Is it possible for a nation to rapidly modernize, joining the fully developed first world in just one generation?
The answer to that is clearly, “Yes,” but it comes with a lot of conditions and warnings. China, in its drive to be a great power and assume its rightful place in the world almost immediately, is paying attention to none of them.
That’s a harsh assessment, and it’s not quite correct. But there are far, far too many issues with the rapid rise of China that are not being dealt with appropriately. More importantly, given one quarter of the planet’s population, how this proceeds is going to affect everyone, everywhere.
It is very hard to know just where to begin with the problems that face China. This video, below, is probably the most clear and succinct summary I have ever seen. It starts with a click-bait title which seems to be something none of us have any reason to care about. That’s the only flaw in this presentation, however.
The main issues in China deal with the cultural and demographic challenges of rapid change. The rise of China is more than simply amazing, it is utterly unprecedented in world history. That it is occuring in a very large and economically diverse nation only makes the problem worse.
But there are other complications, too. China is more highly centralized than probably any nation on earth, with all power coming from Beijing. The complex relationships and necessary disregard for that power in the provinces only complicates everything substantially. What is created is an illusion of control and a series of ad hoc arrangements that keep everything moving on a day to day basis.
Moving where? Central planning is supposed to give the marching orders. But in surprising and surreptitious ways, it does not. That’s the first complication.
We have talked at length before about the lack of a modern banking system in China as well. While the saving rate is incredibly high for a lot of reasons, those savings are not being turned into capital that can be invested – a process that requires pooling of money and risk assessment. Instead, it tends to flow out of China as rapidly as it can. Some of it then comes back as a “carry trade” from foreign banks which create the credit necessary to keep the Chinese economy running.
This insanity is the second problem. China’s bias against banking as the world knows it means they have little control of their financial destiny. For anyone non-Chinese, that means that the financial system you might well count on to provide opportunities for you is far, far more interested in the economy of China than you might find useful.
All of these things taken together are the one thing this excellent analysis is missing. The entire Chinese system is one big picture village, a front made to look like something great is happening.
Meanwhile, many great things are indeed happening. It’s simply impossible to know what is real and what is not, especially from a distance.
Is China going to hit the wall and stop rapidly expanding? The short answer is that it has to. Everything which is happening is not only characteristic of a bubble, it’s a frothy mess that is nothing but bubbles everywhere you look. Little about this looks sustainable – therefor, it will not be sustained.
What’s wrong with China? It’s always hard to put it all into one place and tie it all together. This presentation does it better than anything I have seen. I hope you like it.