Comment by cwan | Hacker News Reader

Comment by cwan | Hacker News Reader

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One additional note that I'd also make is that intercompany shareholdings (keiretsu used to promote stability and prevent takeovers) were in essence financed by the government and in turn made the mess even more difficult to ultimately deal with given the incestuous crossholdings and restructure firms.

I agree with you on the obstacles facing China to becoming a superpower which are far greater than others imagine. Working there, you see how inefficiently resource allocation has been for state owned enterprises which in turn have propped up stock prices and real estate. How they're able to deal with any bust politically is what scares me.

The government is already largely hated/strongly disliked in many quarters (there are many who have long memories not to mention the obvious and very visible corruption). It bears mention that that China liberalized not because they wanted to, but because they had no choice given how poor their people were. When the bust happens, the increased civil unrest and the government's overriding resolve to maintain power will be a volatile combination - one that Japan didn't have to deal with.

I also agree that the parallel of Japan seems more relevant to China than the US. China's non performing assets in their banking sector has likely grown quite significantly with the push for lending in the last year. The average Chinese aren't stupid either - which makes it a potential catastrophe if certain world leaders get their wish that the RMB is allowed to float. Capital will rush out of China and its domestic banks causing a financial crisis and ironically potentially a RMB that is worth substantially less than it is today.

inefficient resource allocation is an intrinsic property of central planning and is the main balancing force to economies of scale that drive organizations to become larger. this eventually results in the "smaller companies eating their lunch" phenomenon that we love so much.

of course with government customers couldn't traditionally just "go elsewhere". this is showing signs of changing (lichtenstein, switzerland, hong kong, singapore, etc.).

I think we're seeing the same pattern we saw before in Japan and then Korea, rapid industrialization in support of an export-driven economy. In both previous cases, the growth was driven by vast government support and enormous loans and large economic bubbles (which have largely burst in both countries, but they've left quite a mess as well). It also had interesting side effects, due to the government favoring certain industries, and certain players in those industries, of establishing long running tendencies for croniysm in both economies and in the government that both are also now dealing with. Japan's recent power shakeup in the government is evidence of this, with the head of the DPJ I believe apologizing for future missteps as nobody but the LDP has rule the country in a few generations and they need time to "figure things out".

The difference, and why so few people fail to analyze China along similar lines, is that China is so big, and China is historically communist. We've all acted very confused about what's going on over there, when really it's essentially following the same patterns, just on a larger scale. Eventually, the economy of China will grow to be so large that a pure export-driven economy will no longer work, the cost of employing factory workers won't necessarily realize the same cost savings that they do now, and then they'll have to being transitioning their economy over to other areas of expertise.

Japan and Korea both largely settled on hi-tech partnerships in electronics and manufacturing and automobile manufacturing, which while still export-driven in the technical sense, is loads different than making under priced radios and other flashy and cheap trinkets. China is still largely in the cheap trinket export market, but the plethora of automobile manufacturers, and some notable acquisitions in that areas, as well as an internal push towards hi-tech manufacturing (the Longsoon processor for example) makes me think they'll be in the same state in 20 or 30 years.

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