Mainland Movement

"To seek safety, one must go into the heart of danger."
--Leroy Green (The Last Dragon)

Many folks point toward the 21st century as belonging to China. On the surface, it seems 'obvious.' A billion in a half people now in the 'developing' stage of economic activity. Economically, China's growth has been on a moonshot. Multi-consecutive years of double digit economic growth has vaulted China's economy into the #4 slot in the world.

Few people, however, seem to inquire about the factors behind China's quick rise. Let me offer a couple.

Cheap credit world wide. Low cost borrowing has goosed world demand for stuff, as well as investment in Chinese productive capacity.

China credit. China has been recycling funds received from others into extending even more credit to borrowers.

Centrally planned supply. China is a communist country that operates a centrally planned economy. The planners have 'decided' that China should become a world power, and they have been channeling resources toward export driven industries.

On the surface, the planners' mercantilistic strategy appears smart, as China's positive trade surpluses are the envy in the world.

What we know based on history, however, is that central planners chronically misallocate resources over time. Planners have to get two things correct: properly allocating resources for today, and then continually adjusting those resources based on the dynamics of tomorrow.

This is a tall order. My sense is that China's planners' will fail at some point, with consequences that will certainly spill over to the world.

Currently, there are growing signs of over supply in many Chinese sectors. Yet China's planners keep adding capacity and buying commodities such as steel, copper, and oil to support them.

This has the makings of a socialistic bust that, should it occur, will send deflationary waves that abroad.

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