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Sol Sanders: The [Chinese] emperor has no clothes | Zero Hedge

Sol Sanders: The [Chinese] emperor has no clothes | Zero Hedge.

My old friend Sol Sanders has written an important comment on the coming collapse of the Chinese Ponzi scheme.  For years now, I have been warning people that the Chinese Communist Party is not above manufacturing economic and financial statistics.  During my trip to France last week for an event sponsored by the Global Interdependence Center and the Banque de France, I appalled a group of economists by suggesting that there are no banks in China. Statistics on growth, debt and investment are all a fiction used to manipulate opinion, inside and outside of China.

We all remember the famous quote by Mao Zedong:  “Political power grows out of the barrel of a gun.” But how many of us have actually read the book?  Here is the full quote famed on 6 November 1938, during Mao’s concluding speech while addressing the “Problems on War and Strategy” on the party’s sixth Central Committee’s sixth Plenary session:

Every Communist must grasp the truth, “Political power grows out of the barrel of a gun.” Our principle is that the Party commands the gun, and the gun must never be allowed to command the Party. Yet, having guns, we can create Party organizations, as witness the powerful Party organizations which the Eighth Route Army has created in northern China. We can also create cadres, create schools, create culture, create mass movements. Everything in Yenan has been created by having guns. All things grow out of the barrel of a gun. According to the Marxist theory of the state, the army is the chief component of state power. Whoever wants to seize and retain state power must have a strong army. Some people ridicule us as advocates of the “omnipotence of war”. Yes, we are advocates of the omnipotence of revolutionary war; that is good, not bad, it is Marxist. The guns of the Russian Communist Party created socialism. We shall create a democratic republic. Experience in the class struggle in the era of imperialism teaches us that it is only by the power of the gun that the working class and the labouring masses can defeat the armed bourgeoisie and landlords; in this sense we may say that only with guns can the whole world be transformed. We are advocates of the abolition of war, we do not want war; but war can only be abolished through war, and in order to get rid of the gun it is necessary to take up the gun.

Enjoy

Chris

 

The [Chinese] emperor has no clothes

By Sol Sanders

http://yeoldecrabb.com/2014/03/17/the-chinese-emperor-has-no-clothes/

 

The shudder that relatively minor bad news from China sent through world markets last week was a warning that the halcyon days of Beijing’s economy are over. Indeed, reluctantly because of self-interest and wishful thinking, a universal consensus finally is emerging that the Chinese economy is in deep trouble, a crisis that could perhaps overturn the regime itself.

The cardinal indicator is that the Chinese economy is slowing down. How much, how fast, which sectors, is all open to speculation given the notorious unreliability of Beijing statistics. But certainly we long ago dipped below that 8% minimal annual gross national product growth rate which once was accepted inside and outside the Middle Kingdom as the requirement for political stability.

In a sense, it was inevitable: perhaps the world has no history of a regional economy as large as China’s growing at its phenomenally high rate over the past two decades. But, then, too, it has been obvious to all but the most optimistic that huge aberrations were being built into a wanting modernization process that would eventually haunt the leadership. That’s where we are now.

There is unusual agreement, again, among Chinese and foreign critics of what is wrong and even accord on remedies for amelioration. Communist Party Chairman, chief executive, and chief of state Xi Jinping and to a lesser degree Prime Minister Li Kegiang, some 18 months in office, are saying all the right things. Xi, unlike his predecessors, even manages to project charm to sell what will be under the best circumstances extremely difficult structural reforms. The new leadership has come down hard on corruption which is not only endemic, but has taken on growing economic aspects with everything from undermining manufacturing quality to facilitating a huge capital flight. It acknowledges that pollution, paralyzing major cities for days and increasingly jeopardizing children’s health, is an economic hazard.

But however clear a new formula would have to be found, the task is daunting. Such a strategy would have to replace the two-pronged drive put into place once the Chinese Communists abandoned Marxist-Leninist-Maoism in all but name. Mao-style autarky was trashed for an enthusiastic welcoming of foreign investment and transfer of technology to build export markets based primarily on abundant cheap labor. But at the same time, Beijing continued the Soviet tradition of enormous expansion of the infrastructure, well beyond contemporary or projected demand.

This Weltanschauung now has eroded dramatically.

The worldwide economic downturn ended an unlimited expansion of markets for Chinese exports. These manufactures had become part of a vast, new production chain in which international companies used Chinese assembly to produce products for sale to the U.S. and the rest of the industrial world at bargain prices. While these operations introduced limited manufacturing, through manipulation of currency and subsidies Beijing was in fact subsidizing foreign buyers. One look at the retail prices of products at an American retailer indicates that some dissident Chinese economists may well be right arguing that a capital-short country was exporting capital to wealthier nations.

Furthermore, Chinese razor thin margins have been jeopardized by rising costs, including growing fuel imports and a flattening out of the labor supply due to the regime’s attempts to stem population growth. For these reasons China already has lost many of the lowest end manufactures to other low-wage competitors; infants garments, for example, to Bangla Desh. There is even some movement because of technological improvements of off-shored manufacturing back to the industrial countries. For example, with America’s shale revolution reducing the price of domestic natural gas to a third of delivered prices of LNG in East Asia, petrochemicals and their plastic products are returning.

At the same time, China’s vast infrastructure expansion is falling victim to a growing credit crunch. Having sailed through the financial crisis with an unprecedented “stimulus” package of $586 billion in November 2008, Beijing created overcapacity and overinvestment. At the same time, local government’s expansion was based on sales of diminishing farmland for industrial and infrastructure development and credit from regional bankers.

The net result of all this is debt that even the government has found difficult to estimate and a fragile financial structure at every level of government. Perhaps more important, it has resulted in an increasingly onerous situation for private developers who carry a disproportionate weight in the overall growth. With stop and go credit policies, intrepid bureaucrats have created new shadow credit organizations beyond the scope of government monetary and fiscal policy.

The generally accepted recipe for solving these problems is to move the economy away from its concentration on investment and exports toward greater consumption and financial liberalization. But, in fact, recent trends have been in the opposite direction, as the government faced dismantling a system which had profited small urban elite enormously with a superficial appearance of modernization. The strongest resistance has come from huge government corporate entities and the welter of smaller SOEs [state owned enterprises] in the hands of regional and local Party apparatchiks. Their influence inside the ruling Communist Party gives them call on capital, even when as often happens, to entities either deficit or bankrupt.

What gave the markets the shivers last week was a statement from Li that a series of defaults were inevitable as the government tries to rationalize. A default by Haixin Steel, a relatively small operation but with ties to coal and iron ore companies was what gave rise to international concern. It also reflects what industry sources believe is a growing collapse with half of the country’s steel mills losing money. A week earlier China experienced its first bond default when Chaori Solar, a small privately owned solar panel maker, was unable to meet interest on Rmb1bn ($163 million) of bonds sold only two years ago.

In the past, the government has always picked up defaulting companies. If that policy is now to be abandoned, it is unclear just how big the debacle will be and whether it could lead to panic. Already world copper and iron prices fell sharply under the pressure of Chinese speculators retreating from their bets on a continued high level of metals production.

To remedy these problems, Xi’s highly publicized reforms, however much pushed by the leadership, are running into the often hidden outcome of past excesses. For example, not only does the attempt to moderate the “one child” policy appear as a lame effort to resolve an already warped sex ratio in the society – female fetus abortions having produced a vast excess of males – but a huge, corrupt bureaucracy created to enforce the strategy is blocking real changes. Furthermore, such side issues as hundreds of thousands of “illegal” births have produced a sizeable population which cannot claim identity from the still deeply held conviction of Party leaders they must control any dissidence through strict monitoring. A similar problem exists for the hundreds of thousands of part-time workers in all the major metropolitan centers, brought in as “cheap labor”, but refused urban citizenship and a right to limited social welfare benefits. The security proponents are allied with local governments in this instance against any “reform” because of the additional costs it would heap on already overburdened local government and the dismantling of authoritarian control of every individual.

While the system does have the support of the Party apparatchiks, a highly touted new urban middle class does not exist. Best estimates are an upper 1% of households — 2.1 million out of about 530 million households — owns 40-50% of the country’s $10.5 trillion worth of real estate and financial assets. That these ultra-rich – many at the Party’s highest echelons – are moving money into foreign real estate and other investments is widely reported. Should they consider moving 30% of their assets abroad, which is a figure rumored in Chinese circles, the much celebrated Chinese monetary reserves of $3 trillion in dollars would be inconsequential in stemming the tide.

This prelude to a cataclysmic readjustment of the Chinese economy is arriving at a time when Western economists and businessmen have had to abandon a long-cherished hope that continued rapid Chinese [and Indian] development would prop up the world economy. But their disillusionment on this aspect is likely to pale into insignificance as the effects of the Chinese slowdown impacts further on commodity producers in Africa, Latin America and Australia.

Beijing leadership’s quandary is that the struggle to refashion the Chinese economy with further liberal economics comes up against the determined effort of the CCP to maintain its power monopoly which forbids just that. For example, the effort to turn the yuan into an international currency requires it become convertible. That would not only jeopardize current export subsidies but would further encourage the flight of capital, largely a function of the corruption in the Party, often at its highest levels.

That produces an explosive environment where almost any scenario is arguable.

sws-03-16-14

Sol Sanders: The [Chinese] emperor has no clothes | Zero Hedge

Sol Sanders: The [Chinese] emperor has no clothes | Zero Hedge.

My old friend Sol Sanders has written an important comment on the coming collapse of the Chinese Ponzi scheme.  For years now, I have been warning people that the Chinese Communist Party is not above manufacturing economic and financial statistics.  During my trip to France last week for an event sponsored by the Global Interdependence Center and the Banque de France, I appalled a group of economists by suggesting that there are no banks in China. Statistics on growth, debt and investment are all a fiction used to manipulate opinion, inside and outside of China.

We all remember the famous quote by Mao Zedong:  “Political power grows out of the barrel of a gun.” But how many of us have actually read the book?  Here is the full quote famed on 6 November 1938, during Mao’s concluding speech while addressing the “Problems on War and Strategy” on the party’s sixth Central Committee’s sixth Plenary session:

Every Communist must grasp the truth, “Political power grows out of the barrel of a gun.” Our principle is that the Party commands the gun, and the gun must never be allowed to command the Party. Yet, having guns, we can create Party organizations, as witness the powerful Party organizations which the Eighth Route Army has created in northern China. We can also create cadres, create schools, create culture, create mass movements. Everything in Yenan has been created by having guns. All things grow out of the barrel of a gun. According to the Marxist theory of the state, the army is the chief component of state power. Whoever wants to seize and retain state power must have a strong army. Some people ridicule us as advocates of the “omnipotence of war”. Yes, we are advocates of the omnipotence of revolutionary war; that is good, not bad, it is Marxist. The guns of the Russian Communist Party created socialism. We shall create a democratic republic. Experience in the class struggle in the era of imperialism teaches us that it is only by the power of the gun that the working class and the labouring masses can defeat the armed bourgeoisie and landlords; in this sense we may say that only with guns can the whole world be transformed. We are advocates of the abolition of war, we do not want war; but war can only be abolished through war, and in order to get rid of the gun it is necessary to take up the gun.

Enjoy

Chris

 

The [Chinese] emperor has no clothes

By Sol Sanders

http://yeoldecrabb.com/2014/03/17/the-chinese-emperor-has-no-clothes/

 

The shudder that relatively minor bad news from China sent through world markets last week was a warning that the halcyon days of Beijing’s economy are over. Indeed, reluctantly because of self-interest and wishful thinking, a universal consensus finally is emerging that the Chinese economy is in deep trouble, a crisis that could perhaps overturn the regime itself.

The cardinal indicator is that the Chinese economy is slowing down. How much, how fast, which sectors, is all open to speculation given the notorious unreliability of Beijing statistics. But certainly we long ago dipped below that 8% minimal annual gross national product growth rate which once was accepted inside and outside the Middle Kingdom as the requirement for political stability.

In a sense, it was inevitable: perhaps the world has no history of a regional economy as large as China’s growing at its phenomenally high rate over the past two decades. But, then, too, it has been obvious to all but the most optimistic that huge aberrations were being built into a wanting modernization process that would eventually haunt the leadership. That’s where we are now.

There is unusual agreement, again, among Chinese and foreign critics of what is wrong and even accord on remedies for amelioration. Communist Party Chairman, chief executive, and chief of state Xi Jinping and to a lesser degree Prime Minister Li Kegiang, some 18 months in office, are saying all the right things. Xi, unlike his predecessors, even manages to project charm to sell what will be under the best circumstances extremely difficult structural reforms. The new leadership has come down hard on corruption which is not only endemic, but has taken on growing economic aspects with everything from undermining manufacturing quality to facilitating a huge capital flight. It acknowledges that pollution, paralyzing major cities for days and increasingly jeopardizing children’s health, is an economic hazard.

But however clear a new formula would have to be found, the task is daunting. Such a strategy would have to replace the two-pronged drive put into place once the Chinese Communists abandoned Marxist-Leninist-Maoism in all but name. Mao-style autarky was trashed for an enthusiastic welcoming of foreign investment and transfer of technology to build export markets based primarily on abundant cheap labor. But at the same time, Beijing continued the Soviet tradition of enormous expansion of the infrastructure, well beyond contemporary or projected demand.

This Weltanschauung now has eroded dramatically.

The worldwide economic downturn ended an unlimited expansion of markets for Chinese exports. These manufactures had become part of a vast, new production chain in which international companies used Chinese assembly to produce products for sale to the U.S. and the rest of the industrial world at bargain prices. While these operations introduced limited manufacturing, through manipulation of currency and subsidies Beijing was in fact subsidizing foreign buyers. One look at the retail prices of products at an American retailer indicates that some dissident Chinese economists may well be right arguing that a capital-short country was exporting capital to wealthier nations.

Furthermore, Chinese razor thin margins have been jeopardized by rising costs, including growing fuel imports and a flattening out of the labor supply due to the regime’s attempts to stem population growth. For these reasons China already has lost many of the lowest end manufactures to other low-wage competitors; infants garments, for example, to Bangla Desh. There is even some movement because of technological improvements of off-shored manufacturing back to the industrial countries. For example, with America’s shale revolution reducing the price of domestic natural gas to a third of delivered prices of LNG in East Asia, petrochemicals and their plastic products are returning.

At the same time, China’s vast infrastructure expansion is falling victim to a growing credit crunch. Having sailed through the financial crisis with an unprecedented “stimulus” package of $586 billion in November 2008, Beijing created overcapacity and overinvestment. At the same time, local government’s expansion was based on sales of diminishing farmland for industrial and infrastructure development and credit from regional bankers.

The net result of all this is debt that even the government has found difficult to estimate and a fragile financial structure at every level of government. Perhaps more important, it has resulted in an increasingly onerous situation for private developers who carry a disproportionate weight in the overall growth. With stop and go credit policies, intrepid bureaucrats have created new shadow credit organizations beyond the scope of government monetary and fiscal policy.

The generally accepted recipe for solving these problems is to move the economy away from its concentration on investment and exports toward greater consumption and financial liberalization. But, in fact, recent trends have been in the opposite direction, as the government faced dismantling a system which had profited small urban elite enormously with a superficial appearance of modernization. The strongest resistance has come from huge government corporate entities and the welter of smaller SOEs [state owned enterprises] in the hands of regional and local Party apparatchiks. Their influence inside the ruling Communist Party gives them call on capital, even when as often happens, to entities either deficit or bankrupt.

What gave the markets the shivers last week was a statement from Li that a series of defaults were inevitable as the government tries to rationalize. A default by Haixin Steel, a relatively small operation but with ties to coal and iron ore companies was what gave rise to international concern. It also reflects what industry sources believe is a growing collapse with half of the country’s steel mills losing money. A week earlier China experienced its first bond default when Chaori Solar, a small privately owned solar panel maker, was unable to meet interest on Rmb1bn ($163 million) of bonds sold only two years ago.

In the past, the government has always picked up defaulting companies. If that policy is now to be abandoned, it is unclear just how big the debacle will be and whether it could lead to panic. Already world copper and iron prices fell sharply under the pressure of Chinese speculators retreating from their bets on a continued high level of metals production.

To remedy these problems, Xi’s highly publicized reforms, however much pushed by the leadership, are running into the often hidden outcome of past excesses. For example, not only does the attempt to moderate the “one child” policy appear as a lame effort to resolve an already warped sex ratio in the society – female fetus abortions having produced a vast excess of males – but a huge, corrupt bureaucracy created to enforce the strategy is blocking real changes. Furthermore, such side issues as hundreds of thousands of “illegal” births have produced a sizeable population which cannot claim identity from the still deeply held conviction of Party leaders they must control any dissidence through strict monitoring. A similar problem exists for the hundreds of thousands of part-time workers in all the major metropolitan centers, brought in as “cheap labor”, but refused urban citizenship and a right to limited social welfare benefits. The security proponents are allied with local governments in this instance against any “reform” because of the additional costs it would heap on already overburdened local government and the dismantling of authoritarian control of every individual.

While the system does have the support of the Party apparatchiks, a highly touted new urban middle class does not exist. Best estimates are an upper 1% of households — 2.1 million out of about 530 million households — owns 40-50% of the country’s $10.5 trillion worth of real estate and financial assets. That these ultra-rich – many at the Party’s highest echelons – are moving money into foreign real estate and other investments is widely reported. Should they consider moving 30% of their assets abroad, which is a figure rumored in Chinese circles, the much celebrated Chinese monetary reserves of $3 trillion in dollars would be inconsequential in stemming the tide.

This prelude to a cataclysmic readjustment of the Chinese economy is arriving at a time when Western economists and businessmen have had to abandon a long-cherished hope that continued rapid Chinese [and Indian] development would prop up the world economy. But their disillusionment on this aspect is likely to pale into insignificance as the effects of the Chinese slowdown impacts further on commodity producers in Africa, Latin America and Australia.

Beijing leadership’s quandary is that the struggle to refashion the Chinese economy with further liberal economics comes up against the determined effort of the CCP to maintain its power monopoly which forbids just that. For example, the effort to turn the yuan into an international currency requires it become convertible. That would not only jeopardize current export subsidies but would further encourage the flight of capital, largely a function of the corruption in the Party, often at its highest levels.

That produces an explosive environment where almost any scenario is arguable.

sws-03-16-14

Bird Flu Spreads Human-to-Human, Admit Chinese Authorities » The Epoch Times

Bird Flu Spreads Human-to-Human, Admit Chinese Authorities » The Epoch Times.

A vendor picks chickens at a wholesale poultry market in Shanghai, on Jan. 21, 2014. Chinese authorities confirmed on Jan. 27 that there have been cases of H7N9 spreading between humans. (AP photo)

A vendor picks chickens at a wholesale poultry market in Shanghai, on Jan. 21, 2014. Chinese authorities confirmed on Jan. 27 that there have been cases of H7N9 spreading between humans. (AP photo)

The Chinese authorities on Jan. 27 acknowledged for the first time that they have discovered cases of human-to-human infection with the H7N9 bird flu, while remaining vague on the details in an attempt to prevent public panic.

In a short statement on Jan. 27, the authorities said that human-to-human transmission was recorded in eastern China’s Zhejiang Province. They do not specify the number of cases, nor the city in which they took place.

The H7N9 Joint Prevention and Control Office said the infection or infections took place under “particular conditions” and are “non-sustained transmissions,” meaning that it is not expected to spread from those incidents.

The case or cases in Zhejiang would be the first time that human-to-human transmission has been officially acknowledged by the authorities since H7N9, a new avian influenza, was first recorded in China in March 2013.

Experts at the China Center of Disease Control, however, said it was just a “special case,” and human-to-human transmission of H7N9 is not yet very widespread.

“The public has no need to panic too much,” said Xinhua, the mouthpiece of the Chinese Communist Party.

Zhejiang has a bad record with H7N9 infections: it has recorded 49 diagnosed cases and 12 deaths this month, the latest official report says.

A newly released “Treatment Scheme of Human Infection with H7N9 Bird Flu” by China’s Health and Family Planning Commission also now lists “limit and non-sustained human-to-human infection” as one of the ways in which the H7N9 virus may be transmitted.

More common transmission mechanisms include “infection through the respiratory tract, through close contact with secretions or excretions of infected birds, and through contact with the infected environment.”

Despite the authorities attempts at damage control in emphasizing the limited nature of human-to-human transmission, the news still came as highly unwelcome to the public. Many individuals posting on the Internet said they would avoid eating poultry, in order to protect themselves from contracting the virus. (Though it does not spread from the consumption of chicken meat.)

A large number of Chinese netizens have reported anecdotally that more people appear to be getting sick in comparison to years past.

“I have to let people know the truth. Very many people here in Harbin are sick, several times more compared to the same period in previous years,”remarked an anonymous netizen who said he or she was from northern China’s Heilongjiang Province. “There are both adults and children who have fevers above 40 Celsius (104 Fahrenheit). Many of them have developed pneumonia.”

Internet users post such comments anonymously because information about the spread of disease is highly controlled by the communist authorities, and Chinese citizens who disclose such information without authorization can be severely punished.

“They are not confirmed to have H7N9, but the truth is that there’s such a large scale of flu, cold, and pneumonia going on, and it has very strong infectiousness. Who can give us an explanation?” the post continued. “Even nurses and doctors are sick and having fevers. What should we people do?”

There is currently no established, effective medical treatment or vaccine against H7N9. Chinese health and disease control experts suggest people should wash their hands more often, exercise more, wear masks when coming in contact with poultry, and avoiding live birds.

144 people were diagnosed with H7N9 in China last year, but just this month there have been 103 H7N9 bird flu patients, according to Chinese official reports, which may be incomplete. At least 20 have died from infection this year. New reports are issued daily with more cases.

Hong Kong Newspaper Punished for Its Political Stance, Says Publisher- The Epoch Times

Hong Kong Newspaper Punished for Its Political Stance, Says Publisher

– The Epoch Times.

HONG KONG—Mainland Chinese companies have stopped advertising in Hong Kong’s free daily newspaper am730 for political reasons, the paper’s founder Shih Wing-ching claimed recently.

Shih wrote in his opinion column in am730 on Jan. 16 that this withdrawal of funds came as a united front, indicating that there was a uniform reason behind all of the companies’ decisions. He suspected that the actions were motivated by politics rather than commercial interests, because otherwise there would be no reason for the banking and telecommunications industries to act simultaneously.

Shih also stated that he will not yield to any political forces or change the direction of his paper against his will. If worst comes to worst, he will stop running the paper.

He added that the yearly advertising costs of these Chinese companies have exceeded 10 million HKD, while am730’s entire earnings are only 10 to 20 million HKD (US$1.3 to $2.6 million). If these companies continue to withhold their advertising, a large portion of am730’s earnings will vanish.

A very successful businessman and the founder of Centaline Property Agency Limited, Shih said that if a business cannot keep its balance financially, it will not go far.

Financial columnist and senior media professional Liao Shi-ming said, “At present, sales of Chinese companies in Hong Kong have grown large. It has become unfeasible for a daily newspaper to operate relying only on the sales of advertising to local enterprises or foreign investors.”

“This forces Hong Kong media operators to face the test at the mercy of the Chinese Communist Party,” Liao said.

According to Liao’s analysis, am730 is classified as conservative and moderate among Hong Kong newspapers. While the paper seldom criticizes the Chinese Communist Party (CCP) directly and never touches the “sensitive” issue of the CCP’s persecution of the spiritual practice Falun Gong, the paper holds firm to the core values of Hong Kong, she said.

However, am730 did mention Falun Gong in a Jan. 3 article called “Hong Kong artists stand by Epoch Times” about Hong Kong celebrities sending New Year’s greetings to readers through the Epoch Times.

The article included quotes from people identified as netizens, showing concern for the celebrities about the Epoch Times “Falun Gong” background. The quotes suggested that publishing greetings in the Epoch Times would cause trouble for the celebrities and prevent them from visiting mainland China, where Falun Gong is severely oppressed. The paper did not contact the celebrities directly to get their opinions about the netizens’ comments.

Shih told the Epoch Times that he was not informed about this article, but he said am730 should have checked with the celebrities before reporting these comments.

Liao believed that am730 attempted with this unusual article as to show its position to the CCP, indicating that the paper would not step out of line on the issue that CCP considers most sensitive and most fears to see discussed openly.

“That is a case of obviously siding with the wicked and bullying good people,” Liao said.

Liao appealed to Hong Kong media to hold on to basic morals when facing critical moments, and avoid siding with the CCP against their conscience.

Translated by Y.K. Lu. Written in English by Sally Appert

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