China may not overtake America this century after all

[sorcerer]

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'̩poque project Рusing prefab blocs Рmay 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.
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.

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."

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

 

[mylegend]

Consumption in China may be much higher than official statistics suggest

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.

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

 

[asianobserve]

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

China's fast-growing economy has been forecast to overtake the U.S. as the world's biggest economy as early as 2016, but economists say this is unlikely to happen as structural reforms slow the pace of growth and a stronger Chinese yuan dampens exporter competitiveness.

In March, a report by the Organization for Economic Cooperation and Development (OECD) said China was on track for a fourth straight decade of fast growth and will overtake the U.S. as the world's largest economy in 2016, after adjusting for price differences.

Yet, economists have started to question whether China can over take the U.S. as the world's No. 1 economy.

One of the main reasons they give is that China is trying to rebalance its economy from one that is driven by investment and exports to a more consumption driven one which could further slow growth.

Plus the appreciation of the Chinese yuan means China no longer enjoys the same competitive advantage overseas as it did a few years ago. The yuan has strengthened roughly 10 percent over the past three years.

And finally, the U.S. economy is likely to gain momentum of its own in the years ahead thanks to developments such as a boom in U.S. natural gas production.

"In 2014 or even by the end of this year, we're expecting a pretty strong rebound in the U.S. with annual growth of 3-4 percent, while China is on a structural slowdown," said Lombard Street Research Economist Freya Beamish. "If China makes the right reforms, to rebalance its economy, which is the good scenario, then China would only be growing by an annual rate of up to 5 percent."

"If you look at the decade as whole 2010-2020, then that's not a particularly fast rate of catch-up," she added.

China, which has grown at an average rate of 10 percent annually over the past three decades, overtook Japan as the world's Number 2 economy in 2010 and its rapid economic development has stunned the world.

Still, in a bid to move to a more sustainable long-term growth path, Beijing is encouraging domestic consumption to play a greater role in driving growth.

China's economy unexpectedly slowed in the first three months of this year, growing 7.7 percent from a year earlier compared with a 7.9 percent rise in the previous three months on slower industrial output and investment.

Major Crossroads

Analysts said that just because China's economy had grown rapidly in the past, that did not mean it would continue to do the same in the future.

"China is at a major economic crossroads, and faces a very challenging adjustment in its economic growth model," said Patrick Chovanec, chief strategist at Silvercrest Asset Management in New York.

"The worst mistake you could make for any economy -- not just China -- is to simply extrapolate past trends into the future. History rarely follows straight lines," he said.

Vishnu Varathan, a market economist at Mizuho Corporate Bank in Singapore added: "I'm also wary of straight-line projections for economies. One reason, with regards to China, is that the economy is slowing down to a new normal, while the U.S. is getting a boost from an energy revival."

"The U.S. also has dynamic demographics because of immigration, while China has an aging population," he added.

Playing economic catch-up also takes a long time, even for China which has come a long way quickly, analysts said.

"China has come quite some way, but is still miles away from where it would like to be and where it could be in terms of productivity and levels of GDP per capita, which is about 13-14 percent of what it is in the U.S. –so it still has a massive amount of catching up to do," said Louis Kuijis, chief China economist at Royal Bank of Scotland.

China as the World's Biggest Economy? Not Anytime Soon

 

[mylegend]

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,

 

[cw2005]

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.

 

[nimo_cn]

the sooner Americans realize this, the better for China.

Sent from my HUAWEI T8951 using Tapatalk 2

 

[badguy2000]

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

 

[bose]

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

 

[asianobserve]

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,

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

 

[Ray]

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,

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?

 

[mylegend]

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

It was posted before I opened that thread.

 

[sorcerer]

Senior Chinese official investigated in graft crackdown

(Financial Times) -- A senior official in China's economic planning agency, the National Development and Reform Commission, has become the latest target of Beijing's crackdown on excess and corruption.

Xinhua, the state news agency, reported on Sunday that Liu Tienan, a vice-chairman of the agency, was under investigation for alleged "grave violations of discipline" brought to light by a whistleblower. Mr Liu was also head of China's energy regulatory body until March.

The news agency cited the Communist party's Central Commission for Discipline Inspection as the source for a brief report that gave no further information about Mr Liu's alleged violations.

But on its official account on Sina Weibo, the Chinese microblogging site, Xinhua appeared to endorse the actions of the media whistleblower who first raised concerns about Mr Liu.

Last year, a senior editor of Caijing, the Chinese financial magazine, reported on his Weibo account that Mr Liu was suspected of fabricating academic credentials, loan fraud and making threats against others.

The public information office of the energy regulator, where Mr Liu then worked, dismissed the accusations as rumours. "We are contacting the internet management departments and public security department to report the case to the police," it was reported as saying at the time.

Mr Liu is the latest senior official to become a target of the anti-graft campaign spearheaded by President Xi Jinping, China's new leader. Mr Xi has said that failure to address corruption among politicians and officials could lead to social unrest that would threaten national stability and the future of the ruling Communist party.

Last month, Beijing formally charged Liu Zhijun, former railways minister, with corruption and abuse of power, setting up the first test of Mr Xi's determination to tackle graft.

News of the investigation of the NDRC official attracted comment on Weibo on Sunday from a court official in Anhui province, who expressed surprise that such a senior figure could be brought down by a whistleblower.

"Before 2013, it would be the last thing for me to believe that a ministry-level corrupt official could be dismissed by a whistleblower," the court official wrote, but added: "Let's hope it is not [just] political conflict."

Xinhua applauded the move on its official microblog, saying: "The corrupt moths will have nowhere to hide if they are monitored by the ocean of people."

However, one Xinhua reader expressed scepticism: "It is easy to clean one or two moths. But when these moths weave a huge interest network, will the country still have the determination to clean them all? Or is this just another sop to comfort the public?"

Senior Chinese official investigated in graft crackdown - CNN.com

 

[sorcerer]

China's debt: a crisis in the making?

The world's second largest economy has a debt problem.

China's credit boom has saddled unworthy businesses with large loans, fueled the country's shadow banking system and put local governments on the hook for billions. Swiss bank UBS calculates that central government debt was equal to 15% of the economy at the end of 2012. That number spikes to 55% when debt racked up by local governments and agencies is included.

If corporate and household debt is also counted, China's total debt load balloons to more than 200% of gross domestic product.

Plenty of countries have more debt by that measure, including South Korea, Japan and the United States. But compared to other developing economies, China is at the top of the range.

"Should we worry about China's debt problem?" asked UBS analysts recently in a research note. "The answer to that question is a definitive yes."

Analysts worry that credit is becoming inefficient, increasingly dominated by unregulated lenders, and reaching a scale where it could sap growth if central government is forced to stand behind defaulting local governments or agencies.

China's borrowing binge has had its benefits. When the global financial crisis hit in 2008, the government ordered the credit lines open. Banks and other lenders responded, funding massive building and infrastructure projects. In 2009, only one country -- Qatar -- was issuing credit at a faster rate.

The increased investment allowed China to escape the crisis relatively unscathed. GDP growth, which had been humming along at 10%, moderated to 8%. But China escaped the "hard landing" experienced in other countries.

Here's the problem: credit issuance is once again spiking, but growth hasn't materialized, leading some to question whether China's debt-fueled engine is stalling.

"It seems credit growth has become less effective in generating [economic] growth," the UBS economists noted.

Adding to the worries, more and more credit in China is being issued by trust companies, securities dealers and underground operators that make up the shadow banking system.

At the same time, local government finances in China are notoriously opaque, and financial partnerships with local businesses are particularly murky. Local government debt levels are now so high that Beijing could, at some point, be forced to assume some of the burden.

Last month, Fitch Ratings cut one of China's key debt ratings. The agency issued the rare downgrade in part because of rising easy credit and the influence of the shadow banking system.

Yet some other analysts believe China's debt woes are overstated, largely because of the role the state plays in the economy.
China has trillions of dollars in assets that could be used to pay down debt. Local governments, for example, own land that could be sold to prop up state-owned enterprises.

Plus, the economy is still expanding by 7% to 8% a year -- a quick enough pace to absorb much of the growing debt burden.

Should the economy slow, however, and loans start to sour, the government may seek to limit the damage by providing financial support to the network of state-owned banks, utilities and manufacturing firms that dominate the economy.

According to analysts at Standard and Poor's, the costs would be "spread across the Chinese economy."

But they also warn that using government resources in this way would further distort the economy and possibly undermine growth in the long term.

"Over the long term, these distortions might prove more costly to the Chinese economy than if banks were to realize credit losses upfront," S&P said.

China's debt problem sparks worries - May. 12, 2013

 

[libindi]

Oh no '