China’s Bubble Economy

China’s new aircraft carrier, similar to this one, provides the capability for new levels of power projection in the Asia-Pacific Region.

Is it possible that Chinese government, in pursuit of economic superiority over competitors in Asia and the West, has copied the same systematic mistakes that led to the economic meltdown of the past five years? The rapid rise of the Chinese economy has fueled the imagination of economic speculators who have predicted the dominance of the Middle Kingdom in the next century.

China’s new aircraft carrier, similar to this one, provides the capability for new levels of power projection in the Asia-Pacific Region.

Is it possible that Chinese government, in pursuit of economic superiority over competitors in Asia and the West, has copied the same systematic mistakes that led to the economic meltdown of the past five years? The rapid rise of the Chinese economy has fueled the imagination of economic speculators who have predicted the dominance of the Middle Kingdom in the next century.

Indeed, the thriving Chinese economy is flexing its newfound muscles in both financial and military sectors. The Chinese military budget has seen double-digit increases for the past decade. However, the dramatic paranoid reaction to a feared “Jasmine Revolution” on China’s own soil betrays the Chinese government’s facade of control, as well as a fear of its own population. The Washington Post reported:

“At least 100 activists have been rounded up, and some have been charged with “crimes” that could lead to multi-year prison sentences. Three lawyers who did nothing but peacefully attempt to hold China to its own laws – Tang Jitian, Teng Biao and Jiang Tianyong – have been “disappeared” by security agents, who took them away about three weeks ago and have yet to charge them or disclose where they are being held.

Equally lawless, even under Chinese law, is the continuing house arrest of Liu Xia, the wife of imprisoned Nobel Peace Prize winner Liu Xiaobo.”

For 2011, The Chinese Government has recently announced a 12.7% increase in military spending which means the official spending the People’s Liberation Army (PLA) currently stands at $91 billion. Yet, this huge amount revealed by the Chinese government does not reflect the actual military spending of the country. The full amount spent on the military remains undeclared. The high degree of opacity and secrecy in military spending has caused fear and mistrust with regional neighbors, creating an arms race which has seen countries like Japan and Australia acquiring advanced military technology to counter-balance the Chinese military might. In the words of a Southeast Asian country’s defense attaché in Beijing, “[China] say their strategy is peaceful development, but their military modernization, especially in the naval area, speaks another language.” (Read more) In fact, the Chinese Navy’s harassment of two Philippines patrol boats within Philippines waters which are believed to be rich in oil and gas deposits in March 2011 showed that the fears of China’s regional neighbors are more real than imaginary (Wall Street Journal, March 2011).

A newly constructed chinese city stands dormant and unoccupied

New construction, snapped up by speculators, stands empty in one of China’s “ghost towns”.

Critics of China’s high-speed railway system that costs $274 billion have also pointed out that the high construction meant that high-speed rail tickets will be have to priced so high that they will be out of the reach of most Chinese. The huge budget set aside for the development of the high-speed railway system also provides Chinese officials ample opportunities to enrich themselves given the high corruption rate within the governing and patronage system. All these signs point to growth that is designed to awe the rest of the world but otherwise does not benefit the Chinese population. The dichotomy between the illusion of prosperity and the lack of real advancement of the Chinese population – including the burst of the economic bubble economy – may cause a serious problem that the rest of the world may feel the pain, as well.

-AAI Interns Tang Wai Leong and Chris Pagliaro contributed to this report.

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