Third Time is a Charm... maybe

Here is a bit from a NY Times op-ed piece by Paul Krugman:

Consider the following picture: Recent growth has relied on a huge construction boom fueled by surging real estate prices, and exhibiting all the classic signs of a bubble. There was rapid growth in credit — with much of that growth taking place not through traditional banking but rather through unregulated “shadow banking” neither subject to government supervision nor backed by government guarantees. Now the bubble is bursting — and there are real reasons to fear financial and economic crisis.

Am I describing Japan at the end of the 1980s? Or am I describing America in 2007? I could be. But right now I’m talking about China, which is emerging as another danger spot in a world economy that really, really doesn’t need this right now.

I’ve been reluctant to weigh in on the Chinese situation, in part because it’s so hard to know what’s really happening. All economic statistics are best seen as a peculiarly boring form of science fiction, but China’s numbers are more fictional than most. I’d turn to real China experts for guidance, but no two experts seem to be telling the same story.

Still, even the official data are troubling — and recent news is sufficiently dramatic to ring alarm bells.

The world doesn't need more bad news. But sadly the world is indifferent to humans, their needs, their wants. While Krugman worries about the effect of China on the world, Kim Jong-il has died in Korea creating an unstable mess that could easily spin out of control.

When I was a kid I heard the so-called "Chinese" curse of "may you live in interesting times". All I knew is that I desperately wanted to live in boring times, but sadly my whole life has been lived in the maelstrom of "interesting" events bringing misery and chaos. That is how the world works. Complete indifference to humans needs or wants.

Update from the Front in the On-Going Computer War

Two years ago the US/Israel opened that latest offensive in the War of the Worlds that may be the Götterdämmerung of our civilization. They released the Stuxnet virus to degrade the Iranian attempt to build nuclear weapons.

In the interim, China has used viruses and worms sneak into computers around the war probably in preparation for opening a new front in the Computer Wars.

Now there is a mysterious outbreak of a virus in the US's drone fleet. It isn't clear who has unleashed this new attack and what the intentions of the probe may be.

We are in the fog of war and in the opening stages of WWIII.

From Wired magazine:

A computer virus has infected the cockpits of America’s Predator and Reaper drones, logging pilots’ every keystroke as they remotely fly missions over Afghanistan and other warzones.

The virus, first detected nearly two weeks ago by the military’s Host-Based Security System, has not prevented pilots at Creech Air Force Base in Nevada from flying their missions overseas. Nor have there been any confirmed incidents of classified information being lost or sent to an outside source. But the virus has resisted multiple efforts to remove it from Creech’s computers, network security specialists say. And the infection underscores the ongoing security risks in what has become the U.S. military’s most important weapons system.

“We keep wiping it off, and it keeps coming back,” says a source familiar with the network infection, one of three that told Danger Room about the virus. “We think it’s benign. But we just don’t know.”

Military network security specialists aren’t sure whether the virus and its so-called “keylogger” payload were introduced intentionally or by accident; it may be a common piece of malware that just happened to make its way into these sensitive networks. The specialists don’t know exactly how far the virus has spread. But they’re sure that the infection has hit both classified and unclassified machines at Creech. That raises the possibility, at least, that secret data may have been captured by the keylogger, and then transmitted over the public internet to someone outside the military chain of command.

Go read the whole article.

Most wars are fought with the bottom 90% of the population in a fog. We will be victims of this new war. We will have our economies wrecked, lives lost, and most of us won't even know there are battles going on, who is involved, and what kinds of devastation are being inflicted. We are like the serfs of the Middle Ages. Our feudal lords (the top 1% who control the government and military) are fielding armies that scourge the land and we know nothing about it until the armed columns descend upon our tiny village and put us all to the sword.

US Air Force is Buying Training Aircraft from China

This sure surprised me.

From an article in the Washington Times:

The Air Force Academy recently purchased 25 advanced trainers from Cirrus Aircraft for its powered-flight program, an integral part of the cadets pilot training.

After Cessna, the Minnesota-based Cirrus Aircraft is the worlds second- largest manufacturer of single-engine general aviation aircraft. The new planes, known as T-53A trainers, come with sophisticated avionics and the most advanced flight safety and recovery design and systems. They are custom-designed for the Air Force based on Cirrus SR20 model.

The deal is worth $6.1 million. Delivery is already under way and is expected to be completed by 2012.

One problem is that Cirrus Industries Inc., the aircraft maker’s parent company, is 100 percent owned by the Chinese communist government. It was purchased by the Chinese in March 2011 for a reported $210 million.

The sale was not blocked for national security concerns by Congress or the Obama administration, even with opposition from Rep. Chip Cravaack, Minnesota Republican, who stated in a letter to the Treasury Department in March that the sale could compromise U.S. national security. Despite alarms coming from several sides, the sale was finalized by the end of June.

Only days after the purchase was completed, the new Chinese owners received the aircraft order from the Air Force Academy in Colorado Springs. The Chinese Communist Party mouthpiece newspaper Peoples Daily on Tuesday called the transaction “revolutionary” because it marked the first time the U.S. Air Force ordered an entire set of aircraft from China for military training equipment.

This is what happens when you have a cronic balance of payments problem and gradually sell off your industrial heartland. Foreigners own everything so you military has to buy from the foreigners.

You would think this would be a "wake up call" for Americans. But most won't even notice and their politicians don't seem to care. But the US better pray that it never goes to war against China. It will be awfully hard to get parts and new equipment from your enemy.

Religious Freedom in China, Reaching a New High

Only a state which is run by a secluded gerontocracy with no external constraint on them can come up with this kind of insanity. From an article in the Sunday Times:

Tibet’s living Buddhas have been banned from reincarnation without permission from China’s atheist leaders. The ban is included in new rules intended to assert Beijing’s authority over Tibet’s restive and deeply Buddhist people.

“The so-called reincarnated living Buddha without government approval is illegal and invalid,” according to the order, which comes into effect on September 1.

It is good to know that China's leaders can so elegantly do two things:

1. Show a complete disregard for the laws of nature and the laws of logic by supposing that they can "pass laws" to control reincarnation (something that doesn't happen if you are a non-beliver and which can't be stopped by government decree if you are a believer).


2. Show a complete disregard for human rights and religious freedoms. They are showing that Maoist "thought control" and repression are still preferred governing techniques in China.

An Interesting Interpretation of China

Here is a bit from an interesting American blogger who is a historian of China: Jeremiah Jenne if a PhD student currently in China where he runs the Chinese history site Jottings from the Granite Studio, has written for the China Beat and the online edition of the Atlantic Monthly. In this posting he compares the Chinese Communist party to the 1960s Madison Avenue advertising sitcom Mad Men:

Two things happened this summer. The CCP celebrated its 90th anniversary and Mad Men decided to take the year off. The truth is, the world’s longest running Communist government has a lot in common with an American show celebrating naked capitalism and martinis. Mad Men is about that moment in US history when the American dream was being invented and promoted by Madison Avenue. They convinced us that if we just bought the right car and had the house with the yard and drank the right soda then “everything was going to be okay.”[1] The CCP uses basically the same message. Stick with us and you’ll get what you want…the house, the car, kids in college. Forget about what happened before, it’s irrelevant. The story is anything we want it to be. Think about the present, the future, and the fear that you have over losing everything you worked for by dredging up unpleasant truths from the past.

You have to figure too that Mao and Don Draper are both chain-smoking misogynistic misanthropes with shady pasts who rose to prominence by being good ideas men and not a little bit ruthless. Politics aside, I bet they could have hung a bit.

So with that, and out of withdrawal for my usual summer guilty television pleasure, I present the Mad Men guide to 90 years of the CCP.[2]

...

If you don’t like what’s being said, change the conversation.

There’s little difference between the advertising industry and the Communist propaganda machine. They’re just selling different products. For 90 years the CCP has survived by training a steady fire hose of bullshit at its supporters and convincing those same supporters that it’s all just chocolate pudding with Chinese characteristics. And they’ve gotten better at it over time. Sure there are stumbles still, but the propaganda department in 2011 is, generally speaking, a pretty slick operation. Why block the New York Times or CNN when you can simply convince people that it’s all just the jealous rantings of bitter anti-China white people? The CCP and its apologists are masters at the strategy of “Hey, look over there…don’t look here.” Human rights in China? Hey, buddy, where’s our apology for the Opium War? Even the 90th anniversary is an exercise in misdirection. 90 is a decent round number, and the CCP never misses a chance to flaunt themselves in public such that even Eric Weiner is embarrassed for them, but I also firmly believe that part of the motivation is to reclaim this anniversary year for the Party and its origin mythology rather than turn it over to the more historically ambiguous and politically tricky centenary of the 1911 Wuhan Uprising.

...

I have ideas. I’m sure you do. Sterling Cooper has more failed artists and intellectuals than the Third Reich.

Ideas matter, but not all ideas are created equal especially when the CCP has a say in the matter. During the 1930s and 1940s, the CCP managed to convince a whole generation of left-leaning patriotic Chinese that the the Party had their interests at heart. Of course, it turned out that it was this same group of intellectuals – people who like to, you know, ask questions and stuff – who ended up taking the fall after the Communists took over and especially during the 100 Flowers/Anti-Rightist era of the late 1950s. Frankly, I’ve always wondered if the CCP leadership – many of whom had aspirations as philosophers/writers/poets/thinkers – just weren’t pissed off that other people had actual talent. Jiang Qing was particularly notorious for taking out her frustrations on the artistic community by making them sing her shitty operas, but I’m guessing she wasn’t the only bitter failed artist in the bunch willing to take revenge on the more talented.

But that’s life. One minute you’re on top of the world, the next minute some secretary’s running you over with a lawn mower.

Liu Shaoqi was a good communist. He wrote a famous essay called “How to be a Good Communist.” He, along with Zhou Enlai, functioned as the Party’s designated grown-ups, even taking the keys away from Mao for a brief period in the early 1960s. Too bad Mao was a vindictive son of a bitch. Within three years, Liu went from being the President of China to dying of cancer, naked and alone, in an unheated prison tool shed.

...

It wasn’t a lie, it was ineptitude with insufficient cover.

Which brings me back to history. The key to the Party’s hold on power is to keep control of its own story. I’ve used this quotation before, but on a day when my television is an endless loop of self-congratulatory propagandistic bullshit, it is worth repeating George Orwell’s famous dictum that ‘He who controls the past controls the future. He who controls the present controls the past.’ The party is afraid of many things, but most of all it is afraid of losing control of its own past. The recent multi-volume History of the CPC reads like an inoculation: rather than ignore dark moments in the Party’s history, traumatic events are papered over with passive grammar and a banal platitudes. Mistakes were made. Enemies were among us. Shit happened.[8]

It’s getting harder and harder for the Party to lie, to simply make things up and hope to get away with it. But at the same time, they are getting smarter about how they go about massaging the past, augmenting the mythology with modern media, and working overtime to avoid any counter-programming or competing messages. But that’s what it has to do if it wants to stay in power for another 90 years.

Go read the whole post. You have to go to the original post to get the embedded links.

I get a chuckle out of this posting. I'm puzzled why Jeremiah Jenne doesn't see Mao as a monster. If you read Mao: The Unknown Story you get an excellent inside view of Mao and the horrors he brought upon the Chinese people. From Wikipedia:

Mao: The Unknown Story is a 2005 biography of Chinese Communist leader Mao Zedong (1893–1976) written by the husband and wife team of writer Jung Chang and historian Jon Halliday, and depicts Mao as being responsible for more deaths in peacetime than Adolf Hitler or Joseph Stalin.

In conducting their research for the book over the course of a decade, the authors interviewed hundreds of people who were close to Mao Zedong at some point in his life, used recently published memoirs from Chinese political figures, and explored newly opened archives in China and Russia. Chang herself lived through the turmoil of the Cultural Revolution, which she described in her earlier book, Wild Swans.

The book quickly became a best-seller in Europe and North America and received overwhelming praise from reviews in national newspapers. Academic reviews from China specialists were, on the whole, far more critical.

Wow... hard to believe that the Chinese "specialists" didn't find this book to be definitive. I guess they were afraid of getting the Ai Weiwei treatment (and this).

Worrying about China

This is worrying about China with a twist. Most people worry because China is growing so big so fast. But here are Daniel Gross and Aaron Trask looking at reasons why China might crash...

I've been expecting the emerging giant to stumble and fall for years. At some point I will be right. But is it going to be this year? Probably not.

One thing I learned long ago: the stuff that common sense tells you are inevitable, can take longer than you have patience or cash to wait out.

What is Happening in China

The following is from the Washington's Blog site. I find the information here is generally right, but sometimes is spectacularly wrong. I have no way of independently assessing the following, but it sounds right to me:

Is the Chinese Economy Sputtering for the Same Reasons as the American Economy?

It was tempting to believe that China was different.

With its command and control economy with some of the trappings of free market capitalism, trillions in reserves, and abundant natural resources, many thought that China would "decouple" from the Western world's problems and sail into a prosperous future.

However, despite its long history, exotic names and seemingly strong position, China cannot avoid the rules of economics which have applied to all countries throughout history.

Corruption and Phony Bookkeeping

Corruption and the failure to follow the rule of law is one of the main factors which has dragged down the American economy.

The fact that - according to the Chinese central bank - Chinese officials stole $120 billion and fled the country does not auger well for China.

Scandals among various Chinese companies are not helping, either.

And then there are the made up statistics. As Warren Hatch of Catalpa Capital Advisors notes:

As Li Keqiang, the vice premier and heir-apparent to Wen Jiabao, laconically remarked to the US ambassador a few years ago, most of the statistics in China are “for reference only.”

And Charles Hugh Smith argues:

Despite their many differences, the economies of China and the U.S. share a number of key traits: both are corrupt, rigged, crony-Capitalist, rely on phony statistics and propaganda and operate with two sets of rules: one for the Elites, and another for the masses.

Despite their many differences, the economies of China and the U.S. share a number of key traits: both are corrupt, rigged, crony-Capitalist, rely on phony statistics and propaganda and operate with two sets of rules: one for the Elites, and another for the masses.

There is much more in the original post. Go read the whole article.

From my perspective, both countries suffer a large degree of corruption because they have an elite which has run amok.

How does this problem get fixed? It isn't clear to me. But it will require a wholesale revulsion by an overwhelming number of people, something like 80% will have to turn their back on the past and demand a new "social contract". Whether that is done through revolution, a new mass political party, a religious conversions, etc. I don't know. But it will take a social change of that order to sweep out the Augean stables of corruption and greed that now reign in both countries.

Big Trouble in Little China

All is not rosy in China...



This bubble is going to burst. But unlike the US housing bubble which was built on liar loans and corrupt financial transactions, I do believe this bubble will leave a positive legacy: it has built real stuff that can be used by real people. The problem is the stuff is priced too high. But once the bubble bursts, prices fall, then people can afford to move into all these wonderful new buildings.

Capitalism is infested with bubbles. That's because humans are driven by fear, greed, and panic. China is just waiting for the fear and panic to set in.

The distortions of China are not contained to China. They affect places around the world. They certainly keep the Vancouver housing market way over-priced. I sold my crummy old house for a fortune because the rich Chinese are snapping up properties in Vancouver. I sold a 50 years old rundown house for nine times what I paid for it in 1983 and took that money and spent a third of it to buy a very nice newish (10 year old) home 100 miles away from Vancouver. I was happy enough to move away since I enjoy nature and now live in a farming area with gorgeous views. In Vancouver I had no view. I was in an urban area that was going more and more upscale while people's salaries were fairly stagnant. It is an insane formula for putting people on a treadmill for life trying to "afford" modest housing.

An Interesting Chinese Artist

I saw a documentary on PBS's Frontline tonight about the Chinese artist Ai Weiwei. I like some of his art, other bits of this I find silly and pretentious. But I love his politics. He strikes me as a down-to-earth guy.

Here's the "teaser" for the PBS Frontline documentary:



If you hunger for more, then watch this BBC documentary:



Is he a "great" artist? I don't think so but I'm willing to say that his art is "interesting". From Wikipedia about his "Sunflower Seeds" piece:

In October 2010, Sunflower Seeds was installed at the Tate Modern Turbine Hall, the work consists of one hundred million porcelain "seeds," each individually hand-painted in the town of Jingdezhen by 1,600 Chinese artisans, and scattered over a large area of the exhibition hall. The artist was keen for visitors to walk across and roll in the work to experience and contemplate the essence of his comment on mass consumption, Chinese industry, famine and collective work. However, on 16 October, Tate Modern stopped people from walking on the exhibit due to health liability concerns over the porcelain dust.

As art it is bizarre. To "simulate" a sunflower seed by having a small army of craftsmen to "produce" an imitation of the real thing when you could buy the real thing cheaply is bizarre. All that effort for what? From watching the video I would guess that one reason was the sunflowers were a symbol that the Communists liked, the idea that the sunflower always turned to watch the sun, i.e. the party leadership, an unquestioning following of the party line. Stepping on the seeds is a symbol of breaking with that past subjection. But it is a big effort to get a small point across. I wish he wrote a poem like this father instead of putting 1,600 people to work to create this "installation".

Toward the end of the BBC documentary the claim is made that sunflower seeds represent the food that saved starving peasants during the Cultural Revolution. The critic claims this art "is a monument to the multitude, poverty, and transformation". But to make art that requires such deep "interpretation" to be meaningful means the art is "interesting" but within a century it will be completely forgotten because required insight or interpretation doesn't talk to people across the ages. It appeals right now to sophisticates, historians, critics, but not ordinary people. Real art can't be built on such narrow elitism. All this sophistication turns to dust within a century because the public won't "know" what is required to "appreciate" the art. Great art is built on great themes that are deeply rooted in a civilization and can be interpreted and appreciated over thousands of years, not a mere century.

On the other hand, I think his architecture, the "Bird Nest" stadium for the Beijing Olympics, is a truly wonderful building. And the BBC documentary show brick buildings with wonderful texture. So he does do first class artful architecture.

Where he goes astray, in my mind, is to indulge in the silly elitist "conceptual" art of the 20th century.

Ai Weiwei is a great self promoter. That is his genius. He is very like Andy Warhol. Or today's Damian Hirst. These are "great artists" who will be forgotten within a century. Being popular doesn't guarantee you a place in history.

When I hear him in the BBC documentary answer the question of "do you believe that art can communicate and engage with ordinary people as well as using ordinary people's experience... are you a believer in connecting with the lots of people" by saying:

Yes, I believe that only when art is connecting with ordinary feeling or ordinary common sense does it become most powerful.

This is great and this is the thread in his work that I can engage with and enjoy. The elitist stuff I'm not interested in, but when he does art that is meant to reverberate with ordinary people do I think he has the makings of a great artist. He is interesting because he is bridging East and West in his art. He may find a place in history, but much of his "art" will be forgotten. It will be the stuff that speaks across the millennia that will make him a great artist and that means speaking at the level of "ordinary" people, their myths, their aesthetic, their experience.

His politics are astoundingly courageous and hopefully will create more freedom for the Chinese. I like the comment in the video that he manages to survive in China because the authorities are thugs and Ai Weiwei is a bit of a thug, so he understands the authorities' maneuvers and, so far, has managed to counter their moves. But it is pretty clear that his days are numbered. Sad.

I do think he is a heroic cultural figure. His art probably will not last. But he certainly is a great man for today and his art is enormously interesting because it fits in and accommodates his politics.

Update 2011apr03: There is a report in the UK's Guardian newspaper that Ai Weiwei has been "detained" by the Chinese police. The Communists just can't take an independent thinker. They have to crush anything and anybody that they see as "undermining" their iron grip on China. Sad.

China's best-known artist, Ai Weiwei, has been detained in Beijing and police have searched his studio, confiscated computers and questioned assistants.

The 53-year-old remains uncontactable more than 12 hours after officials held him at the capital's airport.

Ai, who designed the Olympic Bird's Nest stadium, has been an outspoken critic of the government.

Although he has repeatedly experienced harassment, he appeared to be relatively protected by the status of his late father, a renowned poet, and his international profile. Last year, he created the Sunflower Seeds installation for Tate Modern.

His detention comes amid what human rights campaigners have described as the harshest crackdown on activists and dissidents in over a decade.

At least 23 people have been criminally detained, mostly in relation to incitement to subversion or creating a disturbance.

Three more have been formally arrested and more than a dozen are missing, including high profile human rights lawyers.

Officials detained Ai at immigration control as he attempted to catch a flight to Hong Kong for business. An officer told an assistant travelling with him that the artist had "other business" and could not board the plane.

Uniformed and plainclothes police surrounded and searched his studio in Caochangdi, in the north of the capital. Power to the neighbourhood was cut off.

Men who appeared to be plainclothes officers grabbed the phone of a Guardian journalist who photographed the scene and deleted the image. A uniformed man said: "You are not allowed to be on this street. You must leave."

A staff member told the BBC Chinese news service that officers had taken away eight of Ai's assistants and volunteers.

A friend of the artist tweeted that most had been released but that his wife Lu Qing and two employees remained out of contact.

Police are thought to have searched two other properties relating to Ai and visited the mother of his two-year-old son.

Twitter users reported that police also detained Ai's friend Wen Tao. Wen's mobile was not available.

Beijing police said they did not know anything about either man. Asked about Ai, an airport police spokesman said: "I do not have the obligation to tell you the information. You may have got your information wrong.

The Chinese people have made a pact with the devil. They "bought" economic growth at the cost of their social and political soul. They saw how vicious the regime is after the crushing of the Tiananmen protests.

There is much more in the Guardian article. Go read the whole article.

Ai Weiwei has long been a thorn in the Chinese government's side, but human rights campaigners see his detention as part of the wider crackdown that has seen activists, dissidents and lawyers detained or go missing.

"Ai Weiwei has been a bit of an outlier and the harassment against him has been more and more intense in the past few months," said Nicholas Bequelin, Asia researcher for Human Rights Watch. "I think the signal it sends is that if he can be arbitrarily harassed in this way, no one is safe."

The drive by security officials follows anonymous calls for "jasmine revolution" protests, echoing the uprisings in the Middle East. Although the posting was on an overseas website, and there was little sign of domestic support for the appeal, officials began detaining and harassing people within hours of its appearance.

Similarities between China and the US

I found the following bit from an article by Victor Shih is associate professor of political science at Northwestern University and author of ‘Factions and Finance in China’ (Cambridge University Press) to be quite interesting:

During a round table with business leaders during Chinese President Hu Jintao’s visit to the United States in January, US President Barack Obama stated optimistically that ‘With China’s growing middle class, I believe that over the coming years, we can more than double our exports to China and create more jobs here in the United States.’ To be sure, that is a reasonable expectation. When other Asian economies like Japan and Korea grew toward the GDP per capita level of $10,000, sizable middle class populations did indeed emerge.

However, when looking under the bonnet at China’s economic engine, it’s clear that a growing middle class with rising disposable income and consumption is missing. Instead, there’s an economy that is still dominated by state owned firms and state-led investment, as well as by rapidly rising inequality. Instead of an enlarging urban middle class, China is increasingly splitting into a small upper class that spends freely on luxury goods, and a remaining population whose earnings and savings are eroded by inflation and state confiscation.

The underlying dynamics are clear in a recent statistical release by the government. First, real urban disposable income rose a comparatively tepid 7.8 percent in 2010, despite economic growth of nearly 10 percent. However, urban retail sales of consumer goods grew 14.5 percent. While the growth of consumption is good for China's economy, the pattern of this growth suggests rising inequality.

The biggest growth in consumption included jewellery (46 percent), furniture (37 percent), cars (34 percent) and construction material (34 percent). Essentially, these are items related to the spending of the upper class. These ‘consumer’ goods also made up 33 percent of all retail consumption in China. The large size and strong growth in luxury items implies that grey income was substantial in 2010, as suggested by a Credit Swiss report authored by Prof. Wang Xiaolu.

In this report, released last year and based on a survey of urban households in 2009, Wang found nearly 1.5 trillion dollars in grey income unreported in the official household income numbers. He further found that over 60 percent of this grey income accrued to the top 10 percent of households. The latest numbers also suggest that while income of normal households likely grew at around 8 percent, the top 10 percent of households may have seen income growth above 25 percent.

A growing middle class is also absent among recent college graduates. According to the Ministry of Education, only 68 percent of college graduates in 2010 were able to find permanent employment. Even among those who found employment, wages were often no better or sometimes even worse than those for migrant workers in factories. Unlike the rest of the world, however, China enjoyed a spectacular 10 percent growth rate. This impressive growth, however, didn’t translate to high paying jobs for college graduates. In major cities, many college graduates live as an ‘ant tribe,’ packed tightly in small dormitory rooms with four or more roommates.

When I read news out of the US about the Wisconsin governer breaking unions and read the statistics about growing income inequality, the high unemployment, and stagnant income then I realize that China and the US are converging into mega-states organized to accommodate their ultra-rich while grinding down the middle class to join one big class of oppressed at the bottom of a two caste system.

Democracy Blooms in China

Yes... it is like the Let A Hundred Flowers Bloom campaign. Well... sort of.

Some anonymous people inside China are calling for a "Jasmine Revolution" and of course China's leaders, being upstanding democrats and very solicitous of the well-being of their people, responded positively.

Wait a second... maybe not. Here's a report in the NY Times:

Skittish domestic security officials responded with a mass show of force across China on Sunday after anonymous calls for protesters to stage a Chinese “Jasmine Revolution” went out over social media and microblogging outlets.

Although there were no reports of large demonstrations, the outsize government response highlighted China’s nervousness at a time of spreading unrest in the Middle East aimed at overthrowing authoritarian governments.

The words “Jasmine Revolution,” borrowed from the successful Tunisian revolt, were blocked on sites similar to Twitter and on Internet search engines, while cellphone users were unable to send out text messages to multiple recipients. A heavy police presence was reported in several Chinese cities.

In recent days, more than a dozen lawyers and rights activists have been rounded up, and more than 80 dissidents have reportedly been placed under varying forms of house arrest. At least two lawyers are still missing, family members and human rights advocates said Sunday.

Funny... tyrants all work from the same playbook. Dress up as democrats, proclaim themselves as the "father of their people", and strut around proclaiming how their state requires order, discipline, security, but never messy demonstrations in the streets which are always organized by dangerous "outside" influences aimed at undermining the felicitous internal harmony managed by the regime.

I would really, really, really like to see real democracy come to China. I've been very happy to see the economic progress, but at some point the slaves in chains at the oars rowing the ship of state need to be released to live the lives they want. The solicitudes of the Communist Party are no longer needed. The people need to stand on their own two feet.

A Real Doom & Gloom Story

This is potentially a very disruptive event that is looming. This is something to seriously worry about for all those doom & gloom specialists. From a NY Times article. I've bolded the key bits:

The United Nations’ food agency issued an alert on Tuesday warning that a severe drought was threatening the wheat crop in China, the world’s largest wheat producer, and resulting in shortages of drinking water for people and livestock.

China has been essentially self-sufficient in grain for decades, for national security reasons. Any move by China to import large quantities of food in response to the drought could drive international prices even higher than the record levels recently reached.

“China’s grain situation is critical to the rest of the world — if they are forced to go out on the market to procure adequate supplies for their population, it could send huge shock waves through the world’s grain markets,” said Robert S. Zeigler, the director general of the International Rice Research Institute in Los Baños, in the Philippines.

The state-run news media in China warned Monday that the country’s major agricultural regions were facing their worst drought in 60 years. On Tuesday the state news agency Xinhua said that Shandong Province, a cornerstone of Chinese grain production, was bracing for its worst drought in 200 years unless substantial precipitation came by the end of this month.

...

Typically, world food reports barely mention China, partly because many details of the country’s agriculture production and reserves are state secrets. But China, in fact, is enormously important to the world’s food supply, especially if something goes wrong.

The heat wave in Russia last summer, combined with floods in Australia in recent months, has drawn worldwide attention to the international wheat market, because Russia and Australia have historically been big exporters. But China’s wheat industry has existed in almost total isolation from the rest of the world, with virtually no exports or imports, until last year, when modest imports began. Yet it is enormous, accounting for one-sixth of global wheat output. The statistical database of the United Nations’ food agency shows that in 2009, the last year available, China produced almost twice as much wheat as the United States or Russia and more than five times as much as Australia.

Currently, the ground in the country is so dry from Beijing south through the provinces of Hebei, Henan and Shandong to Jiangsu Province, just north of Shanghai, that trees and houses are coated with topsoil that has blown off parched fields.

It looks like China is suffering from a "dustbowl" with heat and drought like the US experience in the early 1930s. This isn't "global warming". It is just normal climate variation. But tragically the world is not prepared because there is no systematic program to build up reserve stocks. (Think of the Biblical tale of Joseph interpreting the Pharoah's dream and building graneries to store grains from the seven fat years to protect the people from the seven lean years.) Sadly, we live in an era where governments are under attack by fanatics who think "the only good government is no government" and who have the fantasy that "private markets can provide everything". They can't private markets don't prepare for once-in-a-century events. These are things that require mobilization across a society -- or in our case today, across the whole world -- and are beyond the scope of "private markets". But ideologues aren't interested in facts or theories. They have the truth by the tail and don't care. On their heads will be the great suffering which is coming for the next year or two.

Another Giant with Feet of Clay

I remember how in the 1980s Americans were running around terrified because a growing Japan would soon overtake them. The Japanese were buying assets in America and it looked like the new overlords would all be Japanese. Then Japan hit a wall with its property speculation meltdown and its stock market meltdown.

For the last few years Americans have been running around terrified because a growing China will soon overtake them. The Chinese are buying assets in America and it looks like the new overlords will all be Chinese. But...

Paul Krugman sees an economic crisis looming in China. From his NY Times op-ed:

China has stumbled into a monetary muddle that’s getting worse with each passing month. Furthermore, the Chinese government’s response to the problem — with policy seemingly paralyzed by deference to special interests, lack of intellectual clarity and a resort to blame games — belies any notion that China’s leaders can be counted on to act decisively and effectively. In fact, the Chinese come off looking like, well, us.

How bad will it get? Warnings from some analysts that China could trigger a global crisis seem overblown. But the fact that people are saying such things is an indication of how out of control the situation looks right now.

The root cause of China’s muddle is its weak-currency policy, which is feeding an artificially large trade surplus. As I’ve emphasized in the past, this policy hurts the rest of the world, increasing unemployment in many other countries, America included.

But a policy can be bad for us without being good for China. In fact, Chinese currency policy is a lose-lose proposition, simultaneously depressing employment here and producing an overheated, inflation-prone economy in China itself.

...

Could all of this really turn into a full-fledged crisis? If I didn’t know my economic history, I’d find the idea implausible. After all, the solution to China’s monetary muddle is both simple and obvious: just let the currency rise, already.

But I do know my economic history, which means that I know how often governments refuse, sometimes for many years, to do the obviously right thing — and especially when currency values are concerned. Usually they try to keep their currencies artificially strong rather than artificially weak; but it can be a big mess either way.

So our newest economic superpower may indeed be on its way to some kind of economic crisis, with collateral damage to the world as a whole. Did we need this?

There's more. Go read the whole article.

I think it is funny how people linearly extrapolate into the future. If you extrapolated Japan's growth from the 1960s into the early 1980s, it was obvious that they would soon rule the world. It didn't happen. Now people are doing the same thing with China. But the world isn't linear. It is highly dynamic and non-linear. Growth in virgin territory (or after a new invention) typically sigmoid, and is called the logistic curve. Slow growth until the new land (or new invention) is found. Then rapid growth until local resources are exhausted. Then slow growth. But economic observers seem unaware of this pretty obvious fact of life. The economic observers insist on doing linear extrapolations. Silly.

Robert Reich is Pessimistic

Here is a bit from Robert Reich's latest post on his blog:

The President now says the answer is to help American business. “We can’t succeed unless American businesses succeed,” he said recently. “And I’m going to do everything I can to promote their ability to grow and prosper.”

But the prosperity of America’s big businesses has become disconnected from the prosperity of most Americans.

Republicans say the answer is to reduce the size and scope of government. But without a government that’s focused on more and better jobs, we’re left with global corporations that don’t give a damn.

China is eating our lunch. Why? It has a national economic strategy designed to create more and better jobs. We have global corporations designed to make money for shareholders.

Seems to me, if you want to compete with China's cheap labour you would be emphasizing robotics in the US. I don't care how hard a Chinese labourer works and for how small a wage, a robot runs for less. The cost in the robot is the research, but that's a one time cost that can be amortized over tens of millions of robots. If America really wants to compete with "cheap labour" from China, it should do a "Manhatten-style" crash development program to leap frog robotic technology a couple of generations.

That's my simple-minded solution. I'm sure it is a lot harder because you would have fanatical Republicans decrying "big government" even while their big corporate donors would be holding out their hands to get a cut of the pie. The "military-industrial complex" would probably complain because they would have to compete for projects while under the current system they get assured contract with nicely padded profits. The universities would love to get the research dollars, but the vast American public would complain about "pointed-headed intellectuals getting taxpayer money to string tin cans together in a scheme to make the American worker unemployed". So... the US won't go for the obvious solution. Instead it will brow-beat China about is underpriced currency and the cozy relationship between the Communist Party and big business in China. (I love that complaint given the cozy relationship between the Republican Party and big business in the US.)

What Goes Around, Comes Around

I got a real kick out of this posting by Paul Krugman on his blog. I've been waiting to find out that the Chinese have feet of clay. Here it is:

These days, China seems to play the same role in much of our discourse that Japan did two decades ago. We look at our own follies — which are immense — and then look at the Chinese, and ascribe to them all the virtues of foresight and determination we lack.

But just like the Japanese, the Chinese are human, and their policy makers are subject to the same kinds of confusion and inability to make hard choices that are part of the human condition. And Chinese macroeconomic policy is in the process of becoming a cautionary tale.

Basic economics says that by deciding to keep the renminbi undervalued, the Chinese put themselves under inflationary pressure; and sure enough, inflation is rapidly becoming a serious problem.

But political considerations seem to be ruling out all the reasonable responses. They won’t revalue, because that would hurt politically influential exporters. They’re reluctant to raise interest rates, because that would hurt politically influential real estate developers. They’re trying to impose quantitative limits on credit, but are finding that borrowers have enough influence to circumvent the limits. And now they’re trying price controls — which will inevitably come apart at the seams unless they do something about the underlying pressures.

It’s an edifying spectacle.

Now, schadenfreude should not lead to any complaceny on our part; China may be corrupt and unable to make sensible short-run choices, but in terms of fundamental inability to deal with long-term problems, we still have them beat hands down. Still, it’s worth remembering that all giants have feet of clay.

Nothing goes up forever, nothing goes on forever. The Chinese have had nearly 30 years of economic "good news". They are overdue for a stumble and a fall. It looks like this is it.

Personally I wish the best of individual Chinese and my heart goes out the the hundreds of billions dirt poor Chinese. But I have no love for either Chinese Communists nor Ideological Republicans. The world will be a better place if the Chinese juggernaut stumbles and topples a bit.

How the World Turns

From a Bank of Montreal economics report:

China surpassed the U.S. as the world’s largest auto market is so last year’s news (Chart 6). In fact, China now sells more cars than the U.S., Canada and Mexico combined. The most light vehicles ever sold in a single year in the U.S. was 17.3 million in 2000, a level China is on pace to surpass. Not surprisingly, China is now the biggest energy consumer in the world, and is the world’s fifth largest oil producer. And in another measure of how the BRICs now dominate, Russia is again the world’s largest oil producer and Brazil has not only surpassed Venezuela, but will soon be the biggest oil producer in Latin America (ahead of Mexico).

In one sense, things seem to change only glacially. But, surprising, sometimes and in some ways things change rapidly. The fall from pre-eminence of the US is now gaining speed. Sadly, the political leaders in the US never "consulted" with the population about their policies that have brought the downfall. Worse, the political leaders still strut and prance as it the US was still top dog. But that day is gone. The poor American citizen finds himself in the clutches of a decade-long recession, high unemployment, taxes soon to rise, bankruptcies at all levels of government. Things will be very gloomy. All because leaders refused to be honest with the citizens and because the leaders sold out to the ultra-rich to destroy the economy for a flash-in-the-pan few decades of incredible growth in income and wealth for the top 0.1% of the population.

Sizing Up the Competition

China is just now getting large enough to be noticeable on a world scale. Here is a bit from an article in the Economist magazine:

It is hard to exaggerate the Chinese economy’s far-reaching impact on the world, from small towns to big markets. It accounted for about 46% of global coal consumption in 2009, according to the World Coal Institute, an industry body, and consumes a similar share of the world’s zinc and aluminium. In 2009 it got through twice as much crude steel as the European Union, America and Japan combined. It bought more cars than America last year and this year looks set to buy more mobile phones than the rest of the world put together, according to China First Capital, an investment bank.

In China growth of 9.6% (recorded in the year to the third quarter) represents a slowdown. China will account for almost a fifth of world growth this year, according to the IMF; at purchasing-power parity, it will account for just over a quarter.

...

China is now the biggest export market for countries as far afield as Brazil (accounting for 12.5% of Brazilian exports in 2009), South Africa (10.3%), Japan (18.9%) and Australia (21.8%). But exports are only one component of GDP. In most economies of any size, domestic spending matters more. Thus exports to China are only 3.4% of GDP in Australia, 2.2% in Japan, 2% in South Africa and 1.2% in Brazil (see map).

Click to Enlarge

According to their estimates, if China’s growth quickened by 1 percentage point for a year, it would boost the rest of the world’s GDP by 0.4% (about $290 billion) after five years.

Since the crisis, China has shown that its economy can grow even when America’s shrinks.

I think it is funny that thirty years ago nobody foresaw the rise of China. It is like in 1960 nobody foresaw the collapse of Japan into its now decades long recession. And I can guess that in 1990 nobody foresaw the US shooting itself in the foot by electing Bush who set the US up for collapse. History is an ironic study of "surprises" that nobody expects.

Cringely's Theory of World Domination

Here is the start of a post by Robert X. Cringely that argues that while the US & Europe are spiraling down, it isn't China who will dominate the world, it is India. I think his ideas are worthy of serious consideration:

Something has been bothering me lately and it is our assumption that China is the world’s next superpower and that we’d darned well better get used to it. Hogwash. We’re into the Chinese decade, not the Chinese Century.

The century belongs to India.

Last century was all-American. We came into the 20th century a huge but unsophisticated nation. Our industrial might made us a factor in World War I. Our cultural ingenuity caught the world’s fancy in the 1920s and — 90 years later — still hasn’t let go. As a result this will not be the Bollywood Century. The Great Depression secured our place at the table by showing we could take much of the world down with us. World War II saw us save that world, grabbing half a century of global dominance in the process (thanks Dad). But now we’re screwing it up a bit out of inertia and greed and ignorance of the very world we created. We did it to ourselves by thinking that nothing could really hurt us. But in the end that wasn’t true any more than the idea that Harry Houdini’s stomach could take any punch.

So we’re giving it up to the Indians. not to the Chinese.

I hope he is right. India has started very few wars. China, which you might think hasn't started many wars, has in fact attacked all of its neighbors in the last 60 years: Korea, USSR, India, Vietnam. And it has sabre-rattled at Taiwan, Japan, and the US.

The world needs leadership by a country that is only interested in economic "conquest" and not political/military/cultural conquest. India is a nicely complex country too disorganized to carry out this kind of conquest. But it can be the breeding ground of entrepreneurs and economic growth which would be good for the world.

Facing Down WWIII

The great wars of the 20th century were at bottom economic wars. Everybody would like to think we have "gotten past" all that. I used to think we had "gotten past" Great Depressions, but I watch at how political and economic leaders around the world flail about ignoring sound economic advice to bring back the failed "solutions" of 80 years ago. So I now fear that the great wars of the 20th century are not behind us.

I very much respect Paul Krugman's viewpoint on all issues (except global warming where I think he has drunk the kool-aid). Here's a bit from an article that he just published on the NY Times:

Last month a Chinese trawler operating in Japanese-controlled waters collided with two vessels of Japan’s Coast Guard. Japan detained the trawler’s captain; China responded by cutting off Japan’s access to crucial raw materials.

And there was nowhere else to turn: China accounts for 97 percent of the world’s supply of rare earths, minerals that play an essential role in many high-technology products, including military equipment. Sure enough, Japan soon let the captain go.

I don’t know about you, but I find this story deeply disturbing, both for what it says about China and what it says about us. On one side, the affair highlights the fecklessness of U.S. policy makers, who did nothing while an unreliable regime acquired a stranglehold on key materials. On the other side, the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation.

People like to give China a past by saying they have no history of "world conquest". But they do have a history of border skirmishes. Think of the war with the USSR over the Amur river, with India in the Himalayas, with Vietnam at the end of the American Vietnam war, and it intervened in the Korean war. All of these appear to be bizarre. So how "trustworthy" is China?

The funny thing about "strategic thinking" in the US is that they are in the hands of greedy speculators. So the US stockpiles oil (petroleum interests like the extra purchasing) and weird things like camel hair (I don't remember exactly what, but it has "strategic" materials that date back to the 19th century and make no sense today). But the US has no strategic reserves in rare earth minerals? It has no economic policy to ensure multiple sources of supply? You might as well stick you head in the noose and taunt your opponent and dare him to pull the rope. Nutty!

“There is oil in the Middle East; there is rare earth in China,” declared Deng Xiaoping, the architect of China’s economic transformation, in 1992. Indeed, China has about a third of the world’s rare earth deposits. This relative abundance, combined with low extraction and processing costs — reflecting both low wages and weak environmental standards — allowed China’s producers to undercut the U.S. industry.


You really have to wonder why nobody raised an alarm while this was happening, if only on national security grounds. But policy makers simply stood by as the U.S. rare earth industry shut down. In at least one case, in 2003 — a time when, if you believed the Bush administration, considerations of national security governed every aspect of U.S. policy — the Chinese literally packed up all the equipment in a U.S. production facility and shipped it to China.

The result was a monopoly position exceeding the wildest dreams of Middle Eastern oil-fueled tyrants. And even before the trawler incident, China showed itself willing to exploit that monopoly to the fullest. The United Steelworkers recently filed a complaint against Chinese trade practices, stepping in where U.S. businesses fear to tread because they fear Chinese retaliation. The union put China’s imposition of export restrictions and taxes on rare earths — restrictions that give Chinese production in a number of industries an important competitive advantage — at the top of the list.

Then came the trawler event. Chinese restrictions on rare earth exports were already in violation of agreements China made before joining the World Trade Organization. But the embargo on rare earth exports to Japan was an even more blatant violation of international trade law.

Oh, and Chinese officials have not improved matters by insulting our intelligence, claiming that there was no official embargo. All of China’s rare earth exporters, they say — some of them foreign-owned — simultaneously decided to halt shipments because of their personal feelings toward Japan. Right.

The joke is that the Republicans are the ones who claim "national security" as their speciality, but in reality they are the "sell your mother if you can get a good price" party.

Here is the major strategic concern of the next 30 years:

Couple the rare earth story with China’s behavior on other fronts — the state subsidies that help firms gain key contracts, the pressure on foreign companies to move production to China and, above all, that exchange-rate policy — and what you have is a portrait of a rogue economic superpower, unwilling to play by the rules. And the question is what the rest of us are going to do about it.

The US is in the midst of mid-term Congressional elections. Has anybody heard any politicians talking about this threat? Oh sure, there are lots of "hard debating point" about gay marriages, and a contest to see which party can offer the voters the most "tax cuts". But when it comes to serious threats, is there any party willing to tell the voters what its party policy is? I don't think so...

Passing the Baton

In an article by Michael T. Klare about China in TomDispatch.com the passing of an interesting milestone is noted.

On July 20th, the chief economist of the International Energy Agency (IEA), Fatih Birol, told the Wall Street Journal that China had overtaken the United States to become the world’s number one energy consumer. One can read this development in many ways: as evidence of China’s continuing industrial prowess, of the lingering recession in the United States, of the growing popularity of automobiles in China, even of America’s superior energy efficiency as compared to that of China. All of these observations are valid, but all miss the main point: by becoming the world’s leading energy consumer, China will also become an ever more dominant international actor and so set the pace in shaping our global future.

In the introduction to that article, a slightly different significant event is marked:

For a whopping $60 billion -- yes, Virginia, that is “billion” -- the Saudis, according to Jim Lobe of Inter Press Service, have agreed to buy 84 F-15s and 175 helicopters as part of the largest arms deal in U.S. history. In addition, the sale, soon to be presented to Congress for approval by the White House, could end up involving a supplemental $30 billion deal “to upgrade the Saudi kingdom’s naval forces and yet another for new missile-defense systems.” (You didn’t even know that Saudi Arabia had a navy, did you?) This, Lobe writes, will “by itself exceed the value of all conventional arms transfer agreements signed worldwide by developing and developed countries alike in 2009 -- $57.5 billion.” And there’s even an added bonus for U.S. arms makers. Though this sale is theoretically aimed at Iran, the Saudi military, for all its weaponry, has shown little urge to fight, or to fight effectively. This will, however, surely mean billions more in compensatory U.S. weaponry flowing to Israel.

As regards "reputation", I would rather be known as a leader energy producer than as a major arms seller. But the US has decided to specialize in weaponry and destruction rather than in energy and construction. Odd choice.

The article points out a simple calculation of world political strategy:

According to the most recent projections from the U.S. Department of Energy (DoE), Chinese energy consumption will grow by 133% between 2007 and 2035 -- from, that is, 78 to 182 quadrillion British thermal units (BTUs). Think about it this way: the 104 quadrillion BTUs that China will somehow have to add to its energy supply over the next quarter-century equals the total energy consumption of Europe and the Middle East in 2007. Finding and funneling so much oil, natural gas, and other fuels to China is undoubtedly going to be the single greatest economic and industrial challenge facing Beijing -- and in that challenge lays the possibility of real friction and conflict.

The handwriting is already on the wall for a strategic battle over petroleum:

As recently as 1995, China only consumed about 3.4 million barrels of oil per day -- one-fifth the amount used by the United States, the world’s top consumer, and two-thirds of the amount burned by Japan, then number two. Since China pumped 2.9 million barrels per day from its domestic fields that year, its import burden was a mere 500,000 barrels per day at a time when the U.S. imported 9.4 million barrels and Japan 5.3 million barrels.

By 2009, China was in the number-two spot at 8.6 million barrels per day, which still fell far below America’s 18.7 million barrels. At 3.8 million barrels per day, however, domestic production wasn’t keeping pace -- the very problem the U.S. had faced in the Cold War era. China was already importing 4.8 million barrels per day, far more than Japan (which had actually reduced its reliance on oil) and nearly half as much as the United States. In the decades to come, these numbers are guaranteed only to get worse.

According to the DoE, China will overtake the U.S. as the world’s leading oil importer, at an estimated 10.6 million barrels per day, sometime around 2030. (Some experts believe this shift could occur far sooner.)

...

Especially striking has been the way Beijing has sought to undercut U.S. influence in Saudi Arabia and with other crucial Persian Gulf oil producers. In 2009, China imported more Saudi oil than the U.S. for the first time, a geopolitical shift of great significance, given the history of U.S.-Saudi relations. Although not competing with Washington when it comes to military aid, Beijing has been dispatching its top leaders to woo Riyadh, promising to support Saudi aspirations without employing the human rights or pro-democracy rhetoric usually associated with American foreign policy.