Tuesday, January 31, 2006

New China Syndrome?

There is an old movie out called The China Syndrome in which a nuclear reactor goes into meltdown. The temperature gets so great the reactor core starts burning through the bottom of the containment vessel and sinks into the ground until, as the movie title suggests, it reaches China.

I have been reading this article by Jim Jubak and oh boy. By the end of 2006 we just might see a new China Syndrome. Mainland China's economy looks to be heading for a 50mph collision with a wall called deflation. What does this mean to Americans? Well initially China will probably try to dump even more products on the world economy which will cause the US, EU, and other trading partners to impose restrictions and raise tariffs to protect their economies from being flooded by cheap products.

Remember Tom Clancy's book The Bear and the Dragon? We could in fact watch the whole Chinese economy tank as cheap goods like textiles pile up in Chinese warehouses. Which would mean massive unemployment and even more unrest. Jubak points out the official protest count for last year was 87,000 disturbances, now factor in the economic divide between urban and rural - yes in Communist China there is great class inequality - is the urban dweller earns seven times what a rural dweller does. There is no more socialized healthcare nor are there government provided retirement plans.

We could see China go into meltdown and the PRC vanish into the ground of civil unrest. And maybe we might see a repeat of the warring states like China was in the 1920s and 1930s. Then watch the suppressed people of Hong Kong ally themselves with Taiwan and annex the rest of the country in a giant takeover.

Jubak offers possible fixes for this looming menace but does not hold out much hope since the local Mandarins are using their influence on banks to make the banks cough up loan money for unneeded expansion of export manufacturing capacity.

I am glad I do not have all of my retirement 401K invested in the stock market. ^_^

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