China is the world’s Ultimate Crony Capitalist State. It has been now for decades and despite the shiny buildings in many places the gears of the nominally communist country have been grinding down for a while now.
Many people have forgotten the serious economic tremor of the summer/fall of 2015 that was centered in China. At least many Americans have. The Brazilians who were sent spinning off into economic crisis because of the Chinese economic earthquake haven’t forgotten. Nor have they recovered.
But this rumble is very likely just a prelude to what is to come. China is a crony economy. It is driven by central planning to a very large extent. Big shots in industry and big shots in government collude to line their pockets. Then the junior cronies follow the lead of the biggest shots and it works on down the line all the way the hinterland cronies in parts of China most of us don’t even know exist.
So long as the system runs it runs. 2015 was brought back in line (more or less) by an oppressive state that punished economists, journalists, and short sellers. With extreme force the regime was able to ride things out – for a bit.
But it can’t forever. The Chinese system is a Ponzi economy. It will run as long as it runs. And then it won’t.
(From The South China Morning Post)
Steel was recently targeted for a reduction in capacity but then a regime of easy money intended to help the industry overcome a difficult period of contraction instead stimulated production.
It has happened across the mainland’s rust belt industries.
Why is so much steel needed?
Simple. It is needed to build more steel mills so as to build more shipyards, ports, railways and bridges so that more ships can be built to carry more iron ore to more ports and thence along more rails and bridges to more steel mills so as to build more shipyards, ports, railways …
What we have here, in short, is a giant Ponzi scheme. In a Ponzi scheme you pay out the winnings of the first entrants with what others later pay into it.
As long as it keeps growing everything is fine. When it stops growing it collapses.