For as long as there have been predictive winds of the economic variety, the prediction has been whispered from quiet corners to shouted from the rooftops claiming this would be the time that China was finally going to pay for their economic shenanigans and face economic collapse. We have been extremely quiet about these predictions of doom on the horizon as the one thing the Chinese had been very adept at was finding some manner of continuing to meet predicted gains month after month, year after year. Their predictive gains have become somewhat more reasonable from the early 1990s where the reported gains stood around 11% to this past year where they reported merely 6% and are continuing to predict this can be continued. The problem the Chinese leadership is facing is they have pretty much run out of rabbits to pull from their hat and it is time to accept that even in China there can be a recession. But perhaps a little look back might help to explain.
China had some really rough years where Chairman (and virtual god) Mao Zedong was the absolute ruler and was executing the usual five year plans which are so precious to so many dictators. Equally precious to such five year plans is that they completely and utterly destroy the national economy and tens of millions die of starvation and other privations. The Chinese have literally tried everything in order to assure that whomever was at the top made a relatively high prediction of economic growth even to have gone to a fairly complete privatization resorting to a market based free enterprise system which had kept growth at around six to as high as nine percent for the past decade plus. To continue reaching such unrealistic goals the Chinese government has gone so far as to build entire cities where nobody was going to live just to add to profits. This also assisted the areas of the Chinese economy which is dependent on the price of copper. Building cities, even those nobody is going to inhabit, still required a fair amount of copper to install all the wiring necessary for a modern environment and using so much copper supports a higher price aiding the Chinese economic indicators.
Can the Chinese leadership find some miracle to pull off continued reported gains? Of course they can. After all, lying is always an option and that will work until the people rise up and overthrow the government demanding real and honest leadership. The Chinese watched the breakup of the Soviet Union and know that a contributing factor was pretending they could manipulate and lie their way to prosperity and the people would not be bothered by their lies. Apparently they were misled and paid the consequences. The problem in Russia was despite the change in governance there was little change in who governed and who owned all the wealth. China has wisely decentralized their economy and relied on free market principles throughout almost all sectors of their economy.
The Chinese leaders have found the one main problem with a free market economy, eventually even these engines need to cool off for a while and that causes an unavoidable recession. This creates one big headache for the leadership in China; they are expected to show profits and economic growth of at least five to six percent every year, period. That will be a real stretch in the next couple of years as their free market sector has reached the apex as things stand and now need to cool the system and take a few quarters, possibly a year or even two of reset and a settling of the economy before the next drive and prosperity again making all happy. The problem is the Chinese Communist Party insists in progress and growth every year or else heads will roll. In China, that is meant quite literally, thus the excessive need to find some way or reporting progress and gains in the economy. This would have been less of a problem had the economy not been buoyed with false growth figures in construction of uninhabited cities and the enforcement of a one child policy cause a drastic set of circumstances. Now China is facing a recession with a glut of male children entering adult life with poor prospects for matrimony coupled with an economic downturn thus even their rescinding the one child policy, it came far too late for these men in a society bereft of women. This adds another component which historically has almost always been solved in the same manner, finding a means of sacrificing a significant number of male citizens between the ages of twelve to twenty-something. That method has always been war.
This brings us to another side of China of late, pressing her claims to areas beyond her natural borders and the stationing of troops as a provocation on these fronts. Much of these provocations have been taken in the South China Sea where Chinese activities and demands are threatening long existent and heavily traveled sea trade routes. Add in the Spratly Islands which are claimed somewhat obviously by the Philippines and Viet Nam and add in China and you have instant conflict. This conflict over the Spratly Islands goes far further than the land based claims as should China successfully claim the islands they would also set solid their claim to the South China Sea as their own little private bathtub square in the middle of some of the most heavily travelled sea lanes in the world. This would allow China to control these sea lanes demanding taxes be paid on all cargo, disrupt naval exercises and travel in what are considered as international waters and be a provocation to war all rolled up in one package. The Spratly Islands are likely the end goal of the island building exercises taken by China in the South China Sea and could quickly escalate into an open confrontation should China use their newly built Blue Water Navy to enforce their claims to these waters. Additionally, there are the conflicting claims over the Diaoyu Islands as the Chinese claim and the Senkaku Islands as the Japanese claim (see map below). These two sets of claims are both very sensitive areas but thus far the Chinese appear to be more concerned with their claims for the Spratly Islands as they would cement the South China Sea as strictly Chinese and thus grant China control of the busiest Asian sea lanes and one of the most heavily traveled sea lanes internationally. This might also be the case simply due to the Japanese having a far more developed naval capability compared to Viet Nam and the Philippines and nothing more.
Diaoyu Islands as the Chinese Claim
Senkaku Islands as the Japanese Claim
The likelihood of an actual war breaking out over the Spratly Islands is considered by many to be a remote possibility. Of course the possibility of China building an island chain to the Spratly Islands and then placing Chinese troops, aircraft and shore batteries and placing naval assets moored to the Spratly Islands is also considered remote. The potential for open conflict with the Philippines calling in their support guaranteed by the United States could be a potential for a quickly escalating situation over the South China Sea, an area the United States desires to be open and free of any interference with trade as much as anybody. Even the Japanese have direct concerns over the Chinese increased territorial claims into the South China Sea. This could easily become a future flashpoint though such is unlikely until some situation would force the United States to emphasize their presence elsewhere pulling assets out of the western Pacific region. One such scenario would be a war in the Middle East threatening the oil shipments from Saudi Arabia, Kuwait and the Gulf oil kingdoms where the United States would also be bound by treaty obligations. With the current United States Navy cut down to well under former levels of actual warships and also less support vessels meaning that the Navy would not be capable of staging on two separate fronts without leaving large segments of the world outside the reach of American naval assets. This is the situation faced currently as the number of front-line aircraft carriers has been reduced such that with one being refurbished then there would not be a full battle group to send into a crisis area forcing the redistribution of assets from areas considered less threatened, though where that might be is a difficult judgement in itself.
China is facing economic downturn for the immediate future barring some unforeseen manipulation of forced conflict requiring wartime production which would permit direct government infusions stimulating the economy in an unnatural means which would only make recovery from such a step even more drastic when the correction comes. No nation can continuously show the kinds of gains China has claimed indefinitely and eventually there must be a cooling-off period as the market resets and decides on its next direction for expansion. China did have the advantage of not being a modern, first-world economy after World War II and then struggling through the Mao Zedong five year plan years where things actually managed to worsen thus allowing for a long stretch of recovery, modernization and finally incorporating free market principles and now China is at a top point from which a reset is long, long overdue and pretty much unavoidable short of declaring war. One hopes that even China has progressed beyond using war as an economic stimulus where all markets are crashed to support the war effort allowing for a period of growth and rebuilding when the war is over. One had also best pray that the same is true in the Middle East where the people have reached the end of patience with dictators and are revolting in nation after nation which could threaten to engulf the Middle East, North, the Horn and parts of Central Africa and potentially Europe starting from Turkey and moving westward and northward and even including Russia in a bid to regain some of the lost power of the Soviet Era. Any blow-up in the Middle East and affected areas could be exactly the opening China would need to cement their claims to the waters and international shipping lanes of the western Pacific-Indian Ocean routes and disrupting world trade in hopes of using taxation of trade and other measures to continue to show profits at any cost. As long as tariffs and trade wars are considered a viable economic tool to be found in some national tool kits, then the world is still a dangerous place as long as that remains so.
Beyond the Cusp
Beyond the Cusp 