Has the Great Decline begun in China?

December 30, 2013 admin

If you get the feeling the Chinese economy is running out of steam, your instincts are sound. Leaders of the Chinese Communist Party are also concerned it is time for the laborious task of doing all the dirty dishes, taking out the trash and cleaning up the house.

Every party has its listless aftermath.

Damien Ma, a fellow at the Paulson Institute and author of In Line Behind a Billion People: How Scarcity Will Define China’s Ascent in the Next Decade, says Communist Party leaders have recognized that the current growth model isn’t capable of taking the country much higher, and they are looking to promote more privatization while curbing China’s notorious government interference.

Andrew Browne, China columnist for The Wall Street Journal, sees a population that is increasingly questioning the sustainability of the country’s incredible ascent. Browne talks about capital flight, as the richest people in China send their wealth overseas. Citizens are scrambling to get foreign passports as they grow concerned about getting their families out in the event a major economic displacement and a popular uprising comes to pass. The discontent is also being driven by pollution, as poisonous air chokes urban areas, causes health problems and lowers the quality of life.

Susan Shirk, chair of the 21st Century China Program at U.C. San Diego, reports a swelling demand for an improved quality of life that extends well beyond pollution to include the safety of Chinese-produced food and medicine and other products. Shirk speaks of a young friend in China who is “completely obsessed” with what he will do when his wife stops breastfeeding their child because he cannot get domestic baby formula that he trusts. He has also spent a great deal of money buying Japanese paint for his apartment because he doesn’t trust the purity of the paint manufactured in China.

It’s a sad state of affairs created by the government’s lack of regulatory standards and its inability to quell corruption. Public and anti-government protests erupt by the thousands each year in China. Most are rapidly quashed by the iron fist of central authority. But, given the social media tools of instantaneous communication, the potential for a mass uprising would make Tiananmen Square look like a junior high school fire drill by comparison.

China might be the World’s Workshop, but there is no long-term future in simply assembling and shipping products invented by others. The future belongs to those who create intellectual property and drive innovation, and China’s centralized decision making is not a fertile environment for a creating a knowledge-based economy. Distributing authority and decision making still frightens China’s terribly paranoid and immature government.

Let’s hope the Chinese leadership finds a way to peacefully and successfully transition to a more open and decentralized society and economy. Global wealth depends on more — not fewer — powerful economies doing business with one another.

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MikeCfinalwebMike Consol is editor of The Institutional Real Estate Letter – Americas.

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