Bad Portents: The Chinese Are Not Going to Save the Global Economy

[NOTE: This is a guest post by Dan Bischoff.]
The Chinese Communist Party celebrated its 90th birthday last Friday, and this is not the sort of gift it wanted to unwrap:

China's official purchasing managers' index -- a key measure of the manufacturing sector -- dropped to 50.9 in June, down from 52 a month earlier. It was the lowest reading since February 2009, during the global financial crisis and perilously close to dipping below the 50 line that would signal a contraction in industrial activity.

We all know the anti-Keynesian mania that has seized Western politicians and bankers will bring years of suffering to those of us who've been busily consuming what China makes for decades. But when world governments contract, someone has to spend, right? And that someone was supposed to be China, with its trillions in hard currency reserves, as its first debut on the world stage of capitalism.

A funny thing happened on the road to Beijing
But that reveals a profound misunderstanding of the Chinese "consumer", such as he or she is. London analysts think Chinese consumer spending shrank to just 36% of GDP last year, the lowest since China opened its economy to the West (it was at 46% just three years ago).

As the government has frantically tried to rein in the huge stimulus it unleashed at the beginning of the crisis (equal to almost half of its GDP, compared to the U.S.'s 1/15th or so), it has raised the amount of cash reserves banks must hold nine times in the past nine months; it has raised interest rates four times. And food prices rose, as they have around the globe -- 12%, in China's case.

The rates Chinese banks charge to lend to one another doubled in just one week, from June 14 to June 22. Those rates go up when banks no longer believe in each other; the same thing has occurred here and in Europe, where nobody has a handle on what the crazy, off-the-books derivatives market has done to everybody's solvency.

In China, the rates may be driven by similar worries more nakedly expressed (like the outright embezzlement of billions), but the effect is the same: A freeze in consumer and small business credit, leading to a slower economy for everyone.

Austerity is a trend
In fact, the same thing is happening everywhere; it's just that different nomenclatures left over from long-since-moribund state systems disguise the global similarities. But austerity is a trend, like Bieber haircuts in middle school.

Communist China and capitalist America are not unlike Greece and Europe: they've grown together economically, but our political systems don't reflect that. Actually, the global economy since Ronald Reagan has been increasingly based on expropriating unrepresented labor from the Chinese, something their political system is in fact quite good at.

In return, that has meant leaving much of our workforce out of meaningful employment, driving down what wages they can find, and politically neutering them, so that they are not much different from the average Chinese -- without them really noticing. Because putting lipstick on a pig is something our political system is in fact quite good at.

We have met the enemy...
When Chinese dissident artist Ai Wei Wei -- who lived for more than a decade in New York City, from 1981-92 -- put the Coca-Cola logo on a 16th century Chinese vase (pictured above), that's what he was saying. The two systems are interdependent, and in many ways the same. Ai was arrested last April and released this month, as a sort of Communist Party birthday amnesty, on the promise he'd pay China $2 million in "back taxes."

The real reason Ai was in trouble was that he blamed government corruption for substandard schools that collapsed in the 2009 earthquake, killing 5,000 children. He was calling for better building codes, like a 19th century Populist -- like Robert LaFollette. In China.

Dan Bischoff writes about art for The Star-Ledger in New Jersey; he was European editor for WorldBusiness and National Affairs Editor for The Village Voice.
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