A great piece on China this morning from copper market analyst Simon Hunt courtesy of John Mauldin's Thoughts from the Frontline. The article is worth reading and cites some sobering stats on demographic and resource hurdles (especially water) facing the country.
Rarely have I heard market hyperbole and salesmanship more fully in bloom than on the topic of China the past few years. Many people have had a vested interest in selling the “insatiable growth” story and so we have heard plenty of it. Hunt's latest report confirms that China has now entered into a period of significant trial and tribulation. Domestically he cites the following list of issues now threatening political and social stability:
• Home affordability
• Leadership instability
• A potential if not actual housing bubble
• The rising income and wealth differential between those who have made it and those who have not
• The country’s continued dependence on exports as its principal driver of growth
• Cheap credit, which punishes savings and encourages investment/speculation
• The misallocation of capital that springs from the previous factor
• Local/provincial government indebtedness
• A new assertiveness and arrogance at all levels
• Policy making that focuses on short-termism without addressing structural and longer-term issues, etc.
• Impact of rising wages
• Energy intensity
• Role of foreign companies
• Resource dependability – water, raw materials, etc.
This list reads of course, like a hit list of the classic human behaviour that has plagued not just China, but the entire developed and developing world the past decade.
Ultimately I suspect a revolution of the Chinese people will be needed to redress incredible systemic imbalances and realign the interests of the elite few with the needs of the many. And in the western world, what will our revolution look like?
For starters individuals are gradually pulling off the energy-sucking credit machine which has crippled our society for many years now. Increasingly families are cutting the money-changers out of their monthly cash flow by paying off debt and spending less. I am reminded of the scene in the first Matrix movie, where we are shown the web of human pods being used as batteries to feed the machines that have enslaved them. As each person comes to consciousness and sees the world as it really is they tear off the attachments that have been draining their energy and set forth on their own power.
The annual income of the bottom 90 per cent of US families has only grown 10 per cent in real terms over the past 37 years. That means that since 1973 most Americans have been increasingly dependent on credit—apparent rather than true wealth—to keep the American dream alive. Meanwhile, the incomes of the top 1 per cent have quietly tripled. In 1973, chief executives were on average paid 26 times the median income, now they are siphoning out more than 300 times the average person's income. Greed and misallocation of resources have bankrupted our families and are now bankrupting our companies and our nations. And our governments continue to aid and abet this by trying to restore a now antiquated status quo.
Regular people have been complacent in all this and much too easily anaesthetized by things (cheap imports from China). But one by one, individuals are coming to consciousness. This is a healthy and crucial step, but as one who has been wide awake on these issues for many years now, I feel compelled to caution newcomers as to the magnitude of the issues. Staggering funding deficits are systemic on pretty much every level today all around the globe. Individually and collectively we are much “poorer (and fatter!) than we think”.
It will be a lengthy journey back to health. But awareness is the first step. It is much better for society as a whole when individuals are enlightened and steadily working their way back to sustainable health rather than repeatedly blind-sided and victimized by ignorance and naive trust in ‘advisors’ and ‘leaders’ that never were looking out for our best interests. Their is strength in humble, honest, truth and individual discipline. Now we can find it.