This is NOT a free e-book! The list price of this book is $49.

You have been given one complimentary copy to keep on your computer. You may print out one copy only as a bonus for signing up for your free subscription to AbsoluteWealth.com. Printing out more than one copy - or distributing it electronically - is prohibited by international and U.S.A. copyright laws and treaties, and would subject the purchaser to penalties of up to $100,000 PER COPY distributed.

Copyright 2011 by AW Research Publishing LLC All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic, or mechanical, including photocopying, recording, or by any information storage and retrieval system.

Published by: AW Research Publishing LLC 4330 Gaines Ranch Loop Suite 120 Austin, Tx 78735 Website: http://www.AbsoluteWealth.com E-Mail: Visit us on the web at support@absolutewealth.com
The articles in this e-book are for general educational purposes only and should not be construed as medical advice or instruction. The information provided should not serve as a substitute for professional medical care. Nothing in this e-book should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.

INSIDE THIS REPORT

Introduction ___________________ The Rise of China ___________________ The Beijing Model ___________________ The Real Estate Crash ___________________ Lawlessness and Foreign Firms ___________________ Exploding Civil Unrest ___________________ Death By Pollution ___________________ War, Civil War, and Disintegration ___________________ Political Change ___________________ Conclusion

PAGE 1

THE GREAT FALL OF CHINA

Chinas Zombie Economy and the Coming Crises

Before too long, hundreds of billions of dollars will be lost in China and in Chinese companies around the world. Many think that the future belongs to China. It certainly does appear to be true. But recently, some sharp observers have begun to think otherwise. Are envy and jealousy the source of such criticisms? Some may say that. However, close observation of China, the global power, reveals great dangers just ahead. No part of China will be unaffected by these dangers. Nor will any part of the world will remain unaffected. But the impact of the coming crises will hit China so hard that it will never be the same again. Now, this may be hard to believe. After all, China is an economic giant in the world today. And its true; its economy is massive and far reaching. But China is already becoming a zombie economy, resembling the walking dead. The scary part is that the Chinese leadership knows it. And their actions have already begun to reflect the reality that a new China Crisis is dead ahead. But it wont be just one crisis that China will have to handle, but many; and at the same time or in quick succession. There will definitely be a domino effect in play as the crises overlap and magnify the impacts of the others. Chinas collapse will begin with an economic slowdownwhich is already here. Hundreds of billions of dollars in wealth will be wiped out in a very short time span. But lets take a brief look at China today to understand where it is headed and why.

PAGE 2

PAGE 4

PAGE 6

PAGE 8

PAGE 11

PAGE 13

PAGE 15

PAGE 17

PAGE 18

The Great Fall Of China

An Absolute Wealth Report

In only a few decades China has risen from a backward rural economy to becoming the worlds leader in manufacturing. And, by some estimates, Chinas Gross Domestic Product (GDP) approaches, or perhaps even passes, that of the United States. There is no debate about Chinas place as one of the top economic powers in the world today. It invests billions of dollars in countries around the globe, and finances similar amounts for joint ventures within China. It exports everything from steel to dry wall, from hi-tech computers to high fashion, to every market imaginable. China is now also the single largest foreign holder of American debt, to the tune of about $1.22 trillion or about 9.8%, and has been a key player in keeping the American economy afloat. They recently surpassed Japans holdings of about 9.6%. But all that is about to change. Chinas appetite for natural resources to feed its growth is voracious: It leads the world in steel production and consumes more than twice the United States. In 2003 China consumed 258 million tons, the US, 104 million. It produces 97% of the worlds rare-earth minerals and consumes about 30% It produces 7.4% percent of copper in the world but consumes about 34% (6.8 million tons) Its oil consumption is 8 million barrels a day and rising, compared with 29 million barrels a day for the US Is the worlds largest producer and consumer of gold Consumes 48% of the worlds iron ore Consumes 47% of the worlds coal

The Rise of China

The human and environmental costs of Chinas explosive industrialization are unprecedented. And, as its industrial needs grow, Chinas behavior in international trade and the resource markets is becoming more adversarial and destructive. Militarily, China has nuclear weapons, the missiles to deliver them, and the guidance systems to put them where they wish. It also has a standing army of 2.85 million men, with reserves that bring that total to well over 4 million. And it has a blue water navy for the projection of its power throughout the Pacific, with advanced surface and submarine fleets. Chinas intention is to challenge US military power and influence in the region. That is why these China crises are so dangerous for the world, and not just for China.

The Great Fall Of China

An Absolute Wealth Report

China certainly appears to be a superpower But a successful superpower must not only be rich, but also have financial stability as well as internal and political stability. It must be able to feed its population and relate well with the international community. The crises China will soon face will cause great internal instability and up to half of its wealth will vanish in the chaos

As noted above, Chinas crises will be triggered by an economic slowdown Signs of it are already here. China has experienced its second year of year decline in deals priced and dollars raised in the global IPO market, and has acknowledged that the external environment for Chinas development grows complicated. That means that China knows its export-driven economy is already in trouble. In an article earlier this year, the French Investment Bank Socit Gnrale said that: it fears China has lost control over its red-hot economy and risks lurching from boom to bust over the next year, with major ramifications for the rest of the world. Others are saying the same thing, and worse. Noted hedge fund manager, Jim Chanos, who alerted Wall Street to Enrons flawed model, and Harvard Universitys Kenneth Rogoff, both warn of a crash in China: China is on a treadmill to hell because its hooked on property development for driving growth. As much as 60 percent of the countrys gross domestic product relies on construction Thats right; China is creating its own false economic demand and employment by building vast construction and infrastructure projectsthat nobody uses or can afford. Is this true? It is. Many ghost cities now exist in China. Ghost cities are complete urban areas with high rise office buildings, condominiums, luxury mega malls, parks, and utilities. They can be found all over China. And they are empty. No one lives in them. In fact, there are 64 million vacant luxury apartments in China right now. That is twice the number of apartments in the United Kingdom.

The Economic Demand

The Great Fall Of China

An Absolute Wealth Report

At the same time, tens of millions of workers live in slums, ten to a room, and work for slave wages How long will this continue? It is utter madness, and it is the madness of the Chinese leadership running the economy by a plan known as the Beijing Model, into total ruin. Even, Ge Zhaoquiang, Senior Researcher at China Merchant Bank, recently warned of: Serious risk of an economic downturn unprecedented in past thirty years with possibly damaging consequences for Chinas social and political stability. The downturn is here now, and its getting nasty.

The Beijing Model is a creation of the Chinese leadership. Its sole purpose is the rapid industrialization of the country by leveraging all advantages of open international markets, currency manipulation, and other adversarial trading practices. Admirers credit the Beijing Model for Chinas economic record of 10% annual growth for the past decade. So be it. The Beijing Model has the following factors: Authoritarian political structure State control of banks and capital Massive and sustained foreign investment State owned industries to reward cadres Privately owned industry to copy and steal from A huge source of cheap labor to exploit But Chinas growth has been fueled largely by: A) Large amounts of foreign investment and B) Chinas cheap labor C) Chinas Central Bank policy of artificially low exchange rates

The Beijing Model

The Great Fall Of China

An Absolute Wealth Report

But over reliance on these factors have badly warped Chinas economy. For instance, as a country grows wealthier, domestic consumption should rise as a percentage of GDP. In China, this hasnt happened. Overall domestic consumption has dropped by 20% in the past five years alone, even though labor costs have doubled. Mass domestic consumption has also been stifled by Chinas undervalued currency, slave level wages, and restricting foreign firms access to its domestic market. A middle class has emerged in China, but is not large enough to raise domestic demand. So, what does this mean? It means that China can only run its economy this way for so long; and that time is running out. As Western economies crumble and cut back in the global recession, foreign demand for Chinas products will dry up. So will foreign investment. That means fewer and fewer dollars will be going into China. As unlimited foreign investment and cheap labor come to an end in China, its economy will crash. The Beijing Model will be dead. The after effects this crash, however, will be bad for China; very, very bad. Factories will close. Massive layoffs will occur. Civil unrest will rise among the hundred of millions of Chinese factory workers across throughout the country.

One big problem for China will be inflation. A lot of it. As its economy produces more and more, demand for resources rises, leading to rising costs for all kinds of goods. Also, a false real estate market has also led to ultra-high prices. In response, the Chinese Central Bank, which dictates the value of the yuan, has raised interest rates four times in the past eight months in an effort to control inflation. But economic growth is still at almost 10%, which is not normal in a global recession. But so much of the demand, as noted above, is false. Other prices, however, are held artificially low. Rising food prices, for example, have been stopped by price controls. This is only temporary, and creates the appearance of control, but also a slingshot effect for hyper inflation in the future. Also, Socit Gnrale has already warned that runaway inflation in China will push gold higher yet, but take profits before year end. That doesnt leave much time, does it?

Hyper inflation

The Great Fall Of China

An Absolute Wealth Report

For reasons we will see later in this up to date report, there has been hyper-inflation in some areas, such as property, but not in others. However, as noted above, food prices in China will soar in the near future. The dilemma for China is that to control inflation, it must raise interest rates to slow down the economy. But any slowdown in the economy will quickly deteriorate into economic collapse. China is trapped.

As noted above, property prices are grossly inflated, and the bubble is about to burst. Perhaps it already has, as many real estate offices have closed due to low demand. How did Chinas real estate prices get so inflated? In China, the government owns all the banks. State owned banks lent huge sums of money to state owned industries and local governments. This is a recipe for broad and deep corruption. Although state owned banks are not allowed to lend to local governments directly, local governments cleverly formed investment companies to receive loans from the state owned banks. But what did the new investment companies own as collateral? These investment companies were collateralized by land that was usually seized illegally by local governments from farmers. This trick artificially drove up land values to astronomical levels, which allowed larger loans to be made and received. As land values rose, loan amounts did too. But why would this occur? Land and other collateral values were inflated not only to show that goals have been met, but to also line the pockets of officials and corporate officers. False reporting, waste and fraud are rampant in China and caused the real estate bubble. But government bankers, municipal authorities and state owned firms got very, very rich. Now, however, China faces an avalanche of bad debt that it is trying to hide, misplace, and otherwise wish away. But it will not go away; it will be a major factor in Chinas financial crash.

The Real Estate Crash

The Great Fall Of China

An Absolute Wealth Report

Like the US, China engaged in its own stimulus program. It put hundreds of billions of dollars into the economy. Chinas debt crisis is directly related to Chinas State ownership of all banks and the real estate bubble, but it also a result of the massive fraud and corruption in China between banks and State owned enterprises and local governments. But where did all that money go? As noted above, it went into all kinds of fake companies selling seized land at ultra high prices, or into the stock of state owned firms, artificially driving up the values of those companies. This is not a mystery; its just that not many really want to talk about it because the ending is not a happy one. But even Chinas prime minister, Wen Jiabao, admitted in 2009 that: Structural problems are causing unsteady, unbalanced, uncoordinated, and unsustainable development. Those structural problems include but are not limited to the corrupt relationships between State owned banks and State owned firms. State owned firms, however, are a big part of it. The Economist magazine says that all but three of the forty-two mainland Chinas global Fortune 500 firms are owned by the government. These firms receive large amounts of money with no accountability and earn no profits. Chinas state owned enterprises net return on equity is negative 1.42%. They are, in fact, destroying wealth, not creating it. Thats what happens with widespread corruption. The bottom line? Economists now see a tremendous domestic debt bomb waiting to explode in the faces of--you guessed it--Chinas State owned banks. A major default on domestic debt is inevitable. Sound familiar? Can this any worse than the US debt crisis? Yes, because the scale of Chinas debt crisis is much larger; relative to total GDP its more than twice the size of that of the US. Estimates of Chinas domestic debt crisis range from 25% to 80% of GDP, and will make the US debt problem seem trivial in comparison.

The Domestic Debt Crisis

The Great Fall Of China

An Absolute Wealth Report

Soon, all foreign investment and capital in China will be at risk, if it is not already. Foreign assets will simply be stolen outright, as is happening now, if not totally stripped of their value. How can this happen? One reason is the nature of the Chinese Communists Party. The State seeks control over all parts of China, especially those privately-owned companies, including foreign-owned ones. Why? Because foreign or privately owned firms represent a challenge to the Partys authority and the official policy of Collectivism. Western influence is a big problem for the Chinese. They know that foreign ideas threaten their legitimacy. You see, as the Wall Street Journal points out: The Party regards collectivism as the key to power in China and privatization as foreign and wrong. And why wouldnt they? They owe their wealth and position to the power of the State which has been built upon the backs of the repressed collective masses. Collectivism works great if youre at the top. You dont even have to lift a finger. Not only that, but China limits foreign access to the Chinese market. That is reserved for Chinese firms. That is known as protectionism, a tactic of Adversarial Trade. Even Chinas State Council affirmed in 2010 that: Foreign companies have increasingly felt unwelcome in China because of what they believe are discriminatory government policies, inconsistent enforcement of laws and increased protectionism restricting foreign investment in certain sectors. Also, rising labor and logistics costs, lack of available land and surmounting levels of pollution in Eastern China have prompted regulators to create rule to further optimize foreign investments. These conditions will only worsen with Chinas economic slowdown. But as economic conditions in China worsen, shouldnt this make China weaker? Yes. Thats the second reason why China grows more lawless in its relations with foreign firms.

Lawlessness and Foreign Firms

The Great Fall Of China

An Absolute Wealth Report

Weakness begets recklessness. Such weakness explains why China now steals whole factories from Western companies, without legal recourse. They are grabbing from the West what they can, while they can. This has become a huge and open problem: There is a growing number of similar trade cases involving American companies. I see China going backwards. I have never seen so many complaints over outrageous stealing of intellectual property and making folly over the rule of law. It is seizing entire US companies without due process or recourse. House subcommittee Chairman Don Manzullo (R-IL) Even Chinese firms listed on the US are markets are rampant and brazen in their fraud and theft. As Floyd Norris writes in his recent article, The Audacity of Chinese Frauds, with US listed Chinese companies The audacity of these frauds (Chinese CEOs and banks providing auditors with false numbers), as well as the efforts to intimidate auditors, stand out. If investors such as Goldman Sachs and Hank Greenberg cannot fend for themselves, something more needs to be done if Chinese companies are to continue to trade in American markets. The coming China crises wont just leave China in a world of hurt, it will also cause the stock values of Chinese companies anywhere in the world to sink like a stone. Billions of American investors dollars will be lost in the US alone. But lawlessness and brazen behavior have become the norm in Chinas trade relations, as it sees the world in a zero-sum context and knows that deep trouble lies just ahead A good example of this is when China promised to get rid of rare earth export controls when it joined the World Trade Organization (WTO) way back in 2001. It gave in a little along the way, but in 2011 it has returned to its initial posture. It has 30% of worlds supply but 90% of worlds exports. The WTO has ruled against China, but China has yet to comply with the ruling. This is not surprising. Whether it is stealing American firms factories, stone walling on trade issues, ripping off US technology, or illegally burning DVDs, theft and corruption are a way of life for China. Only now, they are more brazen about it. The truth is, however, acts of lawlessness are acts of weakness, not strength. It is true that the Chinese leadership governs with thuggery. But China also knows that its days of false prosperity are numbered. Although the Middle Kingdom feels culturally superior to the West, its financial misery will be much worse. This will only affirm its historical fear and paranoia of the West scheming to break up China once again.

The Great Fall Of China

An Absolute Wealth Report

10

China is entering a prolonged period of civil unrest from State created problems. Land reform has always been big in China, and usually involved the deaths of millions of people and the imprisonment of millions more, with extended periods of no food. And for the past decade, theyve been at it again, big time, only without the mass deathsso far. But the riots are coming fast and furious. In rural areas, a major cause of unrest is the illegal seizure of farm land. A recent report from the Chinese Academy of Social Sciences states that 60% of farmers in 1564 surveyed villages in 17 provinces and autonomous regions said that their land has been confiscated: Illegal land confiscation has become the biggest threat to Chinese farmers land rights, and conflicts related to land have become a threat to the stability of Chinas rural society. Another report noted that since the 2005 push to build a new socialist countryside about two million farmers per year have been were forcibly dispossessed of their lands by local governments and herded into apartments to free up their land to be used as collateral for state owned bank loans or sold to developers. To add insult to injury, a system known as hukou denies these rural newcomers to the cities the same social benefits as urbanites. This has created immediate and deep class conflicts. Another cause of unrest is the favoritism, whether it is the hukou system or preference shown to State owned firms. Even though those firms waste money and show no profit, they are paid the much more than private profitable firms for doing the same thing. Whats more, regular workers share of the economic pie shrank from 61% in 1990 to 53% in 2007. Rising expectations of the emerging middle class are also a problem. Chinas new middle class reject traditional Chinese way of life. Their new way of life is base upon wealth and individual expression, not tradition. Traditional marriage markets where parent arranged weddings for their children are going away. Modern dating and online dating are now the norm for this group. TV dating shows are also very popular, with emphasis on wealth. Will these young Chinese yuppies be willing to cede their way of life when things go south? This important because although the middle class has no political freedom, it pays more in taxes. When times worsen, it will be asked to pay even more. The middle class will surely be demanding greater say in what happens in their lives. The problem they will face is that the Communist Party will not give it to them. Or then again, maybe it will.

Rural and Urban Problems

The Great Fall Of China

An Absolute Wealth Report

11

How high are social tensions in China right now?

Exploding Civil Unrest

Public demonstrations against the government in China number in the tens of thousands every year, with tens of thousands actively protesting. And the frequency and size of these anti-government riots are increasing. As Chinas economy crashes, more and even larger levels of civil unrest will follow. Rising food prices and shortages will be another major source of this unrest. When the crash comes, mass food shortages will be everywhere. Food prices will soar, and there will not be enough. The crash will set different parts of the economy at each others throats. It will pit the private, entrepreneurial, middle class against state-owned enterprises; urban-against-rural populations, poor against middle class populations, and possibly even different branches of the communist government against one another. And just how will the Communist Party react?

Of course, the Chinese are aware of its growing civil unrest. In response, internal security budgets have grown and China has reinstituted the Mao-ist practice of neighbors spying on neighbors to root out trouble makers. Even today, large numbers of people in China regularly disappear. The Chinese government is wary of the political expression of the Arab Spring and the austerity riots in Greece. Mass protests against bad government seem to be quite the political fashion these days; and the Chinese authorities are worried. Or if theyre not, they should be. Certainly they are determined not to lose control like the Arab leaders have. However, as the Chinese economy crashes hard, there will be a crisis of mass civil unrest. As crises after another hit China the riots will get a lot worse and very quickly. The Chinese government will respond to the above just as they did during the Great Leap Forward, The Cultural Revolution, or for that matter, the Tiananmen Square Student Massacre of 1989. The bloodshed will be horrific. The starvation toll will be in the tens of millions because just as it has in the past, China will use food as a political weapon and starve to death its opponents.

Crackdowns, Imprisonments, and Executions

The Great Fall Of China

An Absolute Wealth Report

12

If you know history, you know that repression, scarcity, and starvation have been recurrent themes in China, as well as other Communist societies, like the USSR, North Korea, and even Cuba. It is not a question of when the crackdown will come, but when and how brutal. However, China might find that crushing domestic rebellion may prove more difficult today than in the past. Like the old Soviet Union in its Glasnost period, (when Soviet Russia allowed a little more openness and Western ideas in its society, only to see its empire disintegrate) the Chinese may soon find that the forces tearing it apart are greater than the forces they can muster to keep the country together. Also, China may also have to ask the rest of the world to help it make it through the dark days to come. The Slaughter and starvation of tens of millions of its people to maintain political control will bring a level chaos and calamity to China that hasnt been seen since the Cultural Revolution, or worse, and might make Chinas requests for assistance in the midst of such terror a very hard sell indeed.

As if the foregoing werent enough, theres more. Even as you read this, Chinas leadership is pushing the country into another Great Famine. Sadly, the Communist Party in China has a history of making mistakes on a huge scale in China that end up starving tens of millions to death. The Great Leap forward in the 1950s was meant to grow Chinas industry. It resulted in 500,000 political executions with as many as 40 million people starving to death by 1961. Another brilliant Communists Party government scheme, The Cultural Revolution of the 1960s, led to another 30 million deaths from starvation and executions and millions more imprisoned. China has a horrific history in this area, but you have to admit, when the Party chooses a policy for China, it goes all the way. Can you imagine what would have happened to foreign companies, foreign owned capital in China during those times? Well, those times are returning to China. The Beijing Model will bring about a Mega-Famine in China. How will this come about? It will happen because China is systematically destroying its ability to grow crops by its policies of mass urbanization, removing millions of productive farmers from their fields, and selling the fields off for quick profit to developers. (See the prior sections of this report)

Widespread Famine

The Great Fall Of China

An Absolute Wealth Report

13

In fact, a recent article in The Economist magazine reports that Chinas agricultural efforts are (already) insufficient and rural development of power plants, dams and factories have wiped out millions of hectares of arable land. Wheat, rice and corn imports are growing dramatically. Domestic food production cannot meet demand. And, as recent history shows, great famines in China are not new. Nor are they rare. They are repeatedly caused, or made much worse, by command economies like Chinas and the old Soviet Union, that disrupt the natural productive energies of human beings and force them to toil in slave-like, inefficient communes or hell-hole factories, overproducing shoddy products in order to meet an arbitrary industrial goals. They occur because Chinas efforts toward rapid industrialization inevitably results is massive shifts in labor and land usage, not according to natural needs of sustenance, but according to arbitrary production matrixes and political corruption. Mass hunger and suffering has resulted from Chinas earlier attempts, this time will be the same, only worse. The Beijing Model will prove to be an even more horrible and tragic waste of human potential in the near future than is has been up to now. China has made this same mistake again and again; and now today, again. As noted in above in this report, China relocated of millions of farmers and sold productive farmland to developers to build cities that no one will live in! You may recall that thousands of years ago, the Romans defeated the Carthaginians, and then, to make sure that they stayed defeated, poured salt onto the Carthaginians fields so they could not feed themselves. It proved to be the end of the Carthaginians. Thousands of years later, the Chinese are doing the same to themselves. What will also make the next famine so terrible is not just millions of hectares of farmland have been destroyed by the greed of short term developers and speculators, but that in the process of its massive economic growth and industrialization, China has poisoned the countryside and its fresh water sources with pollution levels not seen in the history of mankind.

Like all command economies, China is really not too concerned with controlling pollution levels. The main concern is building more factories, dams and power plants. The cost to the environment, and by extension to the Chinese people, is apparently not important to the Chinese government. But the impact on the nations ability to grow food has, like the rest of the economy, has become dangerously warped and headed for disaster.

Death By Pollution

The Great Fall Of China

An Absolute Wealth Report

14

Judging by what is happening, there are no real legal or government constraints on what is dumped in Chinas streams, rivers, lakes and oceans. The truth about Chinas water pollution is staggering: About one third of the industrial waste water and more than 90 percent of household sewage in China is released into rivers and lakes without being treated. Nearly 80 percent of Chinas cities (278 of them) have no sewage treatment facilities and few have plans to build any. Underground water supplies in 90 percent of the cities are contaminated. About 11.7 million pounds of organic pollutants are emitted into Chinese waters every day, compared to 5.5 in the United States, 3.4 in Japan, 2.3 in Germany, 3.2 in India, and 0.6 in South Africa. Water consumed by people in China contains dangerous levels of arsenic, fluorine and sulfates. An estimated 980 million of Chinas 1.3 billion people drink water every day that is partly polluted. More than 600 million Chinese drink water contaminated with human or animal wastes and 20 million people drink well water contaminated with high levels of radiation. A large amount of arsenic-tainted water has been discovered. Chinas high rates of liver, stomach and esophageal cancer have been linked to water pollution. About 260 million Chinese are threatened by seriously polluted water. Eight of 10 Chinese coastal cities discharge excessive amounts of sewage and pollutants into the sea, often near coastal resorts and sea farming areas. Sea life has disappeared from wide areas of Chinas coasts. Half of Chinas population lacks safe drinking water. Nearly two thirds of Chinas rural populationmore than 500 million peopleuse water contaminated by human and industrial waste. Water pollution and shortages are a more serious problem in northern China than southern China. The percentage of water considered unfit for human consumption is 45 percent in northern China, compared to 10 percent in southern China. As a result, water shortages and water pollution in China are so bad that the World Bank warns of catastrophic consequences for future generations. The World Bank is dead wrong! There will be catastrophic consequences for this generation of Chinese. Air pollution, too, is a major problem for Chinas people. A report by the New York Times in 2007 said:

The Great Fall Of China

An Absolute Wealth Report

15

Environmental degradation is now so severe, with such stark domestic and international repercussions, that pollution poses not only a major long-term burden on the Chinese public but also an acute political challenge to the ruling Communist Party. In fact, the Chinese Ministry of Health admitted that industrial pollution has made cancer Chinas leading cause of death. Ambient air pollution alone is known to cause the deaths of hundreds of thousands every year. The air quality in Beijing itself is known to be foul, severe, and a health risk Even with all the environmental concerns and information available, China is polluting its country at an amazing rate with devastating levels of toxicity. An estimated 750,000 people die each year in China as a direct result of the pollution levels. The Chinese government suppresses such information from the people for fear of civil unrest. Chinas poisoning of its water, air, and countryside will magnify the intensity and duration of the coming Great Famine by geometric proportions.

Given that China will face very dire circumstances in the near future, it will inevitably feel compelled to play the war card. Civil war will be first. As explained above, China has shown through its Great Leaps and Cultural Revolutions that it knows how to make war on its own people with a rare level of gusto. But once that bit of housekeeping has been accomplishedif it has beenChina will still need to restock the pantry since it has already destroyed or poisoned a large percent of its own food production capacity. But it will not only be in great need of food and resources; it will also need to unify the country behind what will be left of the China flag. Its not original, but it workssometimes. The question is, With whom will China go to war? The answer is, With anyone it can, but preferably against Western interests, specifically American if possible, whom it will likely blame for all it problems. That is because the US will have defaulted on its debt by then. The first likely target? Taiwan. The US ally, a free and democratic island nation of ethnic Chinese has long been a thorn in the side of Chinas communist rulers. Although heavily armed, attacking Taiwan would scratch

War, Civil War, and Disintegration

The Great Fall Of China

An Absolute Wealth Report

16

an itch that has tormented the Communist Chinese government since its founding. It will also give it access to Taiwans food and relatively clean water. Total domination over Hong Kong and other coastal, ex-colonial economies by Beijing would be a given as well, in a naked grab of their wealth. An aggressive policy towards Japan may also be in the mix, if for no other reason than to settle scores dating back to World War II. Military adventures in the Western Pacific would not be surprising either, following the example of Japans trail of imperialism in years leading up to the Second World War. The loss of wealth, status, stability as well as the strife and famine in China will be enormously difficult to endure. Initiating wars in the region, however will only make things worse.

What is more likely than a unified China making it through these crises is a disintegration of China into smaller, regional Chinese entities. These regional nations may well be based upon language and dialect, culture, and natural boundaries. These smaller Chinas will be in harsh competition for food and resources, and may well be engaged in ongoing warfare with the Communist Party led Beijing region.

China Divided

China aims to appear like a modern capitalist country, but has no use for individual freedoms and market mechanisms that guide an economys growth and a societys development. As we can see from the Credit Crisis in the US and Europe today, when economic laws are broken too often and for too long, there are painful consequences to endure. No nation is immune from these laws. Not even China. China, like other communist governments, seeks to compete with the West, enjoy the economic success of the West, but without putting the basic necessities of a market economy, like individual liberty, private property rights, and the price mechanism to determine supply and demand. Chinas leadership is big picture oriented, but without fundamental understanding of market economies. Unlike large Western market economies that evolved organically, from agrarian to industrial societies over hundreds of years, China wants to take short cuts. Hence, today, it has achieved vast wealth in a short period of time, but it is only a caricature of a successful economic system. It is like a Beijing karaoke singer perfectly mimicking the words to A Hard Days Night, but with no comprehension of the meaning of the words.

Keeping Up Appearances

The Great Fall Of China

An Absolute Wealth Report

17

Once this fact is realized, everything else becomes clear. The Chinese promise of lasting prosperity is a fiction. China warps its economy and society for temporary gains and lies to itself, and to the world, about it. It is like the ridiculous numbers the old USSR used to put out about their own GDP, defense budgets, capabilities, and the like. That is what must be kept in mind when reviewing Chinas economic figures, or reading their latest reports. They all are overly optimistic because their reports are created by colluding cadres in the banking and corporate sectors each protecting the other. For instance, China reports a hefty rise in car sales. But what dont we see? Correlative changes in gasoline consumption. China reports its annual concrete production. What dont we see? Correlative consumption of concrete. Chinas reported concrete production was three times above the worlds annual demand. Why would China do this and what does this mean? The why is simple: China wants to conceal its great weaknesses from the outside world. It is more dependent upon exports and foreign investment than it wants the world to know. It means that China truly feels great weakness with respect to large, foreign economies. The reality is that Chinas domestic consumption is much less than reported. This weakness drives to China gorge itself on military hardware, saber rattle its neighbors, and grow more brazen in its adversarial trading practices.

Chinas leadership will change in 2012. They do not plan to undertake any new policies until that happens. They hope that no hard decisions will have to be made until that time either. Doubtless the current leadership hopes things will hang together until they can get the hell out and let the younger generation take over. But they may not have that luxury. Political transition to the younger generation, too, is risky. Younger leaders are often less conservative than their elders. They often look to make their mark and are untested and unaccustomed to the harshness of conflict between, or within, nations, but showing their weakness is their greatest. These factors often lead to even more aggressive and ill-advised policies at home and abroad. As this point it is all speculation; but time will soon tell.

Political Change

The Great Fall Of China

An Absolute Wealth Report

18

It is my belief that China will experience the many crises outlined above. It will result in China becoming much less connected to the West in general and to the US in particular. The most powerful point in this report is that the crises outlined are not new; they have already occurred in China in one form or another, at least twice in the past fifty years. The common thread is Chinas government and its behavioral patterns of political paranoia, social and economic disruption, and enormously destructive industrialization policies. As a result, these crises, hundreds of billions of dollars of wealth will be wiped out quite rapidly both in China and in the US, as well as around the world. It is ironic, or maybe not so much, that the Eastern philosophies of Zen and Taoism provide a clear way to assess China. The concept of seeing what isnt there helps us to understand the nature of what is there. What we dont see, what China tries to hide, helps us to better assess what we do see, or what the next paranoid would-be superpower, allows us to see. Perhaps China will see what it desperately needs to see, and change its path. It need only look to its own greatest thinkers. Liberalism has roots deep in Chinese philosophy; it is a shame, however that the Communist Party has convinced too many Chinese that it is a foreign idea. But its not. Individual freedom and limited government are unmistakably Chinese as well. It was Huang Zongxi, the father of Chinese enlightenment, who said, Is it that heaven and earth with all their magnitude are destined only in favor of one person or one family among all the people? And it was Laozi, founder of Taoism, who observed, Rule a great country the way you fry a small fish. That is, dont stir too much. It is also great shame that so many admire todays China that has gained much, and yet will soon lose so much, at such terrible costs. True, lasting wealth of China will come about only when its people are free. Lasting wealth and well being will not be had from the Beijing Model or from Chinas Communist leadership. Sadly, its admirers like Wei-Wei Zhang of Fudan University in Shanghai, smugly predict that the Beijing Model will replace the Wests liberal democratic capitalist model: China had the capacity to learn from the West, but the West does not have the capacity to learn. We need new thinking, and China can humbly offer some wisdom. But it is apparent that China has actually learned very little from the West, or about market economies. It has broken basic economic rules because the Chinese leadership only understands appearances, not market economics.

Conclusion

The Great Fall Of China

An Absolute Wealth Report

19

It may prove wise for Professor Zhang to learn just a little bit more from the West; perhaps a verse from the scriptures? The one that warns that, pride goeth before a fall would be a good start Because that is whats happening to China. And those areThe Gorrie Details. JRG

The Great Fall Of China

Published by: AW Research Publishing LLC 4330 Gaines Ranch Loop Suite 120 Austin, Tx 78735 Website: http://www.AbsoluteWealth.com E-Mail: Visit us on the web at support@absolutewealth.com