Chinese Road Rage

by Dan Denning

There’s no problem that cannot be turned into an opportunity. But that doesn’t mean you should ignore problems. Quite the opposite.

But the only way you can profit from opportunities is to know as much about the risks as you can. It’s ironic that at the moment of their apparent economic triumph, China’s Communists could be blindsided by the unintended consequences of globalization. But when you unleash the powerful human desire to be rich, the desire to be free is not far behind.

But let me put it to your more simply: China’s Communist government will collapse within 10 years.

This will be more than a little politically disruptive. And it could, briefly, rock the world’s financial and commodity markets. But the long-term bullish economic picture won’t change. Asia is the greatest investment story of your lifetime. But the short-term political picture surely will change. And soon.

Sound far-fetched? Wishful thinking? Think again…

“Thousands of people went on a rampage, smashing police cars, hurling rocks at paramilitary officers and attacking a police station in a disturbance that lasted several hours,” Times of London reporter Oliver August wrote from Beijing yesterday.

“The incident, in Chizhou, Anhui province, was apparently triggered by a minor road accident, which prompted a brawl that quickly became a riot involving up to 10,000 people.”

Only in China can a random act of road rage spark a riot with 10,000 angry people. China is the Texas of the world. In China, everything is bigger, including the road rage. The government is big, too.

Yet it’s barely big enough to contain the growing frustration of the people with pollution, corruption, and the obvious gap between those who have done very well in the new China, and those who have not. “The incident reflects a growing degree of dissatisfaction and distrust with authorities in China, which has repeatedly been expressed in social unrest,” August adds.

“Recent uprisings in the former Soviet republics of Ukraine, Kyrgyzstan, and Georgia have led to further unease in Beijing. Some Chinese experts say that the protests within China are reminiscent of 1989 protest in Tiananmen Square.”

Don’t get me wrong. I’m not wishing bad things for the Chinese people. I actually walked through Tiananmen Square myself, nearly 15 years to the day after the democracy protests were crushed. I’ve written about it in The Bull Hunter. And I’ll tell you what I’ve written there: I was impressed with the energy and the optimism (and determination) of nearly everyone I met in China. They want success. And they are willing to work for it.

In The Bull Hunter, I ask whether economic success can be had without political freedom first. In 17th-century Britain, political freedom paved the way for private property, higher savings rates, investment, and Britain’s stunning global success. Must China follow the same path?

Unlike some in Harry Potter, I can’t see the future.

But as one of my friends suggested to me in the quote above from The Bull Hunter, there is an invisible tie between liberty and prosperity. You can have some of the latter without all of the former.

But it’s going to be very hard for the Communists in Beijing to manage and plan for the needs of 1.2 billion teeming new capitalists. Frankly, no government in the world would be up to the task. For the kind of problems China faces, markets always work better than governments.

For investors, that means that the real profits from China will begin after the Communists are swept aside. It will be possible, of course, to profit while the Communists are still in power. I call it “China profits without the China risk” in The Bull Hunter.

But the biggest fortunes will be made when China is democratic and free. The Chinese people will get rich (not the government). And so will investors who are ready for that moment. It may be sooner than you think.

The Daily Reckoning