China’s economic growth has been one of the wonders of the modern world, as one of the poorest nations has pulled itself well up the economic tables over just the last twenty years. What it has not done, however, is replace the communist leadership with democratically elected leaders. What has happened is that switching from a pure command economy to a freer economy has created fantastic opportunities for graft and corruption. Opportunities which have been grasped eagerly by party leaders and their friends and family:
As I set out in The Fall of the Communist Dynasty, and a HT to John Hempton’s piece within which he contends that the entire Chinese economy is a Kleptocracy , this week we have news from Citron Research who reports that Evergrande Real Estate Group Ltd is ‘a deception on a grande scale’ .
Citron quote ;-
‘Evergrande who ranks among the top 5 Chinese property companies. Our analysis and primary research reveal that: 1] Evergrande is insolvent; and 2] Evergrande will be severely challenged from a liquidity perspective. The Company’s management has applied at least 6 accounting shenanigans to mask Evergrande’s insolvency. Our research indicates that a total write-down of RMB 71bn is required and Evergrande’s pro forma equity is negative 36bn.’
What sparked Citrons interest in Evergrande was the mail order doctorate the chairman claimed from the University of West Alabama, a small college 230 miles north of New Orleans with 2300 on-campus students. Evergrande’s is one of the top 5 players in the Chinese property market that fell for its 8th consecutive month in May. My experience with these types of matters is that small things can be excellent markers to greater problems. Small examples of dishonesty in one area of life are often reflected in larger undiscovered examples in other areas of a person’s life.
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Zoomlion has an interesting business model, it is similar in many of ways to Caterpillar, except whereas Caterpillar report falling sales, Zoomlion reports astounding sales growth with a fivefold increase in revenue since 2007. Zoomlion customers sometimes buy ten concrete mixers when they planned to initially by one or two. They have a perverse incentive to buy more than they need because these concrete trucks are purchased via finance packages supplied by Zoomlion.
Then the machines can be garaged and used as collateral to borrow further funds from other lenders. Zoomlion continues to grow while cement sales have plunged. In May, cement output increased 4.3 per cent YoY, down from 19.2 per cent recorded last year. Zoomlion’s new debt of $22.5B buys roughly 900,000 trucks which could produce enough concrete (at six loads a day) to build over thirty Great Pyramids of Giza a day.
[. . .]
All revolutions have class and economic matters at their core. Ironically, the difference in a future Chinese collapse is that the expropriators in China in this cycle have been the Communist Party political class. The CCP have become the Kleptopreneur bourgeoisie who have expropriated from China’s proletariat (the industrial working class), via corruption and theft from the state and state owned enterprises. The Ka-Ching Dynasty is responsible for the greatest looting of a nation in history.
Marx wrote that modern bourgeois society (Capitalism) has conjured up such gigantic means of production and of exchange, that it is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells (Karl Marx)
The CCP ‘sorcerers’ have summoned up a political and economic nether world that is so systemically corrupted it is in the process of spiralling into same revolutionary physics that destroyed the original Chinese merchant bourgeoisie that Mao overthrew.
Earlier posts on China’s economy are here. H/T to Cory Doctorow for the link.
