US and European corporations are staking a lot of hope for the future on China. Both as a manufacturing resource and as an emerging market. What I do not know is how much faith to have in the future of China.
China is still an authoritarian communist country. All of this economic activity is happening with the permission of the government. The economic growth and developing consumerism can only result in pressure for more change and more freedom. How will the government of China respond to this pressure? Will they allow freedom and the market economy to spread or will they try to keep it controlled and limited?
And how will the chinese people respond?
As I see it, there are only two paths. On one the market economy continues to grow and freedom continues to spread until the communist government becomes no longer viable. Here the path branches and either there is reform and communist China crumbles and fades away in much the same way the Soviet Union came to an end; or the government cracks down to stop and and contract freedom. The results could well be Tiennamen times 1,000.
Down the other path the government continues to limit the spread or even contract freedom and the market economy in an effort to preserve its own power. On the first branch of this path, and I think the least likely outcome, the Chinese people accept this and we continue on much the way we are today. On the other branch of this path the people rise up against the government and there is chaos violence and Tiennamen times 1,000.
Given these scenarios, how safe are these company’s investments? What becomes of manufacturing facilities and retail outlets built by American and European corporations when China explodes?