If they were Americans, you'd say they suffered from math brain. But they're not -- they're Chinese. So allow me to coin the term "abacus brain" so we might understand China's situation.
What is abacus brain? Consider the poultry farmers in China's Hebei province. Until last year, they sold duck eggs at a premium because the yolks had a reddish tint, a trait prized by consumers. To create that reddish tint, the farmers mixed red food dye with the ducks' feed. The particular red dye is a human carcinogen.
If you think with an abacus brain, you consider ways to increase egg sales but ignore the impact of feeding your customers cancer-causing food. The reliable abacus can calculate the difference in profit between selling normal and dyed yolks. On the other hand, no amount of abacus calculations could predict when the customer base would die from eating food-borne carcinogens.
Abacus brain, or solving for X while ignoring Y, is prevalent in China.
To calculate China's future energy needs, the government has concluded that 50 new coal-fired power plants will have to be built every year for the next few years -- that's one per week during the present five-year plan.
Some major cities already suffer from terrible air pollution. The smog is so bad that local citizens have developed a new way to measure it -- the building index. If one looks down the street and counts 10 buildings, the building index is 10. On a clearer day, the index might be 20, and so forth.
China's government has projected the country's future electric needs without any thought given to breathable air. In fact, China's air pollution has become one of its leading exports. From Los Angeles to Seattle, the west coast now receives a windblown blanket of smog and soot from the Orient.
Americans do worry that China will become the world's major economic power in this century. And when it comes to pets, Americans are petrified that China will poison their precious flea hosts. However, unless and until China learns how to run its banking system, these worries are premature.
China has approached banking as if banking is a math equation waiting to be balanced. Banking is a system, and as a system it has no relation to mathematics.
Banking is another word for trust. Yes, banks balance accounts daily, but that is a chore, a chore analogous to restaurants cleaning dishware and refilling salt shakers.
Your checking account is known in banking parlance as a demand deposit because you can demand every penny of it at any time. In China, checks haven't caught on. The typical Chinese worker is paid in cash. Businesses haven't taken to accepting checks for payment either. Debit and credit cards are seldom used and remain novelties.
In China, the government runs the banking system. The Chinese people know that their government leaders think with abacus in hand. Thus, if too many customers demand their money on a given day, the government will simply declare a bank holiday.
China also maintains tight restrictions on foreign currency transactions. Again, inflows and outflows are viewed as an equation to be balanced rather than as a measure of global trust in China's economy.
As long as the Chinese people allow Communist party hacks to run the banks, then China will remain what it is now -- a nation on the cusp of financial collapse. Yet for China to change its ways, there is the irony that a complete financial collapse may have to happen. Something drastic will have to occur to cause one billion people to rise up against their suffocating masters. Protests on the scale of Tiananmen Square just won't do.
At present, China is publicly responding to complaints about tainted foods and pharmaceuticals, as well as its lethal air pollution, corrupt banks and restrictive foreign currency policies. But it is too soon to tell whether the government's response is genuine or just another exercise in face-saving legerdemain for which the Chinese are famous.
China can have a modern banking system any time it wants. But to do so, the Chinese must learn that "No MSG!" means more than just no MSG.