People who complain that European civilisation has decayed into an uncultured, soul-less, commercialised mess, should come to China. Oh yeah. Asians have this natural superiority in math ability, and it shows. It’s all about the numbers. Damn, the servants here can calculate faster than I do. And I’m pretty good.
Anyway the talk in the town for the last months has been the “middle income trap” that China is approaching. In Development Macroeconomics (no I’m not taking the cheap chalupa’s course), there’s this funny concept called the “poverty trap”, which is a magical situation where poor people don’t have money so they can’t invest money to make more of it. Because we all know that without capital you can never make money.
That situation describes a whole lot of the world, but of course not all of it. Between the trapped in poverty and the rich white fucks, there’s a mysterious group of countries which have been stagnant for decades in the middle. The middle income trap. Which describes places like South America or SEA. Which are ok, people don’t eat albino babies or kill wives for the dowry. But still pretty lousy.
Now many of those reading this might point out that the middle income countries have a lot in common besides their economies. Something pretty obvious. Namely this. But of course that doesn’t apply to China, so it’s safe from the middle income trap. In fact it’s self-evident for most connoisseurs in the West that China is just plain awesome and will take over world leadership in about 10 years. But the Chinese themselves aren’t quite so sure.
I am a fond reader of Michael Pettis, a smart looking fellow who says that China’s growth engine is pretty much over. Double digit is gone, and even 5% is gone. High growth is going to hell because:
- The low hanging fruit of investment has run out. Infrastructure is pretty awesome right now, and there’s little to invest on, that could give good returns. Sure they can keep on paving roads and building airports, but those are done with credit, which has to be serviced. If nobody uses the airport, the debt doesn’t get paid, so there’s no real growth there.
- Export growth is dead because Europe and the US have lost purchasing power, political enmity is growing, and the global trade machine is slowing down for many reasons, political and economical.
- And China can’t rely in internal consumption because the political system is rigged against giving money to the masses. Chinese growth has been mostly on investment, which the Communist Party likes because it entails concentrating money on the state, which you can then funnel to your cronies. Giving people back to the people basically means pissing off the 80 million party members who got there to make money.
Pettis had this bet with The Economist, over whether growth was going to stall or not. I don’t pressume to know, but looking at that mangina employee of the Rothschild making such a stupid and half-assed non-argument, I guess it’s fair to think that Pettis is on to something.
Of course Pettis is not saying that China is going to collapse. He’s just saying that growth will stall to around 3% until the political system dismantles it’s anti-consumption bias. There will be pressure, so it’s going to be slow. Decades slow. The way the whole Chinese economy is structured is that almost all profitable industries are occupied by huge state-owned conglomerates. The huge rents those companies make, (plus the credit from the state banks that they monopolise) aren’t given away on wages, but stay on the company, and the directors basically live on the corporate expenses account. Small business owners have been putting their own meals on corporate expenses forever, but in China you get millions and millions on “research projects” and whatnot. So people end up buying their kids a Ferrari on Wuhan Steel’s budget (just made the name up but you get what I mean)
Still the alternative to dismantling the system is recession, so the shift to internal consumption will happen, according to Pettis. And when it does, China will grow into a high income country.
I wonder though. I understand his idea, the economy’s only solution is to raise internal consumption, and you do that by increasing the purchasing power of the people. You can do that in many ways: raising wages, lowering taxes (which are stupidly high over here), cutting corruption, etc.
Of course giving money back to the masses would be awesome, but there’s a problem. China today does have some people with money, both in the public and private sector. But they don’t spend the money on consumption. They save it to get the hell out of the country and emigrate. And this happen both with private businessmen and public officials. There’s even a word for civil servants who have already sent their kids and wife overseas (ostensibly planning to join them once they lose a political power struggle and get convicted for theft). They’re called “naked officials”, and a whole bunch of regulation has been drafted lately to address them (they can’t get promoted to boss etc.)
Everybody with money is leaving the country. And those who don’t dream of making some so they can leave too. They are leaving because China sucks. The air sucks, the food is good but probably poisoned. And the people suck.
The main problem in my opinion, it’s just plain full of proles. While Chinese proles are orders of magnitude less dumb and on-your-face than white, let alone black proles, they’re still very annoying. Dirty, crass, loud, uncouth, being around these people stresses the hell out of you. There’s just too many of them. And they’re fucking everywhere, constantly moving, working, thinking of new schemes to scam you.
Years ago, while travelling in China, I was shocked at the sheer hate that smart people had for the proles. They are smart, hardworking fellas just trying to make a living. Why the hate? As a passer-by they seemed quite salt-of-the-earth, likable people to me. Of course part of that was not understanding well the language. But after staying here for a while I’m starting to resent them too.
Steve Sailer had a post last week explaining why rich Americans like the Mexican immigrants better than low-class whites. His point was that people are more comfortable with servants of a different race than with servants of their own. There’s many reasons for it, and he didn’t get into that, probably because he doesn’t have servants.
I don’t either, but I think I understand. In the absence of a legally enforced class system, there’s something deeply disturbing about having poor people of your same genetic stock around. They sort of remind you of where you come from, and where you might go back. When I see all those smart enterprising Chinese working their asses for 200 dollars a month, I feel uneasy, that they might some day replace me, or I’ll end up like them. Prole co-ethnics are the personification of downward mobility. And downward mobility is the most pure source of fear in the world. It’s fear itself. It’s the cause of anxiety, depression, mental disease. It’s the cause of most suicides.
High growth societies are generally very socially mobile. It’s cool at the beginning when everybody is getting wealthier, but after a while the downward pressure comes in. People get scared, and they leave. I think that a big part of the middle income trap is simply that once people reach a middle income they just get the money and beat it. Brain Drain.It’s been said that most of 100+ IQ Indians have already migrated to the US or England. Russians who make it abroad swear to never go back. SEA has a steady flow of migrants to Australia and the US, and now it’s China’s turn.
So I think that Chinese policy makers face a very hard dilemma. The economy needs consumption, it needs higher disposable income. But the people who get it first choose to use it to leave the country. And they do so for very deep psychological needs that the government can do little about. Countries who avoided the middle income trap did it because leaving wasn’t really worth it, i.e. migrating to the US in 1910 wasn’t as pleasant as today. Or they are deeply ethnocentric and would rather die in their land than flourish abroad; say, Japan.
Either way China seems to me to be in deep shit.