76 THE BiG DROP
decadence, one hundred years of chaos, starting with the
Taiping Rebellion, all the way through the Boxer Rebellion,
and then the Manchu, Qing Dynasty, the warlord period, the
Japanese invasion, the Communist period, and the Cultural
Revolution. For one hundred years, China has had something
bad coming around the corner.
Their whole experience with panics and crises in markets
is all very new. At least in the United States, if a crisis happens,
there aren’t too many people around who can say they haven’t
seen something like it before. Americans have seen crisis many
times before — especially recently.
China seems to be naïve about how bad their credit bubble
can get. They’re also certainly over-relying on the ability of
central party officials to keep a lid on it.
I remember when I was visiting the Chinese countryside,
south of Nanjing, not too long ago. I witnessed of the so-called
ghost cities. I was with some Communist Party and provincial
officials who were behind all of the construction. There was,
literally, construction as far as the eye could see. The buildings
were magnificent, but all empty.
I remember turning to the officials, and saying, “This is all
debt financed and all empty. You have no revenue. So, how are
you going to pay the debt?”
One of them replied, “Oh, we can’t. But Beijing’s going to
bail us out.” That’s what he said. To them, a default wasn’t a
possibility.
What they misunderstand is that Beijing has their own
problems. When you look at their wealth management or prod-
ucts, shadow banking, real estate finance, crony capitalism you
realize the true problems China faces.
They’re also suffering from flight capital — oligarchs taking
all they can, like pigs at the trough, and then funneling it out to
Vancouver, Australia and Park Avenue. All of this is happening
on a massive. It will collapse.