China's banks

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James Waterton  of Samizdata looks at the jiggering of the books at China's banks and thinks it may be heading toward economic collapse and political disintegration. 

As I speculated above and in my previous article, Chinese economic collapse will probably preface political revolution. This is in itself an interesting, though disturbing proposition. What would post—communist China look like? Firstly, I should mention that a democratic revolution seems fanciful at best. There is no ANC—type shadow opposition waiting in the wings. The Party is the State, and the Party brooks no opposition. Here are what I consider to be the two most likely outcomes:

1) The military will overthrow the Party. If the banking sector collapses, so too will large chunks of the state—owned industrial sector that are afloat solely due to loans from the state—owned banks. Millions upon millions will be out of work — millions more will lose their pensions and benefits. Many tens — perhaps hundreds — of millions of people will pour onto the street to vigorously and violently protest their loss of savings and/or employment. In its death throes, the Communist Party will order a brutal military crackdown. Trouble is, a military is made up by people with aspirations, families, hopes etc. People who would have lost their savings, too. People whose parents, family and friends are suddenly out of work and without benefits. Most of the officers and soldiers will have no end of sympathy for their countrymen under such circumstances, and it's difficult to imagine the chain of command will survive under such conditions. The Communist top brass will lose control of the military, which will regroup under a new command. The old political order will be drawn and quartered, Mao will be evicted from his mausoleum and his portrait ripped down from the gate of the Forbidden City. There is no democratic tradition in China, however the country is steeped in a history of rule—by—decree. Expect this for many years to come. Perhaps the best outcome would be highly imperfect democratic elections in several years time.

2) The country breaks up along the lines of regional powerbrokers. Along with rule—by—decree, China also has a long history of warlordism and disunity. Due to the lack of any credible and widespread opposition movement in China, the possibility of a complete breakdown of central control is high if the Communists depart the scene and the military doesn't fill the vacuum. Hong Kong would almost certainly go its own way. Those provinces with large populations of non—Han citizens like Tibet and Xinjiang may declare their independence — perhaps bloodily ejecting the old order. Inner Mongolia may reunite with Mongolia. There is scope for large—scale dismemberment of the modern Chinese state. That left over will be fractured and ruled perhaps by the old regional party bosses reincarnated as warlords or whoever is able to wrest power from them and maintain it.

Some mention Taiwan as a wildcard that could be used as a distraction by the Central government. I think this unlikely. If the economy collapses, a war with Taiwan is not likely to distract anyone from their sudden poverty. Militarily, it seems unrealistic, too. The military will be stretched to breaking point in an attempt to reign in the chaos on the Mainland, so a massive invasion or attack on Taiwan looks unfeasible.

I truly hope that I am wrong about my bleak assessment, mainly due to the turmoil and potentially massive loss of life that would undoubtedly accompany such an event. I am also deeply concerned about the potential illiberal and protectionist measures that may be enacted in the West and elsewhere in the wake of a Chinese meltdown. The world has made a grave error of judgment in heavily backing an economy designed, constructed and administered by a group of ostensibly reformed Communists. This fact alone should have cooled the foreigners' ardour. As it stands, the potential for unprecedented economic losses from Chinese investments is enormous. I think we could be facing a very painful depression, which may very well be "cured" with a protectionist, welfarist New Deal—like solution. Scary times ahead.

Clarice Feldman   1 07 06

James Waterton  of Samizdata looks at the jiggering of the books at China's banks and thinks it may be heading toward economic collapse and political disintegration. 

As I speculated above and in my previous article, Chinese economic collapse will probably preface political revolution. This is in itself an interesting, though disturbing proposition. What would post—communist China look like? Firstly, I should mention that a democratic revolution seems fanciful at best. There is no ANC—type shadow opposition waiting in the wings. The Party is the State, and the Party brooks no opposition. Here are what I consider to be the two most likely outcomes:

1) The military will overthrow the Party. If the banking sector collapses, so too will large chunks of the state—owned industrial sector that are afloat solely due to loans from the state—owned banks. Millions upon millions will be out of work — millions more will lose their pensions and benefits. Many tens — perhaps hundreds — of millions of people will pour onto the street to vigorously and violently protest their loss of savings and/or employment. In its death throes, the Communist Party will order a brutal military crackdown. Trouble is, a military is made up by people with aspirations, families, hopes etc. People who would have lost their savings, too. People whose parents, family and friends are suddenly out of work and without benefits. Most of the officers and soldiers will have no end of sympathy for their countrymen under such circumstances, and it's difficult to imagine the chain of command will survive under such conditions. The Communist top brass will lose control of the military, which will regroup under a new command. The old political order will be drawn and quartered, Mao will be evicted from his mausoleum and his portrait ripped down from the gate of the Forbidden City. There is no democratic tradition in China, however the country is steeped in a history of rule—by—decree. Expect this for many years to come. Perhaps the best outcome would be highly imperfect democratic elections in several years time.

2) The country breaks up along the lines of regional powerbrokers. Along with rule—by—decree, China also has a long history of warlordism and disunity. Due to the lack of any credible and widespread opposition movement in China, the possibility of a complete breakdown of central control is high if the Communists depart the scene and the military doesn't fill the vacuum. Hong Kong would almost certainly go its own way. Those provinces with large populations of non—Han citizens like Tibet and Xinjiang may declare their independence — perhaps bloodily ejecting the old order. Inner Mongolia may reunite with Mongolia. There is scope for large—scale dismemberment of the modern Chinese state. That left over will be fractured and ruled perhaps by the old regional party bosses reincarnated as warlords or whoever is able to wrest power from them and maintain it.

Some mention Taiwan as a wildcard that could be used as a distraction by the Central government. I think this unlikely. If the economy collapses, a war with Taiwan is not likely to distract anyone from their sudden poverty. Militarily, it seems unrealistic, too. The military will be stretched to breaking point in an attempt to reign in the chaos on the Mainland, so a massive invasion or attack on Taiwan looks unfeasible.

I truly hope that I am wrong about my bleak assessment, mainly due to the turmoil and potentially massive loss of life that would undoubtedly accompany such an event. I am also deeply concerned about the potential illiberal and protectionist measures that may be enacted in the West and elsewhere in the wake of a Chinese meltdown. The world has made a grave error of judgment in heavily backing an economy designed, constructed and administered by a group of ostensibly reformed Communists. This fact alone should have cooled the foreigners' ardour. As it stands, the potential for unprecedented economic losses from Chinese investments is enormous. I think we could be facing a very painful depression, which may very well be "cured" with a protectionist, welfarist New Deal—like solution. Scary times ahead.

Clarice Feldman   1 07 06