A Chinese Mini Communist Revolution


It might have something to do with Australia’s position relative to China. Or China’s position relative to America. But does it bother you that China is such a foregone conclusion? Daily Reckoning editors are born and bred to question foregone conclusions. Daily Reckoning readers get nervous about investing in them.

So let’s question away and find out if your path to prosperity is really to learn Mandarin and buy Chinese stocks.

First of all, remember that China is making the same mistakes as America and the Soviet Union. That’s right – you might have read China has the best of both worlds. A command and control economy to keep order, and a capitalist mentality to create prosperity.

We’ve got a different slant. China has embraced communist manipulation and capitalist abuse of debt. Add the two together and you get vastly over indebted local governments who hide their true obligations away using the same techniques that Wall Street does.

Unlike their Wall Street counterparts, but just like their Soviet comrades, the Chinese know of this problem. That’s why they’ve been auditing their local governments. Estimates of what they found have been bouncing around all over the place. But the point is that the problem exists.

Secondly, keep in mind that China’s dramatic economic growth has so far been par for the course. If you suppress a gigantic economy with a gigantic population for a long time and then lift the lid, it is bound to go flying. But doesn’t that mean the busts will also be bad?

Many observers in China can feel their stomach dropping as China slows right now. Is it going to be a soft landing, a hard landing or a face plant?

Last but not least, it’s worth noting that the communist party won’t just fade into the background. There’s a chance its leaders will gradually embrace more capitalism over time. But how will they react to their first recession, whenever it comes? Surely those still red under the bed as well as above will make a comeback? A mini communist revolution?

Dan Denning seems to think the opposite. We’ll let you know tomorrow what he says.

Until then, all you need to know is that all the editors made it to Sydney.

Nickolai Hubble
for The Daily Reckoning Australia

Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.

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2 Comments on "A Chinese Mini Communist Revolution"

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Jeremy Britton DipFA SA(Fin) AAHA HH Dip(PH)
Jeremy Britton DipFA SA(Fin) AAHA HH Dip(PH)
4 years 7 months ago

“Invest in China” is great advice; so is, “invest in residential real estate”… or at least it was, when it was given, back in 2000. The China boom has now run well beyond its 7-year cycle, so why are we still discussing it? Surely we could have a column about India (also nearly finalised), Brazil, Peru, or Africa: these are the post-China boom stories that are relevant beyond 2015. The World Bank stated that investing into Africa now is like investing into Brazil 5 years ago, (before it lifted its stock market by 160%).

4 years 7 months ago
China is not a communist county, it was changed from Deng Xiao Ping many years ago. China is using They Own Value,Principle and else base on their own purposes, country goal or what ever in the Leaders decision. So it is not Propaganda nor Democrazy by force in some cases; of course nothing is perfectly right all the time; some of Your comment are grosly wrong or not honest comment. Now is the time of changing strategies and game of the way to play. Every countries changed and adopted to suit for their own Principle/Alies/Block or else. America has to… Read more »
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