Mosher: China’s House of Cards

For two thousand years, the Chinese Empire has sought to overawe visiting barbarians with the magnificence of the imperial court. It still does today.

As Air Force One lands at the dragon-shaped Beijing International Airport, President Trump will be treated to a skyline that didn’t exist until a few years ago.

Most of Beijing’s old residential neighborhoods — called hutung’s — were deliberately destroyed in the frenzied build-out that preceded the 2008 Olympics. They have been replaced by stadiums like the Bird’s Nest (which actually resembles a giant bird’s nest) and by high-rise office buildings.

Then there are the Leaning Towers. The headquarters of China Central Television — the Beijing regime’s primary propaganda outfit — the Leaning Towers consist of two towers leaning at different angles joined 36 stories up by a 250-foot, L-shaped overhang. Unlike the Leaning Tower of Pisa, which acquired its tilt naturally, the awkward structure was designed to look like it is falling over.

As such, it could stand as a metaphor for the reckless building boom that has plunged China into a level of debt that few nations have ever recovered from. Without going through a devastating economic meltdown, that is.

For the past twenty years, China has kept roughly half of the world’s cranes busy turning wheat fields and peasant huts all over China into skyscrapers. For someone like myself, who first visited China in 1979, the transformation is almost miraculous.

The luster begins to fade when you realize that the land was stolen by rapacious Communist officials from poor workers and peasants who had lived in these huts, and farmed these lands, for centuries. It disappears entirely when you understand that many of these new apartment and office buildings are often nearly devoid of tenants. This means that the soft construction loans that were so generously doled out by the Party’s managers of state-owned banks to their Party comrades who run construction companies will never be paid back.

China’s Xi Jinping should have asked Donald Trump what happens when you overbuild.

Instead, back in at the 2012 Party Congress, the newly installed Party Supremo announced that he intended to double the size of the economy by 2020. The regime’s central planners swiftly calculated that this required an annual GDP growth of 6.5 percent, and ordered everyone to fall in line. In order to hit this target, the state has been recklessly printing money and rolling out debt ever since.

As a result of these practices, the country’s debt has been ballooning in recent years. The Institute of International Finance estimates that “China’s total debt surpassed 304 percent of GDP as of May 2017.”

Knowing something about Chinese accounting practices, I would guess that even this startling number is a gross underestimate.

Consider that most Chinese businesses keep three sets of books. The first two are cooked, one to convince the government that the company owes no taxes, the other to mislead business partners (especially foreign partners) that it is barely turning a profit. The only accurate accounting of revenues and expenses is to be found in the third set, which the proprietor keeps carefully hidden away from prying eyes.

It is a safe bet that many local, city, and provincial governments are fudging the numbers, or keeping bad loans off the books entirely, in the accounting they send up the chain of command to Beijing.

The China that Xi Jinping will showcase to the American President thus contains lots of beautiful new buildings, and cranes that are busy constructing even more.

The builder in Donald Trump will probably be impressed by all the new construction, but the businessman may question whether such an overheated economy can long survive.

Trump knows that the Chinese economy is essentially derivative. It feeds parasitically off of the U.S. consumer economy, soaking up $500 billion a year in foreign currency, which it then uses to prop up its failing state-owned enterprises.

He also knows, thanks in part to Peter Navarro, all about the “dizzying array of illegal export subsidies, currency manipulation, intellectual property theft, sweatshop labor, and pollution havens” that China has used to seize market share from both Europe and North America.

Finally, he knows that America’s ruling class – that loose coalition of Globalists and Progressives also known as the Washington Establishment – literally sold out America when it allowed China to join the World Trade Organization. As Lenin might have said, the Establishment “sold China the rope that it is using to hang us.”

But if the Establishment made the classic Capitalist blunder, Comrade Xi may have made the classic Communist one.

Like all good Communists, Xi apparently believes that he can simply command the economy to grow … and grow it will.

Acting on the belief that the economy was his to command, the late Chairman Mao nearly destroyed it. He launched the Great Leap Forward in the late Fifties, ordered his people into communes, and commanded them to catch up to Great Britain in steel production in three years.

Xi Jinping, acting out of the same belief, has set the Chinese economy on a similarly dangerous course. He is so bent on surpassing the United States and achieving his “China Dream” of world hegemony, that he ordered the Chinese economy to double in size in eight years.

Mao’s blunder led to a massive famine costing 45 million lives. Xi’s blunder has led to a debt bubble so massive that it may turn China’s beautiful new façade of modernity into nothing more than a world-class Potemkin Village.

Last year, for the first time in our nation’s history, the American people elected as president someone with no experience in government. Trump has never been a senator, a congressman, or a governor, nor even a cabinet secretary or a general. What he does bring to the table is the acumen of an entrepreneur who has spent his life in construction and finance.

If anyone understands that China is sitting on a mammoth debt bubble of its own making, it is Donald Trump.  

The President needs to make clear to Xi that he holds a very, very sharp pin.  

Then he needs to begin to do what he does best: negotiate in earnest.

Steven W. Mosher is the author of Bully of Asia: Why China’s Dream is the New Threat to World Order (Regnery Press) now available on Amazon.


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