The main difference between China and the West and why it does matter to you

Posted: March 14, 2014 in Uncategorized
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The difference lays on the difference on the Social Contract between the State and the Citizen in China and in the West.

The Theory of Social Contract in modern time has been attributed to the Political Philosopher Locke (UK, AD 1689), but in reality the ground of this theory has been formed by Plato, The Republic Book 2.

The idea is that the individual is prepared to give up his brutish and egoistic nature to a superior power, in exchange of “protection”.

In the West this “protection” is, in essence, having (or believing to have) freedom and democracy.

In China this “protection” is, in essence, having a guaranteed full employment (stated by the Government at 4.6%)

If this contract is broken most probably a revolution will ensue.

This is important for the market because in China the political class will accept the pain of tackle the Shadow Lending unless it threatens directly the employment level. At that point they will intervene (as they can due to the massive cash reserve).

But not before as the shadow lending is actually threatening the normal industry and so the employment level.

As you see they are between an rock  and  a hard place.

So they have to do it. Hopefully they can manage it.

Again, as I said before, this is one of the consequences of the unwinding of the  2008 GFC special measures (China has a massive stimulus in 2008)


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