By Brett Daniel Shehadey
Special Contributor for In Homeland Security
A credit crunch and a fraudulent financial structure are slowly leading Beijing down a steady river of economic power decline which make its future as dominant leader less certain. China’s gross domestic product is at its lowest in 24 years.
Chinese privately held debt is now more than 200 percent of China’s gross domestic product. This is higher than the U.S. as a percentage of gross domestic product (e.g., U.S. at around 160 percent). China’s national debt is currently around 62 percent while the U.S. national debt is roughly 112 percent of respective GDPs.
Although President Xi Jinping is cracking down on corruption of governance, nothing is being done about the government’s core framework that encourages it. Witch hunts and public examples only serve to purge elements of arbitrary choice, while the rest of the entire socio-political elite bunker down in silence, secrecy and hope. These elites maintaining the lack of the free flow of critical information and criticism in a state without free speech or transparency in all levels of society, whether: private, government or hybrid sectors. Without free information and transparency, it is not just the people that are deceived but the political leadership as well, who deceive themselves into thinking that an opaque free market can be engineered to inspire public trust and internal credit, loans and investment.
Without trust, the reversal of severe optimistic speculation in China tends to force a decline of prospective investment. Meanwhile, the occasional abuses and government reassurances within this system serve to make matter far worse than they really are, as well as the relative stagnation and uncertainty of the rest of the world. Where should we [China] place our money? Internally, in China? Russia? Europe? Japan? No. America looks like the safest place. Buy American and so the global trend goes. The Chinese perspective is no different with their wealthy who are buying assured real estate in more stable countries, rather than re-investing in the Chinese market. Those fleeing billions of dollars pouring out overseas and not going back into China is a response to a lack of trust at home. America’s economic stable infrastructure stems from its relatively superior transparency, consistency, law, legal redress, fairness and freedoms. It is not perfect but the model is far superior and consequently far more reliable to those that want less risk and sure returns over time; especially during a crisis.
If America were smarter, however, it would have maintained a bilateral trade policy with the China that invited more immediate cash wealth from private Chinese investors into far less restricted partial share ownership ventures of American businesses and demanded a much larger share in a Sino-American visas exchange program. Instead, American policy makers largely refused Chinese FDI in protectionist mode, let them buy a smaller number of larger American corporations outright and did not match cultural exchanges anywhere near China’s cultural transplants placed within the U.S. Consequently, America maintained not only a large economic trade imbalance but also a cultural and educational imbalance with China for the last several decades.
In any case, China has taken major strides in monetary and financial reforms, including an insertion of cash from the Central Bank into the system. But with such bad credit and credibility, it risks having little to no effect: this was done in September 2014 with $81 billion. After the 2008 recession, there was a surge in bank lending that increased by more than 30 percent. During and after 2009, loan requests sharply declined, which signifies that most were on the whole just private sustainment loans. In other words, they prevented Chinese business terminations but they were largely non-performing or slow return.
Two of China’s main stock market indices dropped 7.7 percent Monday.
For two decades before 2008, China averaged a growth rate of 10 percent. The official targeted growth annual of 7.5 to 7.2 percent has been reduced by analysts further to 7 or 6.5 percent. Even with oil prices as low as they are, the slowing economic dynamo is most accurately reduced by at nearly four points since 2010.
The official party line argument is that they are transitioning to a domestic market and they are slowing down growth to avoid a larger crisis. This might be what they are trying to do, but it may also not explain the measure of decline, which seems to burst through the standard CCP smoke screen. As mentioned, without transparency and trust, who can say? Without trust, however, there can be no true loyalty or hope either.
Ironically, the one thing (freedom of information and freedom of speech) might save China but destroy the CCP and the one thing that might destroy China and the CCP, is the CCP. Solution: the CCP competes with other political parties so that no one party is to blame for the fallout, political and economic reforms involve freedoms of speech, information, transparency, honesty and just accountability that is not arbitrary but based on a common, binding and national law.
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