China Has A Bigger Problem Than We Do

A brief history lesson.  The Reka Ussuri (Ussuri River) divides China and Russia as it flows North where it joins the Amur River, which discharges in the Sea of Okhotsk. (The oval on the map above shows its location.)

In 1969, years of armed confrontation between Soviet and Chinese troops across their mutual border almost – just barely didn’t – reached the point of triggering nuclear war between them when actual fighting broke out across the Ussuri River at Zhenbao/Damansky Island (the Chinese/Soviet names).  I was a teenager at the time and remember the great alarm with which these events were viewed.  The Soviet Union was the big bully and China the unyielding mass, but the outcome of such a conflict was uncertain, at best.  I remember distinctly a joke of sorts from that time, and it went something like this:

“War broke out between the Soviet Union and China, and on the first day, the Soviets took one million Chinese prisoners of war.  On the second day of the war, the Soviets took ten million Chinese prisoners of war.  On the third day, the Soviets surrendered.”

The obvious point being that China’s vast population would dominate the Soviets in any conflict, and there is great current concern that that same vast population will shortly dominate the world’s economy (even moreso than it does now).

Not that I disregard China’s manufacturing might and economic clout, but I think that the Chinese leadership likely looks upon their vast population as an almost incalculably large pressure vessel getting ready to blow, with the leadership trying its best to vent pressure off while adding to containment, all the while realizing that the critical tipping point was passed by sometime ago… there is little to stop the coming explosion.

Here’s what I mean.

China has two growth curves working against them: more of their population is becoming painfully aware of what exists as everyday comforts of living for much of the developed and developing world; more of them are demanding those comforts – aspiring to be middle class.  David Brooks of the New York Times points out this growth in a recent piece on the global middle class.

If you consider how much 300 million Americans demand and consume, consider how much 1.3 billion Chinese will demand and consume (and let’s not forget the nearly 1.2 billion population of India…).

Evidence of these curves show up in many places: demands made and met for dramatically increased wages for factory workers, Chinese government plans to divert manufacturing output from export to internal consumption, Chinese government-controlled entities marshalling control over critical natural resources, Chinese citizens protesting living conditions, Chinese government manipulation of information in and out of the country…  Being a China watcher means seeing a stream of these issues (see Paul Krugman’s article).

A recent article regarding the struggles Chinese college graduates are having in trying to find jobs is another indicator.  Last year, there were more than six million Chinese college graduates, up from roughly six hundred thousand little more than a decade ago, and the number is increasing.  They can’t find jobs.

The fundamental question about China is: what will happen as more and more of the population exerts its needs and wants on their government, and, more critically, when?

This goes back to the forty-year old joke, somewhat paraphrased:

“The Chinese people declared a state of unrest against their government.  On the first day of the unrest, the government arrested one million citizens.  On the second day of the unrest, the government arrested ten million citizens.  On the third day, the government surrendered.”

Is that how it will play out?  Only time will tell.

I do believe, though, that there is a concatenation of causes forming that will make it not only imperative but inevitable that we can create a US industrial renaissance, and revive our ability to sustain ourselves with what we make here, at home.  China’s inevitable clash with its population is one of those causes.