Is India a Better Place for Manufacturing Than China?

Discussion in 'China' started by huaxia rox, Jun 13, 2013.

  1. huaxia rox

    huaxia rox Senior Member Senior Member

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    Michele Nash-Hoff: Is India a Better Place for Manufacturing Than China?

    You would think that because India was formerly part of the British Empire and became an independent democracy, there would be less pollution and better working conditions than in China. Well, you would be wrong.

    You wouldn't find it any healthier to live in many of the industrial cities of India than the industrial cities in China. India is developing more slowly, but its growth is already taking a toll on the health of its people. India's population has more than tripled since independence in 1947, from 350 million people to 1.2 billion, severely straining the country's environment, infrastructure, and natural resources.

    In my last article, I mentioned that four cities in India were listed in the Blacksmith Institute's "Dirty 30" of the 2007 report, "The World's Worst Polluted Places." Consider Vapi, at the southern end of India's "Golden Corridor," a 400 km belt of industrial estates in the state of Gujarat. There are more than 50 industrial estates in the region, containing over 1,000 industries and extending over more than 1,000 acres. Many estates are chemical manufacturing centers, producing petrochemicals, pesticides, pharmaceuticals, textiles, dyes, fertilizers, leather products, paint, and chlor-alkali. Waste products discharged from these industries contain heavy metals (copper, chromium, cadmium, zinc, nickel, lead, and iron), cyanides, pesticides, aromatic compounds like PCBs (polychlorinated biphenyls), and other toxins.

    The Indian Medical Association reports that most local drinking water is contaminated because of the absence of a proper system for disposing of industrial waste. Industrial waste instead drains directly into the Damaganga and Kolak rivers. Vapi's groundwater has levels of mercury 96 times higher than World Health Organization standards. Approximately 71,000 people have no choice but to drink contaminated well water, as clean water sources are more than a mile away. The water is so discolored by contaminants it looks like a bottle of orange soda. Local produce contains heavy metals up to 60 times the safe standard. There is a high incidence of respiratory diseases, chemical dermatitis, and skin, lung, and throat cancers. Women in the area report high incidences of spontaneous abortions, abnormal fetuses, and infertility. Children's ailments include respiratory and skin diseases and retarded growth.

    It isn't any better in Sukinda, in the state of Orissa, where 97 percent of India's chromite ore deposits are located. Twelve mines operate without any environmental management plans, and more than 30 million tons of waste rock is spread over the surrounding area and the banks of the Brahmani River. The mines discharge untreated water directly into the river. Approximately 70 percent of the surface water, and 60 percent of the drinking water, contains hexavalent chromium at more than double national and international standards. The polluted Brahmani River is the only water source for 2,600,000 people. Health problems include gastrointestinal bleeding, tuberculosis, asthma, infertility, birth defects, and stillbirths.

    The Indian economy is growing rapidly, but pollution is quickly spiraling out of control and rivers are dying by the dozens. Fully 80 percent of urban waste, including industrial waste, winds up in the country's rivers. Much of this comes from untreated sewage. The Ganges River has levels of fecal coliform, a dangerous bacterium that comes from untreated sewage, 3,000 percent higher than what is considered safe for bathing. More than three billion liters of waste are pumped into Delhi's Yamuna River each day. "The river is dead, it just has not been officially cremated," said Sunita Narain, director of the New Delhi-based Centre for Science and Environment, one of India's top environmental watchdog groups, to Spiegel-Online.com in reference to the Yamuna.

    Air pollution is also a growing problem. There are four main sources: vehicles, power plants, industry, and refineries. India's air pollution is exacerbated by its heavy reliance on coal for power generation. Coal supplies more than half the country's energy needs and nearly three-quarters of its electricity. Reliance on coal has led to a 900 percent increase in carbon emissions over the past 40 years. India's coal plants are old and not outfitted with modern pollution controls. Also, Indian coal has a high ash content, which creates smog. Vehicle emissions are responsible for 70 percent of the country's air pollution. Exhaust from vehicles has increased 800 percent, and industrial pollution 400 percent, in the past 20 years.

    Although the Constitution of India guarantees free and compulsory education to children between the age of 6 to 14 and prohibits employment of children younger than 14 in any hazardous environment, child labour is rampant. According to an article, "The Hidden Factory: Child Labour in India," in The South Asian, May 7, 2005, many consumer goods are "the products of a hidden factory of countless children, many as young as five years old, toiling for tireless hours, under harsh, hazardous, exploitative, often life threatening conditions for extremely low wages." The article states "India has the largest number of working children in the world." Credible estimates range from 12 to 15 million child laborers. What is even more horrible is that a large percentage of these children are de facto slaves, bonded to their jobs, with no means of escape or freedom until they can repay their parents' loans. The major industries using child labor are:

    Carpets - An estimated 50,000 to 1,050,000 children, as young as six, are often chained to carpet looms in confined, dimly lit workshops, making the thousands of tiny wool knots that become expensive hand-knotted carpets for export. Recruiters or organized gangs pay landless peasants cash advances to "bond" their children to their jobs. The children suffer from spinal deformities, retarded growth, respiratory illnesses, and poor eyesight.

    Brassware - An estimated 40,000 to 45,000 children, as young as six, are involved in brassware production, including jobs like removing molten metal from molds and furnaces, electroplating, polishing, and applying chemicals. If they survive being injured from molten metal and exposure to furnaces operating as high as 2,000 degrees Fahrenheit, they often suffer from tuberculosis and other respiratory diseases due to inhalation of fumes from the furnaces and metal dust.

    Leather - As many as 25,000 children, from 10 to 15, are involved in the manufacture of shoes. They suffer from respiratory problems, lung diseases, and skin infections from continuous skin contact with industrial adhesives and breathing the vapors from glues.

    Gemstones - Children are commonly engaged as "apprentices" in the gem polishing industry. The learning process takes five to seven years and they work an average of 10 hours a day. Major health issues include tuberculosis and respiratory diseases.

    Glass - This industry employs an estimated 8,000 to 50,000 children as young as eight. They work in an inferno due to the intense heat of glass furnaces (1,400-1,600o C) and suffer from skin burns, tuberculosis, respiratory diseases, mental retardation, and genetic cell damage.

    Silk - An estimated 5,000 children, mostly girls from five to 16, are employed in silk manufacturing, which includes sericulture, dyeing, and weaving the silk. Chemicals and boiling water in the dyeing process are common health hazards; skin burns from the boiling water and respiratory diseases from the chemicals often result.

    Agriculture -Parents pledge children as young as six to landlords as bonded laborers. The number of bonded laborers is not categorized by adults and children, but the total is estimated to range from 2.6 to 15 million. Children are involved in all types of agriculture and are completely controlled by their masters, receiving a bare minimum of food and lodging. More than 90 percent of bonded laborers in India, many of whom became bonded as children, never had the opportunity to go to school.

    Mining - A 2006 report, "Our Mining Children," prepared by a team of non-profit organizations, described the condition of hundreds of thousands of migrant workers in the mining industry.

    Karnataka, for example, is a state with vast mineral resources, of which the Bellary district has the most extensive range. Minerals mined include iron ore, manganese, quartz, gold, copper, granite, and decorative stones. India is the fourth-largest iron-ore producer in the world. As a result of new government economic policies, a shift to privatization, an open market economy, and wide-open markets in China, South Korea, and Australia, mining companies have bought up thousands of acres of land in the district since 2000.

    All of the mines visited by government teams had child laborers, some as young as five. It is estimated that as many as 200,000, or 50 percent, of the workers are children. The mining economy is only profitable because of large-scale child labor and the flouting of social and environmental laws. The mine owners say they only employ the adults, but as the families live at the mine site, the children join in the work. The parents force their children to work because they say they cannot survive otherwise.

    As you can see, India is not any better than China for products to be made ─ the pollution is just as bad, working conditions are as bad or worse, and child labor is rampant. Make the better choice ─ Made in USA!
     
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  3. Keshav Murali

    Keshav Murali Back to studies :( Senior Member

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    Yeah right. When they don't even have a labour force. :lol:

    "Made in USA" is said with such patriotism when Uncle Sam is so lazy and has an allergy to work. We Chinese and Indians on the other hand at least work 10 times as much as they do. :fyeah:

    US needs to look at it's own nose to see if it is clean before seeing that of others.
     
  4. Abhijeet Dey

    Abhijeet Dey Regular Member

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    Another India versus China debate. :bored:
     
  5. bose

    bose Senior Member Senior Member

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    China with decreasing exports has started to have self doubt about it growth prospects in future… China has identified India as a main rival to its growth and more so with the likely prospects of countries like Japan & EU moving the production based to India is also making China un easy…

    Japan has already moved the rare earth imports from China to India successfully…
     
  6. xingapore

    xingapore Tihar Jail Banned

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    I don't think 7% growth is anything to doubt at all. The europeans and the americans don't have the money to buy their exports anymore.

    Does india have that much rare earth?. The figures still show China with 90% market share.
     
  7. bose

    bose Senior Member Senior Member

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    Very true 7% is high, but it is a real cause for concern if it starts going down below 7% in years to come... there are indications that it may go further down if USA & EU economic slide continues...

    I do not have the figure with me right now... but the fact India has successfully replaced China as a source of rare earth as far Japan is concerned...
     
  8. no smoking

    no smoking Senior Member Senior Member

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    It is true that Chinese is expecting a lower growth rate. But it is just a normal economic development: you can't expect a 8 trillion economy to grow as fast as an economy of 2 trillion economy. That is impossible.


    Well, it is only indian opinion that China has identified India as a main rival. Sadly, this opinion may be right 10 years, but not right today. With a bigger and bigger gap between these 2 countries, it really doesn't make sense to think so. Moreover, when China is slowing down, india is slowing down even faster.

    There is a even better news: China would like to import rare earth from india if India allows it. Actually, China would import any raw material from india rather than using its own.
     
  9. bose

    bose Senior Member Senior Member

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    The fact is that China's growth rate has come down from 12 % to 7 % while for India it is from 8% to 5 % roughly... China's rate of decrease is more than India's..

    If the USA & EU economic downslide continues, increasing EU's trade restrictions and protectionist measures coupled with rising labor cost in China that is then end for China story...

    Chinese inability for proper R&D and innovation like industrialized countries will be hard pressed to support their own economy.


    It is not Indian opinion but whole world acknowledge it... 10 years ago India was not even considered as one with economic growth potential… Now world recognizes India as one of the economic power house… India will catch up with China in growth rate in 2 – 3 years time… China’s so called 8 trillion economy [GOD knows how much of the figure is doctored] have a seriously worry on the prospects of production base moving out of China… a perfect recipe for bubble to burst… Japan is investing on the multiple industrial corridor in India there is a reason for it...

    Chinese dependency must go... take the Chinese bluff head on...
     
    Last edited: Jun 14, 2013
  10. Singh

    Singh Phat Cat Administrator

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    China despite being 3-4x bigger than us, is growing faster than us.

    China will go up the value chain then.

    You are being too optimistic.

    with trillions in reserves Chinese "bluff" will happily be accepted.
     
    parijataka and trackwhack like this.
  11. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    Absolutely not! Simple and straight as that.

    We have a government which is absolutely clueless of finding it's way through, which rather than doing the obvious is busy further messing up the country economically.

    We as a country are yet to understand a simple concept, time is money, all that we do is, waste more and more time as if the world will wait for us, doesn't happen like that, and we keep missing the trick.

    Well, so be it, and as badguy long back said, India will remain a country of potential, and it seems for a long time to come.

    Here is some news for this government, if they were to present half the budget that the present Pakistani government has 9 years back, which is high on reforms, development, investment, India would still have been galloping ahead.
     
  12. bose

    bose Senior Member Senior Member

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    I see a very promising future for India... The growth potential of India is immense... India needs massive infrastructure investments with such investments it will fuel growth in future… Japan & other countries are coming forward to help India out… With China’s obstinate behavior & impatience to move up the so called value chain is putting off the very same countries who helped China earlier to build their industrial base… I believe we will and will outgrow China in couple of years of time...

    China being 3x / 4x bigger does not matter, what matter is the growth potential and the potential to grow. India has the potential and the Indian entrepreneurs are one of the best in the world... Did anyone thought of China catching up with Japan 15 / 20 years ago ?



    This world is for optimist ONLY Sir,

    India's economy was 25% of the world economy when the British landed at India's shore and it was 2% of world economy when they left India... In 66 years we have moved up the so called value chain and in striking distance of becoming fifth largest economy in the world... This make me optimist.... Why not ??



    Disagree with you Sir, to me China is a fascist regime and threat to world peace, it is responsible for not only killing 30 million of its own citizen and others heinous acts which is not the topic of this thread…
     
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  13. bose

    bose Senior Member Senior Member

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    Very well said!! India is learning the hard way... we make mistakes and learn from it... We must ensure we do not repeat the same mistake again and again...
     
  14. no smoking

    no smoking Senior Member Senior Member

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    Yes, with 4 times economy scale, it is too bad that China can only grow a little bit faster than India. You still don't get it: China already passed its high-speed stage, slowing down is good thing for China; but you can't say the same about india simply because india is still in its early stage, it is supposed to grow faster, so current slowing is a dangerous sign!

    All these are the problems which is supposed to happen to any developing country after certain developing stage--Japan, South korea, Taiwan. India will face the same problems in the future.

    With world No 2 investment in R&D and World No. Patents, I really don't think that China is too bad on that.

    So, I am right: it is india and so called "world acknowledged" opinion, not Chinese.
    On the contrary, 10 years ago, Chinese seriously considered india as one could replace it. Today, chinese don't have the same thought.

    Keep telling yourself 100 times each day, it is good for your health.
     
  15. t_co

    t_co Senior Member Senior Member

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    For a nation as large as India, the key drivers of growth must be internal. A "golden opportunity" of export-driven growth, similar to the one China grasped in the 1990s, is unlikely to happen again, not in a post-2008 era under which every nation is pursuing implied protectionism via currency warfare.

    Growth for India is unlikely to happen if the only driver of Indian growth is friendly relations with other countries. Other nations might be your friends, but they are unlikely to be your customers, unless India gets its own house in order.

    Actually, the Chinese Communist Party did project that China could overtake Japan in 1994, but they were laughed at by the Western media. Now who's laughing?

    True, the British raped the Indian economy, and India has recovered - but only somewhat. India still hasn't really moved into a truly industrial economy yet, with massive urbanization or manufacturing lifting uneducated peasants into blue-collar or white-collar positions from their home villages.

    Irrelevant.
     
  16. TrueSpirit

    TrueSpirit Senior Member Senior Member

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    China & India are Third World nations, irrespective of all the hype. Chinese potential is reaching saturation & it would be burdened with, a greying population & a shrinking workforce within 2 decades (effects of One-child policy & failure to ensure quality control or innovate enough). India has a massive, unparalleled demographic advantage that's hard to beat but it remains to be seen whether India would be in a position to leverage that to the desired extent.

    Having said that, neither China, nor India are going to become developed nations in next 3 decades, for reasons mentioned above. Rest is just a matter of conjecture & speculations.
     
  17. bose

    bose Senior Member Senior Member

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    It is true that China has passed the high speed era for sure... that is the point I am driving to here… whatever you still see is from continuation momentum… India is yet to pick up the high speed era with current 5% growth rate… and is showing sign of picking up in next 2-3 years time for India will replace as growth engine... The potential in India is immense… the difference is increasing aging population vs young population… the difference is definite to come…

    China is already facing it now that is the point... Philippines & Vietnam are taking full advantage it...


    I will agree to your point when you can show me a Chinese equivalent of SONY, BMW, APPLE, SAP, ORACLE, and CATERPILLER OR A BOCHE... being highest or second highest in investments do not matter BUT the output... I do not see any Chinese scientist wining Nobel prizes very recently...

    The recent snub from US first lady on your PM's visit was one such example of world's opinion on China...

    10 / 12 years ago India was not even considered a growing economy... You like it or not India will remain a main threat to China more so in very near future... and India is not alone to take the bull by its horn...

    Not only I tell the same to myself on a daily basis, I also put forward the same argument to all other Indian brothers and foreign friends... I can assure you are lot of takers to my points... I find that very encouraging...
     
    Last edited: Jun 16, 2013
  18. no smoking

    no smoking Senior Member Senior Member

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    Before start talking about your personal optimism on India economy, can you please give some detailed "signs" of picking up?
    "The potential in india is immense"--Yes, always since 1947

    Of course, they are supposed to take these industries that China no longer needs. What about india? I think we are talking about India here? Are you taking full advantage of it or you just wait for your number to be called after Philippines & Vietnam don't need them in the future?

    Are we talking about R&D or a world wide brand name? Do you really understand the difference between these 2.

    Since when Nobel prize becomes the sole standard to measure a country's archievement in science? With second highest investment in R&D, you can archieve a lot things, such as space tech, aviation, military equipments, etc. With such a hugh investment, you can start to produce a lot of things you can manufacture. With such a hugh investment, you can export a lot of manufacturing product to other countries, such as INDIA!

    Oh, such a big deal! Chinese first lady is having so many important subjects she wants to talk with her american counterpart. China's future is relying on the meeting of these 2 women.


    Really? Isn't that the year our Indian friends started talking about "india shining"?

    You like it or not, India is not proving itself has the ability to be a main threat to China in VERY NEAR FUTURE. You need to prove your ability before talking something big.


    Not only I tell the same to myself on a daily basis, I also put forward the same argument to all other Indian brothers and foreign friends... I can assure you are lot of takers to my points... I find that very encouraging...[/QUOTE]
     
  19. huaxia rox

    huaxia rox Senior Member Senior Member

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    you can say its india vs prc but to me its more like: some of the important differences between india and prc in economy development.

    imo prc definitely hasnt past the fast growth stage. quite on the contary i believe prc will get recovered very soon with GDP growth rate higher than 8% and prc will remain this speed in most of the time of the coming 2-3 decades while there will be many uncertantities india will be faced with at the same time.

    1 economy of the us is getting recovered in full speed otherwise qe policy is not getting dumped. even not that fast we can at least assume world economy has past the worst time then for a largely export oriented economy prc will become one of the biggest benifitors. but have a look at indian economy you see very bleak pictures. some years back some indians claimed prc is more venurable to the us and eu economy crisis and india is much immune to that because india is not export oriented so no too much is going to affact india. and now with growth rate dropped from 10% in 2010 to 5% it indicates india is not export oriented nor is it a domesticly consume oriented. so where comes the problem? no money for domestic consumers? gdp data fundge?? many reasons behind but solutions are unclear vis a vis prc who at least knows eaxctally where the problem lies.

    2 a huge difference here is prc has been trying all the way to cool down the economy growth in a reasonable rate lately instead of stimulating the economy with sufficent investments and money if they want. why? because in the long run a low cpi benifits the country and to get rid of some unncessary low end economy sectors and turn the development towards high end to high tech to enviromentally friendly etc is the goal now so money needs to be put to crucial places. the best example is prc has limited rare earth producing to save the enviroment etc while india is working its ass to get into this low end business happily......so of couse when prc doing this kind of changes economy has to suffer a bit. while what indians are doing is to complain corruption to complain bjp is not in power as if bjp did some exllent jobs in their term some years back and as if modi would surely save you guys and make some changes. well the only thing i can say is then vote for him and lets see what can he do to save your country. what will be his real solutions.

    3 chinese full urbanization is the key reason i can think of for prc to remain a high growth rate in the coming years. i dont even know if we can say prc has achieved primary goal of urbanization at this point and i only know long way ahead. along with urbanization new infra strture new houses and new household appliances are surely needed. real domestic consumer oriented ecnomy will finally emerge which is prc while indians always tend to stick to the topic of chinese destorying old farm houses and not giving farmers enough compansation which in some cases are indeed right but we dont have a better way of moving people from shit houses to modern buildings or do you have? and nowadays chinese people are getting much more compansations then before to an extent where so many like to see the changes of their life happen. still we got corruption but we can at least find real solutions to develop and support the growth. but for indians on the one hand they claim they cant kick villages out of their home on the other hand land grab is rampant in india. naxals were not born killers but when they cant have enough stuff to suvive and lead a life what else can you expect? japnese surely want to do more business with indians and africans but if you dont have adaquate infrastrtue they cant build too many things in india and africa. thats really not about polictis is it? thats pure business.

    in a nutshall prc knows very well the problems and how to solve them (or how to solve them later). there are surely many solutions. indians say anything with 'will' and 'in the future'. they dont have solutions now and they dont have anything to convince others of their rosy suture story and dream so i can never believe indians will suddenly have some solutions in the future no matter who rules the country. today rmb against usd is going to 6:1 while rupee against usd is going to 60:1. for a country whose economy can simply and largely be ----ed over by siri tech in the near future i guess only indian yourselfs seem to be interested with you telling what you 'will' achieve in the coming years.
     
  20. TrueSpirit

    TrueSpirit Senior Member Senior Member

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    Is China getting ready for the next big financial crisis?

    A famous Central Intelligence Agency (CIA) paper on China is titled “The Art of China Watching”. In this paper the author Gail Solin concedes that “The art of China-watching is imprecise at best… The explanation, or blame, for this often frustratingly lies mainly with the way the Chinese conduct their affairs. To say the Chinese have a penchant for secrecy is almost an understatement.”

    Edward Chancellor and Mike Monnelly of the global investment management firm GMO writing in a white paper titled Feeding the Dragon: Why China’s Credit System Looks Vulnerable suggest that the CIA paper was written sometime in the 1970s.
    When it comes to those from the outside watching the Chinese financial system, things haven’t changed nearly four decades later. China watching is still imprecise at best. Or as Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong recently told Bloomberg “It’s a big black box, and it’s quite scary.”

    And a few things coming out of the black box now seem to suggest that things are not as hunky dory as they are being made out to be. The loans given by banks and other financial institutions have reached very high levels. As Chancellor and Monnelly point out in their research paper “Between 2007 and 2012, the ratio of credit(i.e. loans) to GDP climbed to more than 190 percent, an increase of 60 percentage points.

    China’s recent expansion of credit relative to GDP is considerably larger than the credit booms experienced by either Japan in the late 1980s or the United States in the years before the Lehman bust.” As of the end of 2012, the total lending by banks and other financial institutions as a proportion of the GDP ratio stood at 198 percent.

    So China has a debt problem, given that the total loans given by its banks and other financial institutions have risen at a very rapid rate. “There is just no way to grow out of a debt problem when credit is already twice as large as GDP and growing nearly twice as fast,” Charlene Chu Senior Director in the Financial Institutions Group at Fitch Ratings based out of Beijing, told Bloomberg.

    What is interesting is that the loan boom in China has been faster than many other countries which have faced severe banking and financial crises in the past. As the Bloomberg story points out “A jump in the ratio of credit to GDP preceded banking crises in Japan, where the measure surged 45 percentage points from 1985 to 1990, and South Korea, where it gained 47 percentage points from 1994 to 1998, Fitch said in July 2011. In China, it has increased 73 percentage points in four years, according to Fitch’s estimates.”

    And this loan growth continues unabated. In the period January-March 2013 total loans grew by 20 percent in comparison to the same period last year. There are two main problems that arise with excessive loan growth.

    As Wei Yao of Societe Generale writes in a report titled China’s missing money and the Minsky moment “a fast rising debt load of an economy suggests either deteriorating growth efficiency or high and rising debt service cost, or in many cases both. There is clear evidence that China is suffering from both of these.”

    What this means is that China now needs more and more debt to create the same unit of growth.

    Meanwhile the debt service ratio keeps growing. Debt service ratio is essentially the sum of interest to be paid on all the outstanding loans along with the maturing loans that need to be repaid expressed as a percentage of GDP. Wei Yao estimates that China has “a shockingly high debt service ratio of 29.9 percent of GDP, of which 11.1 percent goes to interest payment and the rest principal.”

    “At such a level, no wonder that credit growth is accelerating without contributing much to real growth!,” she writes.

    A lot of the excessive loan growth in China has gone into buying and building property, where no one lives. “Miles upon miles of half-completed apartment blocks encircle many cities across the country. Official data suggest that the value of the unfinished housing stock is equivalent to 20 percent of GDP and rising.. Developments in the infamous “ghost city” of Ordos, in Inner Mongolia, reveal the vulnerability of China’s credit system to an overblown housing market. The Kangbashi district of Ordos is a totem for China’s property excesses. Kangbashi has enough apartments to shelter a million persons, roughly four times its current population,” write the GMO authors.

    This basically means that builders who built these homes are not in a position to repay the loans they had taken on, given that the homes are not selling and have been more or less abandoned. This excessive building of homes was driven primarily by demand from speculators. The government has taken various steps to kill ‘speculation’ from time to time but hasn’t done enough and it keeps coming back.

    Andy Xie, a former Morgan Stanley analyst, who closely tracks China made a fairly interesting point in a column he wrote in late March 2013. As he wrote “The government has introduced tightening measures against property speculation from time to time. These measures have never been serious enough to stamp out speculation. They merely slowed and extended it. The ineffectiveness of the measures keeps up the dream that prices could surge when the government either loosens up or is overwhelmed. That dream keeps speculators in the game. The latest measure – a 20 percent capital gains tax, yet to be fleshed out in detail – is the latest example. In the short term it sparked a frenzy because speculators are rushing to buy before the tax comes into effect.”

    This has led to a situation where banks and other financial institutions have ended with a lot of real estate as a collateral against the loans they have given out. “It’s probably fair to say that at least one-third of bank credit exposures are real estate related,” write Chancellor and Monnelly.

    Banks have also given a huge amount of loans to local governments and taken on land as a collateral. The trouble is that a lot of this land has been dubiously overvalued by local governments to take on higher amount of loans. “The quality of the collateral held by the banks against their loans has been questioned. Collateral often comes in the form of land, which in some cases has been valued by local officials at a premium to actual market values…Loudi, a little-known city in Hunan province, serves as the poster child for local government funding vehicles excesses. According to Bloomberg, Loudi’s local government borrowed RMB 1.2 billion to finance the construction of a 30,000-seat faux Olympic stadium, gymnasium, and swimming complex. The land collateral for Loudi’s loan was valued at around four times the value of nearby plots zoned for commercial use,” Chancellor and Monnelly point out. So if the banks try to sell the land they have as collateral in case of defaults, they are not going to recover a large portion of the loans they have made.

    Also, a lot of local governments have taken on a large amount of loans to spend on trophy projects which are not going to generate returns any time soon. One such project is the famous maglev (magnetic levitation) train that goes from Longyan Road in Shanghai to Pudong International Airport in eight minutes.

    Ruchir Sharma, head of Emerging Markets and Global Macro at Morgan Stanley Investment Management, describes his experience of taking the train in Breakout Nations. While the experience was fantastic, there were hardly any passengers around. He points out that locals say that the train is usually only half full because it starts in the middle of nowhere and the ticket is very expensively priced.

    Such projects are not expected to generate returns anytime soon, making the repayment of loans even more difficult. As Chu of Fitch told Bloomberg “Companies are taking on a lot of debt but not getting comparable returns… If they’re not getting sufficient returns, at some point they will have problems repaying the debt.”

    So the situation is tight but this hasn’t started reflecting in loan defaults as yet. The formal banking system has a non performing loan ratio of around 1 percent. There are several reasons why this ratio is not higher. One simple reason is that the banks have been allowed to roll-over loans, in case the local government bodies which have taken on the loans are not able to pay up. This basically means that when a loan falls due and the borrower needs to repay it, the bank does not demand repayment of the loan and continues to accept interest on it from the borrower.

    What has also happened is that banks are selling bonds bundled into wealth management products to their clients. These bonds are supposed to be raising money to finance infrastructure projects. But that is really not the case. As the GMO authors write “Caixin (a Beijing based media group) quotes a source at a major bank claiming that many bonds, which purported to finance new infrastructure projects, were actually being used to pay off old bank debts. While this has allowed banks to reduce their reported exposure to local governments, it is possible they will have to make good any future losses suffered by investors on future bond defaults.” So basically future bad loans of banks have been passed onto bond investors.

    Of course such things cannot go for eternity. As Wei Hao of Societe Generale puts it “a number of economies had similar or moderately lower debt service ratios (DSRs) when they were headed towards serious financial and economic crises. Examples include Finland (early 1990s), Korea (1997), the UK (2009), and the US (2009). This is one more data point in China that evokes the troubling thought of a hard landing.”

    But not everyone is willing to buy this argument. Those who don’t buy feel that China is in the midst of a ‘credit bubble’ like to point out that most of the outstanding Chinese debt is domestic. And given that there can be no crisis. They just need to look at Japan. Domestic savings fuelled a stock market and real estate bubble in the late 1980s. The bubble started to burst in 1989, and the Japanese economy has never recovered since then.

    The other point that China supporters like to point out is that China has a very low government debt to GDP ratio. As Chancellor and Monnelly point out “Many commentators also take comfort from the fact that China’s public debt (another term of government debt) is less than 30% of GDP. The trouble is that the official numbers are misleading…In order to get a proper picture of China’s sovereign liabilities we must add back the loans to local government infrastructure projects, policy bank debt (issued by the likes of the China Development Bank), borrowings by the asset management companies (which acquire non-performing loans from banks and others), and debt issued by the Ministry of Railways to fund the roll-out of the expensive high-speed rail network.” After this is done, China’s government debt to GDP ratio comes close to 90 percent, which is not small by any stretch of imagination.

    So while there might be many out there who would like to believe that all is well in China, the evidence is clearly to the contrary. Chu of Fitch put it best when she told Bloomberg “You just don’t see that magnitude of increase in the ratio of credit to GDP…It’s usually one of the most reliable predictors for a financial crisis.”

    http://www.firstpost.com/world/is-c...r-the-next-big-financial-crisis-861481.html/2
     
  21. bose

    bose Senior Member Senior Member

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    India has nothing to prove specially to you... read my earlier post... although the rate for growth has fallen so is the inflation which has gone down to one of the lowest in many years ...

    India will grow on its own term...

    DELL has already moved out of China to India... Japan is spending billions in India industrial corridor... just to move theirs out of China to India..

    Philippines & Vietnam have proved better alternative to China in terns of retunes of investment & skill... Brave Chinese find it difficult to digest...


    Nor China has the brand name nor the R&D centres of repute... Only Ctrl C & Ctrl V...

    Nobel may not be sole criteria but it does give an indicator to progress in Science & Technology and scientific thinking in a country...

    India gave Asia the first Nobel Prize winner... Look at Japan their progress in Science & Technology although after complete destruction post WW-II


    It must be hurting for a SOPA PAWAR in waiting... more to come...Keep up your chin and wait for some more...

    Indeed India is Shining Bright !!!

    I fully like the way Inida is progressing to challenge China... Next in line is drilling oil from SCS... You are going to love it....
     
    Last edited: Jun 17, 2013

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