Hedge fund manager Hugh Hendry is a very intelligent guy. You can occasionally catch him on Bloomberg when he appears as a guest to share his wisdom on the world economy and financial markets. In today's world, you get to the truth by asking the right questions. While the world applauded China's stimulus for being more effective than Obama's generating 9% growth for the Chinese economy, Hugh Hendry asked himself where the billions in China's stimulus package went to and this is what he found:
From the mainstream media, we get this impression that the Chinese economy is an almighty unstoppable engine that is about to lead and dominate the world. The truth is a large part of the Chinese economy is export dependent and highly dependent on US consumer demand. When the US economy started tanking, Chinese factories closed and workers were laid off in large numbers. In a normal year, there are 600 riots (official figure) so there is enormous fear of social unrest if unemployment goes up. To shore up its economy temporarily they pumped billions into infrastructure projects and encouraged their banks to lend to businesses. They were able to avoid massive unemployment and keep the economy going until now.
While the media become fixated with the 'Chinese miracle', they forget how fragile their system is today. There is little doubt where China will be in long run. Throughout history, there were a few short periods of 100 years where China fell behind for various reasons only to surge ahead of the world. The problem is most of us don't live to 100 and China's resurgence is not a one way street given its current political and economic system in which various excesses can build up. The recent case in Chongqing [Link]shows how things can go very wrong in when you have a mix of centralised power, corruption, capitalism and crime. Chongqing is not a small town - it has a population of 31 million.
MM Lee said the Chinese are not interested in votes and freedom of speech[Link]. Economic growth masks many underlying problems with the Chinese system - we just have to look at Indonesia and S. Korea in 1997 to understand how quickly the illusion of an economic miracle can unravel. ...and when those economies fell apart during the Asian Crisis...what did the people want and demand for? Democracy and freedom. Today these nations are functioning democracies and the people are no worse off than they were under dictators and authoritarian rule.