China’s imbalances stand on currency surpluses and yuan manipulation (III)
The Chinese juggernaut has a huge, export-driven manufacturing sector based on foreign exchange scam and shady projects. Beijing fears changing its development model because that might trigger mass social unrest. Russia, India, and Latin America have their own problems. No where is there any hope for the growth of the real economy. Our expert in political economy presents the third of his four-part analysis.
Milan (AsiaNews) – To be fair, after focusing on the American paradox, talking about the paradox of China and its imbalances was called for. Its economy has been driven solely by exports with an unprecedented expansion of its production base and foreign currency surpluses, a situation is the reverse image of the United States. But like the American paradox, China’s too can no longer be sustained.
The mainland’s extraordinary economic development over the past 20 years is based on a fatal flaw. Everybody has known for a long time that China’s growth has been based wholly on a currency scam (with the yuan undervalued by up to 30/40 per cent in terms of purchasing parity); on forced technological transfers, including intellectual property theft; on limited domestic consumption; and, finally, on the use of financial surpluses to give the ruling Communist Party the means to maintain political and social control over the country.
The dark and disturbing side of this is the systematic plundering of savings by banks and financial institutions to prop up inefficient and insolvent state or para-state enterprises or to finance projects and infrastructures useful only to local political leaders and their cronies.
After ten years of actual flat growth in the world, running counter to China’s own inflated export-oriented manufacturing sector, another contradiction has to be taken into account. In fact, China’s Quantitative Easing (QE) has been used to build new industrial plants, adding more, expensive, and underutilised excesses productive capacity to the economy.
As we have recently seen, China’s corrupt Communist leaders have given themselves the right to rule the country for life, or rather indefinitely. Like in the United States, in China too, politics has trumped the need to solve the system’s economic contradictions. China cannot in fact stop piling up currency surpluses, or revalue the yuan against the dollar, or accept protectionism and tariffs that would stop its excess exports. To do any of this would mean the failure of whole pieces of its manufacturing sector that produce only for export. It would also mean mass layoffs, and the possibility of mass riots and regime collapse. China’s paradox, a mirror image of that of the United States, is getting worse and increasingly unsustainable.
Yet, how can anyone imagine that an economy like China’s – parasitically dependent on others’ ideas, ruled by a dictatorial regime, with much of its workforce in quasi-slave conditions – can generate real economic development in the world?
And then come Russia and India
Thus far, we have touched upon the world’s three main economic regions. Again, to be fair, we must say something – just a few words – about other parts of the world.
Let’s start with Russia, a country facing the complex restructuring of its banking sector, run by small cohort of people trained by the heirs of the chekists of the early Bolshevik era, where the only manufactured goods worth their price are weapons; a country that can only export raw materials like oil and natural gas;
Next comes India, the land of Hindu supremacists, with crumbling and inadequate infrastructures – often dating back to the British colonial era – crushed by a stifling bureaucracy and the age-old problem of caste, whose government is sliding towards a dictatorial regime under a leader, Modi, who had the world laughing when he thought he could end corruption by pulling paper money from circulation with an estimated face value of about 7 dollars.
Then there is Africa, a potentially very rich continent shackled by brutal intertribal bigotry that distorts and corrupts everything, where corruption is not only systemic but is codified along ethnic lines and where economic growth is anemic despite high population growth.
Latin America follows with its dominant political mafias, be they indigenist, Masonic or utopian Communist, or just plain criminal, a continent that continues to be incapable of taking off economically on its own.
Let us not leave out North Africa, a region economically paralysed by Islamism; or Israel, which could not have survived for decades without US economic aid; or the land of the Anatolian strongman who, at the helm of a bankrupt economy and armed forces decimated in an Islamist purge, thoughtlessly goes off to war on some neo-Ottoman ‘reconquista’; or the many other regions of the planet torn by conflicts, where thinking about economics is a forlorn impossibility.
Against such a backdrop, what part of the world can create any hope about real economic growth so as to pull the rest along?