11 thoughts on “The Economics of China, and More”

1. PeakTrader January 28, 2015 at 5:22 am

   Basically, the China model is a totalitarian state exploiting the masses and the environment.

   The communist elites give the masses enough to keep them working and prevent a rebellion.

   Sorry, China, There Is No Short Cut To Economic Greatness
   Jan. 26, 2010

   “This is a government that will go to great length to maintain appearances to keep its ideology going. After all, it censors what its citizens may or may not read and imprisons the ones that write anti-government articles.

   China will do anything to grow its economy, as the alternatives will lead to political unrest…Since China lacks the social safety net of the developed world, unemployed people are not just inconvenienced by the loss of their jobs, they starve (this explains the high savings rate in China) and hungry people don’t complain, they riot.

   The Chinese government controls the banks, thus it can make them lend, and it can force state-owned enterprises (a third of the economy) to borrow and to spend. Also, since the rule of law and human and property rights are nascent in its economic and political system, China can spend infrastructure project money very fast – if a school is in the way of a road the government wants to build, it becomes a casualty for the greater good.

   China has spent a tremendous amount of money on infrastructure over last decade and there are definitely long-term benefits to having better highways, fast railroads, more hospitals, etc. But government is horrible at allocating large amounts of capital, especially at the speed it was done in China. Political decisions (driven by the goal of full employment) are often uneconomical, and corruption and cronyism result in projects that destroy value.

   The inefficiencies are also evident in industrial overcapacity. According to Pivot Capital, Chinese excess capacity in cement is greater than the combined consumption by the US, Japan, and India combined. Also, Chinese idle production of steel is greater than the production capacity of Japan and South Korea combined. Similarly disturbing statistics are true for many other industrial commodities.

   …late-stage-growth obesity, inefficiencies that are a byproduct of high growth rates sustained for a long period of time. Though Chinese growth in the past was high, in its late stages the quality of growth has been low.”
2. dilbert dogbert January 28, 2015 at 7:53 am

   Isn’t the Chinese communist party just a reincarnation of the Mandarinate??
   1. PeakTrader January 28, 2015 at 9:47 am

      Rulers have a lot in common.
   2. tom January 28, 2015 at 2:23 pm

      And to some extent even inheritance, especially the upper middle bureaucratic-business class.
3. BC January 28, 2015 at 8:54 am

   China’s actual real GDP growth per capita is probably closer to 2-3% heading for a 10-year trend rate of 1% or less by the early to mid-2020s.

   Overpopulation, water shortages, desertification, loss of arable land, deforestation, erosion, and water and air pollution worse in scale than in the US and UK during the First and Second Industrial Revolutions will have prohibitive long-term costs to the further growth of industrialization.

   As occurred in Japan after 1998 and the US since 2007-08, China’s peak demographic drag effects are now taking hold and will increase in intensity into the mid-2020s.

   China has created the largest credit and fixed investment bubble as a share of GDP in all of world history, with the possible exceptions of the Egyptian pyramids and China’s Great Wall. 🙂 All bubbles burst. The largest bubbles burst spectacularly.

   Historically, every 60 years or so (during Long Wave Troughs, as we are experiencing today) since the late 18th century (White Lotus Rebellion, Opium Wars, Boxer Rebellion, and Mao’s revolution), China has opened up to the West and then experienced economic crises leading to social unrest and eventual gov’t reaction and turning inward from the rest of the world. China is due another mass-social crisis, gov’t reaction, and turning inward to deal with the domestic instability. I expect the emerging generation of PLA generals to exert more economic and political power in Beijing as economic conditions weaken and turn to crisis in China.

   The rest of Asia, including the Asian city-states of Singapore, Hong Kong, and Taiwan, will experience the negative effects of the fallout from China in crisis in the years ahead.

   China is a four-letter word (and has been for years now): SELL.
4. PeakTrader January 28, 2015 at 9:15 am

   China’s masses will retire very poorly, in part, because of its immigration and one-child policies.

   The masses work very hard for very little.

   “Infrastructure and real estate projects are where you get your biggest bang for the buck if your goal is to maintain employment, since they require a lot of unskilled labor; and this is where in the past a lot of Chinese money was spent…in 2009, new floor space constructed was up 100% and residential real estate prices surged 25%….they keep building skyscrapers even though the adjacent ones are still vacant…built the largest shopping mall in the world, the South China Mall, that is 99% vacant, years after construction….built a whole city, Ordos, in Inner Mongolia, on spec for million residents who never appeared.”

   Myth of China’s Manufacturing Prowess
   March 10, 2010

   “People often compare China’s urbanization to Western industrialization in the 19th century. In both cases, a large population moved from the country to the city. Society advanced from agricultural to industrial via manufacturing on a massive scale.

   In the United States and Europe, the manufacturing industry was created due to technology innovation. For example, railways came into existence because of the invention of the steam engine, and automobiles were created because of technology breakthroughs in automobile engines.

   In China, the manufacturing industry is being created in response to global demand. Chinese manufacturers take orders from Western companies that have designed products for their home markets. They have no involvement with product development, innovation, market research, and even packaging.

   James Fallows (an economist) visited many factories in China. He saw people working on the assembly lines and was convinced those tasks would only be performed by machines in the United States.

   In 2008, U.S. manufacturing output was $1.8 trillion, compared to $1.4 trillion in China….the United States is producing goods with higher value, such as airplanes and medical equipment.

   In addition, most jobs the United States lost to China are low-skilled jobs. By outsourcing those low-skilled jobs to China, Americans have actually become more competitive in high-skilled jobs such as management, innovation, and marketing.”
5. Ricardo January 28, 2015 at 11:20 am

   RMB Joins Top-Five Currencies
6. Ricardo January 28, 2015 at 11:32 am

   LInk to above
7. BC January 28, 2015 at 6:44 pm

   Ricardo, the RMB is still de facto pegged to the US$ via FDI, intra-Asian trade and capital flows, and offshore hot money flows via the back door in Singapore and Hong Kong. China’s share of total int’l flows and transactions as a share of total trade and GDP outside US and Japanese FDI is trivial to insignificant. In fact, once the hot money and back door money completes escaping the Middle Kingdom, the RMB will likely revert to its historical position as a strictly Chinese medium of exchange.

   http://www.theguardian.com/world/2015/jan/28/beijing-smog-unliveable-mayor-wang-anshun-china

   Apart from the Alberta tar sands toxic waste dump and resulting lunar-like landscape and the Godzilla-like Fukushima tragedy, a growing share of China has become an unlivable, ecological dystopia.
8. Ricardo January 29, 2015 at 6:56 am

   BC,

   I realize that use of the RMB is small compared to the dollar and I also know that, contrary to the desires of the US monetary manipulators, the Chinese dropped the peg but have managed to dollar parity to prevent the US from gaining any monetary windfall. But I also know that China just passed the Canadian and, more important, the Australian dollar.

   The Chinese are still working through diplomatic channels for currency unity in Asia. If the FED returns to the Bernnake policy mix Asia will very likely abandon the use of the dollar.

   While the RMB is only about 3% of the transactions remember that US foreign trade is about 7%. But just consider what an impact that 7% has on the US economy. The RMB is moving toward more acceptance while the dollar is sliding (though not as fast since EQ ended).
   1. BC January 29, 2015 at 11:11 am

      China’s financial system cannot withstand the hot money flows that would come with broader use or convertibility of RMB.

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