The surge in China’s exports could prove to be as unsustainable as the rise in US (and some European) home prices. They might end up being mirror images … as Americans and Europeans could only import so much from China so long as they could borrow against rising home prices. Brad Setser, CFR blog.
China's exports cratered in February, a drop of 25.7%, in line with the drops in exports experienced by other mercantilist countries (Japan, Germany, Korea, and Taiwan). However, unlike those countries, China doesn't have an organic source of legitimacy except for its ability to deliver economic growth. As I have said earlier, the real threat from China isn't that is a potential peer competitor (a device used to sell big weapon systems), its that it could collapse:
So, what happens when China's high performance, globally connected capitalist economy which is flying at dangerously high speeds hits the inevitable speed bump? The answer is: it will derail (hollow out and fragment). The chaos it will produce in SE Asia is the real threat we have to deal with. Predicting the black swan that kicks off the death spiral is impossible, but as we have seen in other export-oriented Asian economies the shock will likely be economic. At that point, the dream of upward ascent and rising expectations, reinforced by global media, will be seen as a lie.
In anticipation of this, the Chinese government is following the lead of many other nations by radically improving the capabilities of its paramilitary force for domestic security (to the tune of one million men). However, this many not be enough. Global guerrilla theory indicates that the endemic corruption will combine with the same forces of anti-state guerrilla action we have seen in other places in an attempt to disconnect portions of China from the central government... (it will work).
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