and economically broken. Hua Guofeng was Mao's designated successor who took power, but he himself was pushed out of power by Deng Xiaoping in 1980-81.
I know that this is a lot of history, but you need to understand what happened in the past to understand what is happening and what will happen, and why. From the Chinese point of view, Deng Xiaoping was both good and bad. Note that frequently, what was good for China was bad for us, and what was bad for China was good for us. We are intertwined with them, but they are not now, nor will they ever really be our friends.
What Deng did that was good for China was to realize that the constant ideological war inside the country was holding them back. He cut back on the purges and sending people to the lao2 gai3, the Chinese equivalent of the Russian GULAG. This does not mean that the Chinese people are free. It meant that policy and ideological were stabilized so that basically what was politically correct did not change at the whim of the rulers. The lao2 gai3 still exists and is full. And remember that the Tiananmen Square Massacre took place in 1989. But the ongoing witch-hunts slacked off, while the totalitarian state still demanded absolute obedience and control.
At the same time, he realized that with the West seeking markets in China, and China needing both wealth and to learn how to build a modern industrial state; that it would be to China's benefit to allow Western countries controlled access to a controlled market in China. Western firms (read American) were allowed to trade in China, if an increasing percentage of what was traded was made in China. And to be brutally honest, the Chinese stole (or bought from traitorous Western businessmen) the secrets of how to manufacture pretty much everything, including weapons that could destroy our country. The various Chinese leaders who followed Deng kept and expanded his policies up until the current one, Xi Jinping, who is changing things and making the current crisis worse.
A little more history. Americans are used to the idea of a “frontier” moving from east to west. In China, civilization started in the north, in the Yellow River Valley, and moved south through the Yangtze River Valley, and down to the Pearl River Valley in south China. My ancestors cut down the jungle, chased out the tigers and planted rice. Chinese are used to the idea of a frontier, and being a pioneer, and all that they imply. One constant in Southeast Asia and Indonesia is that the entrepreneurial and commercial class is Chinese. Chinese have known how to do business, beating foreigners (including bai2 ren2), for 3+ millennia.
Two things happened as a result of this. When Western (especially American) companies found that they could both get subsidized by the Chinese government AND have the costs of production be slashed because of lower labor costs and taxes, over the last four decades, they have moved more and more production to China. Not just a little. MOST of the goods sold in this country now are made in whole or in part in China. Without imports of things made in China, either parts or the whole thing, our store shelves would get bare. Oh, yeah. Like they are getting right bloody now. Walk into Safeway, City Market or Wal-Mart. Look at all the bare spaces. And there is another thing that is happening. There is a retail tactic called “fronting.” Short form, they line up goods in the front, just one side by side if necessary, using those items that would be stacked behind on the shelf. That supposedly conceals the shortage of stock and in theory avoids panic buying. Which right now would tip our supply chain over the edge. It ain't gonna get better either. This Christmas, the stores are going to be awful empty, because the goods are on ships off our shores.
The other thing that happened was that as the Western model of businesses grew, and grew, and grew in China and they started imitating us. Forming companies, real estate speculation, and doing all sorts of things that would have gotten a trip to the lao2 gai3 before.
Our business ethics model is very different from the Chinese model, and they are not compatible. We are used to the idea that IN THEORY at least, American companies are under the law. And on some occasions, they might be. That will be another discussion, another day. But I can promise you that in China, no company is under an impartial rule of law. To start a business requires payoffs to an assortment of “authorities,” government, Party and even the military. And those payoffs continue forever. There is no Securities Exchange Commission. There is no Federal Trade Commission equivalent. Businesses, no matter how badly and dishonestly run, or how much they cut corners on whatever they produce, or are a swindle they are pulling on investors and customers stay in business supported by the power of the paid off State.
I mentioned investors. Not everybody can start or run a company. Most people just work and make a living one way or another. However in the four decades since China opened economically they have developed stock markets, bond markets and various kinds of funds. But remember, there is no regulation or standards as long as the powers that be are paid off. There are things that will tie this to Demographics in the next part. It is all interconnected. But let us say that all the things that have happened to China since Covid escaped, and all the economic disruption caused by the collapse of trade, and the operational disruptions caused by the lack of reliable electricity kind of make it hard to maintain not only a modern industrial state, but also a modern economy.
Just as we are having businesses in trouble because of the collapse of trade and because of Covid, China has it a lot worse. Add in that the current Chinese leader is an old school Marxist who is cracking down on private businesses in a quiet purge. Their economy is starting to collapse. One company, Evergrande Group, is broke. It is a real estate company with properties all over China, much still under construction. It owes, OWES the Chinese currency equivalent of $300 BILLION, with functionally no income. It started the collapse when it was unable to make bond payments due to investors, which means its assets would need to be liquidated and the investors paid off. They have missed payments, dodged payments, and just got a rescue payment made by the Chinese government to delay things. But there are still more payments that need to be made every month, and they can't. Their stock price is collapsing. There are hundreds of companies in the same boat. Chinese bonds and stocks are going to become worthless. The Chinese government cannot bail everybody out. Or even bail out more than a few for a very short period of time.
China is going to have its equivalent of Black Tuesday (October 29, 1929) when the American stock markets collapsed creating the Great Depression. It is interesting that when you translate how much value was lost by our entire stock market on that day to modern terms, it was a one-day loss of $206 Billion. Evergrande ALONE in China is going to lose over $300 Billion. And Evergrande is just one of hundreds of companies that are going to go down the tubes. Soon.
There are implications to all this, for them and for us. They are not good implications. Which since I have gone beyond my length limit here, I will discuss in Part 12, which I hope to start tomorrow.