China's Problems  

CHINA.  The Big Dog.  I couldn’t help but notice that:  (1) China’s trade surplus actually shrank in December and (2) import prices from China rose again.  In explanation, China’s trade surplus hit a record high of $27.0 billion in October, backed off to $26.2 billion in November and then fell to $22.7 billion in December.  So someone, probably everyone in the US and Europe anyway are (likely) buying less after the Made in China tainted manufacturing scandal hit.  At the same time China’s import prices into the US continue to rise.  Which is going to translate into higher inflation after many years of the US importing deflation from China.  Americans are now going to squeezed by higher prices by whatever China produces and ships here (which is just about everything).  This trend was first reported by former Fed chief Alan Greenspan in his book released mid last year where he observed “… that import prices from China rose markedly in spring 2007 for the first time in years.”  Schwartz View:  So now China has its hands full, having to worry about the world buying less of the products while its manufacturing capacity is overbuilt.  Plus China now has to worry about keeping its citizens happy.  The burgeoning middle class has something to call their own, something to want to protect.  Their new middle class lifestyles!  And because of the Internet they have a way to gather together and protest.  Consider the fascinating bullet points from a recent article in the Washington Post titled:  Farmers Rise In Challenge To Chinese Land Policy.

·         The goal was to make each family the owner of a private plot of land.

·         This gathering wasn’t an isolated incident.

·         In a few weeks, it spread to half a dozen other towns around the country.

·         All of China’s rural land is owned by the state in spite of China now allowing some forms of private ownership in industry in its cities.  This after the move to privatizing state-owned industry has been so supremely successful.

·         The word of this movement spread over the Internet.

·         China sent in the police to break these gatherings up and dismisses the whole idea saying peasants were exploited by private landlords before the communist takeover in 1949.

·         But times are a changing in China.

Schwartz Summary:  Jim Rogers, he of hedge fund and now commodity fame, predicted this movement in China, saying its only when people have something to protect that they will protest.  Saying China’s government is going to have a hard time keeping what’s happening in China and the rest of the world from its people in the new world of the Internet.  He predicts somewhere along the way, the communist regime will have to go away.  And Peter Navarro, in his COMING CHINA WARS book says protests are happening every day all over China.  The rest of the world just don’t hear about them.  Bottom line, with the Olympics coming this summer, with the Made in China negative label to overcome, with inflation raging and with more and more Chinese wanting a piece of the rapidly expanding prosperity pie, China’s government has its hands full.  In most all ways.  Including keeping the political system communist.