Corrupt Chinese Communists Risking Violent Collapse

"China's 100 years of bloody and violent history - especially the painful and tragic lesson of the decade-long Cultural Revolution - show that once we go against the tide of democracy, human rights, rule of law and constitutional government, the people will suffer disaster and social and political stability will be impossible,"...

...Xi himself warned shortly after becoming party boss that if corruption were allowed to run wild, the party risked major unrest and the collapse of its rule. _Warning from Chinese Academics to Leadership

A group of prominent Chinese academics courageously sent an open letter to Chinese Communist Party leaders, warning them that they risk a violent collapse of government unless they move away from the current course of policy.

The massive corruption in Chinese society and within Chinese government is becoming impossible to hide from average Chinese citizens. Most of the Chinese people live in poverty, and only the hope of a better future keeps them from organising to revolt.

About 65 Chinese academics, lawyers and human rights activists have signed a similar letter demanding top party members reveal their financial assets, saying it is the most fundamental way to end corruption.

Analysts have been searching for signs that China's new leaders might steer a path of political reform, whether by allowing freer expression on the Internet, greater experimentation with grassroots democracy or releasing jailed dissidents.

But the party, which brooks no dissent to its rule and values stability above all else, has so far shown little sign of wanting to go down this path... _News.Yahoo.com

The communist leadership has been successful for several decades, in herding the Chinese people like sheep. A relative few of the more enterprising and better connected have earned fortunes -- but most are still being left behind.

Of those who have built riches, most of them have made plans to move their funds and families overseas, as the regional or national situation begins to show signs of collapse.

The Road to Superpower Status Will Be Difficult for China

China's incredible economic growth in recent years was always fragile, never sustainable for long. Not only was it state-led and state-controlled, it was fuelled largely by the availability of cheap labour, a complete disregard for the environment, and state investment in grand infrastructure projects.

According to a RAND report, the proportion of the Chinese population of working age peaked in 2011 and has started to decline in 2012. This means the share of the elderly in the population is going to steadily increase in the coming years, which will increase labour costs, reduce savings, and inflate healthcare and pension costs. _Commentator

By virtue of its rapid economic growth and impressive cash reserves, China feels it is justified in flexing its muscles on the international stage. The country is attempting to build its ability to project force by developing stronger naval and air forces, as well as moving deeper into space launch and advanced missile development.

China has lost a great deal of arable land to urban development, and continues to do so every year. Water, soil, and air continue to be poisoned by lax environmental oversight, further decreasing the domestic ability to grow crops for the population.

The need for fertile farmland is growing more desperate, to the point that the Chinese are buying or leasing access to farmland on all continents. This is an important limitation and potential strategic weakness for the dragon.

Another large weakness is the lack of a sustainable economic strategy, leading many in China to believe that war will be necessary, so as to keep nationalistic sentiments high, and national cohesiveness strong -- even in the face of potential economic downturns.

China's economic growth has been sustained, in large part, by ignoring environmental concerns. Currently, China is the world's largest emitter of CO2 gases; it emitted 8.2 billion tonnes of CO2 in 2010, which is up by an incredible 240 percent since 1992. Water and air pollution in the country causes 750,000 premature deaths a year. Large infrastructure projects have also forcibly evicted and displaced millions whilst threatening the health of livelihoods of many millions more.

Needless to say, such policies are simply not sustainable. Local and international pressure is starting to bear fruit and many grand infrastructure projects being cancelled in the process.

Beyond economics, the lack of meaningful political reform is also helping to stunt progress. The state is still characterised by endemic corruption, weak rule of law, and a lack of political accountability. Despite attempts by the state suppress dissent, newly affluent citizens are also becoming increasingly assertive and demanding more rights and freedoms.

...On-going environmental concerns, an ageing population, competition from India, Vietnam, and Brazil, internal dissent and unhappiness, and a culture that doesn't encourage risk and creativity will combine to slow China's economic growth and leave the elites frustrated.

In theory, China can change course and embrace democratisation as well as take steps to ensure future economic growth is more market-led. But China's history informs us that these changes are highly unlikely. China is and will be a power - but the next great superpower it is not nor ever likely to be. _Commentator

What You Need to Know About China

1) China’s economy is not just slowing, it is entering a serious correction.  The investment bubble that has been driving Chinese growth has popped, and there are no quick “stimulus” fixes left.  There is the very real possibility of some form of financial crisis in China before year’s end.

2) China is in the midst of a once-in-a-decade leadership transition that has not been going smoothly.  The transition will take place, but it has paralyzed the Chinese leadership’s ability to respond to the country’s growing economic troubles.  China’s leaders believe time is on their side; they do not “get” how serious and urgent the situation is, and that what has always “worked” is no longer working.

3) China’s economic problems spell trouble for the U.S. on several fronts.

• First, China is flirting with devaluing its currency to boost exports—a move that will put it in direct conflict with Mitt Romney’s commitments on this issue.
• Second, China is already dumping excess capacity in steel and other products onto the export market, a tactic that is likely to inflame trade tensions and reinforce imbalances in the global economy.
• Third, in a worst case scenario, China may be tempted to provoke a conflict in the South China Sea to redirect popular discontent onto an external enemy.

_Patrick Chovanec

China has had a run of good luck. But China's leaders do not understand that their good fortune is likely to change, given the level of corruption and outright criminality in high places within the government and country.

Most outside observers remain in a daze, infatuated by China's rapid rise, its rumoured capital reserves, and its rush to build shiny and dazzling -- although largely empty and soon to collapse -- infrastructure.

Investors want to be told how to make a lot of money in China, when that wave may have already broken.

A Global Decline; A US Choice

China's banking system is a mess. And it is not reassuring to foreign observers that China's super-rich are exiting the country in record numbers.

If China continues to scale down its importation of commodities, a large part of the support for inflated oil prices will be removed. Should that happen, the main thing holding up oil prices would be continued fears over a war between Iran and Israel.

But it is more likely that Israel will wait and see what is likely to happen in Syria, before it pulls the trigger on an all-out attack against Iran's nuclear bomb-making facilities. Much of the Arab and Muslim worlds appear to be self-destructing, and no one knows how things will look if the dust finally settles.

Iran is being held together by bubble gum and baling wire, with a bit of duct tape around the edges for appearance' sake. Without the support of Russia and China, the main axis of Islamic terror -- Syria and Iran -- would collapse. Should that happen, dismantling Saudi support for global Islamic terrorism should be relatively easy, using modern tools of information warfare.

But the relationship between Russia and China is beginning to show signs of strain, as China increasingly eyes the resource riches of Eastern Siberia -- while the population of Russia shrinks and Russia's military decays.

Things could go very badly wrong if the leaders of China and Russia react irrationally to the changes in fortune which seem to be approaching for both nations.

Someone needs to tell Putin that Russia is not Stalinist USSR any longer. And someone needs to tell China's leaders that the current state of politico-economic limbo is unsustainable.

Europe is heading into recession. Unless Germany retreats from its insane Energiewende policy, Europe is headed into catastrophe.

And finally, the US faces a choice in November between a chic stasis and a staid dynamism. If the US makes the dynamic choice, the rest of the world is likely to fall in line. If the US chooses stasis, the resulting power vacuum will likely lead to dire global consequences, as already bad choices grow worse.

China: Blustering Its Way Into the Economic Future

China's Leading Indicator Decline

Leading Indicator:

It contains information on money supply, foreign direct investment contractual value, andShanghai stock market turnover, as well as:

Interest rate spread is the difference between the weighted-average yield of the seven-year or above Treasury bond with those of one year or less.

Consumer Expectation Index is compiled by the CEMAC using a monthly survey conducted in thirty major cities covering 70,000 individuals.

Ratio of industrial sales to production is the ratio of the total value of industrial sales divided by the total value of industrial production in the same month. This ratio tries to capture the inventory cycle in the industrial sector. Industries included are mining and manufacturing.

Number of new investment projects started tracks the number of new fixed-asset investment projects started. The government uses this as a leading indicator for future investment growth and economic expansion.

Index of Logistics refer to the volume of freight transportation and total tonnage of cargo reported by sixteen major coastal ports. _PragCap

China Steel and Iron Ore Prices

If China's leading economic indicators are pointing toward a downturn, once could find no sign of hesitation in China's all-out pursuit of high value foreign acquisitions:

As the map below from Stratfor shows, ever since 2010, when China pledged over $100 billion to develop commercial projects in Africa, the continent has now become de facto Chinese territory. Because where the infrastructure spending has taken place, next follow strategic sovereign investments, and other modernization pathways, until gradually Africa is nothing but an annexed territory for Beijing, full to the brim with critical raw materials, resources and supplies. So while the "developed world" was and continues to deny the fact that it is broke, all the while having exactly zero money to invest in expansion, China is quietly taking over the world. Literally. _Zerohedge

China in Africa

Besides Africa, China is buying assets in Canada, the US, the UK, and elsewhere across Europe, South America, and beyond.

This may well represent an attempt to preserve capital assets which are no longer completely safe inside China. The political stability of China may be just as overstated as the economic stability inside the middle kingdom.

The short term effects of China's commodities buying spree may be bullish on markets. The long term effect may be quite different, if China begins to come unglued. Watch and see.

Russia's Rustbucket Navy; China's Faltering Economy

The only way Mr. Putin can project power is with his navy and perhaps some permanent ports of call.

“Putin would like to do it because right now the navy is the only force that he has to demonstrate Russia is still a world power,” said Norman Polmar, a naval analyst and author of several books about the Russian navy.

“He can’t send the army anywhere. He can’t send his airplanes anywhere without over-flight rights, and people don’t like to let military planes fly over their countries.”

...the Russian navy “is in very poor shape because of finances.”

“It has very few ships that are operational. Very few submarines that are operational. Everything is behind schedule, all of their new construction. The country was for several years essentially bankrupt after the fall of the Soviet Union. The shipyards fell into disrepair. All of the services fell into disrepair,” Mr. Polmar added.

Mr. Russell said the problem is worsened by corruption. Money meant for the government is siphoned off by organized crime.

“The country’s balance sheet looks good right now because it has lots of oil and natural gas, but the profit from this bonanza is being looted by the organized crime-apparatchik kleptocracy that is ruling the country,” he said.

“Much of the money is just being stolen and not being invested in the people and the state. If it didn’t have nuclear weapons, why would anyone take Russia seriously today, except in a negative sense?” _WT

So much for Russia's ability to project conventional power around the globe.

As for China, much of its international clout is based upon its image as an economic juggernaut. But is such an image just a bit out-dated?

Industrial output growth is decelerating , and perhaps more quickly than the government data suggests. _WSJ

Pay particular attention to the graphs in the WSJ piece above.

China's global power play will come to nought if its economic infrastructure collapses like many of its buildings, bridges, tunnels, towers, and other constructs.

Both China and Russia are struggling with out of control corruption at all levels of government -- and no one can guarantee that either nation's government will win their respective battle.

To top it off, although both nations would like to project an image of close cooperation and allied goals, in the long run the two countries are on a collision course. And it is likely that China will be the last man standing, of the two.

Flogging Round the World

The economies of the globe are receiving a flogging, one by one. Under Obama, the largest economy, the USA's, cannot even rescue itself, much less help the large numbers of other nations beginning to drown under debt, demographic decline, and green faux environmentally motivated energy suicide.

The United States, by far the world's biggest economy, has long pulled the global economy out of slumps. Now it needs help. Three years after the Great Recession officially ended, the American economy can't maintain momentum. For the third straight year, growth has stalled at mid-year after getting off to a promising start. _Bloomberg

Europe's populations are beginning to show the signs of low birthrates among core populations. The problem of insufficient young people to support the growing numbers of old people is adding to the continent's problems.

Europe's obstacles are even more severe. It's faced with crushing government debts, struggling banks and scant economic growth. Unemployment in the 17 countries that use the euro is 11 percent, the highest since the euro was adopted in 1999.

Greece, Portugal, Italy and Spain are in recessions. Germany and France are faring better, but both are likely to grow more slowly this year than America. _Bloomberg

As for China, we have seen over the past weeks and months that China is not immune from the economic problems of Europe and the US.

Chinese growth has decelerated for eight straight quarters. That's the longest slowdown in records dating to 1992, according to Yu Bin, a government researcher.

China is also feeling Europe's economic squeeze. Chinese exports to Italy dropped 24 percent in June from a year earlier. Exports to France fell 5 percent, those to Germany nearly 4 percent. Europe buys about 17 percent of China's exports. The impact of weak European demand for Chinese-made furniture, shoes, toys and other goods has fallen hardest on export-oriented manufacturers along China's southeastern coast. Some companies have closed. Others are cutting staff. _Bloomberg

From China, the problems flow downhill to Brazil, and to India. Brazil's government and people have been betting that the good times would never end, and the time to pay the piper is approaching.

"The current pace of credit growth in Brazil remains unsustainable — and the longer it continues, the bigger the risk of a messy ending further down the line," Capital Economics warned.

Similarly, the outlook has dimmed for India, the world's fourth-biggest economy. Its growth slowed to a 5.3 percent annual rate in the first three months of 2012, the slowest rate in nine years. _Bloomberg

Russia has its share of problems from rampant corruption and capital flight to widespread drug and alcohol abuse, and suicide. Still, some Russians see the country's source of economic support -- its energy wealth -- as the equivalent of Russia having won the lottery:

Lottery winners find it psychologically hard to accept that their winning is a completely random event. They tend to see it as their "achievement," the result of them being special or chosen by providence. Remarkably, this is also the case with Russia, where the government ascribes the country's relative economic prosperity not to the inflow of petrodollars — and the luck from an extended period of high global oil prices — but to its supposedly wise, prudent economic policies. Ordinary Russians similarly see the wealth that is flowing into their country as somehow the result of their hard work, not circumstances beyond their control.

Winners' greatest victims, however, are their own children. Very rarely are the lottery winnings used to ensure good education for winners' kids. Many end up spoiled, morally corrupt and traumatized by their parents' good fortune. This could be seen as a metaphor for Russia's lack of investment in its future. Russia has done little to wean its economy from oil or revive the education and research infrastructure that existed in the Soviet Union. Most alarmingly, lottery money usually ends up as an easy-come-easy-go fortune. Even enormous jackpots have been squandered completely. It is a cautionary tale for Russia, which could end up back in the indigent 1990s if oil prices fall. _MoscowTimes

The Earth's national economies are being generally flogged round the world, and even the winners too often end up losers.

Spain: A Cautionary Tale from Michael Pettis

Beijing-based economist Michael Pettis has family roots in Spain. Michael's personal experiences with friends and family involved in the Spanish real estate bubble provide object lessons on a much wider scale:

I remember in 2003 my mother had a New Year’s Eve party at our family home in Málaga, in southern Spain, at which over 80 people sat for dinner, including most of my old friends still around from high school days. That night I had one of those epiphanies (as you often do on New Year’s Eve, I guess) about the real estate market when I suddenly realized that nearly every one at the party was involved in one way or the other in real estate. Most of the people there (including my Persian sister-in-law) were real estate developers, real estate agents, real estate lawyers, architects, or owners of building and construction companies. All of them lived off (and had prospered mightily from) the real estate boom in southern Spain.

But this cannot be, I thought in my naiveté. If the only industry around is real estate, then we must be living through a real estate bubble of enormous proportions.

Later that night I spoke to one of my old high-school friends, Andy, who was at the time a prosperous real estate agent with houses in Marbella (purchased on borrowed money, naturally), a Mercedes, and all the trappings that accrue to an immensely charming and self-confident real estate agent during a real estate boom. In our conversations, and ones that took place subsequently over the next few years, I warned him that the property market in the south of Spain looked out of control, and it would be a good idea from him to diversify his savings out of real estate.

Same old same old

Of course Andy didn’t. He explained to me that what we were seeing in southern Spain was not a bubble because there were very strong reasons to believe that real estate prices were undervalued and were going to rise a lot more. Europe, he told me, is aging rapidly, and old people, as everyone knows, like nothing better than to retire in some warm and sunny place, preferably on the beach. With an infinite supply of European old people and limited European beachfront property, mostly in Spain, Italy, and Greece, where in addition you had great food, warm-hearted people, and plenty of immigrants to keep the prices of services (and servants) down, it was certain, Andy explained, that real estate prices would not decline. The demand was insatiable at almost any price.

This seemed like a perfectly reasonable argument on the face of it, and it was widely proposed to justify ever-soaring Spanish real estate prices for many years, not just on the Spanish coast but also, perhaps a little bizarrely, in every nook and cranny of the country, including some pretty gray and inaccessible building projects outside cold, northern industrial cities.

The weakness in the argument, of course, was that although there might have been near-infinite demand, this could not justify near-infinite increases in prices, especially since the demand itself was likely to be highly pro-cyclical because the Spanish economy had itself become dependent on real estate development. As long as the economies of the cold northern European countries were booming, in other words, the demand from retirees for beach houses would stay high, but any slowdown in the economy would reduce demand in Spain at the worst possible time.

And as Spanish real estate slowed, the impact would be exacerbated by a much sharper slowdown in the Spanish economy caused by the slowdown in real estate, which had become a major driver of the economy. If a substantial portion of the Spanish workforce depends on a booming real estate market – and not just those directly dependent, but also those indirectly dependent, like bankers, restaurateurs, retailers, travel agents, and so on – then any slowdown in the real estate sector is itself seriously self-reinforcing.

We have now seen how this works in Spain, but in China we are still using a similar argument to explain why real estate prices cannot drop significantly. Our Chinese version of the old-people-love-to-live-on-the-beach argument is the urbanization argument. As long as Chinese workers continue to move from the country to the cities – and urbanization has been one of the most dramatic consequences of Chinese growth in the past three decades – then there is likely to be a near infinite demand for city property, and so prices can only go up. And because prices can only go up, speculative demand for real estate is not speculative, it is precautionary.

This claim seems at least as plausible as the Spanish argument justifying infinite price increases, and was probably true a decade ago, but it runs into the same problem that the Spanish story ran into (and indeed that nearly every previous case in history of a real estate bubble, which has always started with a plausible story). First, no matter how much demand we can project into the future, rising prices can nonetheless outpace rising demand because rising prices can themselves stimulate further demand, in which case rising prices are unsustainable. This should be obvious, but the point is often lost in the giddiness that accompanies rapidly rising prices.

Second, and this is key, the rising demand is itself pro-cyclical. This is the most dangerous part of the process and perhaps the least well understood. Rising demand driven by the urbanization process is itself subject to underlying growth in the economy, since it is growth in turn that drives the urbanization process.

What’s more, when we reach the point as we did in Spain several years ago, and have reached in China too, in which a substantial part of the growth that drives the urbanization process is itself created by real estate development, then any slowdown in underlying growth is likely to be seriously exacerbated by a corresponding slowdown in real estate development. This is because the economy is caught in the reverse side of the feedback loop that helped drive prices on the way up – slowing growth leads to slower demand for urban real estate, which leads to slower real estate development, which itself leads to slower growth. _Michael Pettis

Patrick Chovanec explains why his cautionary language about the Chinese economy is not just empty words

Walter Russell Mead remarks on the falling Chinese growth numbers, and wonders what they portend for the future of the global economy.

Most of the developed world is caught up in the twin destructors of exponentially rising debt, and demographic decline. Up until recently, it was thought that China, India, Brasil, and Russia were exceptions to this widespread decline. But that rosy viewpoint may be wrong.

In fact, it seems that the Anglosphere may be in the best position to weather this lengthening global recession, if the US can rid itself of the parasitic regime that is currently sucking the life's blood out of the US private sector.

Good luck, Yanks, this November.

China Needs a New Model: Unlikely to Find One

China's growth model is badly in need of revision. But the sort of reforms which China desperately needs to make, are unlikely to prove attractive to China's leadership -- neither the outgoing bunch or the incoming one.

China needs to find a new economic model. Relying on abundant cheap labour, cheap capital and welcoming export markets is no longer a viable road map to the future in a nation where the leadership from Deng's days on has embraced growth as a political weapon to buttress the party's claim to power; and where, as a result, materialism rules rather than communism or Confucianism.

Wages are rising by more than 10% a year as blue-collar workers' pay is used to drive up consumption, which plays much too small a role in driving the economy. Cheap credit produces dangerous liquidity bubbles. Foreign demand has fallen sharply as rich countries run into problems of their own.

Above all, Chinese leaders know that they need to steer the country away from the volatility of the past five years – big boom in 2007, slump in late 2008, revival in 2010-11, and now a slowing down again. What they need is a more stable medium-term outlook to coincide with the assumption of power by a new generation of Communist party leaders at the end of this year and the appointment of a new government next March.

...This requires undertaking the structural reforms – for example in land ownership, labour mobility, capital market and pricing of energy and water – that Hu Jintao, the party secretary, and Wen Jiabao, the premier, have fought shy of. Xi Jinping, the politburo member who will replace Hu when the party holds its five-yearly congress late this year, is not known as a risk-taker – he got to the top as a consensus figure who keeps his mah-jong tiles close to his chest. But a real debate about the need for economic – not political – reform is going on. _Guardian

Brian Wang is positive about China's economic growth

The problem with the generally positive viewpoint of the Guardian article above, and Brian Wang's rosy viewpoint, is that few people are acknowledging the avalanche of bad loans passing through China's banking system, pushing cash into corrupt state owned enterprises, and politically connected persons with close ties to central and regional governments.

No one is detailing how all of this bad debt and misallocation of resources is going to be processed through the system, while keeping growth and GDP numbers high.

The current Chinese economic model allows wealth and power to rest firmly in the hands of governmental leaders, their families, and those closely connected to them. But it does not allow for crucial market signals to be passed down the line and acted upon at the necessary levels, in sufficiently prompt time for long term market vitality.

Artificial stimulus and momentum can prop up a putrifying system for quite a long time, if the stimulus is large enough.

China has already been forced to adapt to shrinking export markets by creating an artificial infrastructure boom-bubble. The expiration date -- the burst date -- on that bubble is ticking closer.

Investing in China? Better Understand China's Growth Model First

China has been the golden boy of investment opportunities for investors, manufacturers, and outsourcing agencies and companies for over a decade now. The excitement and outright hype over China's growth rates have lured large numbers of investors who -- 15 years ago -- might not have touched China with a 100 foot pole.

Michael Pettis provides a bit of insight into the theoretical underpinnings behind the China growth model:

In a 2003 book review Columbia University economist Albert Fishlow very usefully elucidated Gershenkron’s position (“Review of Economic Backwardness in Historical Perspective”, February 13, 2003, EH.net):

1. Relative backwardness creates a tension between the promise of economic development, as achieved elsewhere, and the continuity of stagnation. Such a tension takes political form and motivates institutional innovation, whose product becomes appropriate substitution for the absent preconditions for growth.
2. The greater the degree of backwardness, the more intervention is required in the market economy to channel capital and entrepreneurial leadership to nascent industries. Also, the more coercive and comprehensive were the measures required to reduce domestic consumption and allow national saving.
3. The more backward the economy, the more likely were a series of additional characteristics: an emphasis upon domestic production of producers’ goods rather than consumers’ goods; the use of capital intensive rather than labor intensive methods of production; emergence of larger scale production units at the level both of the firm as well as the individual plant; and dependence upon borrowed, advanced technology rather than use of indigenous techniques.
4. The more backward the country, the less likely was the agricultural sector to provide a growing market to industry, and the more dependent was industry upon growing productivity and inter-industrial sales, for its expansion. Such unbalanced growth was frequently made feasible through state participation.

This of course sounds a lot like the Chinese growth model, and that of a number of other countries that experienced growth “miracles” in the 20th Century. In fact countries undergoing the process described by Gershenkron were able to generate fairly substantial increases in wealth for long periods of time – as clearly happened in China, at least during the first fifteen or twenty years since the reforms of 1978.

But the case of China, and every other case of an investment-driven growth miracle, suggests that the model cannot be sustained indefinitely because there are at least two constraints. The first has to do with the constraint on debt-financed investment and the second with the constraint on the external account, and one or both constraints have always eventually derailed the growth model. _Michael Pettis

Pettis goes on to explain the constraints which limit that sort of economic model.

Have you been seduced into trusting China's trajectory of growth?

The beginning of the end-stage of this cycle of bubble-bust-boom

The widespread misperception that China is -- and will continue to be -- the global economic leader, is being sustained by an international financial media which cannot even change its own diapers, much less advise others how to invest their resources.

You would do best not to trust China's ruling class, and not to trust the numbers coming out of China. Be careful where you invest your money in this era of corrupt and Idiocratic government.

Chinese Ghost Cities Rising In Darkest Africa

When you discover a Chinese-built ghost city in the middle of Angola, you may suspect that something very odd is going on.

Perched in an isolated spot some 30km (18 miles) outside Angola's capital, Luanda, Nova Cidade de Kilamba is a brand-new mixed residential development of 750 eight-storey apartment buildings, a dozen schools and more than 100 retail units.

Designed to house up to half a million people when complete, Kilamba has been built by the state-owned China International Trust and Investment Corporation (CITIC) in under three years at a reported cost of $3.5bn (£2.2bn).

Spanning 5,000 hectares (12,355 acres), the development is the largest of several new "satellite cities" being constructed by Chinese firms around Angola, and it is believed to be one of the largest new-build projects on the continent.

The jewel in Angola's post-war reconstruction crown, Kilamba is the star of glossy government promotional videos which show smiling families enjoying a new style of living away from the dust and confusion of central Luanda where millions live in sprawling slums.

But the people in these films are only actors, and despite all the hype, nearly a year since the first batch of 2,800 apartments went on sale, only 220 have been sold.

The place is eerily quiet, voices bouncing off all the fresh concrete and wide-open tarred roads.

There are hardly any cars and even fewer people, just dozens of repetitive rows of multi-coloured apartment buildings, their shutters sealed and their balconies empty.

Only a handful of the commercial units are occupied, mostly by utility companies, but there are no actual shops on site, and so - with the exception of a new hypermarket located at one entrance - there is nowhere to buy food.

After driving around for nearly 15 minutes and seeing no-one apart from Chinese labourers, many of whom appear to live in containers next to the site, I came across a tiny pocket of life at a school.

The people looking after the lawns cannot afford to stay here. It opened six months ago, bussing in its pupils in from outlying areas because there are no children living on site to attend. _BBC

Sure enough, the Chinese ghost city built in Africa is the result of a crafty trade. A Chinese company built the deserted city in exchange for Angolan oil, owned by the Angolan government. But since people living on $2 a day cannot afford $200,000 apartments, the Angolan government gets stuck with a city of high rise apartments which may begin to crumble within the next 10 or 15 years -- if the state of Chinese construction in China is any guide.

Watch and see how many other oil and mineral rich African governments fall for this scam...

China Takes Top Spot in Global Risk Ranking

The table and charts below indicate an ongoing weakening in China's economic condition. China's economy has been on extreme life support since 2009, with the main question being how long the artificial infrastructure overbuild stimulus could substitute for a shrinking export market.

Click on table for full image (source)

The following charts show an interesting story of unsustainable growth and over-exuberance by China cheerleaders nearly everywhere.

China PMI



$SSEC Shanghai Stock Index



Decoupling Review

Notice the bubble in 2007. That's when all sorts of ridiculous decoupling theories, US hyperinflation scenarios, US treasury crash scenarios, crude is going to $200, Natural Gas is going to $40, and other nonsensical ideas came out of the woodwork, many in book form, some still persisting to this day.

Instead, the reverse happened! It was the US that decoupled from the global economy. Moreover,  China has been exposed for the malinvestment bubble that it is.

Now, in 2012, nearly everyone but the die-hard hyperinflationists thinks the US will decouple from the global economy. _Mish

China's export markets -- the EU and North America -- have experienced reduced demand for Chinese goods which shows no sign of return to the pre-2008 bubble days.

China's economic model of stealing from the poor and giving to the well-connected rich, will continue only so long as the people allow it. Watch and learn.

Global Economic Slowdown May Worsen Significantly

Slowing growth as well as deficit and debt problems in the Eurozone, U.S., China and the emerging nations increases the odds of a deflationary global recession and a renewed down leg in the ongoing secular bear market.

The U.S economy has been slowing in the last two or three months. Either downside surprises or actual declines have been reported in key economic indicators relating to consumer spending, new orders, production and employment. A number of major companies have either revised down their second quarter earnings estimates or reduced their guidance for the second half. As a result, second quarter earnings estimates for the S&P 500 have been declining and full-year estimates probably will drop as well. When we further consider the dysfunction in Congress, the "fiscal cliff", the prospective end of operation twist, the elections and the prospect of renewed fighting over the debt ceiling, the threats to an already fragile recovery are high.

The Chinese economy is slowing, perhaps by more than the official numbers show. The NY Times has reported that many local and provincial officials have been falsifying numbers to hide the true extent of the problems. China’s economic model is heavily dependent on capital investments and exports, while internal consumer spending remains a relatively small part of GDP. Although Chinese officials recognize the need to increase consumer spending as a percentage of GDP, that is a long-term solution. In the meantime, exports to Europe, China’s top customer, are falling now and cannot be offset, except by ordering the building of more plants that will produce goods for which there is no current market. All in all, it seems that it will be difficult to avoid a hard landing.

The slowdown in Europe, the U.S. and China is also impacting the economies of the emerging nations, which are heavily dependent on exports. Declining growth is also driving down commodity prices. Despite all of the talk of decoupling, it seems apparent that the economies of all nations are linked and that there is little prospect of an oasis of prosperity in an increasingly dependent world. _Global Slowdown Will Accelerate

US Q2 Earnings Outlook Down

It is interesting to note that Friday’s EURUSD rally (1.8 percent) was the largest since exactly October 27. For reference, that previous rally was sparked by the Greek debt deal which arguably extinguished an immediate crisis fire; and yet the market still pulled an immediate about-face and tumbled 1500 pips in less than three months. That doesn’t mean that the euro is destined for the same fate this go around, but the fundamental comparisons between the current situation and October are remarkable. And, if anything, they are worse now. _Professionals are Skeptical of Euro Bandaid Bailouts

The so-called SOEs boast close family and financial ties to China's ruling party clique. Power and wealth have become one in the same—a kleptocracy of insiders skimming off part of the prodigious money flows sluicing through the Chinese economy through relatives strategically placed in state companies, consulting firms, and various financial institutions. Unless this blatant favoritism is curbed by the incoming administration of Xi Jinping, says Overholt, China faces the prospect of long-term stagnation—a prospect potentially far worse than that of Japan some 20 years ago. _China Corruption Casts Shadow on Future Prospects

The world is going through a number of simultaneous crises, just as the US has chosen to abdicate its global leadership role under President Obama.

It is unlikely that the US will be in a good position to help stabilise the global situation, at least in the near future. US President Obama's war against the private sector economy of his own country guarantees that the US economic juggernaut will take time to rebuild, before it can take on many challenges outside its own immediate realms of influence.

Much Ado About Chinese Stealth Fighters

Like most information coming out of China these days, information about China's military capability must be taken with a grain of salt. This is particularly true about the recent hype over China's "new stealth fighters."

In December 2010 the Chinese People’s Liberation Army Air Force shocked observers when it allowed civilian photographers to snap and publish photos of China’s very first, and previously unseen, stealth fighter prototype undergoing ground testing in Chengdu in central China.

The J-20 “Mighty Dragon” took off for its apparent first test flight on Jan. 11, inaugurating what some have described as a new era of aerial warfare, in which advanced Chinese aircraft might challenge the decades-long dominance of the U.S. military with its stealth fighters and bombers. “China’s new Chengdu J-20 stealth fighter was an important milestone in China’s Long March toward parity in military technology with Russia and the West,” wrote Carlo Kopp, an analyst with Air Power Australia, an independent think tank.

Not only did China possess the J-20, its aviation companies were also said to be hard at work on several other radar-evading fighters similar in philosophy to the American F-117, F-22 and F-35 fighters and B-2 bomber. Among these rumored warplanes was the J-16, reportedly in development in Shenyang in northeastern China.

The J-16 was, if anything, scarier to the American defense establishment than the J-20, for it was more practical. The Mighty Dragon was clearly an experimental aircraft incorporating design elements typically not seen on Chinese warplanes, including internal weapons bays. Moreover, the twin-engine J-20 apparently lacked purpose-built engines and could be seen flying with Russian-made AL-31F engines likely poorly-suited for the airframe.

A year after its debut the first J-20 had completed only 60 confirmed testing flights of the thousands required by a new warplane design. A second copy of the Mighty Dragon appeared in the spring of 2012 but by summer still hadn’t flown.

...The J-16′s first public appearance occurred in Shenyang in April, when the PLAAF flew at least one of the new fighters before a press audience. Hong Kong’s Kanwa magazine described the J-16 as a direct copy of the Su-30, a version of the T-10 dating from the late 1990s. The J-16 in fact does not feature any of the rumored stealth enhancements, such as can be found on the T-50. Apparently, the only difference between the Chinese J-16 and the Russian Su-30 it’s copied from is that the J-16 can carry Chinese-made weapons. Both the J-16 and the Su-30 use the standard, Russian-made AL-31 engine.

In that sense, the “new” Chinese fighter isn’t new at all. Instead of representing an immediate step towards a stealthy fighter force rivaling America’s, Beijing’s new warplane holds the line at late ’90s-early 2000s technology. Unless China is developing any other new warplanes — and that’s certainly possible — a true generational leap in front-line fighter technology will have to wait for the J-20 to achieve operational readiness. That could take a decade, by which time the U.S. military will likely have brought potentially hundreds of new F-35 stealth fighters into service.

As the J-16 was making its first public appearance, Beijing was also negotiating with Russia to purchase copies of the Su-35, the newest T-10 model. The proposed purchase only underscores China’s apparent inability to produce its own combat-capable versions of even moderately stealthy warplanes anytime soon. Perhaps Beijing is learning the lesson that the U.S. government learned during the 15-year, $70-billion development of the F-22: that inventing stealth fighters is hard. _Source

We know that many Chinese buildings, tunnels, bridges, towers, and other construction has a tendency to collapse years ahead of their time -- if not prior to completion.

China's legendary difficulties with construction and civil engineering has been linked to rampant corruption in China's construction industries and governmental oversight departments. But who is to say that there are not similar problems with Chinese manufacture of military aircraft components? There must be some reason why the Chinese have so much trouble building their own engines and other components of modern military craft.

Westerners -- particularly Americans -- need to be careful not to allow their Pentagon and military contractors to exaggerate China's military capability in the leadup to another legendary arms race. It is unlikely that the US government -- already spending over $1 trillion a year more than it can raise -- can survive another full scale arms race such as the one it barely survived against the Soviets.

China Slowdown Coverup Fools Analysts

Many veteran China watchers appear to have been fooled by faked statistics coming from Chinese government sources. It appears that the economic slowdown in China may be deeper and more extensive than previously suspected -- rivaling the slowdown of late 2008 - early 2009.

Record-setting mountains of excess coal have accumulated at the country’s biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said.

Electricity production and consumption have been considered a telltale sign of a wide variety of economic activity. They are widely viewed by foreign investors and even some Chinese officials as the gold standard for measuring what is really happening in the country’s economy, because the gathering and reporting of data in China is not considered as reliable as it is in many countries.

Indeed, officials in some cities and provinces are also overstating economic output, corporate revenue, corporate profits and tax receipts, the corporate executives and economists said. The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.

The executives and economists roughly estimated that the effect of the inaccurate statistics was to falsely inflate a variety of economic indicators by 1 or 2 percentage points. That may be enough to make very bad economic news look merely bad. The executives and economists requested anonymity for fear of jeopardizing their relationship with the Chinese authorities, on whom they depend for data and business deals. _NYT

As mountains of coal, copper, and other commodities continue to pile up at Chinese depots, China analysts are beginning to wonder if they can trust any numbers whatsoever that hove their origin within the Chinese government or state owned entities.

Serious economic decline linked to a banking crisis has affected several countries in Europe, and lower oil prices are beginning to take their toll on Russia. If China is forced to reduce its massive commodities stockpiling and the massive infrastructure overbuild, exporting nations such as Brazil and Australia may begin to feel the pain.

Al Fin economic analysts have been warning readers of this possibility for well over a year now, but as of yet global commodities prices have not yet dropped back to 2007 levels.

The Chinese government has very good reasons to not show any public sign of economic weakness at this time. But if it is forced to back off from its ambitious building stimulus scheme, the global repercussions in commodities markets may make 2008 / 2009 look like boom time.

Debate Over China's Economic Slowdown

Michael Pettis discusses the economic debate over China's slowdown, and the question of whether China's CCP government can pull the economy out of its decline. Pettis discusses some of the main problems with China's current policies of malinvestment and misallocation of resources.

Patrick Chovanec provides a wealth of links to articles on China's economic situation. This "links feature" from Patrick is turning into quite a treat. Using this information, a person can browse the data points and draw his own conclusions.

Coal stockpiles rise as economy dips

Watching the growing stockpiles of essential commodities is one way of monitoring economic progress. Another important checklist to update is overcapacity in manufacturing and real estate.

If Pettis is right, and China is being forced into another round of stimulatory infrastructure overbuild, we will need to be able to monitor the extent of this overcapacity.

China can easily prop up its near term GDP numbers at the cost of future stability. In the process, it can lend false hope to its commodities suppliers such as Brazil, Australia, and several S.E.A regional countries.

In the end, China will have to reform its corrupt and dysfunctional system of state owned banks and enterprises and crony government, or it will resort to escalating nationalistic xenophobia and war, or China will schism into antagonistic fragments.

The crisis point will likely occur sometime in the 2020s, within years of a similar crisis point in neighboring Russia.

More on China's Troubled Transition

It seems as if China has failed to learn the lessons of its mistakes and excesses, and is embarking upon a journey of increasing corruption and oppression. By rejecting much-needed economic reforms, China appears to be closing the door on what could have been a wonderful era of abundance and opportunity for the Chinese people.

... [In the 1990s] Deng Xiaoping reignited economic reforms by taking on the Communist Party’s powerful left wing.... Mr. Deng brought in reformers like the now-retired President Jiang Zemin and Prime Minister Zhu Rongji to scale back state control, moves that eventually paid off with China joining the World Trade Organization in 2002.

But when they retired, replaced by Mr. Hu and Prime Minister Wen Jiabao, the atmosphere changed. Economic modernization was seen as causing social unrest, which rose steadily during the 2000s. In response, the country put in place a “stability maintenance” apparatus to tamp down criticism.

....Publicly controlled enterprises have become increasingly lucrative, generating wealth and privileges for hundreds of thousands of Communist Party members and their families. And in a clear sign of its position, the government has moved to limit public debate on economic policy, shutting out voices for change. While political reform has always been a taboo topic in China, in economics, from the late 1970s to the early 2000s, almost anything went, with powerful voices backing strong measures that challenged the status quo. But now, despite the rise of social media, fewer prominent voices within China are able to make the case for a systemic overhaul that would prepare the nation for long-term prosperity on sturdier foundations.

“It’s not a good time to speak out for reforms, but it’s a good time to speak out against them,” said Li Shuguang, a professor at the China University of Politics and Law. “The government doesn’t encourage debate.”

Few people illustrate this conundrum better than Zhang Weiying, a 53-year-old Peking University professor who is probably the closest China has to an economic dissident.

A cause célèbre in Chinese economics circles, Mr. Zhang was fired a year and a half ago from his post as dean of the university’s Guanghua School of Management. Since then, he has been on an extended sabbatical, traveling widely and giving speeches on the country’s brewing economic troubles, among them slowing domestic growth and a collapse of financing for private enterprise _NYT

Much more at the link.

A Broad Look at China's Economic Problems

Stealth Problem Alert from Patrick Chovanec: A potential mess in the making.

More potential problems for China's government and economy

Interesting overview of China's situation from Vitaliy Katsenelson in Scribd slideshow format

Each of these links contains a slightly different assessment of China's problems, with some important factual information which you might not run into otherwise.

China: Bubbles on Top of Bubbles

...even though the Chinese government has been, for years, telling everyone that they are serious in trying to curb home prices, it is now becoming clear that because rising home prices and inflation are what make Chinese ruling class gain personal profit, they are now giving up on real estate market curbs already. In fact, not only have they been fine-tuning real estate policies mainly at the local governments level, they have started cutting lending rates, as we have all known. Between attempting to maintain high growth and letting the economy to adjust, the government speaks the latter and does the former.

As a result of all these subtle changes in languages and actual policies, it seems that the real estate market is heating up again in various cities. Now we are seeing queues in property sales office again in Beijing, Shenzhen and other places as people seem to believe that as the tightening is over, real estate prices will rise again according to Sina. As we said yesterday, that this is rather pathetic as the government seems to be hoping that speculators will come in again to save the economy. _Also Sprach Analyst

What these bubbles on bubbles are covering up is the fact that the Chinese government has no idea what it is doing, as far as China's economy is concerned.

Even worse, the Chinese CCP government may not want to know what is truly going on under all the layers of bubbles they have helped generate through their multiple levels of essentially unworkable and incompatible economic policies.

Chinese state owned enterprises (SOEs) -- including large banks -- are turning out to be the Chinese equivalent of Enron, Bernie Madoff, and Jon Corzine combined. This does not bode well for the time when bills must finally be paid.

[Chinese] Money supply rose markedly in May and recent years' credit growth has surpassed even that of the U.S. in the period leading to the Lehman collapse. Unfortunately, instead of being put to good use, much of that money has ended up in the hands of wasteful state-owned enterprises, or SOEs...

...The SOEs are like the profligate Real Housewives of Beijing. They get tons of money to splurge on fancy, wasteful items, get wined and dined by the country's most powerful figures, yet contribute relatively little to the economy. In many cases, they're profitable solely because they're the only players allowed in strategically important industries...

...Of course, the nation's four largest banks -- themselves majority state-owned -- have a tremendous bias in lending to SOEs. And the government's vested interest in protecting the status quo has led to major restrictions on multinational banks looking to expand within China. ...

...As a result of their intimate connections with China's authorities, SOEs enjoy a number of remarkable advantages that private firms would kill for. They get huge government subsidies in the form of significantly lower tax rates, have access to much cheaper basic inputs like water, land, and energy, and enjoy barriers to entry in key industries.

But despite their edge, SOEs are much less efficient than their private counterparts, and have become increasingly inefficient over the past decade. In fact, many are loss-makers and there's mounting evidence they've misallocated capital on a tremendous scale. But thanks to the "wonders" of state capitalism, they keep getting funded -- accounting for more than 75% of all bank loans -- and continue to expand. _Daily Finance

Those who are interested in the ultimate future of modern China should read the full piece in Daily Finance.

This type of corruption in high places is not likely to turn out well. And yet, an international poll by Pew Research reveals that most westerners see China as the world's dominant economic player.

Welcome to the global Idiocracy.

Global Economy at the Crossroads

China may be on the brink of instability and large scale capital flight

If this dire prediction should come to pass, the repercussions across global markets -- both emerging and developed -- would be severe.

The global drop in oil prices is having a depressing effect on Russian markets and the ruble

Putin's inability to sell high priced Russian natural gas to China is likely to further hurt the wounded bear

Things are bad all over, with people beginning to remark on an exodus of cash from China

A growing problem of capital flight from Russia etc.

Even Europe is beginning to feel the sting of capital flight -- and not just Greece and Spain

Unless the US can get rid of Obama and his ruinous administration of economic saboteurs, and unless the UK and Australia can get rid of their energy starvationist politicians and bureaucrats, even the Anglosphere may be in for some very hard times.

Mainland Europe needs to reverse its demographic decline and enact some crucial pro-energy policies, before it suffers a terminal green dieoff.

It is possible for entire societies to commit suicide. Try not to let it happen to yours.

We Interrupt This European Crisis to Bring You the Chinese Collapse

The global economy rests largely on the US, Europe, and China. Both Europe and China are in the middle of serious economic difficulties, which are not fully appreciated by most outside analysts. In general, most of the attention has been directed toward the European debt and banking crises. But given how much of global demand for commodities has originated in China recently, it does not pay to ignore the 200 tonne dragon in the room.

Reformed Broker: We Interrupt this European Crisis to Bring You the Chinese Recession

Atlantic: 5 Reasons Why China May Already Be in a Recession

EconBrowser: China and the Global Slowdown

Good Bad and Ugly of Emerging Markets: Who Tyler Durden thinks you can trust

Brian Wang is still bullish on China

If you are an investor, it does not pay to get too complacent.