I just read a rather chilling article at Forbes on the probable contours of the real Chinese economy. Here’s a telling snippet:
Furthermore, although the China government may not have lots of foreign debt, Chinese companies have borrowed more than $1 trillion denominated in dollars. Now that debt is rising in terms of the yuan, just as imports and exports are plunging, it becomes difficult to service that debt. That’s what causes deep recessions or depressions.
China’s largest coal mining company, which has a labor force of 240,000, announced that it would cut 100,000 jobs or 40% of its entire 240,000-strong labor force.
It’s impossible to get your mind around China because the numbers are so large but cutting 40% of your labor force sounds like a lot to me. A trillion dollars of corporate debt isn’t negligible, either.
The question is no longer whether China will have a hard landing but what a hard landing for China will look like?
Lots of unhappy people. Lots of people being “encouraged” to leave overcrowded Eastern China cities for empty “new cities” or return to the farming communities they got away from. Lots of demonstrations, without too much press or media attention, maybe a couple of Tiananamen Square-style demos complete with tanks and troops with guns and red stick stuff on the pavement. Lots of semi-restrained semi-hysterical insistence on the primacy of the Communist Party. Weekly show trials to purge the PLA and the Communist Party of oligarchs who got too blatant.
Probably several years of this, till everyone in sight is tired of it. Or dead, of course. Probably with some worthwhile reforms enacted along the way, and a great deal of of financial pain suffered by powerless middle class savers and investors.
Net impact …. a quieter, more subdued China, with the Communists as firmly in control as now, but with citizens a bit more fractious and resentful of that control even as they abide by it. Probably with a slower growth rate than today’s 7%, but stable and reliable, with less corruption and more accurate accounting. Not a terribly happy place to live for another generation.