What to Do About These Cracks

 

The cracks are starting to show.

In its almost irrational desire to urbanize faster than a speeding bullet, the Chinese government is pulling rural farmers off their land and shoving them into an urban environment they’re completely unprepared for.

Only a fraction of the newly-displaced young people have jobs. The rest now spend most of their time in Internet cafes playing games.

The elderly are forced to take menial jobs, like street sweepers or janitors, for a measly $150 a month.

These people were supposed to receive $1,500 in training. Of course, they’ve not seen one red cent of that.

And those who do get better jobs often have to travel long distances because there are few jobs available in the new towns and cities they find themselves in.

Inflation is raising their cost of rice… a vital food they once produced for themselves for almost nothing.

Suicides and age-related, terminal illnesses are on the rise.

And for all, the standard of living has dropped.

As we’ve warned: Inevitable cracks are forming in China’s urbanization effort…

So what’s the Chinese central government’s motivation here?

They want to move people to urban areas where they can earn and spend more. The problem is they’re moving people with no skills, especially the older ones, so their earning potential is limited, which in turn limits their spending power.

And what’s the local (mafia) government’s motivation?

Well, they sell the recently-vacated farm land to developers and then use those funds to finance buildings for the new urban residents. Plus, from those people who are able to find good jobs, local governments also get tax revenues and new businesses spring up for their crony business friends.

But outside of the new towns, the surrounding farmland remains mostly empty, lying fallow as proposed developments gather dust on the shelf and excavation machinery stands idle.

Then there’s the under-appreciated problem that many rural households don’t want to move to these cities. They don’t want to uproot a way of living they’ve had for centuries.

Local governments don’t care. If the people don’t move willingly, those in power stoop to cutting off roads, water and electricity to force them out.

With all of that said, I must clarify that I don’t want to create a one-sided story here…

China’s rapid urbanization has taken many people out of poverty and raised the average standard of living from $2,000 per capita decades ago to $9,000 per capita adjusted for purchasing power today. Many people in China’s cities are earning between $5,000 and $20,000 in incomes.

However, my concern is that China is now pushing urbanization at such a rapid rate that it will inevitably backfire. It’s like recklessly gunning your 300CC motorbike engine to speed faster down the hill. There’s no question you’ll eventually hit a speed wobble… and there’s no way that would ever end well.

Plus, such government-driven processes are prone to high corruption. They’re creating a permanent underclass of people who are often not even registered citizens (already 221 million people and rising rapidly) and have no access to education, health care and social services.

At the same time they’re creating an unaccountable upper class that benefits from being connected to the corrupt, communist party, especially at the local level of politicians and crony businesses; not to mention the huge state-owned enterprises that are incredibly inefficient.

And after moving about 250 million people to cities in the last 12 years, China plans to move another 250 million in the next 12 years.

They’re nuts!

China’s stock market tells the real story here…

It crashed 70% in 2008 and managed only a brief and feeble rebound into February 2010 before resuming its downhill course.

This is a B.S. economy. Period!

China’s a disaster waiting to happen. It’s putting the cart before the horse, forcing unprepared and reluctant people into urban areas in the hopes that they’ll earn and spend more.

But overexpansion only leads to lower profits.

As China continues on its insane urbanization path, the cracks will only widen and the risks of a global catastrophe rise.

Don’t fall victim to the inevitable here. The Chinese crisis that I see barreling toward us will dwarf the U.S. subprime crisis.

Protect your assets by early 2014.

Harry

P.S. Usually I share details of my forecasts with you, but today I want to tell you more about how it all began. Listen to this.

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Categories: Commodities

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.