China may not overtake America this century after all

Discussion in 'China' started by sorcerer, May 10, 2013.

  1. sorcerer

    sorcerer Senior Member Senior Member

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    Doubts are growing about whether China can pass the US to become the world's biggest economy this century amid warnings that the country’s 30-year miracle is nearing exhaustion.

    The world's tallest tower should have been built by now. Officials said last year that the great edifice with 220 floors would be erected in three months flat in China's inland city of Changsha by March, snatching the crown from Dubai's Burj Khalifa.

    The deadline has come and gone, yet the wasteland sits untouched. It now looks as if the fin d'époque project – using prefab blocs – may never be approved. Even China knows its limits.

    Prime minister Li Keqiang has asked the State Council to clamp down on the excesses of the regions. Not before time. A top regulator says local government finances are "out of control".

    Mr Li aims to cut China's economic growth to a safe speed limit of 7pc next year and rein in rampant investment – still a world record 49pc of GDP – before it traps the country in a boom-bust dynamic of frightening scale.

    Vested interests are conspiring to stop him, launching a counter-attack from their power-base in the $6 trillion state industries. Even so, uber-growth is surely over.


    China's catch-up spurt has a few more years to run in the Western hinterlands perhaps, but when the full story comes out we may find that nationwide growth has already fallen below 7pc.

    Mr Li complained in a US diplomatic cable released on WikiLeaks that Chinese GDP statistics are "man-made", confiding to a US diplomat that he tracked electricity use, rail cargo, and bank loans to gauge growth. For a while, analysts use electricity data as a proxy for GDP but the commissars kept a step ahead by ordering power utilities to fiddle the figures.
    :rofl:Deception...There tooo?


    The National Bureau of Statistics has since revealed that data collected by the regions overstates GDP by 10pc, though they have not acted on the insight. It is well-known why this goes on. The reward system of the Communist hierarchy has been geared to talking up growth, and officials gain kudos by lowering the stated "energy intensity" of their zone.

    China's Development Research Council (DRC) expects growth to drop to 6pc by 2020. It could be much lower. The US Conference Board says it will average 3.7pc from 2019-2025 as the ageing crisis hits. Michael Pettis from Beijing University thinks it is likely to slow to 3pc to 4pc over the next decade, deeming this entirely desirable if it comes from taming the runaway state enterprises.

    If so, China's growth may not be much higher than the new consensus estimate of 3pc for a reborn America, powered by its energy boom and the revival of the chemical, steel, glass, and paper industries.

    All those charts showing China's economy surging past the US by 2030, or 2025, or even 2017, will look very credulous. China may not surpass the US this century.

    [​IMG]
    A Nation Losing Ground

    As of last year US GDP was roughly $15.7 trillion, compared to $8 trillion for China on a nominal exchange rate basis, the measure that matters for gauging economic power.

    China's output is 75pc of US levels on a purchasing power parity (PPP) basis but even on this measure the Chinese `sorpasso' is looking less certain. Clyde Prestowitz, an arch US `declinist' who has just thrown in the towel, says China may "never" catch the US on any relevant measure. That is a stretch, but not impossible on a forecastable horizon.

    "Keep in mind the next time you are in China and find yourself choking on the foul air that the things making the air foul are counted as positives for GDP. If you adjust Chinese GDP for environmental degradation and for over-investment in things that will never be used, it falls in size by 30-50 per cent. Much of this would show up as non-performing loans in most economies but since such loans are never recognised in China, it will show up as slower growth in future years," he said.

    A new view is taking hold in elite circles that the banking crash in 2008 was a nasty shock for the US, but not a crippling blow to America's creative enterprise. US governing institutions rose to the challenge. It was however a crippling blow to Europe, and a more subtle blow to China in all kinds of ways.

    Richard Haass, president of the US Council of Foreign Relations, says the world may already be in the "second decade of another American century" without realising it.

    On almost every key measure, including the fertility rate and high science, there is no credible challenger. Core US defence spending is still greater than that of the next 10 countries combined. "The American qualitative military edge will be around for a long, long time," he said.

    Mr Haass says America has managed its dominance in such a way that it has not brought about a containment alliance against it by threatened powers, and that is no small achievement. Like Wagner's music, US diplomacy is better than it seems.

    Yes, the US faces a debt hangover, but so does China after the state banks let rip with private loans keep the boom going through the downturn. Fitch Ratings has just downgraded China's debt, warning that credit has jumped from 125pc to 200pc of GDP over the last four years, with mounting reliance on shadow banking that lets banks circumvent loan-to-deposit curbs. This is why George Soros has been warning that there could be a "run" on China's state banking system akin to the Lehman bust.

    Total credit has jumped from $9 trillion to $23 trillion in four years, an increase equal to the entire US banking system.

    America has moved in the opposite direction. Its banks now have loan-to-deposit ratio of around 0.7, and the biggest safety buffers in three decades.
    The Congressional Budget Office says US Treasury debt held by the public has jumped from 40pc to 73pc. This is the sort of damage normally seen in wars, but the US has recovered from bigger wars before, and from much higher debt levels. The CBO thinks the budget deficit will fall to 2.4pc by 2015. Growth will then whittle away the debt ratio for a few years.

    China's premier Li is fighting a battle against those in the Politburo who delude themselves that the Lehman crisis validates China's top down control. He gave his "unwavering report" last year to a joint DRC and World Bank report on the dangers of the "middle income trap".

    Dozens of states in Latin America, Asia, and the Middle East have hit an invisible ceiling over the last fifty years, languishing in the trap with per capita incomes far behind the rare "breakout" stars, Japan, Korea, and Taiwan. The trap is the norm.

    The report warned that China’s 30-year miracle is nearing exhaustion. The low-hanging fruit of state-driven industrialisation and reliance on cheap exports has already been picked. Stagnation looms unless Beijing embraces the free market and relaxes its suffocating grip over the economy. "Innovation at the technology frontier is quite different in nature from catching up technologically. It is not something that can be achieved through government planning," it said.

    Even if Mr Li succeeds in pulling off this second economic revolution – and we should salute him for trying – China's growth rate is going to slow drastically. Demography will see to that.

    The work force began to contract in absolute numbers last year, falling by 3.5 million. The International Monetary Fund says it will now go into "precipitous" decline, and much earlier than thought.

    If you are wondering why police are still seizing pregnant women in Chinese cities and delivering them to clinics for forced abortions when they cannot pay the fine for breaching the one-child policy, you are not alone.


    The IMF says the reserve army of peasants looking for work peaked at around 150m in 2010. The surplus will evaporate soon after 2020, the so-called Lewis Point. A decade later China will face a shortage of almost 140m workers. “This will have far-reaching implications for both China and the rest of the world."

    [​IMG]
    China's working age population: Source: IMF

    China's ageing crisis is tracking Japan's tale with a 20-year delay. China can expect to see the same decline in "marginal productivity" that has afflicted every other facing a rise in the old-age dependency ratio.

    The authorities can of course keep the game going if they wish with another burst of credit, but risks are rising and the potency of debt is wearing off. The extra output created by each yuan of lending has halved in four years. Mr Li knows the game is turning dangerous.

    A 2010 book by People's Army Colonel Liu Mingfu - "China Dream: Great Power Thinking and Strategic Posture in the Post-American Era" - is still selling like hot cakes in China. Yet it already has a dated feel, a throwback to peak hubris.

    China has everything to play for. With skill and a blast of freedom, it can take its rightful place at the forefront of world affairs. But nothing is foreordained.

    Source: China may not overtake America this century after all - Telegraph
     
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  3. mylegend

    mylegend Regular Member

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    Consumption in China may be much higher than official statistics suggest


    [​IMG]
    AT HONG KONG airport, a couple hold an animated discussion about whether to buy a $350 polo shirt from Hugo Boss. Their conversation, like many in luxury shops across the city, is in Mandarin, the language of mainland China, and not the local variant, Cantonese. The mainland provides a third of the airport’s visitors and many of its most avid shoppers.
    [​IMG]

    In 2012, according to estimates by Jonathan Garner and Helen Qiao of Morgan Stanley, a bank, the Chinese spent over 2.3 trillion yuan ($370 billion) on domestic tourism alone. And yet China’s GDP statistics captured only a tiny part of that spending, they argue, as well as missing spending on financial services, health care and housing. As a result, official figures show private consumption languishing at around 35% of GDP. Morgan Stanley’s “bottom-up” calculations, by contrast, imply that it has grown since 2008 to almost 46% of GDP (see chart). Mr Garner and Ms Qiao draw on company reports and industry studies to fill gaps in the official data, which, they say, undercounted consumption by $1.6 trillion in 2012, more than Australia’s entire GDP. Their calculations echo earlier studies, which also found that official statistics undercount consumption, albeit by a smaller margin.

    As well as stuff bought offshore, spending online is also undercounted, the two economists argue. On a single weekend in November, Chinese consumers spent more than $3 billion on two websites, Taobao and Tmall (both part of Alibaba, an online giant), in celebration of “singles’ day”, the bachelor’s equivalent of Valentine’s day. But official statistics have failed to keep pace with changing consumer habits, Ms Qiao argues, neglecting entire categories of e-spending. Online gaming, for example, is largely missing. Yet it amounted to 53 billion yuan ($8.5 billion) last year, according to Morgan Stanley’s tally of revenues earned by online gaming firms.

    China’s statistics have long been viewed with scepticism or worse. Some economists worry that they fail to reflect reality, others that they slavishly reflect political imperatives. In 2002 Thomas Rawski of the University of Pittsburgh complained about a “tornado of deception”. Five years later Carsten Holz, then of Princeton University, said that official statistics should be taken with a “rock of salt”. When Li Keqiang, now China’s prime minister, was party chief of Liaoning province in 2007, he called the province’s output figures “man-made” and “for reference only”.

    But things are not as bad as they were. China’s National Bureau of Statistics (NBS), for example, long ago stopped relying on provincial output figures to calculate national GDP. China’s economic census in 2004 gave the national statisticians a better baseline for subsequent work. In 2006 a book published by the OECD argued emphatically that China’s national accounts are inevitably “wrong”, in that they are forced to plump for one of a range of plausible figures, but that they are not politically manipulated.

    But the NBS does not make it easy for independent outsiders to cross-check their work. Sceptics instead look for inconsistencies between China’s growth figures and other indicators, such as power generation or cement output. To track Liaoning’s economy, Mr Li looked at rail cargo, bank lending and electricity consumption.

    Inspired by his example, three economists at the Federal Reserve Bank of San Francisco have distilled an alternative national growth index from three similar items. (It is a more sophisticated version of our own “Keqiang ker-ching” index published in December 2010.) They discovered that, contrary to popular belief, China’s growth figures are in the “same ballpark” as Mr Li’s indicators.

    Not every statistical distortion serves to flatter China. Indeed, some of the biggest remaining flaws in China’s statistics are politically awkward. The official figures may, for example, exaggerate the politically sensitive income gap between urbanites and rural folk by as much as 40%, according to Jinjun Xue of Nagoya University and Wenshu Gao of the Chinese Academy of Social Sciences.

    The understatement of consumption also gives ammunition to China’s critics, who worry that its economy relies too heavily on unsustainable investment and lament the government’s failure to rebalance the economy. Mr Garner and Ms Qiao’s alternative calculations imply instead that rebalancing is under way. In estimating consumption’s growing role, they assume that the hidden spending is not captured elsewhere in the GDP figures. If, in fact, this extra spending is misrecorded as something else, then consumption’s share of GDP would be even bigger.

    Not everyone doubts the purchasing power of China’s consumers. At Hong Kong airport, adverts tempting customers to splurge compete with official notices designed to put them off one kind of purchase in particular. Since March 1st anyone taking more than two tins of milk powder out of the territory faces up to two years in prison, an embargo designed to retain Hong Kong powder for local mothers, amid concerns on the mainland about the safety of Chinese milk powder. China’s statisticians are not the only ones suppressing consumption.

    http://www.economist.com/news/china/...est-bottoms-up
     
  4. asianobserve

    asianobserve Elite Member Elite Member

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    China as the World’s Biggest Economy? Not Anytime Soon
    By: Dhara Ranasinghe and Rajeshni Naidu-Ghelani
    CNBC
    10 May 2013



    China as the World’s Biggest Economy? Not Anytime Soon
     
  5. mylegend

    mylegend Regular Member

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    asianobserve, can I ask you an off-topic question? Do you support the racial quotas and discriminatory policy in Malaysia against minority groups such as Indians and Chinese? Does your point on that issue affect your view in foreign affair?

    As a Chinese myself, I am definitely bias toward China. However, I have no bias toward CCP, given all the suffering it has impose on the Chinese.

    Just wondering if you agree with racial quotas that Malaysian government have been rely on as populist policy,
     
    Last edited: May 11, 2013
  6. cw2005

    cw2005 Regular Member

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    If the report was true, it would be good news for China for it does not want nor has prepared to be number one in the world.
     
  7. nimo_cn

    nimo_cn Senior Member Senior Member

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    the sooner Americans realize this, the better for China.

    Sent from my HUAWEI T8951 using Tapatalk 2
     
  8. badguy2000

    badguy2000 Respected Member Senior Member

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    100 years ago,britiSh did not expect its empire would be buried by usa and russia
     
  9. bose

    bose Senior Member Senior Member

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    China's growth rate will come down in next 3- 4 years as the western economy continues to perform badly...
     
  10. asianobserve

    asianobserve Elite Member Elite Member

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    I already bit your bait in the other thread you opened.
     
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  11. Ray

    Ray The Chairman Defence Professionals Moderator

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    It is like asking a Han (genuine one and not those Sinicised and their memories wiped as to who they actually are) to be frank if he feels it moral to Hanising (Sinicise) everyone in China, as has been done thorughout Chinese history of people who are not Han, be he a Tibetan, Miao, Yue or a Uighur?
     
  12. mylegend

    mylegend Regular Member

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    It was posted before I opened that thread.
     
  13. sorcerer

    sorcerer Senior Member Senior Member

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    Senior Chinese official investigated in graft crackdown


    Senior Chinese official investigated in graft crackdown - CNN.com
     
  14. sorcerer

    sorcerer Senior Member Senior Member

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    China's debt: a crisis in the making?
    China's debt problem sparks worries - May. 12, 2013
     
  15. libindi

    libindi Tihar Jail Banned

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    Oh no ‘
     

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