Thread: China Growing

Global financial crisis will hurt China much more than the US | CNReviews

China is supported by a three-legged stool, but two legs are now broken

China’s economic growth is supported by three primary legs:

export-led growth
real property growth
government spending
The first leg is clearly broken. US and European consumers can no longer consume at the debt-supported levels they have at the past. The second leg is also broken, in part because of the first. Rising unemployment, declining Chinese consumer confidence, and significant price declines in real property have slowed sales. So what is left is government spending. Government plays a more significant role in the Chinese economy than Western economies, but can increased government spending make up for the other legs of the stool?

The consensus among economists is “no.” And even more worrying, is the belief that Chinese government policy response could make the global financial crisis worse.

Leave it to OD to spew the company line from mainstream economists...

China's fundamentals are fairly strong. Their savings rate is through the roof, their yuan is still undervalued, and their personal consumption is way less than in the West. As long as the communist government doesn't do something stupid, they will continue to see over 5% growth for another generation.

"Company line" claimed no one could have foreseen the economic turbulence, this article quotes economists that predicted the meltdown of the financial markets while the mainstream outlets were still pretending everything was fine.

Sorry Cmind, but Communism/Corporatism just doesn't work and someday you'll have to accept that.

Nouriel Roubini, the NYU economics professor that predicted many elements of this global meltdown, writes (at RGEMonitor, reprinted with commentary at JapanFocus) that there is strong evidence that China is facing a hard landing. Roubini points out that a hard landing actually still means a 5-6% growth rate. 9-10% growth is needed to absorb 24 mm new entrants into the labor market, including 12-14 mm poor rural farmers. A 5-6% growth rate means a significant risk to social stability and continued political control, so its clear that Chinese leaders are in a tough place.

Note that China is an economy is structurally dependent on exports: net exports (or the trade balance surplus) are close to 12% of GDP (up from 2% earlier in the decade) and exports represent about 40% of GDP. Real investment in China is about 45% of GDP and, leaving aside the part of this investment that is housing and infrastructure spending, about half of this capex spending goes towards the production of new capital goods that produces more exportable goods. So, with the sum of exports and investment representing about 80% of GDP, most of Chinese aggregate demand depends on its ability to sustain an export based economic growth.

China’s growth to date has been phenomenal, but it was based on exports and investment, at the expense of consumption. China almost aimed to be a supersized South Korea: in 2005, capital investment made up more than half of China’s gross domestic product. The capital-intensity of its growth also meant profits grew strongly as a share of GDP. But employment growth has slowed since the 1980s, so workers have gained small benefit.

Undervalued RMB and a lack of domestic safety net have caused Chinese households and companies to save. This “Supersized Korea” inadvertently created a “savings glut” which poured Asian savings into Western countries, flooding the markets with cheap capital.

…it also turned out that China never really carried through on its 2004 and 2005 and 2006 and even 2007 rhetoric that it planned to rebalance its economy.

Back in 2004 China’s leaders generally got the benefit of the doubt…most observers expected that China’s leaders would be able to deliver when they announced their plan to shift the basis of China’s growth away from exports and investment. Chinese policy makers generally had a pretty good track record of doing what they said they would do.

But four years after China indicated that it wanted to rebalance its economy, its economy looks more unbalanced than ever – its current account surplus is far far larger than in 2004, and investment accounts for a higher share of GDP than in 2004…

The underlying problem we are faced with is a global shortfall in demand. Because China did not allow its currency to appreciate when times were good, and did not stimulate domestic consumption, China can only help soak up their own production overcapacity through government spending.

The key to social stability is adequate employment growth. That growth either has to be fueled by maintaining exports, or increasing domestic consumption. But there are important reasons why domestic consumption won’t increase. For one, the lack of safety nets in health and elder care cause Chinese households to save in order to self-insure their risks for illness or health care emergencies.

The “super-sized Korea” response would be to stimulate exports, depreciate the RMB, and try to get the export machine humming again. But China is simply too big to play this game.

Most people are comparing the United States of today to the United States of the 1930s. But Pettis argues that this is not the right analogy. The correct analogy is between the US of the 1930s and China of today. In both cases, each country was the source of massive productive overcapacity, and export-led growth. In both cases, domestic consumption was not sufficient to soak up domestic production. And in the case of Smoot-Hawley, US policy makers responded with protectionism because European demand for US goods crashed by 70% in 3 years. And ultimately, the US bore the brunt of the pain.

Here’s my conclusions:

China’s equity markets could fall further. Many listed companies are dependent on real property or export markets.
China’s property markets could fall further. Not only are private individuals freezing up, but the government is also making significant investments in public housing. That might have some effect on price levels for private housing. To early to buy.
RMB will neither appreciate or depreciate. It will likely hold the dollar peg at the current level, for quite some time.
China’s labor markets will get more attractive to employers, but less attractive for employees and job seekers. There will be a large number of unemployed new graduates. There is risk of social unrest.
Freedom of speech and media will likely be curtailed further in the future as the risk of social unrest increases.

China has mate in under 40 years if they don't fuck up big. Thought caucasians were gonna rule the world? Sorry, it's the Han. I predict that in 500 years, every other race will be a footnote in history and the Chinese will have colonized the solar system. That's only moderately assuming that they do have massive oil reserves in the Gobi that they aren't going to tap until after the rest of the world has already run through all of their reserves. Fucking Taoists. Always letting other people do their work for them.

I don't necessarily know if that's true. Cuba and North Korea faced very similar crises and Cuba managed just find while North Korea suffered mass starvation because North Korea handled everything with one centralized system while Cuba decentralized into self-sufficient communities. I do not believe more centralized power makes a society more powerful.

I'm not saying that centralized power makes a society more powerful. I don't believe it does. I believe that the Chinese are just centralized enough and that they are moving away from centralization in just the same way that the Cubans did. Note their friendliness towards US style capitalism when it brings money into their economy.

They key point is to make sure that intelligent people remain in charge rather than turning the whole thing over to democracy where almost any idiot's opinion matters. This is the essence of Taoism and the essence of Chinese policy. There's no need to give the people more freedom than they're willing to demand and no reason to give them any less either. Keep control while letting the people feel that they're making progress.

The best way to control a cow is to give it as big a pasture as it wants. That way, you know it stays inside it.

I also don't necessarily know if that's true. They've got suicide nets in their corporations, you can get a 12 year prison sentence for conspiring to form a union, everywhere they flood with Han Refugees ends up forming a non-Han insurgency. While only time will tell exactly how effective their government strategy is they don't seem to be giving people the freedom they demand, they seem to be scaring them and intimidating the people while using Nationalist propaganda to retain support of the regime.

You should realise that the Chinese have built an entire city that can support 1 million people just to raise their GDP. I think about a thousand people are living there at the moment.
I suspect there's a lot of things like this going on which are simply done to keep their GDP going. And I believe it actually declined last year?

Ghost towns of China: Satellite images show cities lying completely deserted | Mail Online

And I think the newest one isn't even on that list.