China and Cuba

From TFP:

China suffers from the massive and unavoidable problem of being an export dependent economy that has suppressed domestic consumption in order to amass capital. Doing so creates a considerable imbalance in an economy the size of China’s rendering this economic model inherently unstable. Thus, in order to continue growth, China must produce more than it consumes and someone else must consume more than they produce, creating significant trade deficits. The current U.S. import/export ratio with China is almost 4:1 and 2013 ended with net balance of $-318.7 billion.^[1]

Investors became enamored with China in the last few decades supported by stunning emerging market growth figures, and few wished to see that these numbers were impossible to sustain without the development of a healthy internal consumer market.

As external demand for Chinese products decrease, there became a need to increase internal purchasing to offset available production capabilities, without which an economy naturally plummets. To offset this lack of external demand, China has created false internal demands through building massive amounts of infrastructure such as housing, “ghost cities,” replica European cities, factories, bridges and highways—that nobody can purchase or use.

With the collapse of the Soviet Union in 1991, Cuba lost more than 75 percent of its foreign trade and worsened its economic crisis. To remedy this situation, Castro naturally looked to China as a comrade less ill than itself. Realizing the opportunity to capitalize upon Cuba’s Chinese, Castro set about to regenerate Havana’s Chinatown by granting the Chinese special privileges allowing them to run small businesses. Unfortunately for Castro, visiting Chinese officials saw Havana’s Chinatown first hand, much like it has been for the last sixty years; mired in abject misery. (Read more.)

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