The wheels fall off the Chinese wagon

As I predicted, the wheels are coming off the Chinese juggernaut with a vengeance.

The recent protests about land-grabs endorse my earlier point about the need for wholesale land reform that will establish the sanctity of tenure. Chinese agriculture is extremely inefficient and under-productive because in the absence of security, farmers have no incentive to invest and no means of borrowing to invest (a point I have made many times about Africa).

Outstanding property loans have risen 100% in 5 years, and the price/income ratio of housing in Beijing is an almost unbelievable 19.

It is hugely reliant on exports, especially to the US and would be badly hit by another severe downturn, which looks increasingly likely. This short-term vulnerability is a symptom of a longer-term worry: a failure to progress from growth fuelled by resources and cheap labour to growth driven by higher productivity. As wages rise manufacturers often find themselves unable to compete in export markets with lower-cost producers elsewhere; yet they still find themselves behind the advanced economies in higher-value products.

Now even Chinese businesses are beginning to relocate to lower cost countries like Indonesia.

Like Germany, its savings rate is far too high with not enough money going into people’s pockets to unleash a badly-needed consumer boom. The ratio between exports and domestic consumption is badly skewed.

Officially, debt is only 15% of GDP, but as we all know, you can torture statistics to confess anything. China’s are notoriously unreliable. When hidden debt is taken into account i.e. that of other public entities, the true figure is more likely to be 100%. China could spruce things up by cutting the banks’ debt/asset ratio but this might not work in a post-Lehman Brothers world.

I have long maintained that China will eventually collapse under the weight of its own contradictions. It is a Communist regime running a vast capitalist machine, a contradiction in terms if ever there was. A free economy, without which growth can’t continue forever, depends on the rule of law, the independence of the judiciary, the legal enforceability of contracts, sound and transparent property title, the integrity of intellectual property, none of which applies in today’s China.

And Mr Chin is making himself hugely unpopular in Africa. The President of Zambia memorably said that he would prefer to have the British back; they brought justice, education, hospitals and much else that was good. There, he has gained an appalling reputation for cheating, underpaying the labour force, allowing dangerous conditions in their mines despite strict safety regulations, firing shot-guns at strikers, crowding out local businesses, and all manner of bad behaviour. We hear of local factories being bankrupted by cheap Chinese competition, of barter deals that are dishonoured like the Benguela Railway that should have been restored a couple of years ago in return for Angolan oil but no work done yet, shocking quality workmanship -  a hospital that and to be demolished two months after completion a trunk road that washed away in the first rainy season, and much more besides.

The recent protests and demos show that China is becoming more middle class and less deferential. When the Communist dam breaks there will be a cataclysmic deluge.

The sleeping dragon is stirring.