Catching Up with Political Risks in China

October 5, 2011


After the “The China Catastrophe” became self evident, I’ve since shifted to concern about the potential for a political crises  – either internal or external.  The problem is once you begin to peel back the layers and take a look at the core, it’s rotten. Corruption is rampant, accounting fraud is systemic, and companies are being looted.  A bubble masks these factors. It’s afterwards that the frauds are discovered. Muchlike Enron and Worldcom post 2011 collapse, Madoff post 2008, and so it will be in China. This time, it will be epic.

The difference is the fraud is not just within companies, it’s throughout government. Meanwhile, the extent of oppression, a risk factor in uprisings, is staggering. People are being thrown off their land and forced to live in unsanitary conditions. Many local government officials act more like the mafia than politicians.  The people have sucked it up, but will they when the growth stops? Here are some headlines of late:

Shades of Egpyt?


China’s internal figures show between mid 90s and ’05, 800 Billion RMB was been stolen by executives at SOEs.  Let’s just say things probably did not get better during the height of the bubble in 2010-2011. 


While energy prices are giving a nice “tax cut” for US consumers lately, Chinese citizens are not so lucky.  Gas prices are heavily subsidized, so have not come in. Meanwhile, food prices, a risk factor in social unrest according to an IMF study, remain elevated.

China Food-Price Gains May Force Choice Between Inflation, Jobs – Bloomberg

China is “between a rock and a hard place, because they’re very concerned about inflation,” Rickards said during a panel discussion. At the same time, raising interest rates too much may hurt export-related jobs important to the country’s economy. “Inflation and unemployment are both highly destabilizing” for China, he said.

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