A well argued article indicating that China and the CCP, in particular, have cause to worry.

It provides enough compelling economic data to back up ite arguments.

I would say though that China's economic crisis is a domestic version of the world economic crisis, a crisis which was due to US's poorly regulated private banking sector. The CCP is not at fault for the drop in China's crucial export markets, America is.

Hence while the author looks to an expansion of the private sector as a cure for China's ills, substantial private industrial expansion may currently be a risky prospect compared to China's current State-private economic hybrid.

Pete

Thank you John. An excellent article.

Yes John, very very insightful. Well done.

It's a pity our PM doesn't have the time to read your piece and apply it's lessons ... of which there a quite a few.

It seems Chinese entrepreneurs have read Mises and von Hayek ... or more likely, arrived at similar conclusions. Good luck to them.

Two things need highlighting.
Firstly the cost of capital ... it is also rising in the west with current US business loan interest rates at 22%. Forget housing interest rates they are unimportant. What's the point of a mortgage with low interest if you lose your job?

Secondly the closure of 50% of the factories in China will have a dramatic effect in the West. Consumer oods will become scare with the result we will likely see an inflation in prices of comnsumer goods, while a delation in asset values takes place. While consumer demand falls at a slower rate than supply, as money is being printed and distributed and home interest loans are being lowered during a time of economic contraction inflation is the only possibility during the current long-term 'contraction' and despite the apparent short term deflation in retail establishments.

There are some good points in this article, but what is the source of the statement that 'Even before the current global crisis, absolute poverty (those earning less than US$1 a day) doubled in China over the past decade' - and that 'More than 400 million had seen their net incomes decline over the same period despite record GDP growth' ?

According to data released by the World Bank on 26 August 2008, the proportion of China's population living below the Bank's new poverty line of US$1.25 per day was estimated to have decreased from 84 percent in 1981 to 16 percent in 2005. The absolute number living below this austere poverty line in 2005 was 207 million. Obviously this figure does not take into account the effects of the recent increases in prices of food and energy, or of the downturn in exports in recent months.