Before I start, please know that I am not an expert (or even esxtremely well versed) on China.  I have been fascinated by the complex machinations of China’s central government that has appeared to build a great nation from a myriad of peoples.  Take the following, once again, as one man’s opinion.  It is quite simplistic but I think it represents a theory that will prove true in the next decade.  I would love to have someone who is well versed on China help set me straight (like Ronnie did on my capital gains example) if this is not as logical as I think it is.

In the late 80s, the Soviet Union started to fall apart.  In 1991 it became official.   It was a combination of things, of course.  Among the most significant was that a socialist (communist) economy was trying to compete with a capitalist economy. Trying to keep up with our space programs, our military, and our education system put them in a tailspin. Their  bureaucracies grew until they collapsed of their own weight.   

The reason for the fall of the Soviet Union, that people talk about less, is to me significant and telling of the current situation in China.  Moscow lost control of the ethnic states that had nothing in common with lands and people thousands of miles away.  They had great value to Russia for their natural resources but their people and cultures were never a willing part of the Soviet scheme.

Fast forward to China today.  There are too many differences between China today and the USSR in the late 80s to make the entire Soviet experience a good metaphor for China today.  There are a few things, though, that we need to watch from which the Soviet experience will inform us.

China has many nations/cultures/people living under one central government.  As long as standards of living continue to rise and people have reasonable employment, the central government keeps its tenuous hold on the outlying regions.  Once the central government has to pull in its horns and can’t ensure that everyone is employed, problems arise.

The huge construction projects that transformed Beijing into a marvelous Olympics Venue depended upon literally millions of construction workers.  The vast majority of these were from rural areas.  The rural citizens are by law second class citizens in China, but for these major projects, they were living and working beside Urban citizens who were paid more and got vastly superior conditions of employment.  Now that there are fewer of those construction jobs, the migrant workers are going home.  They are taking with them stories of how they were used (and often not paid) by the Central Government.  Many are also returning to unemployment where they have time to sit, and think, and spread their discontent.

The current world financial crisis is rapidly looking like it will soon be an economic crisis.  The first thing to go will be consumer spending.  This will translate to huge job losses in China where a significant portion of the world’s consumer products are manufactured.  I’m guessing that a 1% increase in China’s unemployment (1 to 2 million people) will be all it will take to start the fires burning.  This could be a rapidly unfolding tale.