In the midst of the COVID-19 pandemic, it is important to acknowledge that three prominent intellectual figures spanning the 19th and 20th centuries forecasted the cataclysm of modernity. Thomas Carlyle, René Guénon, and Jacques Ellul provided reasoned accounts to justify their views that modernity is engulfed in a state of crisis on the basis that the not-mutually-exclusive hegemonies of technology, capitalism, and globalization are not invulnerable.
While each offered a slightly different viewpoint and a slightly different description of what they took to be the crisis, their views all coalesce around the general thesis that the continuous expansion of the material and technological built landscapes will eventually prove to be catastrophic. This is for two reasons. The first, because an ever-more complex system becomes ripe for error, an error which could cause the whole system to go haywire. Essentially, “the bigger it is the harder it falls.” The second reason is that in constructing an external environment as its hegemonic priority, humanity is neglecting giving attention to spirituality, philosophy, and developing the human inward nature. The external and material becomes the fog that humanity becomes ensconced in to such an extent that pursuing such things as the ascertainment of spiritual reality through intuition, the project Plato inaugurated academia with and inspired Christianity and Islam’s later development with, becomes wrested away wholesale from the consciousness of humanity. The two factors work in a type of synergy in that they mutually reinforce one another and precipitate cataclysm. The renunciation of the pursuit of constructing an ever vaster and more complex material system, which ostensibly implies a turn toward the spiritual as a premise, is the only means to stave off ever-greater cataclysms as the material system continuously grows more complex and more globalized.
Since the Industrial Revolution of the 19th century, technology, capitalism, and globalization have exerted their unquestioned domination only increasingly—until COVID-19. Technology, capitalism, and globalization have been unquestioned to such an extent that in hindsight it is obvious, in the midst of the COVID-19 pandemic, that a global emergency of major proportions was necessary to even entertain the question that they were bound all along to eventually lead to a breakdown and inflict unprecedented harm to global health and the global economy. World War II was a destructive moment, but in no way did it impede the post-war expansions of technology, capitalism, and globalization in the latter-half of the 20th century and the first two decades of the 21st. The COVID-19 pandemic is dissimilar even to the catastrophe of World War II because of the magnitude and the nearly-universal geographic scope of the economic toll it has taken in such a short time. Moreover, while there was room for technology, globalization, and capitalism to both re-emerge and expand following World War II, their room for expansion from their forms immediately prior to the economic contraction COVID-19 exacted is likely to be minimal and is more likely to be non-existent or even negative. The contraction of the technological globalized capitalist system would inherently imply the beginning of a new post-globalization era.
What makes Carlyle, Guénon, and Ellul interesting to entertain in the midst of the COVID-19 pandemic is the grand, global, and “esoteric” natures of their philosophies of modern history. It should be noted that the dominance of scientific rationality, mechanization, and materialist economy in the modern era itself was the lens through which enabled their philosophies to bereceived as radical and “esoteric,” or not based on empirical, positivist, scientific evidence. If their views had found a way to usurp the hegemonic position in the popular collective consciousness, they would not have been seen as radical or off-base.
Thomas Carlyle’s Sartor Resartus is an 1836 fiction book that essentially inaugurated and epitomized modern social criticism toward the blind commitment to the Enlightenment and the resulting emergence of the non-spiritual materialistic basis of 19th century European politics, economy, and society. It was a chief inspiration for Ralph Waldo Emerson and Henry David Thoreau and a foundational book for American Transcendentalism as an intellectual movement in general. In Sartor Resartus, Carlyle offers a cryptic diagnosis of the ailment of modernity during the midst of its advent, the Victorian industrial age.
Speaking through the voice of the book’s protagonist, Professor Diogenes Teufelsdröckh, Carlyle theorizes of a “phoenix” that can be forecasted to take place roughly sometime in the 21st century. Carlyle writes, “we are at this hour in a most critical condition; beleaguered by that boundless ‘Armament of Mechanisers’ and Unbelievers, threatening to strip us bare! ‘The World,’ says [Teufelsdröckh], ‘as it needs must, is under a process of devastation and waste, which, whether by silent assiduous corrosion, or open quicker combustion, as the case chances, will effectually enough annihilate the past Forms of Society; replace them with what it may.’” This is flowery language that communicates Carlyle’s view that the world is destined to be consumed and destroyed as a function of the domination of those who uninterruptedly pursue the “boundless” construction of the material economy single-mindedly as their highest/only priority in conjunction with those who are non-spiritual, the “Unbelievers.” The “Armament of Mechanisers” and “Unbelievers” are synergistic and largely synonymous in that they are those who acknowledge only that which is material and perceptible by their senses.
To Carlyle, the “Armament of Mechanisers” and “Unbelievers,” by promoting the material economy, are inherently ignoring the spiritual realm, a realm that would be a moderator and reign in all-consuming materialism by embodying the virtue of renunciation (a virtue in nearly every theological and spiritual tradition). Humanity loses consciousness of the spiritual because modernity inherently divests the world of its spirit. Such a process is unsustainable because the finite nature of the world and its finite resources cannot sustain the pursuit of infinite material consumption and the increasing chaos that inherently manifests with a system that grows ever more complex. Thus, the materialist economy is bound to come into its full being, just like the mythic phoenix, before returning to ash and emerging in a different form. Carlyle reflects, “what time the Phoenix Death-Birth itself will require depends on unseen contingencies” and that it is a “handsome bargain would she engage to have [it] done ‘within two centuries.’”
René Guénon, a 20th century intellectual and metaphysician, offered what is perhaps the most sweeping and all-encompassing critique of the historical trajectory of Western civilization. He is also noteworthy in the contemporary sense as an inspiration for Steve Bannon, a chief political and policy adviser to President Donald Trump and a prominent promoter of traditionalist conservatism through such channels as Breitbart News Network. For Guénon, the West is in precipitous decline and he forecasted that it will reach a breaking point since the world is progressively displacing the realization of the quality of what he called the “Essence” of the transcendental realm (i.e. what lies beyond time and space and is perceived through the use of Platonic/spiritual intuition) with the realization of ever-greater quantity of the substance of what is material on Earth. Essentially, the progressive development of civilization corresponds to a cheapening of it and what he refers to as a “reign of quantity” rather than a reign of the quality of what can be nominally cast as the timeless Platonic Forms. Rather than conceiving of an ideal (i.e. a Platonic Form) through the use of intuition and then pursuing its realization in the Earthly material realm, everything modern defaults to gravitating around what Guénon takes to be the lowest-common-denominator, which is the measurement of everything by its quantitative rather than qualitative value. In other words, we are losing our ability to grasp and realize by intuition the ideal incarnation of all objects, concepts, and phenomena that are timeless and unchanging in the transcendent realm yet ephemeral in the material Earthly realm.
In The Crisis of the Modern World, published in 1927 shortly after World War I’s explicit embodiment of the rejection of the narrative of continual progress in modernity, Guénon reflects: “the belief in a never-ending ‘progress’, which until recently was held as a sort of inviolable and indisputable dogma, is no longer so widespread; there are those who perceive, though in a vague and confused manner , that the civilization of the West may not always go on developing in the same direction, but may some day reach a point where it will stop, or even be plunged in its entirety into some cataclysm.”
Guénon parallels Carlyle in Sartor Resartus in that he acknowledges the deeply problematic nature of cutting material existence on Earth off from any transcendent/spiritual/divine reality, a phenomenon which is only increasingly taking place in the context of modernity and not in previous ages. Devoid of any collective consciousness of transcendent reality that may prove effectual to moderating the continuous expansion of materialism and the “reign of quantity,” Guénon thinks modernity takes on a dimension antithetical to the transcendent and thus can be deemed “satanic” in the simplest nominal and non-theological use of the term. This narrative, Guénon maintains, explains the eventual dissolution of the modern world, as “the reign of quantity” will maximize the realization of quantity to its farthest limits, before triggering a cataclysmic contraction. According to Guénon in The Reign of Quantity and the Signs of the Times, the “rectification” of modernity “presupposes arrival at the point at which the ‘descent’ is completely accomplished, where ‘the wheel stops turning.’” Guénon concludes that until such a breaking point is attained, “it is impossible that these things should be understood by men in general…”
Jacques Ellul, who was perhaps the foremost philosopher-critic of technology in the 20th century (and a chief inspiration for the Unabomber), largely reincarnated without citation Carlyle’s original criticisms of modernity. Ellul felt that modernity was synonymous with one vast global technical civilization that was autonomous and not subject to human control since its overall historical development as a system and long-term consequences are not subject to human control.Ellul defines what he takes to be technical civilization in his magnum opus The Technological Society, published in 1954: “technical civilization means that our civilization is constructed by technique (makes a part of civilization only what belongs to technique), for technique (in that everything in this civilization must serve a technical end), and is exclusively technique (in that it excludes whatever is not technique or reduces it to technical form).”
Ellul made known his theory that the technical civilization will have to perfect itself and sustain its perfection, as the only other alternative to perfection is the commission of an error, either small or large, that has the ability to cause the vast and interconnected system to go haywire. Ellul declares, “the technical society must perfect the ‘man-machine’ complex or risk total collapse.” For Ellul, technical civilization is a “Behemoth” and it can “rest easy” as nothing “will prevent him from consuming mankind.” Such an elucidation of the stakes involved in creating an ever-more complex and gigantic globalized and technological system are deeply relevant to the narrative of how COVID-19 wreaked havoc on global health and the global economy so quickly and so easily. Air travel and other forms of transportation infrastructure were technological developments that had reached a zenith at the time of the onset of the pandemic as a function of globalized capitalism also being at a zenith. The totality of the network of global transportation infrastructure manifested by technical civilization’s progressive global development since the Industrial Revolution was compounded by the growth in the levels of global travel on the part of the largest global population in history at the time of COVID-19’s onset.
Ellul denounces liberal political economy for providing the favorable climate necessary for the unquestioned manifestation of technical civilization and refutes prospective critics who would maintain that liberal economy and technical civilization are compatible for the long-term:
“It will doubtless be pointed out, by way of refutation, that production techniques were developed during the ascendancy of liberalism, which furnished a favorable climate for their development and understood perfectly how to use them. But this is no counterargument. The simple fact is that liberalism permitted the development of its executioner, exactly as in a healthy tissue a constituent cell may proliferate and give rise to a fatal cancer. The healthy body represented the necessary condition for the cancer. But there was no contradiction between the two. The same relation holds between technique and economic liberalism.”
Just as Carlyle documented what he took to be the crisis of modernity at its advent during the initial industrialism of 19th century Victorian England, Guénon documented in the context of retrospectively accounting for the catastrophes of both World Wars I and II, and Ellul documented in the context of the post-World War II exponential growth of technology, the COVID-19 pandemic provides another milestone with which to, at a minimum, revisit their mutually compatible theses with respect to the cataclysm of modernity. Whether COVID-19 proves to be the “big one” and arrests the hegemonic triumvirate of technology, capitalism, and globalization remains to be seen. At a minimum, what can be gleaned from Carlyle, Guénon, and Ellul is that modernity’s improvement of the material standard of living for so many globally needs to be balanced with a view toward moderation and long-term sustainability. Liberal political economy, science, and technological innovation have until now been single-minded seekers of continuous growth without acknowledging the need to at some point ossify or plateau the technical civilization they have each been instrumental in constructing so that it does not become a phoenix and burn to ash.
The Assembly Lines of Grand Eurasia
The changing landscape of the global economy in recent years is increasingly characterized by a more active role of developing economies in building their own platforms for economic cooperation. In the process of assembling these platforms for the Global South one of the key issues is the algorithm of the aggregation process in Eurasia — the two other continents of the Global South already have their pan-continental platforms, namely the African Union and the African Continental Free Trade Area (AfCFTA) in Africa as well as CELAC in Latin America. In case a comprehensive pan-Eurasian platform for developing economies were to be formed this would open the gateway to the completion of the assembly of platforms that span the entire expanse of the Global South.
As is the case with the expansion of the BRICS grouping, the building of the Grand Eurasia as a platform for the region’s developing economies can proceed either along the formation of a core and its gradual expansion or via an “integration of integrations” route, whereby all of the main regional integration blocs of the Global South in Eurasia are brought together. There is also the possibility that both these tracks could be pursued simultaneously.
In the scenario involving the formation of the Eurasian core for the Global South, the main question is its composition and the resulting scenarios of further expansion. One possible modality would be the RIC (Russia-China-India) serving as a core, with further additions focusing on the largest Eurasian economies such as the G20 countries from Eurasia — Saudi Arabia, Indonesia or Turkey. This route would clearly result in the assembly process being slow and lacking connectivity to other smaller developing economies of the continent.
Another possible format for the Eurasian core could be the Shanghai Cooperation Organization (SCO) or its more extended version of SCO+. Such a core would have the benefit of comprising all of the largest economies in Eurasia (Russia, China, India), while leaving open the possibility of smaller economies joining this Eurasian “circle of friends”. Despite the more inclusive approach to forming the Eurasian platform, the country-by-country approach to expansion would still leave the assembly process too slow and ad hoc.
The only real way to expedite the construction of Grand Eurasia is via the “integration of integrations” scenario that may involve the aggregation of Eurasia’s leading regional integration arrangements (and their developing institutions) represented by developing economies.
Such a platform of developing economies across the expanse of Eurasia can bring together such regional arrangements as: South Asian Association for regional Cooperation (SAARC), ASEAN, Gulf Cooperation Council (GCC), Eurasian Economic Union (EAEU) as well as the Shanghai Cooperation Organization (SCO). In the case of SCO there may be the possibility to resort to an extended SCO+ format which would involve the addition to SCO of those Eurasian economies that are outside of the main regional integration arrangements. The resulting SAGES platform may represent the main assembly line for economic cooperation among the Eurasian developing economies that is based on the mechanism of “integration of integrations”.
Still another possibility would be an assembly process modelled on the UN, which would involve the creation of a forum for all the developing economies of Eurasia with a Eurasian Security Council represented by the largest economies of the continent (G20 members (China, India, Russia, Saudi Arabia, Indonesia, Turkey) as well as possibly Iran). Another possibility in this UN-type scenario is the SAGES Economic Council that brings together the main regional blocs of Eurasia as a more inclusive version of the UN Security Council.
In the end, there are multiple possible trajectories for the assembly process of the Grand Eurasia — the most attractive appears to be the “integration of integrations” track as it appears to be more expeditious and inclusive. At the same time, there are also risks and challenges involving this scenario as the domain of “integration of integrations” remains largely unexplored across the terrain of the Global South. In this respect, there may be important synergies in the innovation process of “integration of integrations” along the Eurasia track as well as the BRICS+ route that represents a global rather than regional platform for the cooperation across regional integration arrangements. The Global South is approaching a crucial point in its economic development, whereby a common platform for cooperation across all developing economies may represent the most important gateway to economic modernization in decades.
From our partner RIAC
Policy Support Indispensable for China’s Economic and Financial Recovery
According to the latest statistics from the People’s Bank of China (PBoC), monetary and financial data showed a return to growth in June. At the end of June, the balance of broad money (M2) was RMB 258.15 trillion, a year-on-year increase of 11.4%, and the growth rate was 0.3 and 2.8 percentage points higher than that at the end of last month and the same period of the previous year respectively. Meanwhile, the balance of narrow money (M1) was RMB 67.44 trillion, a year-on-year increase of 5.8%, where the growth rate was 1.2 and 0.3 percentage points higher than the end of last month and the same period of the previous year respectively. The balance of currency (M0) in circulation was RMB 9.6 trillion, a year-on-year increase of 13.8%.
In the first half of the year, the net cash investment was RMB 518.6 billion. At the end of June, the stock of social financing was RMB 334.27 trillion, up 10.8% year-on-year, and the growth rate was 0.3 percentage points higher than that in May, though still lower than the 11% growth rate in the same period last year. The growth rates of the M2, M1 and social financing scales have all shown the tendency of increase simultaneously. Researchers at ANBOUND believe that this reflects that driven by the intensification of macroeconomic policies, the overall financial and economic situations are showing an upward recovery trend.
Figure: Monthly Monetary & Social Financing Growth Rates and Price Level Change (in percentage)
Source: People’s Bank of China & National Bureau of Statistics, chart plotted by ANBOUND
However, in terms of credit growth, which accounts for the main part of social financing and currency, the balance of RMB loans at the end of the month was RMB 206.35 trillion, a rise of 11.2% year-on-year, and the growth rate was 0.2 percentage points higher than that at the end of last month and 1.1 percentage points lower than the same period last year. In June, RMB loans rose by RMB 2.81 trillion, being a year-on-year increase of RMB 686.7 billion. This shows that despite the substantial growth of RMB credit in June and that the overall recovery has been achieved, the upward momentum remains insufficient. Continued support from macro policies will still be needed to enable China’s finance and economy to recover comprehensively. In addition, at the end of June, the balance of RMB deposits was RMB 251.05 trillion, a year-on-year increase of 10.8%, and the growth rate was 0.3 and 1.6 percentage points higher than that at the end of the previous month and the same period of the previous year respectively. In June, RMB deposits increased by RMB 4.83 trillion, a year-on-year increase of RMB 974.1 billion. The rapid growth of deposits is consistent with the previous survey results of the Chinese central bank, indicating that under the continuous impact of the COVID-19 pandemic, the market still lacks confidence in consumption and investment, which affects credit demand to a certain extent.
On the other hand, the stock of social financing at the end of June was RMB 334.27 trillion, a year-on-year increase of 10.8%. Among them, the balance of RMB loans issued to the real economy was RMB 205.09 trillion, a year-on-year increase of 11.1%. The balance of foreign currency loans issued to the real economy was RMB 2.33 trillion, a year-on-year increase of 0.5%. Entrusted loans decreased by 0.5% year-on-year, trust loans fell by 29.6% year-on-year, and undiscounted bank acceptances fell by 19.2% year-on-year. The corporate bond balance was RMB 31.48 trillion, an increase of 10.1% year-on-year. The government bond balance was RMB 57.72 trillion, up 19% year-on-year. The domestic stock balance of non-financial enterprises was RMB 9.96 trillion, a year-on-year increase of 14%.
The cumulative increment of social financing in the first half of 2022 was RMB 21 trillion, which was RMB 3.2 trillion more than the same period last year. Among them, RMB loans issued to the real economy increased by RMB 13.58 trillion, a year-on-year increase of RMB 632.9 billion. Foreign currency loans issued to the real economy increased by RMB 45.8 billion, a year-on-year decrease of RMB 182.3 billion. The entrusted loans decreased by RMB 5.4 billion, which was a year-on-year decrease of RMB 109.1 billion; while trust loans decreased by RMB 375.2 billion, making it a year-on-year decrease of RMB 348.7 billion. Undiscounted bank acceptance bills decreased by RMB 176.8 billion, a year-on-year decrease of RMB 171.4 billion. Corporate bond net financing was RMB 1.95 trillion, a year-on-year increase of RMB 391.3 billion. The net financing of government bonds was RMB 4.65 trillion, an increase of RMB 2.2 trillion year-on-year. Additionally, the stock financing of non-financial enterprises in the country was RMB 502.8 billion, an increase of RMB 7.3 billion year-on-year.
These data changes reflect that the scale of social financing in May and June has increased significantly under the circumstance that monetary policy easing has intensified since the second quarter. The increase in the scale of social financing in June reached RMB 5.17 trillion, an increase of RMB 1.47 trillion year-on-year. The stock of social financing has basically filled the gap left by the sharp decline in social financing in March and April, and the overall social financing has seen a recovery to the long-term trend. In realizing the incremental recovery of the social financing scale, it should be pointed out that government bond financing has played a major role, and its incremental growth has reached RMB 2.2 trillion. In fact, this was essentially driven by the massive issuance of local government bonds in May and June. It has been estimated that in June alone, the incremental scale of government bond financing reached RMB 1.6 trillion, which is a significant continuous increase from RMB 1 trillion in May. This has played a major role in the RMB 3.3 trillion increase in the scale of social financing. Furthermore, the decline in non-standard financings such as entrusted loans, trust loans, and bank drafts is due to the substitution effect brought about by credit easing on the one hand, and this is closely related to the effect of the shrinking real estate market on the other hand. In the first half of the year as a whole, the rise of RMB 13.58 trillion in credit to the real economy, which was an increase of RMB 632.9 billion year-on-year, also means that the central bank’s sustained goal of maintaining credit growth has been achieved.
For the growth rate of the social financing scale to be 10.8%, this would signify that China’s timely adjustment of monetary policy in the first half of the year has a positive effect on stabilizing the country’s finance and on promoting stable growth. This may be the basis for the PBoC to emphasize the return to stabilization policy. As far as the second half of the year is concerned, the scale of social financing is still under great pressure to maintain the growth rate. This is especially true when the peak of local bond issuance has passed and the quota has been exhausted. The issuance of government bonds, which played a supporting and bottom-up role for social growth in the first half of the year, will then see a decline in its effect. This, in turn, will increase the reliance on RMB loans or other direct financings for social financing growth. Promoting the growth of bank loans will remain the main task in the future. In other words, China’s macroeconomic policies such as monetary and fiscal policies still need to provide continuous support for economic recovery through total easing and structural adjustment.
Final analysis conclusion:
In June, the growth rate of monetary and social financing in China showed a simultaneous increase, indicating that the overall financial and economic situations of the country are showing a recovery trend. This, all in all, is driven by the intensification of macroeconomic policies. Nonetheless, under the circumstance of the withdrawal of local government bond issuance, there will still be pressure to maintain the continued growth momentum of monetary and social financing in the future. Hence, the ongoing support from macro policies will become indispensable.
The Real Estate and Banking Crisis in China Is Spreading to Other Aspects of the Chinese Economy
The continuing real estate and banking crisis in China is starting to spread to the other aspects of the Chinese economy. With the real estate market in trouble, with many contracted apartments and homes not being finished, and contracted owners refusing to pay on their mortgages until the apartments are finished, the economic consequences of this crisis are starting to leak into the other parts of the Chinese economy.
One of the main pillars of the Chinese economy has been the steel industry. For decades the Chinese domestic economy has depended on the real estate industry to provide an outlet for the tremendous amount of steel produced by China each year. For the last two decades the huge amount of construction on skyscrapers, factories, huge apartment complexes, and dwellings have been able to soak up the oversupply of steel produced by the Chinese steel industry. Steel has also been the feedstock for the manufacture of the budding Chinese auto industry, as well as manufacturing key parts for the autos produced overseas.
A key indicator of the health of the Chinese steel industry has always been China’s purchase of iron ore from overseas. In the year 2020, at the height of the Covid epidemic, China imported 1.17 billion tons of iron ore. In 2021 the amount decreased to 1.1 billion tons. In the first 5 months of 2022 China only imported 447 million tons of iron ore. This figure is down 5.1 percent from the same period in 2021. Some of these imports can be attributed to panic buying because of the Russian invasion of Ukraine.
Li Ganpo, founder and chairman of Hebei Jingye Steel Group, has warned that a third of China’s steel mills could go into bankruptcy this year. According to a transcript seen by Bloomberg…”The whole sector is losing money and I can’t see a turning point for now…”
Along with the decrease in the manufacture of finished steel products, is the increase in the inventory of finished steel products which increased by 20.5 million tons in a snapshot taken of Chines steel inventory in June 1 2022,to June 10 2022.
Chinese Thoughts on Money
In the West, and throughout most of the world, money is an economic good. Money in the West is governed by the philosophy of a return on investment which creates more wealth. Money is used as an intermediation between buyer and seller. In China, according to the geopolitician Peter Zeihan, money is considered by the CCP as a political good.
According to Mr. Zeihan “Investment decisions not driven by the concept of returns tend to add up. Conservatively, corporate debt in China is about 150% of GDP. That doesn’t count federal government debt, or provincial government debt, or local government debt. Nor does it involve the bond market, or non-standard borrowing such as LendingTree-like person-to-person programs, or shadow financing designed to evade even China’s hyper-lax financial regulatory authorities. It doesn’t even include US dollar-denominated debt that cropped up in those rare moments when Beijing took a few baby steps to address the debt issue and so firms sought funds from outside of China. With that sort of attitude towards capital, it shouldn’t come as much of a surprise that China’s stock markets are in essence gambling dens utterly disconnected from issues of supply and labor and markets and logistics and cashflow (and legality). Simply put, in China, debt levels simply are not perceived as an issue.”
In China, money is a political good, and only has value if it can be used to achieve a political goal. That political good is maximum employment.
The concepts of rate of return or profit margins do not exist in China, and therein lies the danger; eventually the law of supply and demand will win out, and the Chinese economy will have to face a correction. The longer it takes to face this economic correction, the greater damage that the inevitable correction will cause to the Chinese economy.
China is Not Capable of Non-Steady State Economic Growth
Lacking an impartial judiciary system, the Chinese economy is incapable of “Non-Steady State Growth.” Non-Steady State Growth occurs when a new technology increases production of a good or service which expands the economy at a rapid clip. Non-Steady State Growth can only occur in a business environment where an impartial judicial system is able to fairly adjudicate contract disputes. With the heavy hand of the Chinese Communist Party (CCP) interfering in judicial conflicts, and favoring members of the CCP in contract disputes, this type of constraint inhibits research into new and promising technologies.
This means that the Chinese economy is stuck in Steady-State Growth. Steady state growth depends on a constant amount of inputs to help the economy grow. However, at a certain point, inputs do not result in growth as marginal utility becomes saturated and has a zero growth rate.
A Domino Effect Seems to be Forming in the Chinese Economy
A domino effect is defined as “…how one action can have a knock-on effect to related subjects. Knock one domino over, and you don’t just affect the first domino, but all the ones who stand in its path…”
In economics a domino theory can be used to explain how economic weakness, or loss, can spread to other areas of the economy causing a recession or depression.
In the current economic environment in China, the Evergrande implosion has begun to infect other areas of the real estate market in China, which in turn has infected the Chinese banking system. With Chinese buyers of homes and apartments refusing to make any more mortgage payments until stalled construction on apartment complexes are completed, the economic damage has spread to the Chinese banking system.
In July, thousands of Chinese depositors were protesting the freezing of their money in rural banks in central China. In the city of Zhengzhou, the protestors had gathered at the main branch of the Chinese central bank demanding their money back. Officials sent police, disguised in civilian clothes, to break up the demonstration using violence and arresting the protesters.
With construction stalled on numerous unfinished apartment building and complexes, the demand for steel has collapsed, which will inevitably lead to higher unemployment levels for Chinese steel workers, many who are employed by State Owned Enterprises.
With a total of debt that exceeds 300 percent, the Chinese government is sitting on a mountain of debt which many economic analysts say is a disaster waiting to happen. Some analysts say since the debt is state owned, there is little chance of default.
With the Chinese real estate market imploding, which is leaking into the Chinese banking system, which in turn is affecting the Chinese steel industry, China faces a hurricane of economic problems all happening at the same time.
It is not inconceivable, that these accumulating crises may lead to a sudden economic collapse of the Chinese economy.
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