A Toxic Hot Pot – China is Doomed!
The ‘Mandate of Heaven’ is in SERIOUS jeopardy, debt is accumulating, defaults are multiplying, people are DYING, and the whole ‘Middle Kingdom’ facade is fissuring in unprecedented ways. Welcome to ZOMBIELAND!
We’re reminded this morning by The Global Times, China’s silly AS FUCK psychotic fantasy generator and official commie broadsheet, that the People’s Republic is in fabulous shape. “The rate of infection is now diminishing, the transmission mechanism is better understood, senior citizens are exercising in the parks, and workers can finally get back to work.” Yeah right. The commie quarantine, as a result of the unruly Wuhan virus (a.k.a. Covid-19, Coronavirus, etc.), has made an unusually large cohort of Chinese functionally insane, believing in demons, embracing Buddhist eschatology, peddling conspiracy theories and contesting obvious realities about their corrupt, incompetent government provoking grave political hazard. Videos on social media show people and pets dropping dead in the streets as CCP hoodwinkers spin the facts and pin the blame on provincial chumps and random scapegoats — even America’s CDC and CIA.
The ‘Chinese miracle’ has entered the failure zone; specifically, industrial production has come to a screeching halt, supply chains have splintered, runaway debt is bankrupting everyone, the ‘middle-class’ is unbuckling; there’s escalating societal rage, young peoples’ horizons and prospects are diminishing, the stolen autonomy of citizens crushed by strong-armed kleptocrats; the destruction of ecosystems and species, and the pervasive, entropic ugliness of suburban human sprawl that drives so much social dysfunction.
It’s been an impressive stunt for the past few decades, for sure, with dizzying GDP growth via the systematic theft/appropriation of foreign (mostly American) IP and cloned technical know-how. But China is floundering on its Ponzi business model and socio-economic sand dune — the entrepreneurs and apparatchiks there are hitting a great brick wall proving that ‘authoritarian capitalism’ is a glitchy hologram. Things are now going critical. The result will be dwindling investment in an endeavor that requires constant re-investment; and technology transfer that is stonewalled by President Trump’s merciless trade policies — a spiked wrecking ball for China’s so-called ‘amazing tech sector.’ This means that 2020 is the year that China de-miracle-izes and the place breaks down. The structural and secular fissuring has only just begun.
The economic consequences of authoritarian governance and coronavirus are quickly piling up like garbage along the streets of Nancy Pelosi’s nasty San Fran neighborhoods. Downtrodden subjects, busted supply chains, shuttered factories, rickety real estate, growing fury, and massive shortages of medz. These developments will most definitely get worse before they get better. As China flatlines, and first quarter GDP growth approaches zero, the global economy, including the U.S., will also be impacted. Many low-cost, ‘Made in China’ merch will go on hiatus, capital markets will gyrate violently, and the pandemic won’t peak until May or June (fingers crossed).
Face masks, latex gloves and testing kits in China are all pretty much depleted or being recycled (gross!). In the parlance of network science, a full tilt contagion/panic is kicking in, with nonlinearities producing multiple random ‘hot zones’ and the circuits of disease expanding across borders. Vulnerable population swathes from Africa and the Middle East to Europe will be sapped. The world is on the edge of chaos courtesy of slimy China.
The Chernobynl dynamic now unfolding in China may mark the turning point. But it would have arrived sooner or later, with or without the genesis of a killer pathogen. Still, the prospect of a great endogenous/exogenous plague makes people all the more excitable. A run-of-the-mill contraction and market hiccup is one thing. But add the grody spread of a hyper contagious, mutating virus to the mix, and the human animal is inclined to go bat-shit crazy in unison.
Moreover, China’s debts are coming due at the worst possible time with 85% of businesses there set to run out of cash in 3 months. Xi Jinping, China’s big cheese dictator “for life”, is facing resistance at the center and the peripheries. Central planning is running schizoid. Booms and busts fueled by cheap credit and corrupt bureaucrats are incredibly destructive. What’s more, they’re exacerbated by central bank efforts to smooth out the business cycle and dampen volatility. Rather than rounding the peaks and tapering the bottoms, stimulative fiscal and monetary policy has the unfavorable effect of amplifying them. China’s central banker, Yi Gang, now has to manage a reckless credit impulse coupled with austerity and a janky AF economy (um, China’s debt-to-GDP ratio = 320%). ‘Vol-mageddon’ is coming as the coronavirus contaminates everything. Cross-asset investors beware (buy gold…and vaccine makers…and guns…and get VXX exposure!).
Coincidence. Fate. Serendipity. Providence. Destiny. Karma. Fortuity. Kismet. Or just plain hidden randomness. There is something both eerie and poetic about the origins of the coronavirus in China, especially at this precise moment in Chinese history.
China was slowing BIGLY before the outbreak of the highly contagious and deadly virus. Ditto Hong Kong. This slowing — call it ‘sino sclerosis’ — was the predictable result of excessive debt levels, malinvestment, civil unrest, slipshod innovation, Trump’s take-no-prisoners trade policy, and China’s status of what development economists call the ‘middle-income trap.’ Third World countries like China (and France) can grow at double-digit rates as they move from low-income (about $3,000 annual per capita income) to middle-income (about $10,000 annual per capita income).
The essential growth drivers are limited corruption, a sufficient supply of labor, and an attractive legal/regulatory environment for foreign direct investment. Once investment is utilized for infrastructure and workers are mobilized, scaled-up manufacturing can churn out commercially viable widgets, produce incremental growth and increase value creation. This fosters ‘creative destruction,’ stimulates growth, generates higher margins and adds to the accumulation of hard currency reserves from export earnings.
The difficulty begins when an economy tries to transition from middle-income to high-income (about $18,000 annual per capita income). That move requires more than cheap labor and infrastructure investment. It requires applied technology to produce high-value added products and services. Only Taiwan, South Korea and Singapore have managed this transition successfully (besides Japan after World War II, and a few oil-exporting fiefdoms).
This explains why China has been so obsessed with stealing U.S. intellectual property and managerial expertise. Trump has been closing that conduit and tightening the noose, thank goodness. China cannot generate adequate IT via its own R&D and indigenous industries. It is stuck in the middle-income trap and a slowdown in growth is inevitable.
But the story gets way worse for China. As of today the total reported number of people infected by the coronavirus exceeds 65,000. And the death toll continues to mount, even outside of the world’s biggest communist country. Italy just got dusted hard, with infection clusters emerging around Milan, etc. The existential germ is spoiling South Korea and Iran, too. And Paris is starting to panic. There is substantial medical, anecdotal, and model-based evidence (we use the SEIR model) that the actual infection rate and death toll may be ten to twenty times higher than the commies report. Over 65 million Chinese in several major conurbations are under ‘lock-down’ where individuals are confined to their homes and may only leave once every few days to scavenge for essentials.
City centers are empty, boulevards are closed/barricaded, trains and planes are not moving, and factories are frozen. The streets and parks are draped with dead animals (and people) who ingested bleach and disinfectant, or succumbed to the virus itself. Nurses and doctors are dying in droves. CCP cremation squads have been deployed and a few summary executions (for violating the quarantine) have been rumored. The whole place is a toxic hot pot. The Chinese economy is entering apocalyptic mode. COVID-19’s mortality rate of roughly 2.5% is growing in a nonlinear fashion. If a 2.5% fatality rate sounds low, it’s not. That’s roughly on par with the Spanish flu pandemic of 1919–20 that killed 50 million people.
China is caught in a matrix of self-destructive rackets, rogue communist transgressors and the People’s Plague. The ‘China miracle’ was all economic artifice that leveraged piracy, debt and ponzi finance to provide the illusion that the nation’s growth was safe and durable for the long-term.
When the going gets tough in China, the tyrants tend to crack down. And when that doesn’t work, China historically cracks up into some kind of civil war. The ‘Mandate of Heaven’ is now up for grabs as mob psychology and vicious threat vectors encroach on Xi & Co. (a coup d’état is not out of the question since a fractious population will be out for revenge against the very enablers/concealers of the epidemic). The insurgency in Hong Kong this past year may be a harbinger of things to come for Beijing and the rest of China.
At VIVISXN, we predict breakneck turmoil as banks and SOEs fail, firms go belly up, tech engineers flee, capital skedaddles, foundries fold and expats repatriate. A natural disaster in the form of a flood, earthquake or asteroid impact would take China out of the game all together. Remember, ‘black swans’ come in momentous tidal waves, political or otherwise, and trigger utterly new regimes and paradigms. When it rains it pours — torrentially.
All those braised bat wings and reptile gizzards, combined with icky authoritarianism, have made China a disease-ridden ideological-gastronomic basketcase. Get out of zombietown while you can and DEFINITELY stay away from HUAWEI!
This post was authored by VIVISXN’s proprietary AI Thought Bot®
Photography Happy Death Squad PRC + AP + EIU
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