12/30/2010, 00.00
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Inflation in China will cause the collapse of the regime

by Wei Jingsheng
To make a few people wealthy, the communist government keeps most of the population in poverty. If they really have the welfare of their people at heart, Beijing must allow the revaluation of the Yuan and should open the market to the West.

Washington (AsiaNews) - The inflation that is hitting China recently, the cause of many social protests, is different from any other to have ever occurred in the country: it continues to grow and can be simply explained by the greed of a minority of people, exploiting the cheap labour and authoritarianism of the regime to get rich.

Wei Jingsheng, pro-democracy activist and author of Democracy Wall, explains why the Chinese government is playing with fire at this critical stage of development: only democratic governments, he says, "can successfully manage an economic transformation similar to the one taking place in contemporary China”.

China's economy often has excessive inflation.  But each inflation is not exactly the same.  The inflation during the Mao Zedong era was due to the shortage of goods caused by the planned economy.  Academics call it a shortage economy.  After the economic reform of the 1980's, inflation is still emerging consistently.  At present the recently rising currency inflation has such intensity that it has made many people puzzled: "Since China has been reformed to a market economy, why is it still short of commodities, and has this inflation?"

Some friends with knowledge of economics would say: "the capitalist countries engaging in a Keynesian economy will also have a little inflation from time to time."  So let us take a look at this Keynesian inflation of the Western countries, to see how it is different from the currency inflation in China now.  Then we will analyze how to adjust and control the current inflation, and also explain why only democratic politics could avoid a hyperinflation.

Without exception, all inflation is due to there being more currency in the market than the value of commodities.  The market will automatically balance the relationship between the two, that is to make the aggregate value of money to be the same as that of the total commodities.  So that means the prices of commodities will rise.  The theory average folks can understand easily is that: "when there is more money and less goods, the goods get more expensive."

Some friends will ask: "Is not China a world factory now, how could it be short of goods?  This is not logical."  Indeed, it is not logical.  The economic policy of the Chinese Communist Party is to let a few people make a lot of money, so they can get rich.  The Chinese world factory is a factory to make those few people rich, instead of making average people able to enjoy the commodities of this world factory.  So regardless of how big this factory is, China's market is still very small, which means it is still short of commodities.  According to the scale of its market size, China is still a very poor country, not even an average poor country. 

So what does all the GDP in China mean?  Doesn't a rising GDP mean prosperity?  Yes, indeed there is prosperity there, but only for the minority.  A few people have even become super rich.  The problem is that the average folks who are the very majority of the population in China are not rich.  They have very limited purchasing power, along with a very small Chinese market.   So what does that impressive GDP figure mean?  It means that the small minority possesses the majority value of the production.  If these people used their money for consumption in the domestic market in China, at least the market would be balanced.  Despite of the average people remaining poor, at least there would be no inflation.

If it were the lower and middle classes earning this money, they would certainly spent it on the domestic market, increasing consumer spending in their daily lives.  After improving their livelihood with this money, there would not be too much left unused.

But it is different with the super rich.  It is impossible for them and their families to spend the huge wealth in their hands.  So they must find an outlet for the money.  This is where the differences between China and the West start to appear.

In a normal society, the extra money would be used to invest, or be deposited into banks for the others to invest.  This kind of saving and investment is the force for economic development.  When there is excessive saving and investment yet a shortage in the market, an economic crisis may also occur.  This situation was one of the reasons for the U.S. Great Depression in the 1930's when there was excessive production ability yet a lack of enough market to sell.  The continuous bankruptcy of the banks resulted in a continuous shrinking of the market thus became a vicious cycle.  Keynesianism is indeed an effective way to stop this vicious cycle.  But the consequence is inflation.  How to both promote economy into a positive cycle, meanwhile restrict inflation within reasonable limits?  It must be adjusted by a government which is responsible to its country and its society.

But the situation in China is different.  People all say that China is the world factory, but its production capacity is not targeted to China's own market.  Instead, it is targeted to the high priced markets in the West.  Its exists for the others.  Measuring it by China's own market, it simply has too much surplus.  This production surplus is in existence for the minority people to gain even more wealth.  It uses the cheap labor in China and high priced markets in the West to make excess profit.  This is the production purpose of the bureaucratic capital in China.

Half of these excess profits are in the Western market as profit for the big businesses of the West, while the other half is distributed within the Chinese ruling class in the form of Chinese currency, RenMinBi.  Neither the businessmen nor corrupt officials in China feel that their money is secure, nor think this society is reliable.  They exchange their RenMinBi into foreign currency, which makes China's foreign reserves to be the highest in the world while the RMB flows back to the market.  Or they use the money to buy things like real estate as a way to preserve their money, which also results in the RMB flowing back to the market.  So, as the real purchasing power represented by the money goes abroad, the money exchanged is still in China.  This is the potential and gradually accumulating reason for the inflation.

The gradual accumulation of inflation was not immediately and directly demonstrated.  Because of the presence of financial factors etc. as buffers, its outbreak needed a trigger similar to that needed to ignite of the gunpowder in a bullet.  The trigger was pulled when the biggest pillar of China's economy got in trouble.  This pillar is the cheap exports, which caused the economic recession and unemployment in the West.  The Western democracy has to give priority to its constituents, and thus has to stop this type of economic model which makes minority people in the East and West rich, while for the most ordinary people bear the negative consequences.

In this case, the measure a government of a democratic country should take is to use the foreign currency in its hand to absorb the excessive RMB, as well as to relax the restriction of foreign goods into the Chinese market.  The only proper course to solve the inflation problem is to reduce the circulation of RMB and increase commodity circulation.  However, the Chinese government did just the opposite.  It does not allow a free exchange of foreign currency, nor relax restrictions on foreign goods entering China.  Even so, most of the products produced by the foreign trade enterprises in China either have no market, or the market is already over saturated.

This saturation is the root cause of hyperinflation in China now.  China's economic policy is not to develop China's own economy, but to make some people rich.  Its aim is to maintain cheap labor.  So the Chinese Communist regime will not allow the Chinese currency RMB to appreciate, nor let the free flow of markets in between China and the foreign countries.  Maintaining the enormous gap between the Chinese and the foreign markets is the fundamental policy for the Chinese Communist regime to get rich in unity with the capitalists in the world.  Only an authoritarian regime could have done so.

Therefore, the existence of this authoritarian regime is the root cause of the deformed Chinese economy.  As long as China is undemocratic, this situation will continue until the collapse of Chinese Communist regime.

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