China's New Stimulus Will Unleash Inflation

 

by Chriss Street

We have been warning that China’s current economic slowdown signals that the country China has entered the “Middle Income Trap” that will mark the end of the nation’s 30 years of 10% compounded annual growth.  With inflation having already driven Chinese wages up to uncompetitive levels, manufacturing and construction activities are plummeting.

  Desperate to try to stave off up a spectacular increase in unemployment, China just announced another massive public works stimulus program to try to revive to at least the 8% growth rate necessary to create enough jobs for the millions of young people entering the workforce each year.  Although shoveling cash at the problem might have delayed a recession after 2008, new stimulus cash will ignite a vicious round of inflation and fail to drive sustained economic growth.

China’s gross domestic product (GDP) growth has fallen from 8% to 3% over the last year according to Xinhua News Agency.  Consistent with a slowing economy, China’s reported consumer prices only rose by 2.7% for each of the last two years.  But official inflation rates notoriously understate the inflation the people suffer, since the government subsidizes key goods and services such as utilities, energy and public transport that make up a big chunk of the consumer price index (CPI).

The actual inflation the Chinese people have been experiencing is on a tear.  The rental price for an apartment in the southern China industrial city of Guangzhou rose 10% in the last year according to Centaline Property Research.  Starbucks, which is opening one new store every four days, raised prices by 8% this year to an equivalent of $4.20 for a “tall latte”.  Food prices are just beginning to accelerate as “official food prices index” rose in August at a 12% annualized rate.  Over the last year, private-sector wages have risen by 18.3%, many provinces have granted workers double-digit compensation increases, and a survey of 4,242 employers by Manpower Group reports labor conditions remain tight.

The Central Publicity Department of the Communist Party of China recently disclosed that from 2005 to 2010, urban residents’ income surged to 137% higher than rural dwellers and continues growing 10 times faster.  With rural migrants comprising one third of the 665 million people living in Chinese cities; any economic decline would cause massive unemployment for these “temporary” workers.

The 2008-2009 Great Recession caused exports to shrink over 50%.  China’s leaders panicked that 100 million migrants might become unemployed and ordered an epic $586 billion of stimulus spending on state owned enterprises (SOEs), driving new investment as a percentage of the economy from 42% to 50% of GDP last year.

The problem is that no country can be productive enough to reinvest 50% of GDP in new manufacturing plants, capital equipment and infrastructure without eventually creating immense overcapacity and a staggering level of non-performing loans.  Chinese productivity has actually declined, since private sector companies have not been eligible to receive stimulus loans and grants.

A significant amount of the spending also was systematically squandered in kickbacks and outright theft.  According to CNN, in 2011 four bridges collapsed from mudslides in the span of a week.  At a bridge near Chongqing, a city of 32 million, 40 people fell 460 feet to their deaths.  Investigations uncovered kickbacks, thefts and money used to build a hostess bar.  Philosopher John Stuart Mill warned of crony capitalism 150 years ago:

“A government with all this mass of favors to give or to withhold, however free in name, wields a power of bribery scarcely surpassed by an avowed autocracy, rendering it master of the elections in almost any circumstances but those of rare and extraordinary public excitement.”

The last stimulus was so big it funded a 50% increase in crude steel capacity, doubled aluminum capacity and tripled cement capacity.  China now dominates the world with 46% of steel, 41% of aluminum and 60% of cement production capability.  This new industrial might furnished the materials to build dozens of sleek empty airports, with 45 more planed; a new bullet-train system, wracked lately with financial, corruption and safety scandals; hundreds of highways, to nowhere; thousands of colossal government buildings and numerous residential ghost towns, that will never be inhabited.

Institutional investors have not been fooled by China’s stimulus spending.  China’s Shanghai stock market has plunged by -86% since 2008, and it remains the only major stock market in the world that is down this year.  The last Chinese stimulus program delayed a Chinese recession for the last three years, but it made China less competitive by destroying the private sector, creating massive over-capacity of state-owned-enterprises and inflating away Chin’s historic wage advantages.

The new “Five-Year Plan” stimulus promises to increase the consumer share of the economy; but a close inspection reveals China continues to try to grow their economy on export-led industrialization and an under-valued currency.  In the short run, the investment boom will fuel inflation misery for the population, but price inflation and overcapacity will inevitably lead to a deflationary cycle.

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Obama-Backed Syrian Rebels Assassinate Christian Defence Chief

By Chriss Street

The “Syria War” took a horrific escalation today as Syrian Defense Minister Dawoud Rajha, a Christian, and two other senior officials were assassinated in a suicide bombing by the United States backed Free Syrian Army (FSA) rebels; which was immediately followed by a retaliatory Hezbollah bombing of three tour busses in Burgas, Bulgaria that wounded 32 Israelis. The FSA attack appears to have been coordinated to

occur just before today’s United Nations Security Council meeting on imposing sanctions on Syrian leaders, including Rajha. The U.N. subsequently suspended today’s sanction vote as the war went global.

The “Syria War” took a horrific escalation today as Syrian Defense Minister Dawoud Rajha, a Christian, and two other senior officials were assassinated in a suicide bombing by the United States backed Free Syrian Army (FSA) rebels; which was immediately followed by a retaliatory Hezbollah bombing of three tour busses in Burgas, Bulgaria that wounded 32 Israelis. The FSA attack appears to have been coordinated to occur just before today’s United Nations Security Council meeting on imposing sanctions on Syrian leaders, including Rajha. The U.N. subsequently suspended today’s sanction vote as the war went global.

Since the middle of 2011, the Obama Administration, Saudi Arabia and Turkey have openly backed a Jihadist Sunni Muslim rebellion in Syria as a vehicle to bring pressure against Syria’s key ally, Shite Muslim Iran. As we reported in Obama Tries to Wag a Dog that Bites Back and other articles, the President had hoped that his Syrian adventure would rally patriotic military support just in time for the November elections, in a similar manner as his surreptitious support of the rebel movement and then aerial bombing led to the ouster Colonel Muammar Gadhafi from Libya. But as the United States has escalated equipping the FSA; Russia, China, Iran and Hezbollah have escalated their aid of Syria. Last month a U.S. made Turkish reconnaissance fighter was shot down over Syrian territorial water by a Russian missile.

Over the last twelve months, as rebels failed to take any cities or hold any territory, the Syrians have been resupplied with the most sophisticated weapons their Russian benefactors have to offer. To compliment $5 billion in purchases of highly competitive Russian armaments over the last ten years, Russia just shipped Pantsyr-S1 and Buk-M2 anti-aircraft missiles that are known to be highly effective against air or sea attacks to Syria. Brig. Gen. Itay Baron, head of the Israeli Military Intelligence, also confirmed that together Syria and Iran now have approximately 3,500 ballistic missiles, and Hezbollah has about 60,000 rockets and missiles aimed at Israel or any other invader. This figure has increased by 1000% in the last six years.

In April, Kofi Annan, the former United Nations Secretary General was appointed to act as a special U.N. envoy. Shortly thereafter, he reported that the Syrian government led by Bashar al-Assad had agreed to a six-point peace plan, which laid out a framework for a cease-fire that did not involve the president leaving power. Syria agreed to the cease fire and allowed 300 cease-fire observers into Syria as part of the “U.N. Stabilization Mission.” According to Stratfor Global intelligence Report, the FSA used the cease fire to smuggle more weapons and foreign Jihadi fighters into the country. On June 16th Mission Head Gen. Robert Mood told the BBC that because neither the Syrian government nor the FSA was willing to seek peace, U.N. had suspended its observer mission in Syria.

Over the last three months, the United States and Russia have continuously escalated their forces in and around Syria to the largest naval confrontations since the Viet Nam War. The United States has deployed four Carrier Air Wing Strike Groups to the Middle East; including the USS Enterprise, Dwight D. Eisenhower and Abraham Lincoln and the Harry S. Truman (under way in the Atlantic Ocean). The American armada is supplemented with the USS Iwo Jima Amphibious Ready Group, composed of a battalion sized and heavily reinforced Marine Expedition Unit. The Russians have responded by sending their Admiral Kuznetsov Carrier Strike Force, five naval heavy cruisers, five Amphibious Ready Groups and numerous helicopter gunships to patrol the Syrian Coast as a demonstration of Russia’s willingness to fight for Syria.

In what appears to be a prelude to today’s suicide bombing, the London Daily Telegraph reported yesterday that President Barack Obama had warned America’s western allies and Syria’s opposition groups that the United States “can do nothing to intervene in the country’s crisis until after November’s presidential election.” But since May, the United States CIA officers operating out of Turkey have been actively helping smuggle arms to the Syrian opposition through the Syrian Muslim Brotherhood.

It is unclear so far if the United States had any direct or indirect involvement in the suicide bombing in the Syrian capital. But the White House told the BBC immediately after the bombing that “Syrian President Bashar al Assad is losing control of Syria, and the international community must help work toward a political transition.” Shortly thereafter, the Obama Administration’s bravado was silenced by the Hezbollah retaliation in Bulgaria. But what is crystal clear, is that the Obama Administration has successfully cranked up a new Middle East war just in time for the November elections.

Chriss Street will be in Studio with Paul Preston on “The Inside Education”; Streaming Live from Monday July 23rd to Friday July 27th. Click Below to listen between 7-10 PM each night: http://www.mysytv.net/kmyclive.html

Hillary Clinton Full Of Moral Outrage Signifying Nothi

By Chriss Street.

	Secretary of State Hillary Clinton had a very busy  weekend representing circling the globe to represent America’s interests in the Middle East.  Ms. Clinton was especially effective using every opportunity to offer her moral outrage at those who fail to follow America’s leadership

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On Friday she gave an impassioned speech to a meeting of the “Friends of the Syrian People” to forcefully demand that every nation represented at the meeting call Russia and China to tell them: 

“I don’t think Russia and China believe they are paying any price at all – nothing at all – for standing up on behalf of the Assad regime. The only way that will change is if every nation represented here directly and urgently makes it clear that Russia and China will pay a price.” 

The Chinese seem to be so impressed with Ms. Clinton’s demands they pay a price, just 48 hours later China announced they are paying $20 billion to develop Iranian oil fields in Yadavaran and Azadegan.  Initial production is estimated at 700,000 barrels of crude oil per day in the Azadegan field, which is estimated to contain approximately 42 billion barrels of Iran’s total oil reserves of approximately 560 billion barrels.  Iran's Oil Minister Rostam Qasemi told reporters on Sunday that it took 10-15 years to reach a development agreement and that there will soon be contracts signed with the Chinese for the development of 12 more new oil fields.  

The Russians have not yet announced if they are also “paying any price”.  But the last time the United States tried to intimidate Russia with a strategy of moral outrage regarding their meddling in the pro-western nation of Georgia, Russia responded by invading the country and setting up the puppet states of Abkhazia and South Ossetia.  The Russians have already made it clear regarding their willingness to provide military support for their Syrian and Iranian allies by deploying an aircraft carrier and armed warships to patrol the Syrian Coast.   

As for the “Friends of the Syrian People”, this weekend had its own set of challenges.  It was reported Saturday that Saudi Arabian security forces in Qatif fired into an unarmed protest march.  Having shot a Shiite cleric named Sheikh Nimr al-Nimr, he was arrested for disturbing the peace. 

Ms. Clinton was unavailable to comment on the unpleasantness in Saudi Arabia, because she was busy as Secretary of State making a “powerful plea Sunday for the rights of women in Afghanistan” at a Tokyo global forum held in Tokyo where representatives from more than 80 nations and international organizations gathered to adopt the “Tokyo Declaration”, pledging their support and $16 billion cash for Afghanistan government.  Clinton eloquently stated: “The United States believes strongly that no nation can achieve peace, stability and economic growth if half the population is not empowered.”

Unfortunately, her message of women’s liberation was somewhat under-cut after a “horrific video emerged showing the public execution of a 22-year-old woman accused of adultery”.  It seems that since President Obama ended the use of NATO troops to patrol the countryside, the Taliban has once again taken over the settling of legal affairs regarding women. 

Responding to worldwide revulsion to the video across western world; U.S. officials said Secretary of State Clinton had raised the issue with Afghan President Hamid Karzai during her brief visit to Kabul on Saturday.  Officials emphasized that Ms. Clinton had stressed America’s moral outrage by warning the Afghan leader that women’s rights are a “litmus test” for the country's progress. 

There has been no comment from the Taliban, the Syrians, the Iranians, the Russians or the Chinese.

Chriss Street will be in studio with Paul Preston on “The Inside Education”; Streaming Live from Monday July 9^th to Friday July 13^th.  Click Below to listen between 7-10 PM each night:  http://www.mysytv.net/kmyclive.html