Gorrie the china crisis; now chinas economic collapse will lead to a global depression (2013)

ffirs.indd i 23-04-2013 09:20:55 THE CHINA CRISIS HOW CHINA’S ECONOMIC COLLAPSE WILL LEAD TO A GLOBAL DEPRESSION JAMES R GORRIE ffirs.indd i 23-04-2013 09:20:55 Cover image: © Duncan Walker/iStockphoto Cover design: Michael J Freeland Copyright © 2013 by James R Gorrie All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation.You should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993, or fax (317) 572-4002 Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-ondemand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com Library of Congress Cataloging-in-Publication Data: Gorrie, James R The China crisis : how China’s economic collapse will lead to a global depression / James R Gorrie pages cm Includes bibliographical references and index ISBN 978-1-118-47077-0 (cloth); ISBN 978-1-118-47080-0 (ePDF); ISBN 978-1-118-47079-4 (Mobi); ISBN 978-1-118-47078-7 (ePub) China—Economic conditions—2000- China—Economic policy—20003 Global Financial Crisis, 2008-2009 I Title HC427.95.G67 2013 330.951—dc23 2012049233 Printed in the United States of America 10 ffirs.indd ii 23-04-2013 09:20:56 I dedicate this book to my beautiful wife Lulu, who supported and encouraged me throughout the long writing process with a timely smile, loads of patience, and the occasional yet indispensable glass of wine Her heartfelt faith in me is much appreciated I would also like to dedicate this book to my three boys, Brandon, Oliver, and Alexander, whose playful interruptions and numerous video game sessions gave me much-needed breaks along the way Finally, I would like to dedicate this book to my parents, Dr Douglas and Marjorie Gorrie, for their love and encouragement throughout my life James R Gorrie Austin,Texas November 30, 2012 ffirs.indd iii 23-04-2013 09:20:56 ffirs.indd iv 23-04-2013 09:20:56 “Men in the game are blind to what men looking on see clearly.” –Chinese proverb ffirs.indd v 23-04-2013 09:20:56 ffirs.indd vi 23-04-2013 09:20:56 Contents Acknowledgments Introduction xi Chapter 17 A World on Edge What Is the Proper Context in Which to Assess China Today? China’s Self-Inflicted Crises Great Leap Forward or Famine? Cultural Revolution or Social Cannibalism? How Has Economic Integration with the Global Economy Changed China? Is China Becoming the Next Superpower? Trading Partner to the World The World’s Manufacturer An Appetite for Commodities Why Does China Have “Gold Fever?” What Does the Rise of Other Nations, but Especially of China, Mean for the Current Financial System? Marketing the China Brand 18 23 24 26 30 31 32 33 34 35 37 38 vii ftoc.indd vii 23-04-2013 13:43:35 viii Chapter CONTENTS Does China Have a Bright and Powerful Future? What’s Really behind the Great Wall? Notes 40 41 44 Stability and Legitimacy: A Chinese Crisis from Within 47 What Kinds of Risks and Problems Are Typical of Unstable Nations? Stability and Instability: What Are They? The Source of China’s “Stability” What Are the Characteristics and Effects of Instability? Does Stability also Mean “Legitimacy” in China? Is Legitimacy of the Government Necessary for Stability? Does Communist China Have a History of Stability? Does China’s Beijing Model Lead to Stability and Legitimacy? Notes Chapter Chapter Chapter 5: 55 56 58 59 The Rising Tide of Instability 61 Has China Been Influenced by Western Ideas? Sources of Rising Instability in China Notes 64 66 96 Is China’s Economy Sustainable? 99 The Beijing Model: The Path Forward or Cannibal Capitalism? What Is the Beijing Model? Is the Beijing Model Self-Sustaining? Notes 100 104 105 141 China’s Quiet Crisis: Financial and Economic Meltdown 145 A Perception of Strength China’s Quality of GDP A Public and Private Stimulus Time Bomb Development versus Economic Growth How Much Was the Money Supply Expanded in China? ftoc.indd viii 48 49 51 52 54 146 148 152 155 156 23-04-2013 13:43:35 278 THE CHINA CRISIS output at factories would also slow down in the civil crisis, as would foreign demand It also seems likely that China would cease its purchases of U.S Treasuries as a way of crippling its regional hegemony adversary, the United States This would be a strategic move, planned for well in advance China’s policy planners know that withdrawing support of the dollar would send the U.S bond market into a free fall This would result in the United States falling into its own financial crisis—if it had not already done so—which would cause a ripple effect throughout Europe and the rest of the world In that scenario, the United States would face an immediate existential threat to its financial system, which would consume the sitting administration for the weeks and months ahead An invasion of Taiwan by China—or even just the threat of invasion if they didn’t cooperate—would seem more likely than not to be on the table, and probably successful As China’s internal stability declines, the yuan may not be an acceptable currency for trade Or, it might A crash in the U.S bond market followed by a collapsing dollar is what may prompt the CCP to introduce a new, gold-backed yuan As a way to attract foreign investment—or at least foreign trade for food, fuel, and other essentials—a gold-backed yuan would certainly be alluring, and necessary, in light of the greater danger in investing in China Furthermore, China has the gold reserves necessary to so on some level But even though China may indeed put the final nail in the dollar’s coffin, it is not so likely that the yuan will be able to replace the dollar as a reserve currency if China has descended into a state of civil war and its economy is in the throes of collapse With regard to the Asian-Pacific region, China would likely intensify its aggressive policy of resource conquest, specifically with regard to oil, as indicated by its current policy toward Vietnam, Japan, and the Philippines, and the undersea oil fields in various disputed waters It is reasonable to assume that China will desperately need resources and food, and will whatever it has to in order to acquire them Local wars with the above-mentioned nations would not be out of the realm of possibility or reason given the existential crisis that communist China would be facing c09.indd 278 23-04-2013 09:08:47 The Fall of the Red Dragon 279 The Breakup Eventually, as China loses its tight grip on Xinjiang and Tibet and the internal situation deteriorates, the CCP will lose all ability to control China as a whole It would likely retain some control over the urban regions for a time, but even that will not last in the face of famine, an inflow of arms to rebel provinces, and economic collapse The CCP will have lost its legitimacy and its power base in the country, as well-heeled Party members and business owners will flee the sinking ship When high-ranking members of the Communist Party leadership begin to take early morning flights out of China with their families, fortunes, and bankers in tow, the world will know that the game is over for the CCP There will be a great reckoning for those members of the CCP who did not leave China, and there will be a great need to gain control of the PLA in order to obtain a cease-fire within the country, which may prove quite difficult to bring about with any expediency China, finished with the yoke of centralized tyranny around its neck, will then probably break apart into several autonomous regions At some point, before or after the breakup occurs, a new leader or leaders will emerge as an alternative to the CCP Perhaps the leader will come from Taiwan, which would not be out of the question and would be a politically legitimate source for an anti-CCP leader other than a Mainland Chinese individual with proven liberal ideas who might rise to the occasion Or, it may be a group of leaders from various regions and provinces, who collectively wish to not be held under the boot of a central government in Beijing They may agree to a loose federation of Chinese states This outcome might look like and be fashioned similarly to the breakup of the old Soviet Union China’s newly autonomous regions would also be aligned with their historical and ethnic ties rather than be subordinated to the domination of the “one China” vision of the CCP Although this may seem to be presumptuous, it is not at all historically inaccurate China has been unified and divided many times throughout history, and the postSoviet Russian Federation is as reasonable—and ideal—an outcome as one could hope for from China’s collapse But in the context of a major c09.indd 279 23-04-2013 09:08:47 280 THE CHINA CRISIS civil war in China, such a process could take many tragic years of crisis, heartbreak, and suffering throughout the Middle Kingdom What Impact Will China’s Collapse Have on the World? The effect of China’s financial and political collapse will be multidimensional in its unfolding, and its impact will be felt throughout the world Remember, the China that closed itself off from the world for nearly 30 years to develop—or not—in autarky, no longer exists In that period, China’s crises were limited in their scope and effect because China was limited in its scope—it was separate from the rest of the world This is no longer the case Today, China is fully engaged with the world, a crucial part in an interdependent and highly sensitive global financial system Nowhere else is this more true than with regard to the United States China is the largest foreign buyer of U.S debt, holding over $1.2 trillion of U.S Treasury bonds Their large bond holdings provide the liquidity needed for the United States to turn around and use that money to buy Chinese goods as well as to fund the world’s greatest military, which supports U.S foreign policy around the world Chinese loans also allow for the funding of the United States’ ever-expanding social programs, and China’s deep involvement in U.S Treasury markets, banking, and trade means that any interruption in China’s participation in the U.S Treasury bond market would have an immediate impact on the United States’ ability to continue to exist in its current state and status If there is a collapse in China, as this book argues is inevitable, there are many possible scenarios and outcomes, some seemingly more likely than others, but all of them seem to lead to a withdrawal from the purchase of U.S debt by foreign nations.This will have an enormous impact on the United States and the global economy as a whole As mentioned above, when China finally decides to withdraw its participation in U.S.Treasury bond auctions and proceeds to dump large amounts on the open market, the U.S bond market will collapse overnight, as will the dollar The dollar will probably not survive such an attack, at least not as a reserve currency The crashing of the bond market will cause nations to dump the dollar literally overnight Either or both c09.indd 280 23-04-2013 09:08:47 The Fall of the Red Dragon 281 of these events will tip the balance of an already feeble world economy into a Great Depression, marked by naked competition for resources and, as much as anything else, for food The immediate effect of a bond market crash and the collapse of the dollar will likely be a significant level of civil unrest in the United States From a financial standpoint, interest rates will rise, as will inflation Hyperinflation may even come about as dollars lose virtually all of their value in a matter of days However, all dollar-denominated assets will also lose their value.This means stocks, real estate, and whatever else might be priced and valued in dollars This also applies to all Chinese assets valued in yuan, as well As we talked about earlier, the fraud and deception of Chinese companies on the U.S stock exchanges will result in hundreds of billions—if not trillions—of dollars of losses to Americans, and anyone else who had money in those companies.That would be virtually anyone who holds a portfolio of mutual funds.4 Both U.S banks and international banks would also find their asset base decimated by China’s collapse and the dollar’s collapse shortly thereafter International trade and credit agreements would likely have to be voided as well And, since the U.S economy is the engine of growth for the world, as the U.S economy collapsed from the fall of its currency from reserve status and suffering from hyperinflation, the foundations of the global economy would be no more.Taking a double hit from China’s economic collapse and the United States’ deep depression and worthless currency would leave the international trade and finance systems in a state of anarchy The Eurozone economy would continue to shrink, as both its largest source of capital and its largest market suddenly went away Perhaps the greatest impact on the dollar and the global financial system will be the end of the petrodollar arrangement Since 1975, OPEC has agreed to price and sell its oil on the global market in dollars This has created a sustained demand for dollars around the world One could say that the U.S dollar has been on the “oil standard” since 1975 However, as the value of the dollar plunges in this scenario, OPEC would likely stop accepting dollars for oil almost immediately In fact, China has already made several assaults on the dollar by creating dollar exclusion zones for trade with countries like Brazil, Chile, India, and c09.indd 281 23-04-2013 09:08:47 282 THE CHINA CRISIS Iran, and it has set up bilateral trade agreements with Japan and Russia, excluding the dollar as an intermediary currency.5 The loss of the petrodollar itself, if nothing else happened, would send the United States into a situation of very high inflation, if not hyperinflation, as the value and demand for the dollar disappeared The U.S economy—the world’s economic engine—would cease to function anywhere near its previous level and would send the rest of the world into a Great Depression As predicted herein, China’s collapse would trigger a collapse of world trade and finance Nations like Russia and Iran would be less affected perhaps, but as trade and finance receded in the world, other means of obtaining necessities would come to the fore The temptation to engage in war for necessary resources would become the new reality as the military treaties and defense capabilities that the United States has enjoyed since the end of World War II fell apart A broke United States bereft of a viable currency would no longer be able to afford to enforce or honor its treaties around the world The global system as we know it today, although already in the process of disintegration, would go away altogether in a rapid succession of systemic failures Thus, like China’s breakup in the aftermath of its collapse, so too will the world break up The U.S dollar, the world’s reserve currency, will be no more, nor will the world’s policeman be on the beat any longer The deterioration of U.S.-led trade, financial, and defensive systems will lead to a multipolar world marked by shifting alliances and wars for resources and for survival in the new reality Regional currencies, such as a gold-backed yuan, a gold-backed ruble, or baskets of currencies backed by commodities such as oil or even nuclear weapons will likely emerge, or in some cases, may already be in place for this contingency (As noted, China and Russia, as well as other nations, are already in the process of replacing the dollar.) Or, another possibility is that a simple barter system may emerge between some nations and regions, such as oil for food or gold for protection, or the threat of nuclear annihilation to encourage certain transactions In broad terms, the consequences of China’s collapse will result in the unraveling of the international system, which includes trade and defense treaties, peace treaties, and business agreements Such devolution will rapidly push the world into a state of treacherous multipolar c09.indd 282 23-04-2013 09:08:47 The Fall of the Red Dragon 283 disorder All of Europe, North and South America, Japan, and the rest of Asia will struggle to attract investment and revive their economies under great hardship Conclusion In this book, I have sketched a picture of China that is in many ways contrary to how leading China experts view the future of the Middle Kingdom It is certainly also contrary to the widely held belief that the future belongs to the People’s Republic of China, “flexible authoritarianism,” and the Beijing Model of economic development There are some, of course, who also see China in a similar light as I and view the serious foundational problems that China faces as the symptoms of decline of a distorted state economy, which they most certainly are One of those observers is Minxin Pei: The latest news from Beijing is indicative of Chinese weakness: a persistent slowdown of economic growth, a glut of unsold goods, rising bad bank loans, a bursting real estate bubble, and a vicious power struggle at the top, coupled with unending political scandals Many factors that have powered China’s rise, such as the demographic dividend, disregard for the environment, supercheap labor, and virtually unlimited access to external markets, are either receding or disappearing Yet China’s declining fortunes have not registered with U.S elites, let alone the American public. . .  One explanation for this disconnect is that elites and ordinary Americans remain poorly informed about China and the nature of its economic challenges in the coming decades The current economic slowdown in Beijing is neither cyclical nor the result of weak external demand for Chinese goods China’s economic ills are far more deeply rooted: an overbearing state squandering capital and squeezing out the private sector, systemic inefficiency and lack of innovation, a rapacious ruling elite interested solely in self-enrichment and the perpetuation of its privileges, a woefully underdeveloped financial sector, and mounting ecological and demographic pressures.6 c09.indd 283 23-04-2013 09:08:47 284 THE CHINA CRISIS Like the above quotation, the portrayal herein of a China that most people may not know exists, with all of its failures and falsities, its moral and political bankruptcy, and its headlong rush into environmental catastrophe, is closer to the truth The temptation to view the rise of China in the twenty-first century as inevitable and permanent is like the observation in the 1970s that saw the rise of communism worldwide as the inevitable model for development: it is reflective of an inability to discern the signs of decay and failure, and perhaps is also a function of bias on the part of the observer Those who view China as the natural and obvious heir to global leadership and the true economic model for the future, however, are greatly deluded in their expectations Notes Yenni Kwok, “You Can’t Kill Confucius,” Asia Sentinel, October 12, 2007, www.asiasentinel.com/index.php?option=com_content&task=view&id=76 2&Itemid=171 Kwok Pui-Lan, “Mao, Meet Confucius: China’s Religious Revolution,” Religion Dispatches, January 18, 2011, www.religiondispatches.org/archive/ culture/4046/mao meet_confucius china_s_religious_revolution “Xinjiang Unrest: China Blames Unrest on Pakistan-Trained Terrorists,” The Express Tribune, August 2, 2011, http://tribune.com.pk/story/221828/ china-blames-xinjiang-unrest-on-terrorists Jeff Cox, “China’s a ‘Roach Motel’; Don’t Trust the Numbers: Chanos,” CNBC, September 20, 2012, www.cnbc.com/id/49099734/China039s_a_039 Roach_Motel039_Don039t_Trust_the_Numbers_Chanos Hao Li, “China-Russia Currency Agreement Further Threatens U.S Dollar,” International Business Times, November 24, 2010, www.ibtimes.com/chinarussia-currency-agreement-further-threatens-us-dollar-248338 Minxin Pei, “Everything You Think You Know about China Is Wrong,” Foreign Policy, August 29, 2012, www.foreignpolicy.com/articles/2012/08/29/ everything_you_think_you_know_about_china_is_wrong c09.indd 284 23-04-2013 09:08:47 About the Author James R Gorrie is a freelance writer and editor with a very eclectic background He began his career in graduate school, becoming a PhD candidate in international relations and comparative politics at the University of California before leaving to work in the private sector James spent 18 years in the financial services industry, and is a registered investment advisor Most recently, he was an editorial director and managing editor for an Internet marketing company He has also ghostwritten for a major reality television personality; wrote, directed, and produced a multi-award winning feature film, The Indian (without going to film school); and has written about a dozen screenplays and three novels James enjoys fiction and nonfiction writing, family activities with his wife and three boys, film, and travel He lives in Austin, Texas 285 babout.indd 285 23-04-2013 09:11:15 babout.indd 286 23-04-2013 09:11:15 Index Aging population, 86–88, 237–238 Air pollution, 178–179, 182, 183–184, 187, 191, 192–194 AlixPartners, 134 Andrews, Steven, 184 Aoyama, Rumi, 39 Apple, 146 Arab Spring events, 232 Argentina, 53 Assessment criteria, 42–43 Asset bubbles, 158–159 Authoritarian political structure, 115–117 Badain Jaran Desert, 210 Badkar, Mamta, 225 Banking system, 125–131 See also Lending practices domestic debt crisis, 126–127 government bank failings, 154–155 real estate bubble, 128–131 triangular debt, 127 underperforming loans, 159–161 zombie corporations, 127–128 Beijing model, 3, 6, 58–59, 65, 100–141, 274 authoritarian political structure and, 115–117 and CCP power, 108–114 corruption and, 118–125 domestic demand, 134–137 effect on middle class, 237 environmental degradation, 139–141 (see also Environmental degradation) foreign investment and foreign demand, 131–133 impacts of, 10–11 labor costs, 133–135 one-child policy, 69, 86–88, 137–138 origins and characteristics of, 104–108 problems of, 114 purpose, 114–115 state control of banks and capital, 125–131 step one (Open Door policy), 112 step two (Tiananmen aftermath), 112–114 Beijing Municipal Public Security Bureau, 75 Berkeley China Internet Project (UC Berkeley), 91 BHP Billiton, 132 Birth defects, 196 Black soil depletion, 207 Black Swan events, 265 The Black Swan:The Impact of the Improbable (Taleb), 265 Boeing, 146 Boston Consulting Group, 134 Bo Xilai, 91–92, 93–94, 119, 121, 228–229, 230 287 bindex.indd 287 23-04-2013 09:13:55 288 INDEX BP oil spill, 189 “A Brand New Type of Credit Crisis Is Producing a Domino Effect in China” (Chovanek), 163 Burma, 251, 254 Calamity and Reform in China (Yang), 25 Cancer villages, 197–198 Capitalism, 3–4, 10–12, 65–67, 73, 78–81, 88–89, 99–100, 100–141 See also Beijing Model CCP See Chinese Communist Party (CCP) Central Asian Islamic republics, 259 Chang, Gordon, 37 Chanos, Jim, 129 Chavez, Hugo, 116 Chengdu Plain, 209 Chen Guangcheng, 242–243 Children: one-child policy, 69, 86–88, 137–138, 242 social development of, 138 China: assessment criteria overview, 42–43 as a brand, 38–40 civil war scenario, 275–279 codependency with United States, 32–33 commodities consumption, 34–37 cultural footprint, 38–40 distinction as an empire vs nation, 249–250 effects and outcomes of global financial crises on, 18–21 Four Principles of, 108–109 historical overview, 21–30 impacts of collapse of, 280–283 investment in U.S bonds, 13–14, 32–33, 36, 39, 146–148, 166, 278, 280 manufacturing practices, 33–34 reasons for development since 1980s, 61–64 China on the Edge:The Crisis of Ecology and Development (Bochuan), 203 China Reform Foundation, 77 China Young Volunteers Association, 38 Chinese Communist Party (CCP), 22–25, 28–30 See also Beijing model Bo Xilai scandal (see Bo Xilai) challenges for new leadership, 237–244 comparison to Soviet rule, 88–90 economic development under, 58–59 and environmental abuses (see Environmental degradation) fear and greed within, 262–263 bindex.indd 288 invitations for open criticism of, 224–227, 220–231 land policies, 203–204 legitimacy issues, 54–56, 82–83 oppression under, 57–58 power transitions and, 90–95, 223–231 reaction to dissenters, 241–243 rule by committee, 227–228 shortcomings of new leadership, 93 threat of middle class to, 63–64, 67–68 threat of Taiwan to, 83–85 Chinese Journal of Food Hygiene, 171 Chovanec, Patrick, 150, 162–163 Chung, Robert, 257 Civil war scenario, 275–278 Command economies, 100–103 Commodities consumption, 34–37 Communist countries: common traits of, 5–6 government characteristics, 9–10 Complexity theory, 263–270, 275 Concept of scale, 267 Confucianism, 274 Construction and engineering inferiority, 124, 156, 181 Contamination See Environmental degradation; Toxic products Corruption and fraud, 9, 103–104 in banking system, 125–131 and Beijing model, 118–125 cycle of, 70–71 food production process, 170–171 GDP statistics, 111, 122, 148–152, 187 inferior engineering and products, 124, 156, 181 intellectual property and technology theft, 123 pollution statistics, 183–184 reforms against, 230 in Soviet Union, 73 taxation imbalance, 81–82 toxic products, 124–125 Creativity, 43 Credit, availability of, 125 Critical state, 266–267 Cuba, 5, 28, 103, 186 Cultural considerations, 252–253 Cultural Revolution, 6, 26–30, 55, 91, 273–274 Currency issues, 37–38, 164–165 Currency policies, 235, 278, 281–282 Currency Wars (Rickards), 264 Cyclical market forces, 78–81 23-04-2013 09:13:56 Index Dalai Lama, 260–261 Dali Yang, 25 Debt crisis, 126–127, 152–161 Deflation, 167 Deforestation, 207–208 Degree distribution, 267 Democratic Progressive Party (DPP), 110 Deng Xiaoping, 29, 56, 62, 65, 262 Four Principles of China, 108–109 and Taiwan, 12–13, 84, 112 Desertification, 199–200, 207, 208–211 Development: drawbacks, 30–31 imbalances, 240 reasons for, 155–156 DiLorenzo, Thomas J., 187 Diplomacy, 39, 253–254 Dollar, value of See Currency issues; Currency policies Dollar exclusion zones, 38 Dynamism, 42 Economic and financial policy repercussions, 172–174 Economic contradictions, 88–90 Economic development: China vs India, 58–59 currency manipulation, 164–165 unevenness of, 71–72 unreliability of statistics on, 111 Economic hardship and disparity, 9–10 Economic integration, global, 30–31 Economic policy repercussions, 172–174 Economic strength, perception of, 146–148 Economies, command vs capitalist, 100–103 Elite, exodus of, 119–120 Emergent properties, 266 Emigration policies, 255 Encyclopedia of Marxism (website), 26 Environmental degradation, 103–104, 177–214, 275 air pollution, 178–179, 182, 183–184, 187, 191, 192–194 land/soil pollution, 200–202 private consumption vs industrial causes, 182–183 protests and violence about, 180 reasons for, 139–141 reasons for lack of reform, 202–204 as root of security threats, 213–214 scope of, 178–180, 190–198 bindex.indd 289 289 Soviet Union, 139, 182, 185–187 from technology, 188–189 water pollution, 194–199 Environmental responsibility, 188–190 Euro crisis, 3–4, 19–20, 39, 131, 147–148 Exodus of Chinese elite, 119–120 Famine, threat of, 90, 195, 199, 205, 211, 214 Farmland, 201–202, 204–207 Financial crisis of 2008, 3–4, 152 First Auto Works (FAW), 53 Five Year Plan, 74, 165 Flexible authoritarianism, 231 Food energy efficiency, 170 Food prices, 169 Food production, 204–207 Food shortages, 211, 275 Food supply and distribution, 169–172 Forced abortions, 87 Foreign demand for products, 131–133 Foreign investment dependence, 131–133, 135–136 Foreign oil sources, 234–236 Four Principles of China, 108–109 Foxconn, 133 Friedman, Edward, 62 Fukushima nuclear accident, 188–189 GDP statistics, 111, 122, 148–152, 187 Gender imbalance, 137 See also One-child policy Germany, 251 Ge Zhaoquiang, 130 Ghost cities, 136 Glasnost and perestroika, 29, 88–90, 110, 232 Glasshouse Forum, 115 Global economic integration, 30–31 Global financial crisis, 18–21, 64 See also Financial crisis of 2008 Global hegemony prospects, 250–254 The Global Times, 12 Gobi Desert, 209 Gold fever, 35–37 Gold investments, 169 Gorbachev, Mikhail, 8, 29, 88 Government bailouts, 154 Government bank failings, 155 Government ownership of firms, 126 Gray economy, 76–78 Great Britain, 251 Great Depression, 18 Great Leap Forward, 6, 24–25, 74, 181, 274 23-04-2013 09:13:56 290 INDEX Green Earth Volunteers, 180 Grubb, Marcus, 35 He Bochuan, 203–204, 206 Hempton, John, 123 Heywood, Nick, 92, 121, 229 He Zhi Hua, 51 Hidden income, 77 Hong Kong, 65–66, 84–85, 256–257, 277 Hukou system, 85–86, 113 Hu Fulin, 154 Hu Jintao, 72, 73–74, 92, 148–149, 160, 224–225 Human organ trafficking, 121 Hurewitz, Jeremy, 53, 118 Hu Yaobang, 109, 110–111, 113, 230 Iacono, Tim, 35 Imperial overstretch, 252, 254–255 Income gap, 114 India, 51, 58–59 Inferior engineering and products, 124, 156, 181 Inflation, 156–157, 167, 168–169 Information flow, 67–68 Infrastructure and construction projects, 136 Instability See Instability sources; Stability/instability Instability sources, 66–95, 124–125 civil unrest, 75–76 corruption, 72–75 decline of traditional cultural values, 68–69 downward corruption cycle, 70–71 Hukou system and urban/rural conflicts, 85–86 inability to adapt to cyclical market forces, 78–81 loss of economic control and gray economy, 76–78 middle class decline, 68–69 middle class emergence, 66–68 one-child policy and pension crisis, 86–88 political and economic contradictions, 88–90 Taiwan, 83–85 taxation imbalance, 81–82 unevenness of economic development, 71–72 weakening political legitimacy, 82–83 Intellectual property theft, 123 Internal security forces, 54–55 Internal separatists, 212 Inventory surpluses, 165–166 Investment risk, effects of instability on, 47–48, 53–54 Islamism, 259–260, 276 bindex.indd 290 Japan, 22–23, 95, 130 Jasmine Revolution of 2011, 241 Justice, 43 Knowledge-based economy, 80 Kolcraft, 133 Kuhn, Thomas, 269 Kumtag Desert, 209 Kuomintang government, 55 Labor costs, 133–135 Land ownership structure, 204 Land reform, 86 Land seizures, 72, 74, 86, 275–276 Land/soil pollution, 200–202 Lao Zhang, 206 Legitimacy of government, 49–51, 54–56 Lending practices See also Debt crisis; Real estate bubble loans to U.S corporations, 161–164 underperforming loans, 159–161 Liberalization efforts, 231–232 Li Keqiang, 92, 122 Loans, underperforming See Lending practices Longtop Financial Technologies, 123 Maguire, Glenn, 169 Male-female imbalance, 87 See also One-child policy Manufacturing costs, 133–134 Manufacturing economy, 64, 79–80, 140, 238 Manufacturing expansion, 33–34 Mao Zedong, 23–27, 55, 90–91, 210, 231 Market-Leninism, 89 Marx, Karl, 55 Materialism, 274 Microsoft, 146 Middle class: decline of, 68–69, 237, 240 demands of, 65–66 impoverishment of, 114 rising dissatisfaction of, 63–64 as source of instability, 66–68 Migration, rural-to-urban, 85–86 Ministry of Environmental Protection, 195 Ministry of Lands and Resources (MLR), 205 Minqin, 209 Minxin Pei, 243, 283 Moral degradation, See also Morality crisis Morality crisis, 72–76, 120–121, 140, 240–241 Muslims, 259–260, 276 23-04-2013 09:13:56 Index Mutual lending, 153–154 Myanmar (Burma), 251, 254 National Bureau of Statistics, 122 Nationalism, 94–95, 232–236 Nationalist Party, 22–23 Nishimura, Kiyohiko J., 130 North Korea, 5, 28 Oceans, pollution of, 198–199 Offshore dead zones, 198 Olson, Mancur, 149 One-child policy, 69, 86–88, 137–138, 242 100 Flowers Campaign, 231 Open Door policy, 65, 67, 108–110, 112 Pakistan, 259, 260 Pan Yue, 187–188 Paradigm shifts, 269 Passports, 235 Peng Peng, 190 Pension crisis, 86–88 People’s Bank of China (PBOC), 78, 132, 157 People’s Liberation Army (PLA), 114, 276 Petro-dollar arrangement, 281 Phase transitions, 266 Philippines, 95 Politburo Standing Committee, 92, 94 Political adaptation, 43 Political contradictions, 88–90 Political legitimacy, 82–83 “Political Reform” (Suisheng Zhao), 63 Pollution, 103–104 See also Environmental degradation air, 178–179, 182, 183–184, 187, 191, 192–194 land/soil pollution, 200–202 water, 194–199 Population redistribution policies, 255 Populists, 228 Power law curve, 268 Power transition, 90–95, 223–227 call for openness and reform, 224–227, 230–231 declining power of CCP, 240–244 domestic crises, 237–240 foreign and domestic policy implications, 231–236 generational elements, 232–236 liberalization vs stability, 231–232 new nationalism, 232–236 party divisions and struggles, 227–231 bindex.indd 291 291 Princelings, 172–174, 228, 262 Private lending, 153–154 Privilege, division by, 238–239 Protestant Christianity, 274 Putin,Vladimir, 116 Quantitative easing, 17 Reagan, Ronald, Real estate bubble, 126, 127, 128–131, 157–159 Religious persecution, 121 Renewability, 43 Repercussions of economic and financial policies, 172–174 Resource allocation, Reykjavik Summit, Rickards, James, 264, 269 The Rise and Decline of Nations (Olson), 149 Rogoff, Kenneth, 129 Ruoergai grasslands, 209 Savings rate, 166–168 Scapegoating, 94–95 Security, perceived threats to, 211–214 Self-inflicted crises, 23–24 Separatism, 212 Service economy, 64 Shadow banking, 163 Shanghai, 277 Sing Yuqin, 210 Socioeconomic divisions, 238–239 Soft power, 253–254 Soil pollution, 200–202, 210–211 Soviet Union, 28, 42 collapse of, 5, comparing China to, 248 corruption in, 73 economic system of, 88 environmental damage in, 139, 182, 185–187 as example of command economy, 103 glasnost and perestroika, 29, 88–90, 110, 232 reaction to dissenters, 243 Stability/instability, 42 See also Instability sources characteristics and effects of instability, 52–54 current sources of, 58–59 defining, 49–51, 53 effects of transfer of power on, 90–95 effects on trade, 47–48 history of stability in China, 56–57 risks and symptoms of instability, 48 and unevenness of development, 52 23-04-2013 09:13:56 292 INDEX Standard Chartered, 133 State capitalism See Beijing model State violence, 241 Sterilization bonds, 157 Stimulus spending, 78, 152–157, 168 The Structure of Scientific Revolutions (Kuhn), 269 Suisheng Zhao, 63 Surplus inventories, 165–166 Taiwan, 12–13, 83–85, 110, 112, 257–258, 277 Taizidang, 228 Taklimakan Desert, 209 Taleb, Nassim Nicholas, 265 Tax policy, 64, 81–82 Technology explosion, 67–68 Technology theft, 53–54, 123, 137, 146 Tengger Desert, 210 Threats to security, 211–214 Tiananmen Square massacre, 28–29, 51, 65, 109, 110–111, 112–113, 212, 256 Tibet, 255, 258, 260–262, 277 Toxic products, 124–125, 171 Trade practices, 122–125 Trading partnerships, 32–33 Traditional cultural values, 69–70 Tragedy of the commons, 9, 10, 185–187, 204, 274 Triangular debt, 127, 162 Tuanpai, 228 Uighur nation See Xinjiang province Underemployment/unemployment, 87 Underground lending, 78 United States: China’s bond investments in, 13–14, 32–33, 36, 39, 146–148, 166, 278, 280 codependency with China, 32–33 effects of China collapse on, 280–283 redevelopment aid to other countries, 104 Urban militias, 276 Urban/rural conflicts, 85–86 bindex.indd 292 Vietnam, 95 Violence against protesters, 241 See also Tiananmen Square Volkswagen, 53–54, 146 Wang Xiaolu, 77 Wang Yongchen, 180 Water pollution, 194–199 Water supply, 213 Wealth, in new CCP leadership, 262–263 Wealth distribution, 71–72, 113 Wealth Management Products (WMPs), 155 Weathington, Dale, 133 Wei-Wei Zhang, 116 Welfare programs, 238 Wen Jiabao, 126 “Wenzhou Model,” 153–154, 163 Western influences, 64–66 “Why Socialism Causes Pollution” (DiLorenzo), 187 Workforce, aging of, 237–238 World Trade Organization (WTO), 34, 125, 151 Wu, Harry, 122 Wuttke, Joerg, 133 Xiao Qiang, 91 Xie, Andy, 128 Xi Jinping, 92, 222–226, 230, 262 See also Power transition Xinjiang province, 258–260, 276 Yasheng Huang, 109–110 YPF, 53 Yuan devaluation, 165–168, 278 Zhang Bing, 75 Zheng Guoguang, 205 Zhou Jianmin, 201 Zombie corporations, 127–128, 157 23-04-2013 09:13:56 ... fatal flaw in China s rise as a sustainable economy and as a global power China s government, with all the wealth that has come to China, suffers from a legitimacy crisis amongst the vast majority... mentioned that I wanted to make it as informative yet easy to read and digest as possible I wanted the book to appeal to the business individual as well as academics and those with a causal interest... information about Wiley products, visit www.wiley.com Library of Congress Cataloging-in-Publication Data: Gorrie, James R The China crisis : how China s economic collapse will lead to a global depression