Thursday, March 23, 2006

China Crisis

Commentary by Martin Kelly
September 14, 2004

The Central Committee of the Chinese Communist Party will soon be facing the greatest crisis in its history, one entirely of its own making with the potential to affect us all profoundly. Because of their policy of massive economic expansion which has been actively encouraged by two White Houses to the detriment of the American economy, and the benefits of which are reserved for the little red emperors and paper warlords, China will soon be unable to feed itself.

This monumentally significant piece of news was buried in the farming column in the September 3 issue of the satirical magazine Private Eye. Private Eye is Britain’s best publication, a wonderful wee magazine that has survived every attempt to close it down in its 40-year history, and it still breaks big, big stories.

It arose from a development in the European Common Agricultural Policy (CAP). CAP is the very worst aspect of the EU, a policy that for years subsidised farmers to over produce leading to regular butter mountains and wine lakes. However, CAP has been reformed, and instead the farmers now get a subsidy for the acreage of land they farm.

This is all well and good and efficient – it’s just that it couldn’t have happened at a worse time. In the good old days, CAP helped keep world grain supplies at a level that ensured a stockpile equivalent to 123 days of global consumption. However, the end of a policy that also encouraged massive corruption and waste has also coincided with the bad news from Beijing.

According to Private Eye, only 12% of China’s area is capable of cultivation, and 70% of that 12% needs irrigation. They have expanded so quickly that in the last five years, the area available for cultivation has dropped from 92 million hectares to 76 million. Within five years, China will be the world’s largest importer of grain, while the global stockpile has already dropped to 60 days.

This is an impending catastrophe that the free market in Chinese goods renders us powerless to avoid. For as long as the spoiled consumers of the West seek to have consumer goods at unreasonably low prices, the Chinese will continue to build factories on land that we now know would be better used putting bread into the mouths of the Chinese. One of the great fads of recent years has been talk of ‘corporate social responsibility’, like ensuring that businesses recycle or don’t sell landmines. It would be particularly socially responsible to avoid building factories in China for the foreseeable future, but such fads do not factor in that corporations are not social entities, they exist for one purpose, to make money, and they have no other agenda.

The issue of outsourcing seems to have dropped off the agenda for this election. It needs to be resurrected, because making and keeping real work in America is the only way the Chinese can be deflected from their collision course with disaster. On President Bush’s watch, American manufacturing has lost at least one-sixth of capacity. A Kerry White House would be no different. Kerry’s statements on economics betray a shallowness of understanding of the subject, and an over-reliance on the repetition of the Clintonian social agenda. The appearance of the self-proclaimed last conservative Democrat at the RNC should have reminded Kerry that the last real conservative Democrat President imposed tax cuts and built up the military and his name was John Fitzgerald Kennedy. It’s unlikely that Kerry would get the message.

But in the Great Game of trade before country, there never was a player like William Jefferson Clinton. One wishes him well on the road to recovery, but Bill Clinton perpetrated the single most economically destructive act of any President of recent years by permitting the dumping of cheap Chinese steel on the American market to keep them afloat when they were going bust. As a result, it will be a very pleasant surprise in 10 years time to hear of any American steel mills that are still rolling.

If Kerry wins, will he impose a tariff that would scale down Chinese growth and make them tear down the factories in order to reclaim the land they need for their survival? Hardly. The Murdoch press, in the form of Irwin Stelzer of The Weekly Standard, would be on him like an attack dog for threatening to close down markets. A meaningful tariff from a Bush White House is as likely as him refusing to sign John McCain’s next hare-brained legislative adventure, whatever that may be.

So China will starve and America will suffer, out of a mutually pressing need to supply and consume sports shoes. I wish you both well, but it’s really not my problem. I live in Scotland, and it’s not my currency that the Chinese are propping up.