Tag Archives: china

Social unrest coming to Europe? If not, why not?

Summary: Five years of crisis in Europe, yet its streets remain mostly calm. What accounts for this? How long will it continue?

“At the heart of the crisis, there is the challenge of redefining the social contract to safeguard the sustainability of Europe’s social model.”
Speech by Benoit Coeure (Executive Board of the ECB), 2 March 2013

“Spot on, Benoit. The trouble is European leaders and institutions seem to want to redefine the contract in ways that at least half of European citizens don’t approve, or trust them to carry out. So underneath the three-headed crisis of austerity, banking and sovereign debt, we have one of legitimacy and trust, which is feeding social unrest.”
— George Magnus, Economic Advisor, UBS, 20 March 2013

Liberty Leading the People, Eugène Delacroix (1830)

The painting “Liberty Leading the Way” commemorates the July Revolution of 1830, midpoint to a century of social unrest in France. It shows the result of mismanaging the forces of change.


  1. Why is Europe still stable?
  2. What comes next?
  3. Compare with China
  4. Leave a comment
  5. For More Information

(1)  Why is Europe still stable?

The stability in Europe since the second downturn began in March 2010 has surprised many observers (eg, me). Three years of depressionary conditions in the periphery have produced no large, severe outbreaks of social unrest. Elections have produced majorities in favor of the European Union and the austerity it mandates (we’ll soon see if February’s election in Italy broke this record).

What produces this stability? The usual supports for incumbent systems are human inertia and people’s dislike of radical change.  Hence the failure of the frequently made forecasts of regime change in developed nations. But those explanations seem in adequate, as does embrace of the EU from fear of war.

History provides a possible answer: the lack of an alternative. Thomas Kuhn in his The Structure of Scientific Revolutions (1962) says that scientific paradigms die not when they are disproven, but when they are replaced by a superior alternative. In much the same way revolutions (peaceful or otherwise) require a new political or economic ideology that can substitute for the old.

Without an alternative, accumulated stress breaks out in futile forms, such as protests and riots. These are a commonplace of history, such as the peasants’ protests (Wikipedia) and race riots (Wikipedia). These can produce incremental reforms (although they usually didn’t), but participants seldom had a vision of a realistic better system. Although recognized as defective, other systems were considered less attractive or unworkable (eg, plutocracy in Holland, city-states in Switzerland). For centuries this provided a buttress for European monarchies.

(2)  What comes next in Europe?

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About China’s real estate bubble: fact and fiction

Summary: Facing a new powerful rival presents a hegemon with choices. We can improve our game, reform, revitalize to meet the challenge. Or take refuge in fantasy, ignoring our weaknesses and exaggerating those of our rival. America has chosen door #2. Here we peer through the propaganda fog, seeking a better perspective on one aspect of the China’s bust forecasts — China’s real estate bubble.


China’s real estate bubble, 60 Minutes, CBS News, 3 March 2013 — “If trouble comes in threes, then what’ll be the next global market to melt down after the U.S. and Europe? Some are looking nervously at China.”


In 2001 attorney Gordon Chang published The Coming Collapse of China. He listed China’s most serious problems, concluding

How much time does China have? No one knows for sure, but China cannot continue to spend at the current pace for much longer. Beijing has about five years to put things right. No government, not even China’s, can defy the laws of gravity forever.

In the 13 years following that prediction China’s rapid growth has continued. Since then many others have joined Chang’s chorus of doomsters (few or none acknowledging the failure of their forecasts). And China does have serious problems. Even its long period of rapid growth has become problematic, inducing stress requiring fundamental political, economic, and social reforms. But everybody, every nation, has problems. What differentiates the fates of nations? One factor is their ability to see their challenges and respond to them. China’s history since Mao’s death in 1976 shows such wisdom and adaptability, probably on to a greater degree than Japan, Europe, or America.

Another is their boldness and willingness to invest in their future. That was once a characteristic of America, with the government undertaking great projects before they were commercially viable, such as the Erie Canal and the Transcontinental Railroad. Contrast America’s mad low level of infrastructure investment (shown here). Now we mock China for doing something similar, building high speed railroads — while they can do so cheaply, to be used for the next dozen generations. Which decision will look wiser a century from now?

Today’s the doomsters focus upon China’s real estate boom, probably projecting America’s stupidity on China’s leaders. It’s mad imperial logic:

  • We poorly handled our real estate bubble.
  • We’re better than China.
  • Therefore China will do even worse. QED.

But there’s always a remnant of the clear-sighted — those who see the world in terms of data and processes, not fears and linear extrapolations. For example, here are some excerpts from a Bank of America Merrill Lynch’s report “Demystifying China’s ‘ghost towns’”, by Ting Lu, Xiaojia Zhi and Larry Hu (13 March 2013).

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Can we see China through our veil of propaganda?

Summary: Our newspapers coverage of the world consists to a large extent of propaganda. Nations appear as either allies, enemies, and wilderness. And rivals are often portrayed as enemies, no matter ow much spin or outright fabrication required. Here we look at China, attempting to see through the fog.



The first of two posts; tomorrow we look at China’s real estate bubble.


  1. China the evil militarist
  2. China the cyberattacker
  3. For More Information

(1)  China the evil militarist

China dares to seek regional hegemony, just like the US did early in our history. They date to seek military strength proportionate to their new rank among the world’s great powers.  Our government — echoed by its courtiers and the press — portrays these things as evidence of China’s malevolent intentions to disturb world peace. Seldom mentioned is that the US and its allies outspend China’s military by 7x+.  Spending just by Japan, S Korea, and Australia almost equals China’s.

What China should say to the world:

It is only when our rights are invaded or seriously menaced that we resent injuries or make preparation for our defense. With the movements in this hemisphere we are of necessity more immediately connected, and by causes which must be obvious to all enlightened and impartial observers.

We owe it, therefore, to candor and to the amicable relations existing between China and those powers to declare that we should consider any attempt by other nations to extend their influence to any portion of East Asia as dangerous to our peace and safety.

We could not view any interposition for the purpose of oppressing our neighbors, or controlling in any other manner their destiny, in any other light than as the manifestation of an unfriendly disposition toward China. It is the policy of China to leave our neighbors to themselves, in hope that other powers will pursue the same course.

— A slightly altered version of the key lines of Monroe’s speech in December 1823

Would China be sincere in these words? Based on their history, probably more so than was the United States. In the 19th century we provoked war with Mexico, taking one-third of its land.  In his Memoirs Grant described the war as

“one of the most unjust ever waged by a stronger against a weaker nation. It was an instance of a republic following the bad example of European monarchies, in not considering justice in their desire to acquire additional territory.”

That was just the opening act of our sad relation with our southern neighbors. See this list of US interventions in Latin America during the 20th century.  Little in China’s long history suggests that it will act as belligerently as has the US.

For more info see “China’s Military Development, Beyond the Numbers“, Andrew S.Erickson and Adam P. Liff, The Diplomat, 12 March 2013.

(2)  China the cyberattacker

Lately the news media have overflowed with allegations of cyberattacks by China. This joins together two streams of US propaganda.

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A reason for the US military expansion into Africa

In 2004 the US military began to expand into Africa. In 2007 they created Africa Command (Africom). Since then they’ve accelerated and expanded operations. Africa has great natural resources, but why more interest now?

Here is one possible explanation: the great game. A rival great power expands its reach and things of no interest to us suddenly become worth contesting.  China has become a major importer from many African nations, and the US replies to this challenge in the only way it knows how.

From Bloomberg Briefs, 26 February 2013

From Bloomberg Briefs, 26 February 2013

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What will China’s new leaders do? Bold or incremental reforms?

Summary:  China is one pole of the 21st century world. Skeptics have predicted China’s crash for over a decade.  Even the IMF has began warming about China’s over-investments and shake banking system. Now a new generation of leadership take command. Much depends on their decisions, which will affect both China and the world.



Western experts believe China’s new leaders will act cautiously and conservatively on their major domestic programs:

  1. they will prioritize steady strong economic growth over structural economic reform,
  2. they will avoid potentially destabilizing (ie, large) political reform, hoping that steady economic growth maintains the Communist Party’s legitimacy.

Both of these goals seem unwise. The combination might be lethal for China.

China has long-deferred problems, and a window of strong growth in which to act. The alternative, so common in history, is to delay until an economic crisis forces action — under difficult circumstances. Most leaders believe that delay preserves options.  False. Time inexorably closes more options than it opens.

Another scenario:  China’s new leaders, who take office in March, act boldly to take advantage of the “new team” honeymoon. Political capital is usually strongest on day one, and tends to decline over time (ie, friends come and go; enemies accumulate).

However, even bold action might prove futile since these goals are contradictory.

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BRIC building: the future of Brazil, Russia, India and China

Summary: Today we have a follow-up by Paul Schulte to Does corruption limit China’s growth, or pose a threat to its existence? He looks at the leading emerging nations, comparing them to the US and UK at similar point in their evolution to greatness.


BRIC building: the future of Brazil, Russia, India and China

By Paul Schulte
Institutional Investor magazine, in press
Republished here with his generous permission.

The challenge of the BRICs

The November/December 2012 edition of Foreign Affairs Magazine had an article called “How the BRICS Are Crumbling” by Ruchir Sharma (head of Emerging Markets at Morgan Stanley). The tone of the article seems off the mark. The BRICs {Brazil, Russia, India, China} are slowing because they are trying to slow credit growth due to the links of their currencies to the US dollar. They are trying to slow down credit growth while the West desperately uses zero interest rates to accelerate credit growth. So, the West and the BRICs are operating at cross purposes.

The BRICs countries have dollar-linked currencies, so when interest rates are zero in the West and high in BRICs countries they will be bombarded with capital seeking a higher return. This causes their currencies to appreciate, jeopardizing growth. Or, the BRICs countries must intervene domestically to force banks to slow credit growth as these banks fill with cash. Either way they encounter forces which cause their currencies to rise and credit growth to accelerate. This is a classic cocktail for a real estate bubble and accelerating inflation.

Brazil and China are experiencing the same phenomenon now. Both are essentially trying to slow down their respective economies, although China has been more successful.

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Does corruption limit China’s growth, or pose a threat to its existence?

Summary:   Critics of China often cite its high level of corruption as a limiting factor to its growth, or a possible cause of its fall — or even disintegration. Like so many of American’s views about China, it’s false. Probably a way to diffuse awareness that a powerful rival has emerged on the world stage.  Here we compare China’s corruption to that of America’s past — and present.



  1. China today
  2. Late 19th century America
  3. America today
  4. For More Information


(1)  China today

Is Corruption in China ‘Out of Control’? A Comparison with the U.S. In Historical Perspective“, Carlos D. Ramirez (Assoc Prof Economics, George Mason U), 4 December 2012 — Abstract:

This paper compares corruption in China over the past 15 years with corruption in the U.S. between 1870 and 1930, periods that are roughly comparable in terms of real income per capita. Corruption indicators for both countries and both periods are constructed by tracking corruption news in prominent U.S. newspapers. Several robustness checks confirm the reliability of the constructed corruption indices for both countries.

The comparison indicates that corruption in the U.S. in the early 1870s — when it’s real income per capita was about $2,800 (in 2005 dollars) — was 7 to 9 times higher than China’s corruption level in 1996, the corresponding year in terms of income per capita. By the time the U.S. reached $7,500 in 1928 — approximately equivalent to China’s real income per capita in 2009 — corruption was similar in both countries.

The findings imply that, while corruption in China is an issue that merits attention, it is not at alarmingly high levels, compared to the U.S. historical experience. The paper further argues that the corruption and development experiences of both the U.S. and China appear to be consistent with the “life-cycle” theory of corruption — rising at the early stages of development, and declining after modernization has taken place. Hence, as China continues its development process, corruption will likely decline.

(2)  Late 19th century America

This unflattering comparison of modern China with late 19th century America should not surprise us. Post-civil war America (especially the Gilded Age) America was a horror show. Public and private force was used to suppress Blacks, American Indians, Asians, and workers (see the Wikipedia entry, also for the 1892 Homestead Strike and the 1894 Pullman Strike).  When the cavalry arrived, it was often to help the bad guys (or one of the groups of dueling bad guys, as in the Lincoln County War).

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