Like me, most BFD readers would be old enough to remember when Russia was feted as the emerging economic superpower. Through the late ’70s and early ’80s, the communist giant was hailed as the economic Next Big Thing that would put those upstart capitalist Yanks in their place, once and for all.
Then it was the “Orange Revolution”, and countries like Brazil and Venezuela. Brazil peaked relative to the US in 1980 and has slid ever since. Venezuela… well, we all know how that turned out. Then there were the “Asian tigers” of the early 2000s.
But the Great Red Hope for the past few decades has been China. Once Mao was safely embalmed, the turnaround was remarkable. This time, the likes of the Economist bragged, America was done for.
For a while, it might have even seemed true. But, every time I heard some enthusiast swooning over Chinese growth figures, the same thought occurred to me: that’s if you believe the Chinese Communist Party. Like the Soviet Union, “official figures” only ever mean, “what the CCP wants you to know”.
Also like the Soviet Union, it’s starting to look as though there’s an awful lot that the CCP has been keeping from us.
What began as a run on a handful of provincial banks is rapidly morphing into one of China’s worst financial scandals, threatening the stability of the country’s heavily indebted financial system. It poses a serious challenge to a Communist party obsessed with social order, which has thuggishly cracked down on desperate depositors demanding their money back.
As it always has, the CCP is brutally determined to keep up appearances. Protesters have been beaten and reports and videos of the disturbances were quickly scrubbed from Chinese social media.
In an ominous warning for those in the West who flocked to tell the government their whereabouts at all times via ‘Covid apps’, the CCP has used similar apps to stifle protests and stop bank runs. Under China’s “social-credit” system, “red-rated” citizens can be essentially grounded: prohibited from purchasing tickets, forbidden from obtaining travel permits… Many have been grounded.
Official claims that “criminal gangs” have defrauded the protesters seem to be sort of true – but not the whole story.
In typical communist fashion, banks have colluded with local authorities and well-connected firms and individuals.
It was a recipe for corruption. At the same time, small investors were offered ‘wealth-management products’ that typically offered high-interest rates, which were necessary to attract the funds to pay off earlier investors – a classic Ponzi scheme.
Also in typical communist fashion, the problem could be hidden, so long as the CCP continued to pump money into the economy. But the CCP is rapidly running out of money.
Economic growth is stagnating and the Covid-19 pandemic and the CCP’s ceaseless lockdowns are taking their toll. Bad loans are soaring.
At the same time, after years of soaring real estate prices, China’s property bubble is bursting […]
Property is the main driver of China’s domestic economy, accounting for almost a third of GDP. A large proportion of local government income comes from selling land to the property developers, an income flow that is now drying up. There is concern about hidden local government debts because of the widespread use of opaque financing vehicles, often in collusion with local banks. By one estimate, outstanding local government debt is worth 44 per cent of GDP, but nobody knows for sure, since the financial system is so lacking in transparency.
The Spectator
As the Soviet Union, and even the rent-seeking crony capitalists of the Clinton-Bush era, found: you can only slap so much paint and cheap guilt over dry rot until the whole, termite-ridden edifice comes crashing down.
