Fragile China

No dust on China, right? Well, maybe some dust. I was reading the New York Times the other day, and it had an article about crime and punishment for Communist party members in China. It didn’t seem like a nice thing, this “official” correcting of misbehavior. It may involve almost drowning a subject (much worse than waterboarding, this “almost” comes close to the real thing and, if the drowner overdoes the procedure for the drownee, well then: whoops and oh gosh and we’re so sorry we made a mistake!), and other stuff too scary to mention in a blog about investing.

Imagine that you are a member of the party in China — someone maybe in the middle of the ladder. You may do nothing wrong, except annoy the guy or gal on the rung just above yours. If so (Bam! Wham! Boom!), you may be suddenly under arrest and subject to l-o-n-g periods of interrogation and torture. There is something on the order of 80 million Communist party members in China, and one of the chief jobs of each is to watch one another and report. Party members and functionaries have an edge on the rest of the population and apparently get treated better, eat better, drive better and live better, except when they don’t.    

I have great respect for the Chinese intellect and work ethic and believe in investing there (as well as in India and other parts of the region). However, until China’s leadership figures out how to turn party members into productive components of society, there are troubling issues that rarely meet the light of day. In the United States, our issues — and we have them, and, thank goodness, they rarely involve the torture of citizens by officials — are almost always exposed for all to see.   Sometimes it takes some time to get to the transparency, but we get there, often in spades!

Remember when Japan was going to take over the United States (not just take over, but overtake economically, too)? It is possible that China may falter on the way to success, taking one or two steps back before moving seriously forward. China has a modified capitalist model, and it seems to be working well, although there’s a pullback at the moment. Despite its success, it’s prudent to remember that China is not capitalist and that the Communist party is perfectly capable of changing its mind. If so, the Hong Kong-ization of China will cease in a moment’s time. 

Have a wonderful week.