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China’s All-Inclusive Economic Miracle: The Third Economic Bomb

Mon 21st Oct 2013

Summary of previous articles

It is impossible to cover many of the major aspects of centuries of Chinese history in this article but a few events must be highlighted to enable a better understanding of a few statements made by previous Chinese leaders.

The Chinese culture is the second oldest in the world. The oldest is Egypto-Graeco-Romano-Western Christendom and its 7th century branch-brother Egypto-Graeco-Romano-Islam.

The First Emperor, the burning of the books and the enforcement of the standard script

The great revolution of 221 BC, arising from the Chin military victories over the defeated states, was one of the most formative events in Chinese history. With the objective of creating one permanently unified China, Shi Huang Ti, who called himself “The First Emperor”, took many steps to ensure the achievement of that aim. He mandated that all regional state armies were disarmed by commanding that all weapons were to be collected and sent to the capital for destruction or, very occasionally, retention, if they were required by the Chin army. One standard of weights and measures was enforced across all of China, as was one system for the width of wheel-tracks. He extended the Great Wall, linking it up as a continuous structure, and criminalised millions of dissenters to his rule, sending them to work on the Great Wall and the other major project of the radial roads centred on the capital.

He arranged for the burning of the books with death as a penalty for those who did not surrender their books in obedience to that command. Shi Huang Ti collected all the ancient Chinese texts and burned all the old books in the previously different Chinese scripts, thus forcing the adoption of one written Chinese language. (12 Chinese languages are currently listed as spoken - there could be many more). That result was this was a permanent effect on Chinese history.

All languages could be written in Chinese, as a Chinese Emperor told a Western diplomat, who was unwise enough to say to the Chinese emperor:

“Why don’t you learn our language, so that we can communicate?” To which Emperor replied
“Why don’t all you barbarians write your languages in Chinese, so that we all can communicate?”

It would be possible.

Chinese population and Mao's dreadful comment in the context of the Mongols halving the population of China

Genghis Khan was undoubtedly a military genius. Unfortunately he was also one of the most sadistic and cruel leaders who have ever lived. On some reliable estimates, the population of China was halved by the Mongol conquests.

The Chinese civilisation has already experienced and survived the pre-industrial equivalent of atomic war. Mao's comment during the Chenbao Island military conflict - “If you kill 300 million Chinese, there will still be 300 million left” - is more understandable against that background cultural experience.

Modern atomic weaponry is much more deadly, fully capable of reducing the national population to below 1% of its previous level if there is an all-out atomic war. The “One baby” policy has reduced the Chinese population, according to some official estimates, by about 500 million people.

Deng Xiao-P’ing

The night before his departure to Paris, Deng's father took his son aside and asked him what he hoped to learn in France. He repeated the words he had learned from his teachers: "To learn knowledge and truth from the West in order to save China." But that was not just a repetition of what he had learned, as the nuance in the WikiPedia entry implies - it was the central motif of his life-script. He succeeded in that objective, and was therefore a truly great national leader.

See http://en.wikipedia.org/wiki/Deng_Xiaoping

What Deng did was to

- stress the realistic above the theoretical (“it doesn’t matter if a cat is black or white, as long as it catches mice” generally interpreted as meaning “it doesn’t matter whether a system is called capitalist or communist, so long as it produces the goods.”)

- send Chinese missions to discover how Japan had grown so rapidly

- fully adopt Shimomuran economics in China

-follow Japanese precedent and policy by keeping that economic understanding and these procedures secret to maximise China’s economic advantage over the rest of the world

Chinese ICC development is more complete and on a broader front than Japan’s

The Chinese have used and are using Shimomuran economics to transform every aspect of China’s economy, given that the national income of a country is the sum of consumer, investment and government expenditure. The successive Chinese Governments have sought to maximise consumer, investment and government expenditure within achievable limits, and to increase each demand sector by the highest amount each year. That policy is entirely different from the Japanese Shimomuran policy of focused industrial growth (or “Economic Growth First”) based upon private-growth company-centred (eg machine tools, shipping) and consumer-goods-centred development for the sake of acquiring a trading advantage. The Chinese development focus is on the full development of all sectors of the economy, increasing the investment capacity of the country to provide for higher consumer demand, better housing, and higher government expenditure. Planning is on a giant and unprecedented scale - not only city construction but city-copying in China - and nothing required for the better functioning of the economy is left out of that development.

Official Chinese data does not fully reflect the level of Chinese investment. As the CIA World Factbook comments:

“official data; data cover both central government debt and local government debt, which China's National Audit Office estimated at RMB 10.72 trillion (approximately US$1.66 trillion) in 2011; data exclude policy bank bonds, Ministry of Railway debt, China Asset Management Company debt, and non-performing loans.”

The “Chinese Dream” - China’s massive city building programme

Chinese city building began with the clearing and rebuilding of the slum cities next to the China’s older historical cities, then it moved through a phase of reconstruction of the buildings and facilities in existing cities, then into the wholesale rebuilding of entire cities (such as Shanghai, rebuilt in two giant phases - Puxi, west of the river, and Pudong New District, East of the river) and then into the “Chinese Dream” of building about 20 new cities each year with a planned population of a million people, during the first two decades of the 21st century. The “Chinese Dream” is now running alongside the programmes for the wholesale upgrading of the previous slums and inadequate buildings which existed adjacent to the existing cities. Many of these 400 new cities are being built on the higher land in the Chinese Western and Central economic zones.

The Chinese city-building programme in China’s western and central zones is partly intended to rebalance economic growth by increasing development in much of lower-growth provinces of west and central China. The three economic zones of China (West, Central and Eastern or Coastal) have tended to have annual growth rates of 4%, 8% and 12% plus respectively, with much greater commercial and industrial development on China’s hundreds of miles wide, coastal Eastern zone. The primary purpose of the city-building programme may have initially been to provide for good quality accommodation in cities prior to the development drift from countryside to city locations, avoiding the disgraceful slums which were so usual in the Western economies and which are such an appalling accompaniment to urban drift in the third world and the developing economies. One author has even written a book about it, in which the blurb says:

“According to the United Nations, more than one billion people now live in the slums of the cities of the South. [....] Mike Davis explores the future of a radically unequal and explosively unstable urban world. He traces the global trajectory of informal settlements from the 1960s “slums of hope” through urban poverty’s “big bang” during the debt decades of the 1970s and 1980s down to today's unprecedented slums like Cono Sur, Sadr City and Cape Flats. From the sprawling barracadas of Lima to the garbage hills of Manila urbanisation has been disconnected from industrialisation, even economic growth."

Mike Davis, “Planet of Slums” Verso, London, 2006, cover statement.

As China is demonstrating, there is no need for economic development to be like that.

The Chinese city-building programme serves six purposes. First, it caters for population drift - countryside-to-suburban drift - in advance of the event in a unique way. No other culture has ever constructed vast cities to accommodate urban drift. They could not - only an understanding of Shimomuran economics permits that policy, and other cultures did not possess (and many nations still do not possess) that understanding. Second, the programme increases the future dynamism of economy. The enormous project of city building educates, upskills and enriches all of the local population involved. It provides jobs for the locally unemployed and integrates them into the capital goods sector of the economy. Third, it more fairly distrubutes wealth across the Chinese economic zones. It relocates parts of China’s industries into the inevitable economic infrastructure of the city, providing long-term jobs for teachers and lecturers in the new schools and universities, new public sector city administration jobs in the city’s management, new jobs in the new hospitals and health industry, in the local police, fire services, and new jobs in goods distribution and services provision, in the Chinese malls, leisure and cultural facilities and in transport and communication industries. Fourth, it guards against local disasters. A less obvious dimension of the city-building is the relocation of major industries to these new cities and the conscious planning involved in making the economy less vulnerable to local shocks such as extreme weather events or other possible disasters by ensuring key industries and their skills are distributed into every province of China. Fifth, the new cities provide some accommodation for coastal-to-highland displacement of the Chinese population with rising sea levels.

Finally the city-building and industrial relocation programme provides city-building skills for coping with the aftemath and perhaps the accommodation required by the estimated residual population surviving a possible nuclear war, if that happens. Only China currently has the capability to provide a rapid recovery from atomic war, because only Shimomuran economics permits that possibility.

So the city-building programme protects part of Chinese civilisation from two potential disasters, the now-inevitable rise is sea level attendant upon the current atmospheric CO2 levels and the destruction of economic capability in a coastal-city-focused atomic war.

One of the most notable aspects of the new Chinese city construction is the theme-park aspect of many of the zones, sometimes all, of these new cities. Thames Town, near Shanghai. is modeled on English village. There is a fairly precise full-scale copy of all of the Manhattan buildings in Tianjin. In Guangdong there is a copy of the city of Interlaken, Switzerland, and a copy of part of Venice in Wuqing.

The most copied building is the White House, Washington, which, oddly combined with the US Capitol Building, is also at Shang Minhang People’s Court. The richest city in China of Huaxci has a copy of part of the Great Wall, a copy of the Sydney Opera House (redesigned internally as a millionaire’s residence) with a copy of Tianamen Sq, the Arc de Triomphe, and many other buildings and monuments. (See http://io9.com/the-bizarre-copycat-architecture-of-china-455672655)

This is not the Vegas-style copying of significant buildings in one location, it is the construction of entire cities and urban areas in the style and with the trademark buildings of the original location being copied full-scale.

There have been many TV programmes and internet articles about China’s “Ghost Cities”, reporting upon a failure to occupy shortly after the completion of construction. Very few of these programmes follow up their reports about the successful occupation and flourishing of these same cities three to five years after construction, perhaps because such a report would not suit the agenda of the reporter or the media owner. For a more balanced report see http://opencanada.org/features/blogs/dispatch/chinas-ghost-cities/

As this report points out:

“China is engaged in the greatest urbanisation story the world has ever seen” and “Shanghai Pudong is the classic example of how an “empty” urban construction project in the late 1990’s quickly became a fully occupied urban center, with a population today of roughly 5.5 million.”

The Chinese people move into new modern good quality buildings when they relocate from the countryside to the city. That is a great advance on the usual development drift of the population from farms to appalling slums.

What ICC does

Investment Credit Creation economies absorb spare resources into the capital investment sector and thus convert spare capacity into massive investments.

More precisely, ICC converts underutilised resources - unemployed people with no equipment - plus employed people with some capital equipment - into a gainfully employed and more productive workforce with up to date equipment. ICC employs the unemployed, taking many of these into the capital sector of the economy and improving not only the amount and quality of present output but adding to the future dynamism of the economy through a permanently higher capital production sector. ICC also stimulates innovation.

It is easy to see the numbers of unemployed in any economy. It is more difficult to calculate the extent of under-employed resources among the currently employed, despite the fact that this second factor is by far the most significant. (That is, the effect of continually improving the production facilities among all the employed has a much greater long term effect on economic growth that the GDP increase resulting from from employing the unemployed. Doing both maximises output).

The rising Chinese challenge to Western dominance

The Chinese version of world history is that the West took unfair advantage of the rest of the world, seizing lands from underdeveloped peoples, conquering and ruling through industrial might, and forcing many unequal treaties on the Chinese people. That viewpoint cannot be refuted because it is substantially valid.

The number of unequal treaties forced upon China varies in different sources - 22 are listed at http://en.wikipedia.org/wiki/Unequal_treaty.

Now China is becoming dominant, Chinese children are being taught that all that has been can be fully reversed. That has great implications for the Treaty of Aigun, which gave Trans-Amur lands of more than one million square kilometres of Siberia to Russia, and gave Russia the only ice-free seaport on the Pacific. The Chinese built Vladivostok and were not treated well by the Russian authorities. See http://en.wikipedia.org/wiki/Treaty_of_Aigun.

The population of Siberia is about 30 millions and the population of the Trans-Amur lands is only about six million, compared to the teeming hundreds of millions of Chinese living below the Amur river.

The possible Western response to the Chinese challenge

The world is at the nexus of another economic explosion, because the general adoption of Shimomuran economics will cause the rapid recovery of all the currently faltering economies of the USA, the EU and the other economies of the Anglo-Saxon tradition such as Australia, New Zealand, Canada and South Africa. The recovery from the credit crunch depression can be very fast in all these economies because they all have highly educated populations and under-implemented innovations due to defective and obsolete financial-industrial systems.

The spread of this new knowledge to all of Asia and Africa will, in the course of a few decades, produce much better living standards across the globe. The world will become fantastic once all of mankind are living in comfortably developed Shimomuran economies in which their talents and capabilities of all the people can be fully employed. Mankind is, as Feynman has observed, only at the beginning of the long journey towards much better governments and to much higher levels of understanding. In my opinion that observation is valid not only in economics but for nearly all of the sciences and arts of mankind.

The maximum development during this Kondratieff cycle is probably at about $100,000 per capita. The world GDP/head, according to the CIA World Factbook, is only about $12,400 per head, so on that basis the world is about 12.5% developed.

In my opinion, nearly all the sciences and arts are capable of much greater development, as every major economic cycle has demonstrated. There are missing formulas in even the best developed understandings, missing systems of understanding in even the highest sciences which produce a much more beautiful pattern of insight, once you see the incredible matched-to-usefulness reality. No less important is the growth in the worlds of imagination, literature and the visual arts.

Shimomuran economics is outstandingly important because it accelerates invetion and innovation and enables great growth, and the limits of the possible are largely defined by the availability of income.

But mankind must somehow survive the most recent challenge to change. Neither China nor the West should commit the Punic sin of attempting to destroy or actually destroying their highly creative, highly productive cultural half-sister. A peaceful integration of the two major cultures of the planet must somehow be brought about.

And if that doesn’t happen? Then, there will be the continuing decline of the West and all it has stood for. The first worldwide atomic war will probably occur and mankind will lose its best hope and through recurrent conflicts will finish up in the boneyard of the universe. But that is too large a topic for this article.

© George Tait Edwards 2013

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