China again tries to export itself out of misery, thus increasing other countries' problems

We close our eyes we never lose a game

Imagination never lets us take the blame

We close our eyes to see the final frame

We close our eyes to time slipping away

Go West – We close our eyes

It becomes more and more clear that the spectacular growth in China will come to an end rather sooner than later. The cities where nobody lives, the real estate bubble, the rigged statistical data and the enormous inflation in the country are rock-solid proof that something is terribly wrong in the Chinese economy.

The problem is, however, that in a country with 1.3 bln inhabitants things just can’t go wrong. Especially not when the country suffers from an extremely ideological and repressive regime that puts ‘the party’ on top of the pedestal and literally wants to die and kill for the stability in the country and in this party.

Every Chinese citizen must be a tribute to the glory of this party and when people don’t want to be a tribute to the party, they are suppressed and pursued.

In every scandal that happened since the Tiananmen Square massacre in 1989, a few things became clear over and over again:

• the lower-ranked perpetrators of great crimes, disclosed corruption and large fatal accidents were caught and often executed; 
• the higher-ranked perpetrators (with party-connections) got away (often without any kind of punishment); 
• the Chinese citizens that protested too hard / too long and wanted to fight for their rights were locked up in prison or in mental institutes or their resistance was broken in another way; 
• and the party closed its ranks and went back to business-as-usual

The Russians have a proverb for this: ‘the dogs may bark, but the caravan moves on’. The party doesn’t allow anything out of the ordinary and suppresses every countering voice, all resistance of citizens and every political / economical circumstance that doesn’t fit in its book.

This is the reason that China is still in denial of the economic situation at home. The government leaders know extremely well what is going on in the Chinese economy, but are not allowed to show that something is wrong with it: this would be considered as weakness of leadership and could therefore lead to protests and chaos, as far as they are concerned.

Therefore the Chinese goverment proceeds just like before: deny the inflation, deny the CRE and RRE bubbles, suppress the value of the renminbie, tell the Western world silently ‘to go to hell’ and export yourself out of misery.

That the imbalances that this policy of denial and ‘beggar thy neighbour’ causes, are ruining world trade and ruin other countries, is not China’s problem. Stability in the home land and the party high on the pedestal is.

This might explain why the Chinese export surplus for October is back at its old level, according to the China Daily newspaper (www.chinadaily.com):

China's trade surplus rebounds to $24b in Oct

China's trade surplus will rebound to $23.89 billion in October after falling for two consecutive months, the First Financial Daily reported Monday. Most economists said they expect the country's October trade surplus to be higher than the $14.5 billion recorded in September, the newspaper said, citing its survey results.

Exports are likely to increase by 16.1 percent, slower than the 17.1-percent growth posted in September, while imports are expected to rise by 21.7 percent, up from September's 20.9-percent increase, the newspaper said.

China's export growth will continue to slow over the next few months due to weak global demand, the newspaper quoted Qu Hongbin, HSBC's chief China economist, as saying.

But Qu said the country's exports will not witness negative growth, as the current economic turmoil is less severe than the financial crisis in 2009.

Li Daokui, an advisor and member of the monetary policy committee of the People's Bank of China, said last month that he expects the country's full-year trade surplus to reach $150-160 billion, accounting for 1.6 percent of the country's gross domestic product. Li also predicted that the trade surplus will further narrow next year.

China's trade surplus shrank by 10.6 percent to $107.1 billion in the first nine months,according to government data.

The Chinese export might indeed drop a little ‘due to weak global demand’. However,if the Chinese economy doesn't end in a total meltdown, there will still be an export surplus next year and in the following years to come. 

The low wages, the low prices of Chinese products and the artificially low Renminbie will further kill the manufacturing industries in Japan and Korea, after having almost completely destroyed the manufacturing industry in the US and Europe (see Sony shows disappointing Q2 results and Panasonic fears a record loss). Because the Chinese economy MUST grow at all cost.

And what can the Western countries, Korea and Japan do about it? Starting a trade war is not an option in these trying times.

Maybe the Swiss have the right answer: if you can’t beat them in price, then beat them in quality. In the end people get sick and tired of low-priced, poor-quality articles and want to buy something really good with a long life expectancy. And perhaps people are willing to pay a slightly higher price for it.

And the second solution is: lowering the costs of labour without impovering the workers, for instance by lowering the wage taxes in the European countries and the US.

And maybe the US and EU workers must get used to the thought that extremely high salaries are something of the past… and not of the future, if the western world wants to have a fair competition with China for our mutual benefit.