Platt Perspective on Business and Technology

China and its transition imperatives 24.5: some thoughts as to where China is headed

Posted in macroeconomics by Timothy Platt on September 28, 2015

Most of the time when I post to this blog, I write about and focus upon issues that are stable over any given news cycle or similar timeframe. So I can and do simply add in next stand-alone postings and series installments, and primarily the later and I write and upload them up to two months before they would go live. Specific timing for them is not as crucial except for their relative timing, where I build on what I have written before in what I am writing now. Specific timing does not matter all that much for them, as long as I actually write them to go live, to continue my ongoing flow of interconnected discussions.

China has presented a very different narrative context and a very different challenge for me, and certainly since I first predicted that their stock market was imminently about to collapse with my June 16, 2015 installment: Part 19.5: China’s expanding economic bubble and a prediction for the coming year. I have found myself writing more real-time in this and related China series than in any other area or aspect of this blog, and more so in this one series than in all of my earlier China series combined. And that has meant posting fractional installment number postings because I have already written and uploaded a more main-sequence next installment with the next installment number up, already taken for that. And it has meant writing to go live on what nominally would be off-days for publication where I at least in principle only write postings to go live every other day now. This is both an off-day installment and a fractional number one, as I have I write it to follow September 12’s Part 24: a September 12, 2015 update concerning China’s economy and I have already written and uploaded a Part 25 that will go live on October 23.

Think of this installment as further background material for that, which will address a very significant force in shaping China’s economy that operates largely behind the scenes, at least for directly economic matters: their Peoples’ Liberation Army (PLA). I will simply note here, in anticipation of that installment, that their PLA is only one of many competing behind the scenes voices and powers that enter into their seemingly monolithic, single Party system. But it is one that has become increasingly powerful in China, as that country’s economic woes have served to weaken civilian authority and position there.

With that said, as orienting background for this off-day posting, I begin with what might seem an extreme prediction. China has already repeatedly devalued their currency, the Renminbi in several incremental steps since their stock market began to overtly collapse, and as their overall economy has begun to follow. That, up to here, has all been short-term as realized, because all of the events immediately leading up to it have been very recent, and all of China’s responses to those events have been here-and-now oriented, as short term corrective measures. China’s economic downturn: China’s emerging depression is going to be long-term.

• I fully expect to see the Renminbi drop to one half or less of its current value in the international market before China’s economy hits bottom – which it is a long, long way from reaching. And that will take years. And my one half drop prediction may very well come to seem to have been overly optimistic, depending on how events continue to unfold.

Japan has experienced its lost decade, and even its lost two decades, and their economy was much stronger on the fundamentals going into that, than China is or has been going into its downturn. We have yet to even begin to see how weak China is, on its economic fundamentals – but the whole world will, and in the coming months and certainly over the next year.

I write this update installment as Xi Jinping visits the United States as his country’s head of state, and to offer some thoughts as to what will actually come of this event, rhetoric and even signed agreements aside.

• China has a fully centralized, tightly governmentally and Party controlled command economy. They have superficially experimented with a more open economy and marketplace, and have allowed the emergence of what is at least in principle an increasingly robust private business sector, and in the process have seen the emergence of a middle class that at its peak numbered something over 400 million of its citizens. But as their economy has begun to collapse in, the command nature of their economy has been more and more directly and overtly reinstated again as the face of China in a business and economic context.
• China has experimented with diversity of opinion, going back at least as far as Mao Zedong’slet a hundred flowers bloom” which was crushingly repressed when Mao came to see the voices that spoke out as representing a threat to his authority. Now his successors in leadership have experimented with “free market” reform and with privately held and owned businesses. I see reason for concern that similar if more selectively and subtly applied pressures will be brought to bear to end that too. China’s new private sector rich and super-rich might by and large do well out of this, and particularly where they have significant portions of their wealth in foreign assets and outside of the country. But I do not see their new middle class doing all that well, and not just because so many lost so much – including borrowed money, as the Shanghai Stock Exchange began to significantly collapse in on itself. I see these once more solidly middle class citizens now, and I find myself thinking back to earlier generation Chinese who have been caught up in the repressive backlashes that have taken place as government and Party have pulled back from change and its perceived dangers.
• This all has implications that merit at least a separate posting, with rising dissatisfaction and discontent among China’s citizenry, and growing distrust of the center to their command economy, and distrust of their one Party system, collectively constituting just a part of that narrative. I will come back to that line of analysis and discussion in future postings, but for here and now, I would focus on Xi’s current visit to the United States, and to what will and will not come out of it.

China has been actively conducting cyber-espionage against the United States government and US based businesses for quite a few years now, and against the West in general in this regard – and against Japan and South Korea and pretty much every other nation state and its businesses where they see value to be gained from that. I first started writing about China with their government’s information technology policies and practices as my primary center of focus, when addressing that nation at all. Even if China does enter into an agreement in principle, to limit antagonistic and hostile action in this arena they will still continue to carry out these programs, and they will expand them and their reach. If their current economy is collapsing, or even if it is just significantly slowing down, Xi and his government will see an absolute need to do so, if they are to remain competitive enough in the global marketplace and economy to survive there.

As the Renminbi drops in value in global currency markets, China will become less and less able to purchase foreign goods – and certainly their individual citizens will. But their own production output will become more and more cost-effective in their foreign markets and to foreign buyers. China has had and still has a tremendous productive capacity and they will try to build and sell their way out of their current economic problems. And they will seek to do so in significant part by leveraging all of the business and economic intelligence that they can acquire, and by whatever means. The question there, is one of whether their ongoing, fundamental structural weaknesses will permit this to succeed or not.

I stated at the end of my soon to appear next regular installment to this series: my upcoming October 23, 2015 Part 25, that I might add addendum notes to it as initially written. I still might, but I wanted to post this note to appear first. And if I were to attempt to summarize all that I have been writing here in this series, into a single phrase, it would be that I have been writing about an immense and I add immensely complex contradiction in terms. I used the phrase “China Conundrum” in my first series on that country in this blog (see Ubiquitous Computing and Communications – everywhere all the time, postings 69 and loosely following.) Recently I have been writing about how the fundamental contradictions that underlie that conundrum have begun to prove irreconcilable, and with overt consequences for that. I have been writing about how that conundrum has begun to unravel, at least at the edges. I am certain to continue this complex discussion, well past its next Part 25.

Meanwhile, you can find this entire series and all of its postings at Macroeconomics and Business as postings 154 and loosely following for Parts 1-12 and for a supplemental posting: Part 12.5. And see Page 2 to that directory for subsequent main sequence and supplemental installments to this. You can also find other, China-related postings and series at those directory pages, and at Ubiquitous Computing and Communications – everywhere all the time too.

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