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What's Really Going On In China? It isn't Marxist or Capitalist--it's plain old human greed, hubris and magical thinking manifesting as moral hazard running amok
Of Two Minds ^ | 09/24/2021 | Charles Hughes Smith

Posted on 09/24/2021 9:16:54 PM PDT by SeekAndFind

Losses will be taken and sacrifices enforced on those who don't understand the Chinese state will no longer absorb the losses of speculative excess.

Let's start by stipulating that no one outside President Xi's inner circle really knows what's going on in China, and so my comments here are systemic observations, not claims of insider knowledge.

Many western observers have noted the centrality of Marxist-Leninist-Maoist doctrine in President Xi's writings. This is somewhat akin to invoking America's Founding Fathers to support one's current policies: if you're trying to modify state policy in China, you have to explain it in the context of the Chinese Communist Party's history and doctrines. Never mind if the ideals were not met; what's important is establishing continuity and resonance with the history of China, the core doctrines of Chinese Communism and the CCP's leadership based on those doctrines.

That said, we should be careful not to read too much into doctrinal evocations such as common prosperity, which are useful conceptual anchors and slogans but not the full story.

What's actually happening in China isn't Marxist or Capitalist--it's plain old non-ideological human greed, hubris and magical thinking manifesting as moral hazard running amok.. Moral hazard-- the separation of risk and consequence, as speculators make increasingly risky bets because they know any losses will be covered by the state--is effectively the new State Religion in China: everyone is absolutely confident that every punter, especially all the rich, powerful, well-connected speculators--will be bailed out by the central government.

Greed knows no bounds when a speculator is insulated from risk, for people have an insatiable appetite for risky bets when the gains will be theirs to keep but any losses will be covered by the government.

This is the fundamental story of Evergrande: the implicit backstop of the Chinese government enabled near-infinite moral hazard which then fueled an explosion of debt-funded speculation with essentially zero connection to real-world risks, sales, return on capital, etc.

Both the U.S. and China have been a utopian Paradises of moral hazard for the past 30 years. In the U.S., the Federal Reserve would bail out any losses / declines in the debt-asset bubble orgy.

In China, the implicit policy was that the structural losses in state-owned enterprises (SOEs) and the speculative excesses of rapid development would be tolerated as long as real growth in employment, wages, profits and lifestyles was strong. Creating vast amounts of debt-money was necessary to support growth, and that it also supported speculative excesses was accepted as part of the price of explosive progress, much like environmental damage.

After 30 years, the equation in China has changed: debt in the official banking sector and in the informal shadow-banking sector has soared along with purely speculative excesses while "good growth" has stagnated. That's the problem with incentivizing moral hazard: the profits from speculation, corruption and fraud far outweigh the puny profits earned by legitimate enterprises. So where do you put the borrowed billions? In Evergrande and other conglomerates of speculation.

Something else changed in 30 years of rapid development: inequality skyrocketed, and since inequality and corruption are mutually-reinforcing, corruption also reached new heights as inequality skyrocketed.

A third factor emerged after 30 years of touting technology and speculation: the power of Chinese Big Tech and financiers began encroaching on the control of the Communist Party.

All three factors inflated a debt-asset-speculative bubble of profound proportions, and President Xi grasped what the clueless Federal Reserve and other western central banks have not: Either pop the bubble when you still have some control over it or let it expand and pop when you've lost all control.

In systems terms, when risk and fragility reach unstable levels in tightly-bound systems, there's no controlling the supernova-like implosion of the system.

Xi observed the skyrocketing power of Big Tech, moral-hazard-incentivized financiers and cryptocurrencies and concluded that the state must move decisively to crush these rivals, regardless of cost. This separates China from the American state, which is incapable of enforcing any sacrifices, limits or costs on the parasitic elite which dominates its economy and political order.

Xi saw the danger of Big Tech and financiers being able to buy whatever influence they needed from corrupt CCP and state officials, and he realized that this is the crucial moment in history: either crush Big Tech and the financiers / speculators or risk losing control to their interests.

Control is something the CCP and Xi want to retain, regardless of the cost to the nouveaux riche, the parasitic elites, the aspirational middle class and even the Party regulars who have supped too often and too gloriously at the corruption / moral hazard trough.

Losses will be taken and sacrifices enforced on those who don't understand the Chinese state will no longer absorb the losses of speculative excess. Those who don't understand the reign of parasitic private-sector elites and excessively corrupt party officials in China is over might profitably ponder this Chinese proverb: "Whoever gets mixed up with garbage will be eaten by pigs."

* * *


TOPICS: Business/Economy; Government; Society
KEYWORDS: asia; china; evergrande; greed

1 posted on 09/24/2021 9:16:54 PM PDT by SeekAndFind
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To: SeekAndFind

This situation is grist for a huge political purge of society.


2 posted on 09/24/2021 9:27:42 PM PDT by 17th Miss Regt
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To: SeekAndFind

This sounds like the USA.

“government enabled near-infinite moral hazard which then fueled an explosion of debt-funded speculation with essentially zero connection to real-world risks, sales, return on capital, etc.”

There would have been no construction industry for years if it were not for Fannie and Freddie buying all the mortgages in the USA. And all their debt is “Off the Books.”


3 posted on 09/24/2021 9:54:03 PM PDT by tired&retired (Blessings )
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To: SeekAndFind

“Either pop the bubble when you still have some control over it or let it expand and pop when you’ve lost all control.”

It’s coming soon for everyone. The stormy weather is fast approaching the entire world.


4 posted on 09/24/2021 9:59:10 PM PDT by tired&retired (Blessings )
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To: SeekAndFind

Why do these buffoons always want to downplay China is communist.


5 posted on 09/24/2021 11:15:43 PM PDT by ifinnegan (Democrats kill babies and harvest their organs to sell)
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To: tired&retired

“There would have been no construction industry for years if it were not for Fannie and Freddie buying all the mortgages in the USA.”

In the UK the most common mortgage is the five-year ARM I believe.

As long as buying a house is a reasonable economic proposition compared to renting, houses will get built and sold.


6 posted on 09/24/2021 11:17:28 PM PDT by Brian Griffin ( )
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To: SeekAndFind

Some Chinese companies like to forget about shareholders, so many Chinese like real estate more than stocks.


7 posted on 09/24/2021 11:21:08 PM PDT by Brian Griffin ( )
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To: Brian Griffin

The government fuels the fire with low cost money. But when the fuel is all burned up, the fire goes out and it gets cold very fast.


8 posted on 09/24/2021 11:28:07 PM PDT by tired&retired (Blessings )
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To: SeekAndFind

another present to China from Joe!

25 Sept: news.com.au: Huawei boss Meng Wanzhou flies to China after deal with US, ‘Two Michaels’ freed by Beijing
Meng Wanzhou, the daughter of billionaire Huawei founder Meng Wanzhou, has returned to China, three years after her arrest in Canada
by Andrew Backhouse
Huawei executive Meng Wanzhou was freed Friday following an agreement with the US Justice Department to suspend the fraud charges against her that had poisoned Beijing’s relations with Washington and Ottawa...
The US had accused her of fraud against HSBC bank and wire fraud, saying she tried to hide violations of US sanctions on Iran by Huawei affiliate Skycom...

But on Friday, US prosecutors settled for Ms Meng agreeing to a statement of facts in the case.
In exchange, they agreed to defer the charges — which carried the risk of up to 30 years in prison — until December 1, 2022, and then drop them if Ms Meng abides by the terms of the agreement.
“In entering into the deferred prosecution agreement, (Ms) Meng has taken responsibility for her principal role in perpetrating a scheme to defraud a global financial institution,” acting US Attorney Nicole Boeckmann said in a statement.
“(Ms) Meng’s admissions are evidence of a consistent pattern of deception to violate US law,” said FBI Assistant Director Alan Kohler...

Australia has also been involved in a major dispute with Huawei.
https://www.news.com.au/finance/business/huawei-boss-meng-wanzhou-freed-in-major-deal-with-us-flies-home-to-china/news-story/b833c609c3b90e46b3d660e47c8c32e3

25 Aug 2020 updated 8 Sept 2020: Global News: Inside the Chinese military attack on Nortel
By Sam Cooper
In 2004 Nortel cyber-security advisor Brian Shields investigated a serious breach in the telecom giant’s network. At the time Nortel’s fibre optics equipment was the world’s envy, with 70 per cent of all internet traffic running on Canadian technology.

And someone wanted Nortel’s secrets...

So the systematic hacking continued, Shields says. And as a result, Shields says, in 2009 — after getting massively underbid on a series of contracts by China’s state-champion company Huawei — Nortel went bankrupt...

Another fact that seems more than coincidental, Shields says, is that Huawei was founded in 1987 by former PLA engineer Ren Zhengfei. And the Chinese Communist Party’s five-year plan for 1986 to 1990 was to “speed up the construction of the energy, communications, telecommunications and raw materials industries.”...
https://globalnews.ca/news/7275588/inside-the-chinese-military-attack-on-nortel/


9 posted on 09/24/2021 11:36:48 PM PDT by MAGAthon
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To: SeekAndFind

What is happening now is typical of the Chinese hard liners.


10 posted on 09/24/2021 11:52:54 PM PDT by chopperk
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To: SeekAndFind

Stop trying to overthink it, it’s communism and Democrats want to bring that here and have been pretty successful since late 2019. They will deny it (or blame Trump) but the people Biden flew here without checking them first are causing serious damage. I saw an article about that, “‘Vetting Failure’: Male Afghan Refugees Allegedly Assault Female Soldier at Ft. Bliss”, and you can give that a look at Breitbart. They also weren’t checked for disease and caused outbreaks of Tuberculosis and Measles, among other things. What today is fast becoming normal here in America was completely unthinkable just 2 years ago.


11 posted on 09/24/2021 11:57:28 PM PDT by ProfessorGoldiloxx
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To: 17th Miss Regt

I wish we were purging politicals but unfortunately they appear to be purging us instead.


12 posted on 09/24/2021 11:58:21 PM PDT by ProfessorGoldiloxx
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To: ifinnegan

This is rocket science or brain surgery. Democrats are communists, and they are owned by communist China. That is why I (almost) always remember to say “communist China” rather than just China. Remind people!


13 posted on 09/24/2021 11:59:25 PM PDT by ProfessorGoldiloxx
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To: SeekAndFind

Fascism. Textbook definition.


14 posted on 09/25/2021 2:59:59 AM PDT by LesbianThespianGymnasticMidget
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To: ifinnegan

It isn’t. No country is or has ever been communist. Ants and bees are communist. That from each to each pablum. Some countries like Venezuela/USSR are/have tried to be be socialist. China left all that behind and is today 100% fascist. Textbook definition fascist. 3rd Reich fascist. Why people don’t see that I do not know.


15 posted on 09/25/2021 3:05:51 AM PDT by LesbianThespianGymnasticMidget
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To: SeekAndFind
China isn't Marxist or Capitalist

WRONG! the CCP is COMMUNIST!

16 posted on 09/25/2021 5:46:35 AM PDT by Texas Fossil ((Texas is not where you were born, but a Free State of Heart, Mind & Attitude!))
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To: LesbianThespianGymnasticMidget

>>It isn’t. No country is or has ever been communist. Ants and bees are communist. That from each to each pablum. Some countries like Venezuela/USSR are/have tried to be be socialist. China left all that behind and is today 100% fascist. Textbook definition fascist. 3rd Reich fascist. Why people don’t see that I do not know.

What he said.
Bad terrain maps is why.


17 posted on 09/25/2021 9:45:08 AM PDT by Yollopoliuhqui
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To: LesbianThespianGymnasticMidget

Lol.

You spew the communist liberal creed pretty well. You’re kind of goofy, huh?


18 posted on 09/25/2021 10:26:05 AM PDT by ifinnegan (Democrats kill babies and harvest their organs to sell)
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To: ifinnegan

Humans are incapable of communism. Self interest precludes it. It is pie in the sky BS. The “leaders” will always feather their own nests and the working class has zero incentive to work. Socialism does not become communism like Marx theorized, rather it becomes feudal with lords and vassals like the black sea dachas for the leaders and Siberian labor camps for anyone that dares point out the corruption in the former USSR.

China is as far from communism as it gets. If you do not understand that they went from a pseudo socialist dictatorship under Mao to the current fascist dictatorship structure under Xi that is you not seeing the forest for the trees.

There has never been a communist human society nor is it possible. From each to each is a load of crap. It doesn’t work with people. It works with ants and bees with no sense of self. The second there is any sense of self, pseudo socialist is the best the left can aspire to in their stupid communist goals and that is inevitably quickly poisoned by the very thing that makes capitalism and free markets work. Self interest.

You can choose to be a dumb dumb who speaks in cliches and neither thinks nor understands, but that is your problem... not mine.


19 posted on 09/25/2021 11:17:11 AM PDT by LesbianThespianGymnasticMidget
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To: tired&retired
It’s coming soon for everyone. The stormy weather is fast approaching the entire world.

prophetic "Terminator" ending (skip ad) at 2:34

Not SkyNet, but the Fed.

20 posted on 09/25/2021 5:21:54 PM PDT by Oatka
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