China has become the poster child for what neo-fascists like to call "State Capitalism". It's really not capitalism, but just good old fashioned robbery, central control and bs. China has been able to post some impressive numbers in recent years in terms of growth and employment. Pundits and politicians have suggested that we could learn a thing or two from the China model and even predicted that the U.S. would be replaced as the leader of the global economy by China.
it turns out much of the Miracle in Mao Town was smoke and mirrors.
They built mega cities that nobody lives in and shopping centers and
theme parks that nobody will ever use. All with the intention of keeping
people busy, money moving and creating the illusion of prosperity. But
all good Ponzi schemes must come to an end and it looks like this one is
no exception. No doubt the whole episode has created several new
millionaires and billionaires (many of whom have already fled China),
but the general public, as usual, got the shaft and will be responsible
for cleaning up the mess.
Here's an excerpt from an article on
The Daily Ticker, via Yahoo Finance:
"China’s 'Giant Ponzi Scheme' Won’t End Well: Jim Rickards
a nutshell, the ‘shadow’ banks borrow from China’s state-controlled
banks, use the funds to finance construction projects and sell bonds
tied to those projects with yields far above bank savings rates.
Ponzi scheme is going on with retail investors…they don’t want 1% or 2%
in the bank or even less,” Rickards explains. “The quasi banks come
along and say ‘we’ll give you 6%-7%-8%.’ They take the money, invest in
these assets that are completely non-productive [with] no way to be able
to pay off the debt.”
In true Ponzi scheme fashion, the
key here is that the shadow banks use the proceeds from the latest
asset sale to pay off investors from prior ventures. “They never sell
the assets,” Rickards says. “They sell [new] products and use that money
to pay off the old guys.”
Other articles paint a picture of a
good idea that didn't work out, rather than the more cynical view that
it was never intended to work out.
of the country’s economic growth has been driven by the building of its
cities. But when the construction runs its course in about two decades’
time, there is a real risk that China will languish as a country “with
pockets of extreme wealth and an educated middle class, but whose cities
teem with enormous slums and suppurate with entrenched social
Given that China was a late-comer to urban
development, it had the advantage of being able to absorb lessons from
all those that went before. Yet the precedent to which it conforms most
closely, albeit unwittingly, is the zenith of urban sprawl and traffic
jams: Los Angeles.
Instead of reaping the economic and
environmental benefits of dense, mixed-use neighbourhoods, China has
gobbled up ever more of the countryside. Vast grids of wide boulevards
cut residential districts off from places of work and bear the hallmarks
of top-down planning, like some giant, manic game of SimCity.
areas have more than tripled since 1980, but the urban population has
grown by a much smaller 120 per cent. As Miller points out, the
urbanisation of land has far outpaced the urbanisation of people."
well-intentioned or not, the marketplace works when it's an expression
of the cumulative effect of free individuals engaging in free trade.
Yet, politicians and bureaucrats can't stop trying to replace the
awesome power of controlled chaos with top-down central planning and
edicts from on high. It never works. It never will. But, it's an easy
sell because it sounds like it ought to work. People like
predictability. Central planning is predictable, and when you get that
much money moving around, it provides lots of opportunities for some of
it to wind up in a quick thinking central planner's pocket. This Ponzi
scheme may be coming to an end, but rest assured, there'll be another
one right behind it.