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most of the illierate in china are retired labours.
China Economy: News & Discussion
- Thread starter Rage
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Centrally planned economy is still centrally planned.
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The new illiterate are migrant workers not bothering to learn.
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if it were cnterally planned economy ,it would be much more fine to me.....and I would live a much easier life.......may such a day return to me.
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Instead, Thousands of CHinese overseas students return and queue up to apply jobs in CHinese tier1 cities.
Frankly speaking,just in my office is there exactly one who returned from Canada .and I am exactly he direct superior.
And one guy from UK as well as I became one junior employee of the bank in 2008,and got promoted
together with me last year.
Last edited:
SHASH2K2
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China Is Poised to Raise Rates Again, Bankers Say
HONG KONG — China's government, increasingly worried about soaring inflation, plans to continue tightening its money supply and will probably raise interest rates again within the month.
That is the forecast of economists and bankers with knowledge of policy makers' views, who insisted on anonymity because of the political and diplomatic sensitivity of Chinese monetary policy.
Inflation lately has caused friction in China's mighty export machine. Now, Beijing's efforts to fight inflation, through higher interest rates and tighter restrictions on bank loans, could begin to slow segments of China's domestic economy slightly — particularly the breakneck pace of investment in new factories, office buildings and apartment complexes.
That, in turn, could weaken demand for industrial materials like steel and copper that depend heavily on Chinese purchases.
And yet, the tighter-money policies and higher interest rates could be good news for Chinese consumers, whose spending China has been counting on for its next wave of growth — not only to help balance the country's export-dominated economy but to enable more of the nation's 1.3 billion citizens to share in its prosperity.
For one thing, a slowdown in speculative construction could slow or even temporarily reverse the long rise of Chinese real estate prices, as 15 million people a year pour into the cities.
And while much of the construction spending, and the loans that fuel it, involve state-owned companies, households in China are typically savers, not borrowers. They pay for most cars and other large purchases with cash. Even for new homes, they typically borrow half or less of the purchase price.
So far, consumers frequently hold large bank deposits that earn interest rates well below the inflation rate. Higher interest on savings accounts, if the new policies allow, would only improve consumer purchasing power.
Much of China's inflation is being fueled by the extraordinary growth in its money supply, broadly measured as so-called M2, which has soared a total of nearly 53 percent in the last two years. That is largely a result of the country's aggressive monetary and fiscal stimulus program in 2009 and early 2010, as Beijing essentially printed money in response to the global financial crisis.
Although China's economy is a little less than half that of the United States, its money supply is now one-quarter larger than America's.
Since the beginning of last year, Beijing has moved several times to start clamping back down on the money in circulation, by increasing the required amounts that banks must hold in reserve, leaving them with less money to lend. The central bank has raised this requirement seven times in the last 13 months, with four of those increases coming in quick succession since mid-November.
The bank has also been raising interest rates. The benchmark rate for one-year corporate loans is now 5.81 percent, up from 5.31 percent a year ago. The central bank has already raised rates twice since late October, and is poised to raise them again this month, the economists and bankers said.
Economists at international banks tend to agree that China needs to take even further action to limit inflation.
"We believe Beijing must act more decisively on credit tightening to stop inflation from rising too fast," said Qu Hongbin, the chief China economist at HSBC, in a research note on Monday.
China's consumer price index climbed 4.6 percent last year. But Chinese and Western economists say the index seriously underestimates inflation because of shortcomings in how it measures the introduction of new garments and other goods and because it entirely excludes the cost of owner-occupied housing. The National Bureau of Statistics in Beijing has said it is working on improving the index.
One policy change Beijing is unlikely to take soon is letting the currency, the renminbi, appreciate faster as a way to fight inflation, the economists and bankers said.
The renminbi has already been rising at an annualized rate of 5.7 percent against the dollar since China broke the currency's peg to the dollar last June. China's central bank continues to intervene heavily in currency markets to brake the renminbi's rise, but not enough to stop the renminbi from rising altogether — as it did for almost two years before last June.
The Obama administration, arguing that an artificially low renminbi gave Chinese exporters an unfair price advantage over Western companies, pushed China hard a year ago to break the link to the dollar. But Washington has been slightly less vocal on the subject more recently. It barely came up in public comments by either side after President Hu Jintao of China's recent state visit to the White House.
Lately, Chinese and American policy makers have been looking at the so-called real effective exchange rate, which includes differences in the two countries' inflation levels. Inflation in the United States is currently running at a rate of only about 1.5 percent.
Depending on which inflation index is chosen in each country, and whether any adjustments are made for the consistent underestimates of Chinese inflation because of methodology problems, the real effective exchange rate measure shows that the renminbi is strengthening by 10 percent or more a year against the dollar.
The Treasury secretary, Timothy F. Geithner, has said that this real exchange rate is showing that Chinese exporters already face rising costs as they try to stay competitive in the United States market.
There has been some uncertainty in financial markets since Mr. Hu announced in early December that the country would pursue a "stable" monetary policy.
But the People's Bank of China, the country's central bank, has signaled in no fewer than a dozen statements since Mr. Hu's remarks that it plans to throttle back the torrents of money still sloshing through the Chinese economy. And a policy paper from the central bank this winter indicated that, in Beijing, "stable" can in fact mean "tighter."
The paper described five settings for Chinese monetary policy: easy, suitably easy, stable, suitably tight and tight.
The paper said that policy had moved from suitably easy to stable.
HONG KONG — China's government, increasingly worried about soaring inflation, plans to continue tightening its money supply and will probably raise interest rates again within the month.
That is the forecast of economists and bankers with knowledge of policy makers' views, who insisted on anonymity because of the political and diplomatic sensitivity of Chinese monetary policy.
Inflation lately has caused friction in China's mighty export machine. Now, Beijing's efforts to fight inflation, through higher interest rates and tighter restrictions on bank loans, could begin to slow segments of China's domestic economy slightly — particularly the breakneck pace of investment in new factories, office buildings and apartment complexes.
That, in turn, could weaken demand for industrial materials like steel and copper that depend heavily on Chinese purchases.
And yet, the tighter-money policies and higher interest rates could be good news for Chinese consumers, whose spending China has been counting on for its next wave of growth — not only to help balance the country's export-dominated economy but to enable more of the nation's 1.3 billion citizens to share in its prosperity.
For one thing, a slowdown in speculative construction could slow or even temporarily reverse the long rise of Chinese real estate prices, as 15 million people a year pour into the cities.
And while much of the construction spending, and the loans that fuel it, involve state-owned companies, households in China are typically savers, not borrowers. They pay for most cars and other large purchases with cash. Even for new homes, they typically borrow half or less of the purchase price.
So far, consumers frequently hold large bank deposits that earn interest rates well below the inflation rate. Higher interest on savings accounts, if the new policies allow, would only improve consumer purchasing power.
Much of China's inflation is being fueled by the extraordinary growth in its money supply, broadly measured as so-called M2, which has soared a total of nearly 53 percent in the last two years. That is largely a result of the country's aggressive monetary and fiscal stimulus program in 2009 and early 2010, as Beijing essentially printed money in response to the global financial crisis.
Although China's economy is a little less than half that of the United States, its money supply is now one-quarter larger than America's.
Since the beginning of last year, Beijing has moved several times to start clamping back down on the money in circulation, by increasing the required amounts that banks must hold in reserve, leaving them with less money to lend. The central bank has raised this requirement seven times in the last 13 months, with four of those increases coming in quick succession since mid-November.
The bank has also been raising interest rates. The benchmark rate for one-year corporate loans is now 5.81 percent, up from 5.31 percent a year ago. The central bank has already raised rates twice since late October, and is poised to raise them again this month, the economists and bankers said.
Economists at international banks tend to agree that China needs to take even further action to limit inflation.
"We believe Beijing must act more decisively on credit tightening to stop inflation from rising too fast," said Qu Hongbin, the chief China economist at HSBC, in a research note on Monday.
China's consumer price index climbed 4.6 percent last year. But Chinese and Western economists say the index seriously underestimates inflation because of shortcomings in how it measures the introduction of new garments and other goods and because it entirely excludes the cost of owner-occupied housing. The National Bureau of Statistics in Beijing has said it is working on improving the index.
One policy change Beijing is unlikely to take soon is letting the currency, the renminbi, appreciate faster as a way to fight inflation, the economists and bankers said.
The renminbi has already been rising at an annualized rate of 5.7 percent against the dollar since China broke the currency's peg to the dollar last June. China's central bank continues to intervene heavily in currency markets to brake the renminbi's rise, but not enough to stop the renminbi from rising altogether — as it did for almost two years before last June.
The Obama administration, arguing that an artificially low renminbi gave Chinese exporters an unfair price advantage over Western companies, pushed China hard a year ago to break the link to the dollar. But Washington has been slightly less vocal on the subject more recently. It barely came up in public comments by either side after President Hu Jintao of China's recent state visit to the White House.
Lately, Chinese and American policy makers have been looking at the so-called real effective exchange rate, which includes differences in the two countries' inflation levels. Inflation in the United States is currently running at a rate of only about 1.5 percent.
Depending on which inflation index is chosen in each country, and whether any adjustments are made for the consistent underestimates of Chinese inflation because of methodology problems, the real effective exchange rate measure shows that the renminbi is strengthening by 10 percent or more a year against the dollar.
The Treasury secretary, Timothy F. Geithner, has said that this real exchange rate is showing that Chinese exporters already face rising costs as they try to stay competitive in the United States market.
There has been some uncertainty in financial markets since Mr. Hu announced in early December that the country would pursue a "stable" monetary policy.
But the People's Bank of China, the country's central bank, has signaled in no fewer than a dozen statements since Mr. Hu's remarks that it plans to throttle back the torrents of money still sloshing through the Chinese economy. And a policy paper from the central bank this winter indicated that, in Beijing, "stable" can in fact mean "tighter."
The paper described five settings for Chinese monetary policy: easy, suitably easy, stable, suitably tight and tight.
The paper said that policy had moved from suitably easy to stable.
SHASH2K2
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China raises interest rates again to tackle inflation
China's central bank has raised interest rates for the third time in four months as authorities ramp up efforts to tackle inflation.
The People's Bank of China said it would raise its one-year lending rate to 6.06% from 5.81% and its one-year deposit rate to 3.0% from 2.75%.
In October, the Bank raised rates for the first time in nearly three years as it sought to tame rising prices.
Inflation for 2010 as a whole was 3.3%, above the official target of 3%.
But it was even higher towards the end of the year, hitting a 28-month high of 5.1% in November, before easing to 4.6% in December.
And there are fears that it could pick up again in January as food prices continue to rise.
The government has now raised its CPI target to 4% for 2011.
China's central bank has raised interest rates for the third time in four months as authorities ramp up efforts to tackle inflation.
The People's Bank of China said it would raise its one-year lending rate to 6.06% from 5.81% and its one-year deposit rate to 3.0% from 2.75%.
In October, the Bank raised rates for the first time in nearly three years as it sought to tame rising prices.
Inflation for 2010 as a whole was 3.3%, above the official target of 3%.
But it was even higher towards the end of the year, hitting a 28-month high of 5.1% in November, before easing to 4.6% in December.
And there are fears that it could pick up again in January as food prices continue to rise.
The government has now raised its CPI target to 4% for 2011.
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The reason mentioned in the article does not makes any sense, so what is the real reason. the famous Chinese quality of construction?
http://online.wsj.com/article/SB100...62330447308782.html?mod=WSJ_hp_LEFTTopStories
http://online.wsj.com/article/SB100...62330447308782.html?mod=WSJ_hp_LEFTTopStories
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hmm now more and more people are joining the chorus:
http://www.slate.com/id/2291271/
Beijing's Empty Bullet Trains
Is China investing way too much in its infrastructure?
By Nouriel RoubiniPosted Thursday, April 14, 2011, at 2:43 PM ET
http://www.slate.com/id/2291271/
Beijing's Empty Bullet Trains
Is China investing way too much in its infrastructure?
By Nouriel RoubiniPosted Thursday, April 14, 2011, at 2:43 PM ET
Tolaha
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An article from "FirstPost", though I really doubt it could end up as worse as it sounds:
http://www.firstpost.com/world/china-economy-hardlanding-6115.html
As the Air China flight enters Beijing's skies and prepares for landing, the cockpit radio in the passenger cabin crackles to life. The message is grim. "This is your Captain speaking," the voice says, not caring enough to mask the tension in it. "Three of our engines have failed, and we're in for a real rough landing. Passengers, please assume the brace position."
For a world of investors who have long been used to the cocooned comfort of a high-flying Chinese economy, the message from the cockpit today is nerve-wracking. China's high-octane export-driven economic growth model, which was the envy of the world for some 30 years, is coming to an end. And efforts by the crew to change the flight path to a domestic consumption-led economy aren't working to plan. Worse, the structural flaws in the economy, which had been neglected for too long, and a string of human errors by those in command, have compounded the crisis. A hard landing, the shock of which will reverberate around the world, seems inevitable.
That's the disquieting message from economists, market analysts and China-watchers who have a sharp eye out for macroeconomic trends in China – and an ear to the ground to catch anecdotal evidence that validates their theories.
'A dangerous point'
"This is a pretty dangerous point in the development of the Chinese economy," says celebrated economist Dr Jim Walker, who famously prophesied the 1997 Asian financial crisis and the apocalyptic global financial meltdown of 2008. "We're going to start hitting in China a tremendously dangerous period of potential stagflation, where output is falling (or not rising very fast) and inflation has risen. The danger signs are definitely there."
In an interview to Firstpost in Hong Kong last week (see video below), Walker, who heads Asianomics, an independent economic research consultancy, outlined the reasons for his uber-bearish outlook on China.
Nor is Walker alone in his Cassandra-esque prognostications. Nouriel Roubini, the rock star of economists, who travelled recently to China, warns that China "is poised for a sharp slowdown" – most likely after 2013. "Instead of focussing on securing a soft landing today, Chinese policymakers should be worrying about the brick wall that economic growth may hit."
And Jim Chanos, the legendary hedge fund investor who famously short-sold Enron (and made billions on that trade), has for over a year now been banging away about China's "unsustainable economic growth path" – and been putting his money where his mouth is.
There's an 'earthquake' coming
Gordon Chang, author of 'The Coming Collapse of China'. Photo by Venky Vembu.
To noted China-watcher Gordon Chang, author of The Coming Collapse of China, all this seems to suggest that the central argument and prediction of his 2001 book may finally be playing out.
"China cannot escape the laws of economics," Chang told Firstpost. "It can delay them, but at some point they've got to catch up."
Chang, in fact, sees China's economic problems feeding social and political discontent as well, with calamitous consequences for one-party rule in China. "You have a society that is dynamically moving forward, and you have a political system that is pushing back. That's two big tectonic plates moving in opposite directions – in other words, an earthquake."
How did this happen?
But how did the Chinese economy, which grew at an average of 10% a year for 30 years, suddenly run into a brick wall?
Walker points to short-term policy failings, and longer-term structural problems in China's economy.
In the short term, Walker reasons that flawed monetary policy, which set off an avalanche of money supply to prop up the economy in 2008 when exports collapsed in response to the financial crisis, is feeding stubbornly high inflation today. And although Chinese policymakers are trying to dial that back, he says, they are "miles behind" the inflation curve.
"Meanwhile, the problems keep mounting in China: the economy is getting more and more skewed towards investment and property, and inflation is a major problem. They have to tackle that, and when they do, the economy is going to slow down – and sharply."
A difficult course correction
Chinese policymakers, right from Premier Wen Jiabao, have acknowledged the serious imbalance in China's economy, and are evidently engineering a shift from an investment-led economy to one that is driven by domestic consumption, as envisaged in the country's 12th Five Year Plan.
But Walker believes that such a transition "is an easy thing to talk about, but a very difficult thing to do." And such a transition "also implies bad news for the stock market, much slower growth – and a period where, quite possibly, the expansion of China is finished for a few years."
Longer-term demographic trends also don't favour China's growth model. The recent Census findings showed that China's population is ageing rapidly, which trend is compounded by China's coercive one-child policy. This too has implications for economic growth, points out Walker. Growth in China's labour force – the millions of peasants who were leaving their farms to work in factories in the cities – once contributed 1 or 2 percentage points to GDP growth. "That is now finished, because the labour force isn't expanding anymore." And looking ahead to the next 20-30 years, that demographic trend is about to get a lot worse.
This has led economists and academics to predict that China will "grow old before it gets rich" and fall into a middle-income trap – an economic eventuality where growth tends to slow when per-capita GPP reaches a certain threshold. A recent research study establishes that in China's case it could happen as early as 2014.
Is the 'China miracle' over?
So, what do all these trends and data points mean for China? Is the 'China economic miracle story', which had the world so engrossed for 30 years, well and truly over?
"The China story can still be there," says Walker. "I only think we need to be a bit more feet-on-the-ground rather than heads-in-the cloud about China." That means that China's economy could still grow at perhaps on average 5-6% a year over the next decade or two. "That's still pretty good going, even if it it's lower than the nonsensical 8-10%" that investors have come to expect from China's record of the past three decades.
But even within that 5-6% growth trendline, there will, says Walker, be years of adjustment where the economy grows by just 1% or so. "And that's just something that most investors at the moment don't have on their radar."
It could just be that they haven't heard the Captain's orders to brace themselves for a hard landing.
http://www.firstpost.com/world/china-economy-hardlanding-6115.html
As the Air China flight enters Beijing's skies and prepares for landing, the cockpit radio in the passenger cabin crackles to life. The message is grim. "This is your Captain speaking," the voice says, not caring enough to mask the tension in it. "Three of our engines have failed, and we're in for a real rough landing. Passengers, please assume the brace position."
For a world of investors who have long been used to the cocooned comfort of a high-flying Chinese economy, the message from the cockpit today is nerve-wracking. China's high-octane export-driven economic growth model, which was the envy of the world for some 30 years, is coming to an end. And efforts by the crew to change the flight path to a domestic consumption-led economy aren't working to plan. Worse, the structural flaws in the economy, which had been neglected for too long, and a string of human errors by those in command, have compounded the crisis. A hard landing, the shock of which will reverberate around the world, seems inevitable.
That's the disquieting message from economists, market analysts and China-watchers who have a sharp eye out for macroeconomic trends in China – and an ear to the ground to catch anecdotal evidence that validates their theories.
'A dangerous point'
"This is a pretty dangerous point in the development of the Chinese economy," says celebrated economist Dr Jim Walker, who famously prophesied the 1997 Asian financial crisis and the apocalyptic global financial meltdown of 2008. "We're going to start hitting in China a tremendously dangerous period of potential stagflation, where output is falling (or not rising very fast) and inflation has risen. The danger signs are definitely there."
In an interview to Firstpost in Hong Kong last week (see video below), Walker, who heads Asianomics, an independent economic research consultancy, outlined the reasons for his uber-bearish outlook on China.
Nor is Walker alone in his Cassandra-esque prognostications. Nouriel Roubini, the rock star of economists, who travelled recently to China, warns that China "is poised for a sharp slowdown" – most likely after 2013. "Instead of focussing on securing a soft landing today, Chinese policymakers should be worrying about the brick wall that economic growth may hit."
And Jim Chanos, the legendary hedge fund investor who famously short-sold Enron (and made billions on that trade), has for over a year now been banging away about China's "unsustainable economic growth path" – and been putting his money where his mouth is.
There's an 'earthquake' coming
Gordon Chang, author of 'The Coming Collapse of China'. Photo by Venky Vembu.
To noted China-watcher Gordon Chang, author of The Coming Collapse of China, all this seems to suggest that the central argument and prediction of his 2001 book may finally be playing out.
"China cannot escape the laws of economics," Chang told Firstpost. "It can delay them, but at some point they've got to catch up."
Chang, in fact, sees China's economic problems feeding social and political discontent as well, with calamitous consequences for one-party rule in China. "You have a society that is dynamically moving forward, and you have a political system that is pushing back. That's two big tectonic plates moving in opposite directions – in other words, an earthquake."
How did this happen?
But how did the Chinese economy, which grew at an average of 10% a year for 30 years, suddenly run into a brick wall?
Walker points to short-term policy failings, and longer-term structural problems in China's economy.
In the short term, Walker reasons that flawed monetary policy, which set off an avalanche of money supply to prop up the economy in 2008 when exports collapsed in response to the financial crisis, is feeding stubbornly high inflation today. And although Chinese policymakers are trying to dial that back, he says, they are "miles behind" the inflation curve.
"Meanwhile, the problems keep mounting in China: the economy is getting more and more skewed towards investment and property, and inflation is a major problem. They have to tackle that, and when they do, the economy is going to slow down – and sharply."
A difficult course correction
Chinese policymakers, right from Premier Wen Jiabao, have acknowledged the serious imbalance in China's economy, and are evidently engineering a shift from an investment-led economy to one that is driven by domestic consumption, as envisaged in the country's 12th Five Year Plan.
But Walker believes that such a transition "is an easy thing to talk about, but a very difficult thing to do." And such a transition "also implies bad news for the stock market, much slower growth – and a period where, quite possibly, the expansion of China is finished for a few years."
Longer-term demographic trends also don't favour China's growth model. The recent Census findings showed that China's population is ageing rapidly, which trend is compounded by China's coercive one-child policy. This too has implications for economic growth, points out Walker. Growth in China's labour force – the millions of peasants who were leaving their farms to work in factories in the cities – once contributed 1 or 2 percentage points to GDP growth. "That is now finished, because the labour force isn't expanding anymore." And looking ahead to the next 20-30 years, that demographic trend is about to get a lot worse.
This has led economists and academics to predict that China will "grow old before it gets rich" and fall into a middle-income trap – an economic eventuality where growth tends to slow when per-capita GPP reaches a certain threshold. A recent research study establishes that in China's case it could happen as early as 2014.
Is the 'China miracle' over?
So, what do all these trends and data points mean for China? Is the 'China economic miracle story', which had the world so engrossed for 30 years, well and truly over?
"The China story can still be there," says Walker. "I only think we need to be a bit more feet-on-the-ground rather than heads-in-the cloud about China." That means that China's economy could still grow at perhaps on average 5-6% a year over the next decade or two. "That's still pretty good going, even if it it's lower than the nonsensical 8-10%" that investors have come to expect from China's record of the past three decades.
But even within that 5-6% growth trendline, there will, says Walker, be years of adjustment where the economy grows by just 1% or so. "And that's just something that most investors at the moment don't have on their radar."
It could just be that they haven't heard the Captain's orders to brace themselves for a hard landing.
Last edited:
chex3009
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China's decline is a question of when, not whether
The world has always been in denial about the prospect of China's impending decline. Dragonomics – a fairy-tale growth story scripted over the last three decades – will sooner (or, maybe, a bit later) be history. Reason: no one can sustain double-digit growth rates indefinitely. Something has got to give. It will.
The fact is China's miracle economy did not script anything new – except for mastering the art of economies of scale. It became a factory to the world because it was so huge and could do it larger and better than its predecessors who followed the same capital-intensive route to growth. Communist Russia, Japan and the Asian Tigers also had done more or less the same thing: curbed consumption at home, invested like crazy and turbo-charged growth by exporting it all to America. Barring Japan, which had a paternalistic, feudal culture, all were authoritarian regimes. Russia exported military hardware and steel plants to its client regimes and friends (including India) at extortionate prices.
All miracle economies have a common ending: dramatic slowdown or crash. Sometimes, the crash happens due to political crises (as in Russia, South Korea), sometimes due to economic tsunamis (Malaysia, Indonesia). The question about China is: what will cause its downfall? An outpouring of internal dissent or an economic crisis? Or overinvestment in its own military as it tries to flex its geopolitical muscle?
Gordon Chang, author of The Coming Collapse of China told Firstpost: "China cannot escape the laws of economics." A Stratfor Global Intelligence report sees China crashing by 2015. It says: "China's economy, like the economies of Japan and other East Asian states before it, will reduce its rate of growth dramatically in order to calibrate growth with the rate of return on capital and to bring its financial system into balance. To do this, it will have to deal with the resulting social and political tensions."
One may ask: how has China been able to defy economics for so long? The answer is obvious: it's authoritarian structure.
The reason why authoritarian regimes are able to prolong the growth cycle is simple: since they bottle up dissent, they can divert resources from consumption to investment for longer periods of time than democracies. But when you have 50 percent rates of saving and investment, the probability is that you are investing in projects without much of an economic return as capital is plenty and consumption is low. We have already heard of China's ghost towns, with mothballed infrastructure waiting to be used.
The miracle economies solved this investment-consumption equation by exporting to the US and lending even more money to that country to buy their products. You can keep this kind of bargain going for a while, but sooner or later the music will stop – and the US has to stop consuming excessively and start saving. The US will want to balance its books, and China can't export too much to a slowing world. It has to prime the domestic consumption pump. It is trying to do that by pouring money in, and this is feeding inflation.
Now consider what happens in democracies. The process is almost dialectic. After liberalisation, India's economy has boomed and slowed – in turn. In the first five years after reforms, the economy boomed. Then it slowed – all the way till 2003, if one were to exclude the dotcom blip. Then it picked up steam. It is losing steam again.
This happens because politicians in a democracy have to heed the voice of the poor. They can't send them away to Gulags or imprison them in rural areas. You need to throw money at NREGA schemes and forget about reforms to allow the poor to close the income gap for a while before a slowing economy forces you to reform again. My guess is that by 2013-14, India will be ripe for the next raft of reforms for by then we would have reached the limits of growth, given our infrastructure bottlenecks and poor agricultural productivity. We won't see double-digit growth till after that, whatever Manmohan Singh may say.
So, the question is not whether China will have a dramatic slowdown, but when. Says the Stratfor report:
"China faces a quadruple bind. First, China's current economic model is not sustainable. That model favours employment over all other concerns, and can only be maintained by running on thin margins. Eventually, manufacturing margins turn negative as they did in Japan in 1991 and Indonesia in 1998.
"Second, the Chinese model is only possible so long as Western populations continue to consume Chinese goods in increasing volumes. European demographics alone will make that impossible in the next decade.
"Third, the Chinese model requires cheap labour as well as cheap capital to produce cheap goods. The bottom has fallen out of the Chinese birthrate; by 2020 the average Chinese will be nearly as old as the average American, but will have achieved nowhere near the level of education to add as much value. The result will be a labour shortage in both qualitative and quantitative terms.
"Finally, internal tensions will break the current system. More than 1 billion Chinese live in households whose income is below $2,000 a year (with 600 million below $1,000 a year). The government knows this and is trying to shift resources to the vast interior comprising the bulk of China. But this region is so populous and so poor — and so vulnerable to minor shifts in China's economic fortunes — that China simply lacks the resources to cope."
Report : Firstpost
The world has always been in denial about the prospect of China's impending decline. Dragonomics – a fairy-tale growth story scripted over the last three decades – will sooner (or, maybe, a bit later) be history. Reason: no one can sustain double-digit growth rates indefinitely. Something has got to give. It will.
The fact is China's miracle economy did not script anything new – except for mastering the art of economies of scale. It became a factory to the world because it was so huge and could do it larger and better than its predecessors who followed the same capital-intensive route to growth. Communist Russia, Japan and the Asian Tigers also had done more or less the same thing: curbed consumption at home, invested like crazy and turbo-charged growth by exporting it all to America. Barring Japan, which had a paternalistic, feudal culture, all were authoritarian regimes. Russia exported military hardware and steel plants to its client regimes and friends (including India) at extortionate prices.
All miracle economies have a common ending: dramatic slowdown or crash. Sometimes, the crash happens due to political crises (as in Russia, South Korea), sometimes due to economic tsunamis (Malaysia, Indonesia). The question about China is: what will cause its downfall? An outpouring of internal dissent or an economic crisis? Or overinvestment in its own military as it tries to flex its geopolitical muscle?
Gordon Chang, author of The Coming Collapse of China told Firstpost: "China cannot escape the laws of economics." A Stratfor Global Intelligence report sees China crashing by 2015. It says: "China's economy, like the economies of Japan and other East Asian states before it, will reduce its rate of growth dramatically in order to calibrate growth with the rate of return on capital and to bring its financial system into balance. To do this, it will have to deal with the resulting social and political tensions."
One may ask: how has China been able to defy economics for so long? The answer is obvious: it's authoritarian structure.
The reason why authoritarian regimes are able to prolong the growth cycle is simple: since they bottle up dissent, they can divert resources from consumption to investment for longer periods of time than democracies. But when you have 50 percent rates of saving and investment, the probability is that you are investing in projects without much of an economic return as capital is plenty and consumption is low. We have already heard of China's ghost towns, with mothballed infrastructure waiting to be used.
The miracle economies solved this investment-consumption equation by exporting to the US and lending even more money to that country to buy their products. You can keep this kind of bargain going for a while, but sooner or later the music will stop – and the US has to stop consuming excessively and start saving. The US will want to balance its books, and China can't export too much to a slowing world. It has to prime the domestic consumption pump. It is trying to do that by pouring money in, and this is feeding inflation.
Now consider what happens in democracies. The process is almost dialectic. After liberalisation, India's economy has boomed and slowed – in turn. In the first five years after reforms, the economy boomed. Then it slowed – all the way till 2003, if one were to exclude the dotcom blip. Then it picked up steam. It is losing steam again.
This happens because politicians in a democracy have to heed the voice of the poor. They can't send them away to Gulags or imprison them in rural areas. You need to throw money at NREGA schemes and forget about reforms to allow the poor to close the income gap for a while before a slowing economy forces you to reform again. My guess is that by 2013-14, India will be ripe for the next raft of reforms for by then we would have reached the limits of growth, given our infrastructure bottlenecks and poor agricultural productivity. We won't see double-digit growth till after that, whatever Manmohan Singh may say.
So, the question is not whether China will have a dramatic slowdown, but when. Says the Stratfor report:
"China faces a quadruple bind. First, China's current economic model is not sustainable. That model favours employment over all other concerns, and can only be maintained by running on thin margins. Eventually, manufacturing margins turn negative as they did in Japan in 1991 and Indonesia in 1998.
"Second, the Chinese model is only possible so long as Western populations continue to consume Chinese goods in increasing volumes. European demographics alone will make that impossible in the next decade.
"Third, the Chinese model requires cheap labour as well as cheap capital to produce cheap goods. The bottom has fallen out of the Chinese birthrate; by 2020 the average Chinese will be nearly as old as the average American, but will have achieved nowhere near the level of education to add as much value. The result will be a labour shortage in both qualitative and quantitative terms.
"Finally, internal tensions will break the current system. More than 1 billion Chinese live in households whose income is below $2,000 a year (with 600 million below $1,000 a year). The government knows this and is trying to shift resources to the vast interior comprising the bulk of China. But this region is so populous and so poor — and so vulnerable to minor shifts in China's economic fortunes — that China simply lacks the resources to cope."
Report : Firstpost
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There are so many factors against China the economy hitting a brick wall is a foregone conclusion. The above article deals with some of the demographic issues, but lets review some of the resource issues. China is rapidly turning into desert, water supply is dwindling, coal stocks are being depleted at substantial rates. The loss of arable land has hit critical levels with 8.5 million hectares lost and hitting the red line 120 million mark. There is only so much you can do to improve farming so that is topping out going into decline with urban reclamation, desertification and reforestation. Water supply is already at a 40 billion cubic metre shortage right now, 320 million don't even have safe drinking water. It is going to cost China $612 billion over ten years just to clean it which is a serious drain on financial resources. Water is a vital commodity to industrial production as well which hinders manufacturing growth and we are already seeing that slow down in the latest PMI. Coal is the resource that keeps China running, and their economy is based on domestic reserves. Half of rail transport is dedicated to moving one thing... coal. It is estimated China will reach peak production by 2015 and steady decline into 2020 where it falls off. Alternative energy sources cannot replace coal fired plants in that time frame or the next 30 years. China is already experiencing coal shortages causing 30 million kW in power outages effecting industries from aluminum to lead. China will have to import massive quantities of food, water and coal which are not going to be subject to CCP price controls. Whatever trade surplus they have will be dwarfed with hundreds of billions of deficit. Russia will need to build a pipeline to China filled with fresh WATER.
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well, Gorden Chang.....hahahahahahah
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All you come with is Gordan Chang lols... if you have nothing to say, say nothing at all.
P
pi314159
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This statement is of course correct. You can replace China with US or India, the statement still holds. It is more or less equivalent to say that all natural resources on earth will be gone is a question of when, not whether.
Actually there are two questions concerning China's decline: when and how. Is the decline going to happen next year, 10 year later or another three decades? And when decline happens, will it be a crash, or soft-landing, or just cyclical? These questions seems more meaningful, for example, if you know the answer to above questions, you can decide to short or long your stock.
The article above seems imply China's decline will be crash like. Unfortunately the author did not give even a time estimate.
cw2005
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If the country rating agents were to be trusted (A big if of course), China's latest rating is A+, Hong Kong is AAA and Taiwan is Aaa+. Not to mention Macau's GDP per Cap is even higher than Hong Kong's.
When you look at other BRIC members, Russia is BBB, Brazil is BBB- and India is also BBB-. Comparatively saying, China is rated the highest in the BRIC group.
Of course China's economy has problem, plenty of problem, and I don't believe any country could keep this rate of growth forever. Looking back to previous 30 years when China started the Capitalism, we might see a lot of smart change of how China handled its economic issues and is still keeping on changing. What we failed to see, despite giving some freedom to its people, is the proportionate change of the political system that is needed for further development as generally believed.
But if we believe China would stop at this stage and not to change the political system when it is needed, we are kidding ourselves.
When you look at other BRIC members, Russia is BBB, Brazil is BBB- and India is also BBB-. Comparatively saying, China is rated the highest in the BRIC group.
Of course China's economy has problem, plenty of problem, and I don't believe any country could keep this rate of growth forever. Looking back to previous 30 years when China started the Capitalism, we might see a lot of smart change of how China handled its economic issues and is still keeping on changing. What we failed to see, despite giving some freedom to its people, is the proportionate change of the political system that is needed for further development as generally believed.
But if we believe China would stop at this stage and not to change the political system when it is needed, we are kidding ourselves.
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Who cares about Macau, HK, and Taiwan? It has nothing to do with PRC credit ratings. An A+ rating is nothing to be excited about when it is 4 ratings below AAA like France. There is no such thing as AAA+. HK is AA+, Taiwan is AA- and no one bothers to rate Macau.
And China is getting negative forecasts by Fitch, sovereign debt negative, local debt negative.... 60% chance of banking crisis by 2013. Not good outlooks on China when France is sitting pretty with a prime rating and stable outlooks.
All methods of production are controlled by the state, monopolies reign supreme, it is hardly capitalism. What is funny now is that Huawei and ZTE are competing overseas and are caught up in patent wars they would never see on the mainland.
China can't change the system without getting rid of CCP. It is incompatible to garner consumption dominance under centrally planned economies.
^^^
Who do you think is buying the French goods??
There is nothing inherently difficult about consumption. Taiwan, Hong Kong, South Korea and Japan have all made that transition and so will China. China is already loosening the one-child policy and will continue to do so.
Short selling Enron is hardly the same as shorting China. For that, I would rather trust the opinions of macro hedge fund guys like Jim Rogers over Chanos.
Who do you think is buying the French goods??
There is nothing inherently difficult about consumption. Taiwan, Hong Kong, South Korea and Japan have all made that transition and so will China. China is already loosening the one-child policy and will continue to do so.
Short selling Enron is hardly the same as shorting China. For that, I would rather trust the opinions of macro hedge fund guys like Jim Rogers over Chanos.
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Hong Kong buys more French luxury goods than PRC.
If it is not difficult then China's private domestic consumption shouldn't have fallen from 55% of GDP to 34% in the last 12 years. China's population has almost flat-lined and will be in decline by 2015. Banks cover their bad loans on the backs of depositors getting negative real interest rates. China has a high savings rate because people can't afford housing and the social safety net CCP fails to provide. When housing prices collapse, a generation of wealth will be lost and so too will any hope of raising consumption.
Chanos runs a $7 billion hedge fund... Rogers runs an $850 million commodities fund. Who do investors trust more?
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Actually when Taiwan or Japan was growing in the 60s and 70s some people said the same thing that their economies have saturated and they are bound collapse. Today nothing of that sort has happened and both those countries offer decent living standards for their citizens. It would be the same case with China the doomsayers will always predict an end and people just keep moveing on, So i dont see any threat to Chinas growth. I think China is in a state of transformation at this point where it will look to grow its domestic consumers and i have no doubt that they will succeed in developing.
Everyone in asia wants a strong china but less the bullying and enemy mongering. India does not choose to be an enemy even when it was invaded un provoked in 1962 and we left that behind and keep trying to make friends yet China for some reason only likes aiding our enemy. India also did not arm or support the Tibet rebles to fight China like Pakistan has done with Kashmire or neither did India attack China and neither did India help its enemies. May be the CCP does not like Democracy and what India stands for, so I wish the CCP collapsed leaving China as a prosperous democracy like Japan,Korea or Taiwan. China would have been a developed county if not for Mao. He gave needless sorrow and poverty to China or else China would have grown like other east asian neighbors like Japan,South Korea, Taiwan and other democracies.
