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Generational Dynamics Web Log for 4-Feb-2009
China fears major crisis, as economy continues to crash

Web Log - February, 2009

China fears major crisis, as economy continues to crash

A new study shows 8% unemployment, with 20 million migrants unemployed. This news is much worse than expected, and represents a threat to social stability, according to Chinese officials.

Collapsing corporate profits in China <font face=Arial size=-2>(Source: WSJ)</font>

Collapsing corporate profits in China (Source: WSJ)

This comes at the same time that other economic statistics continue to indicate a huge shakeout in China's economy is occurring.

In particular, corporate profit in China appears to be rapidly crashing. Profits of industrial companies plunged 27% in the three months to November, according to official figures. Industries related to exports are particularly hard hit.

In another dramatic development, Chinese citizens seem increasingly turning away from investment in China, and using what money they have to invest in (of all places) America - American products and securities. Total outflows in the fourth quarter were as much as $240 billion.

The sharp increase in unemployment estimates for migrant workers was revealed at a press conference held by Chen Xiwen of China's Central Finance and Economic Leading Group. Here's a translation of what he said, from Victor Shih of RGE Monitor:

Chen Xiwen: "Not long ago, the Ministry of Agriculture organized a survey which drew samples from 150 villages located in 15 provinces which exported more rural labor. The sample focused on the approximately 38.5% of rural labor who returned home before the lunar new year. Of those who returned home, some 60.4% were home on regular visits to their family. That is to say that their jobs in the cities are still preserved, and they will return to their jobs after the holiday. Of those who returned home, 39.6% of the respondents reported that they lost their jobs or have not found a job, thus returning home. According to these figures, of the 130 million rural labor who are working elsewhere, we think 15.3% in total have lost their jobs or have not found employment (in cities). According to the ratio of 15.3%, we can calculate that out of the 130 million of rural labor working elsewhere, approximately 20 million of them have lost their jobs or have not found employment due to economic unwellness."

Shih analyzes this further by adding 15 million or so in the registered urban unemployed (not migrant workers, but residents in major cities), and reaches a total of 37 million unemployed, or over 8% of the total work force of 430 million.

This is extremely high for China, higher than at any time since the end of China's crisis civil war, the Communist Revolution that climaxed in 1949. China depends on low unemployment to maintain social stability.

As I wrote in 2005, from the point of view of Generational Dynamics, China is approaching a major civil war. This conclusion was based on a variety of factors, including the increasing number of mass riots, a huge migrant worker population, big income disparities, and an unraveling of the social structure.

The Chinese authorities themselves are well aware of this. As I've said many times, the Beijing government is among the most paranoid in the world, afraid of their own population.

China has tens of thousands of "mass incidents" each year. In a typical incident, someone accidentally bumps into somebody on the street in a shopping area. Or, even worse, somebody bumps into somebody's wife. An argument ensues, and other people join the fray and take sides, especially if the one of the people is a peasant and the other is a member of China's élite, a member of the Chinese Communist Party (CCP). Soon, people start using their cell phones to call other people, and the altercation may grow into a riot with thousands of people, or more.

If even one incident like this happened in the US, it would be worldwide news. But in China, there are hundreds of "mass incidents" in the country EVERY DAY. Some are small, involving only a few people, while others are major riots.

The growing global financial crisis is causing the worst possible scenario for the Beijing government. China's crisis wars have always been major rebellions -- the White Lotus rebellion (1795-1805), the Taiping Rebellion (1852-1871), and Mao Zedong's Communist Revolution (1934-1949). Chinese authorities are well aware that a similar rebellion could flare up at any time.

"Without doubt, we are entering a peak period for mass incidents. In 2009, Chinese society may face even more conflicts and clashes that will test even more the governing abilities of all levels of the party and government," Huang Huo, a reporter for the state-run New China News Agency, warned this month. The Chinese have special security forces trained to handle these "mass incidents," as long as they're relatively small. But the greatest concern, in the current financial climate, is that the small incidents could coalesce into a "national-level event" that would bring about civil war.

I've written about this many, many times, and as far as I know, this web site is the only one that's predicting a China civil war with absolute certainty. Indeed, the only way to make such a prediction is by means of generational analysis.

So I was really startled to read Yves Smith's blog Naked Capitalism and see the following indignant statement:

"Readers have taken to projecting ... that I am predicting collapse or a violent overthrow of the Chinese government. I have never said any such thing.

It is a demonstration of a tendency I find troubling: engaging in black and white thinking. This is not an either/or."

As I said, I've never seen any blog or web site, other than this one, making such a prediction. This web site is so different from the Naked Capitalism blog that it's hard to believe that anyone could confuse them, but it appears that's what happened.

It's worth quoting some more of Smith's indignant statement, because it provides insight into how people think about this issue:

"Plenty of countries have experienced a good deal of internal dissent. Look at the US in the 60s, with riots, firebomings, and large scale demonstrations, in a country with no tradition of radical action by the middle class, and a much less highly developed police/surveillance apparatus than we have now. Did anyone think the government here would be overthrown? Perhaps a hopeful few on the radical left, but they'd have little company. Yet that level of violence was still unsettling and did put pressure on the government."

Anyone familiar with generational theory would know that this comparison makes absolutely no sense whatsoever. During the 1960s, America was in a generational Awakening era, a time when massive protests and demonstrations are common, but a crisis civil war is impossible. This is how I knew, for example, that the Iraq "civil war" that everyone was talking about would have to fizzle out, and it did, because Iraq is today in a generational Awakening era.

(See "Iraq Today vs 1960s America," and "Basics of Generational Dynamics.")

But China is in a generational Crisis era, meaning that the country is "attracted toward" war, so the current situation is not at all incomparable to America in the 1960s. A more valid comparison would be to America's civil war in the 1860s.

"Although China has had violent revolution, it has no organized anti-government movement at present, a very large army, and little tolerance of opposition. The discontent now is directed first against the corporations that shuttered their operations, second against provincial governments (this is more a simmering problem of long-standing corruption that may find a new hook with increasing demands for services, such as they are, driven by the migration back to the countryside)."

This is completely untrue. There is a huge anti-government movement, the Falun Gong movement, which China has outlawed. Furthermore, the reason that China spends such huge sums of money censoring the Internet is because of fears of a "nationwide event," set up by internet communications.

(See "List of major Generational Dynamics predictions" for more information about Generational Dynamics predictions.)

From the point of view of Generational Dynamics, China is headed for a civil war with absolute certainty, but that's not all.

One of the most important stories of the decade, in my opinion, was the anti-Japan rioting in China in 2005. The authorities diverted anti-party sentiment at the time, and changed it to anti-Japan sentiment. So a civil war in China would almost certainly lead quickly to a world war. And with China's economy crashing rapidly, the time may not be too far off.

(Comments: For reader comments, questions and discussion, see the China thread of the Generational Dynamics forum.) (4-Feb-2009) Permanent Link
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Generational Dynamics Web Log for 4-Feb-2009 China fears major crisis, as economy continues to crash

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Generational Dynamics Web Log for 4-Feb-2009
China fears major crisis, as economy continues to crash