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August 22, 2010

China's Unfinished Business

By Ai Lung Nguyen - August 2010.

ENTERTAINMENT/POLITICS - Its only a matter of time before Hollywood producers realize the potential for a Hollywood blockbuster. Its been 21 years since the Tianenmen Square Massacre and nobody, not a single movie has been made about the historical incident. Oh sure, there's been documentaries, but there's never been a dramatization of what happened.

Thus the story of the approx. 10,000 protestors who were brutally massacred has been kept largely silent. Likewise the story of the young man who stood in front of the tanks while the world press watched.

Afterwards the Chinese government locked down and censored all mention of the event, to the point that many people living in mainland China either don't know about the infamous massacre or they think its a myth.

Its a story worth telling. And whichever producer and director tackles the topic first and does it well will probably have Oscar nominations coming their way... and earn the ire of the Chinese government...

In which case the job of producing and directing such a film should probably be given to someone who already has a career in the dumps, but has shown remarkable ability to direct and produce films... someone who likes bloody massacres... Mel Gibson.

Its just a thought. Maybe someone else will beat him to the punch.

In other news China's economy has been growing about 10% every year for the last three decades. Some economists are speculating that kind of economic steampower has to run out eventually, but they're forgetting a very important aspect of China and neighbouring India. Together China and India are the most populated region on the planet and money (in this case massive economic wealth) often goes to where the people are because they become manufacturing centres.

China's rampant manufacturing sector is growing so fast the Chinese government can't even keep track of it all. Hundreds, if not thousands, of companies are operating illegally under the radar and producing cheap knock-offs and counterfeit goods.

Now it is true that China's economy has to cool down eventually, but that doesn't mean it will happen during this century. It could be 90 years before China's red hot economy finally slows down a bit. And frankly, whats wrong with fast economic growth? Sure, it causes inflation to go up at a faster rate, but Chinese goods are so undervalued already that a little extra inflation is a good thing.

The 19th century was the European century, the 20th was American, all signs point to the 21st century belonging to Asia (especially China and India). Latin America and Africa will certainly be improving, but currently lack the manufacturing and the population to become huge industrial centres. Although it should be noted Mexico's economy may someday dwarf the USA's economy if they can ever solve their drug problem.

Forecasting superpower or megapower status is tricky however. In the late 19th century people thought Russia, Brazil and Argentina were destined for greatness, but the USA surprised every one.

Canada too has seen rapid growth, but it should be noted there are parts of Canada where people still live in 2nd or 3rd world conditions. Back in the 19th century the British Prime Minister Benjamin Disraeli once predicted Canada would become “the new Russia.”

To some extent China's rise to economic greatness has been long delayed. Back in 1820 and prior to that China was the world's largest economy, responsible for one-third of the global GDP. But during the 19th century China became mired in bureaucratic corruption, the Opium Wars and was invaded by other nations. It wasn't until the economic reforms of 1979 that China was finally able to boost its economy at a quicker pace.

Since then China has unleashed an unprecedented industrial revolution, one that has achieved such fast growth that some economists now worry about sustainability. Especially when you consider China is exporting so many things overseas to markets which are struggling to compete with China's low wages.

The Great Recession put a slight crimp in China's exports, but 'Buy American' campaigns historically haven't worked very well because many poor Americans can't afford to buy local when products from overseas are so much cheaper. Companies like Wal-Mart aren't helping at all because 99% of the things they sell are made overseas.

So as other economies collapse because factories are gradually being shut down in favour of cheaper labour in China, the world economy is essentially on the move. Wal-Mart alone made $408 billion USD in profit in 2009.

Compare that with the USA's trade deficit with China for 2009: $226.9 billion USD. The USA's total trade deficit was $600 billion USD for 2009. To put that in perspective its a bit like every single American is giving away $2,000 per year to foreign countries.

What you realize therefore is that if the USA cut out stores like Wal-Mart, the American economy would suddenly start booming again instead of shipping all of its money over to Asia.

China can't afford to keep bleeding the USA dry. If America's economy collapses China will go with it, so the only solution is for China to build up its domestic market so that Chinese people are buying Chinese-made goods, and likewise America needs to do the same thing (Americans buying American-made goods).

China is the world's biggest exporter. (Germany is 2nd.)

China is the world's biggest consumer of energy. (The USA is 2nd.)

China is the world's biggest automaker. (More than the USA and Japan combined.)

China is the world's biggest importer of raw materials, including steel and precious minerals.

The raw materials is the real Achilles heel in all this. China can only grow based upon the amount of raw materials it can import and use. Unless resource rich countries like Canada or Australia rape the countryside for every shred of material its eventually going to be curbed by not enough supply to feed China's hungry "Moloch-like" factories.

Thats not the only problem either... China is also short on people with educations who can speak foreign languages. True, they do import English teachers from overseas to help boost the speaking ability of Chinese people (English Institutes are big business in China, South Korea and Japan), but China pays peanuts compared to what South Korea, Japan and other countries are paying. There is also the issue of fluency. Its much better to hire an outsider who speaks the appropriate languages to come to China.

Bringing in and training foreigners is a difficult undertaking. China is also facing a housing problem as real estate prices in Chinese cities have soared 40% in the past decade (in theory if you wanted to invest in real estate it would be exceptionally wise to invest in Chinese real estate). The prices have spiked the highest in Beijing, Shanghai and Shenzhen.

Still China is a long way behind (even if you compensated for the fact the Chinese Yuan is undervalued by about 4 times) in terms of per capita income. Their standard of living would have to rise about 300% just to match the average American. Without compensating its approx. 1100%.

China is also paying for its rapid growth however... the extreme pollution in Chinese cities kills hundreds of thousands of people per year. The smog in China is outright deadly and should probably be called "Death Clouds" instead of merely smog. Its estimated smog will be killing over 600,000 people per year by 2020.

China also has an “over-dependence on investment and external demand, an unacceptably wide gap in incomes, too few social goods, and an underdevelopment of the service sector. Slow progress in anti-corruption campaigns and institutional reforms are also worrying.” according to Yu Yongding, formerly an official at China’s central bank.

Despite China's flourishing economy they also have a long list of unfinished business which need to be sorted out. Evidently China's government isn't overly worried about it.

“Better a diamond with a flaw than a pebble without.” - A Confucian Proverb.

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