To put it simply, the US worker gets a salary and buys a car, while the Chinese worker makes a deposit in a bank for a construction firm to borrow and build a railroad. Both cases describe transportation services, but they look very different in national accounts.
As for the exchange rate, it's not that relevant for local investments since China's going to pay in yuans anyway.
So yes, you are talking about China's biggest problem (inability to consume what they produce) that even the Chinese leadership has acknowledged is a huge problem.
Whether china can afford this or not is less relevant than "bang for the buck", china has already built out lots of HSR, some of it very lightly utilized (my own trip from Beijing to a city in south Hunan, the train was mostly empty most of the time). China builds mostly as a stimulus program, because if consumers aren't consuming its one of the only tools they have, but also focuses on flashy projects that they can brag about in articles like this. However, much of this infrastructure is going to be underutilized for decades, while really needed infrastructure, like adequate flooding drainage, doesn't provide enough "face" to be considered instead. So every year, we see pictures of flooded out cities...but at least you can get to them quickly on empty trains!
http://www.railjournal.com/index.php/high-speed/chinese-high...
>In 2013, Chinese high-speed traffic reached 214 billion passenger-km, slightly more traffic than the rest of the world's high-speed networks combined
>the CRC network is already one of the most densely used in the world, with robust growth between 2009 and 2013. Overall passenger traffic grew by 5.5% per year during this period reaching 2.1 billion passengers or 1060 billion passenger-km in 2013. Railfreight grew by 6% per year to 3.6 billion tonnes, or 2633 billion tonne-km in 2013. These are large volumes compared with the size of the network (103,100km in 2013).
> Although the railway authority has said that the Beijing- Shanghai high-speed railway was the only profitable high-speed rail in China in the past five years, some believe that other lines in densely-populated and developed regions will likely become profitable soon.
Only Beijing to Shanghai is making a profit ATM (flying is still cheaper on that route, but airport delays are way too bad).
They're still saving and those savings keep a lid on Chinese inflation which makes projects like this affordable.
>China desperately needs for its consumers to actually consume to move away from an export oriented economy, which is especially sensitive to trade friction.
There's a lot of talk in the CCP about shifting China's economy to becoming more consumer driven but there isn't a lot of appetite to actually do the things which would make that happen - namely some sort of social security/nationalized health insurance system.
The Chinese will thus continue to be terrified of getting old and sick and will and save accordingly, and those savings will no doubt continue to get recycled into projects like this as well as subsidizing state run SMEs with cheap loans.
2017 will be very interesting. Can't wait to see what happens in Tuesday.
They sure do and you only have to look at Australia, US, and Canada where it ends up. The Chinese keep most of their money in either cash or real estate. They don't trust banks.
Have you been to Beijing recently? I can assure you the Chinese worker is also buying a car. China has the highest automative sales of anywhere on the planet.
Here is some data:
https://www.bloomberg.com/news/articles/2016-12-08/china-wra...
http://www.chinadaily.com.cn/business/motoring/2016-01/26/co...
http://www.accessmagazine.org/articles/fall-2012/will-chinas...
Yes, and if you talk to most people, they can't dream of affording a car, let alone in Beijing. It's insanely expensive, not even including the permit[1]. Maybe if you're in Beijing talking to rich people or just looking at the traffic in abject horror, it looks like everyone is buying cars.
China, per capita, has like one fifth or one sixth as many cars as the US. There's like one car per 10 people.
[1] and by permit I don't mean the actual cost of getting a Beijing plate through normal channels (which has like a <0.2% chance of actually working due to the lottery). I mean if you actually want to guarantee that you get a car, be prepared to grease the wheels with lots of money. Shit idk how that even works with Xi Jinpings rampage against corruption, I don't think they've gotten that low of a level yet (still going after higher-ups).
If you want to get a permit in Beijing and have money, buy a Tesla. The quota for elctric vehicles is higher than for gas, so you see a lot of rich people in Teslas these days, something unthinkable only a couple of years ago.
Yes, it would be this :)
Another top official in the Railways Ministry, Zhang Shuguang, was
also sacked for corruption. Zhang was estimated to have misappropriated
to his personal overseas accounts the equivalent of $2.8 billion.
For example I can save 50% of my income but if i lend to a 90 year old who uses it to fund an elaborate funeral my savings means little.
Other metrics in China suggest that a lot of investment in China since 2008 hasn't been productive. This pattern isn't limited to China but is common in every country who has gone through rapid debt expansion including the US. Finding productive investments takes work and talent and economies have natural limits on investment opportunities that aren't purely monetary.
However, they already have 12,000 miles (20,000 km) of hsr that carries over 1 billion passengers a year. Most of this was built in a little over a decade. So, it's not a stretch for them to continue at this pace. According to the WSJ, they've spent $120 billion in 2015 and 2016 on hsr. That means that spending is about the same until 2020.
http://blogs.wsj.com/chinarealtime/2016/07/20/chinas-busiest...
The 1.5 miles first stage of the 2nd Avenue Subway opens tomorrow. That took 9 years and $4 billion. My bet is that China will have 10,000 more miles of hsr before the rest of the 8.5 mile 2nd Ave Subway is finished
Actually people (especially those in the west) have been saying China is going to crash for a couple of _decades_
>The 1.5 miles first stage of the 2nd Avenue Subway opens tomorrow. That took 9 years and $4 billion. My bet is that China will have 10,000 more miles of hsr before the rest of the 8.5 mile 2nd Ave Subway is finished
And this is exactly why it won't!
China won't be able to afford this;
"The Chinese government will invite private investment to participate in funding
intercity and regional rail lines"
"Earlier this year, China turned to a private company for first time to operate an
inter-city rail service on the mainland"My relative worked at Crane Pumps for years; every order was a fix-on-failure emergency order. For pumps designs that went back 50 years - they were commonly pulling plans on paper out of drawers in storage rooms to match exactly the specs for some ancient pump in Pocatella or Poughkeepsie.
When Obama had that shovel-ready infrastructure effort, they expected a big upswing in business. But nope; nothing. Probably because water systems are underground and invisible. They wanted splashey visible activity like road-building. Which IMHO accomplished exactly the opposite of what was intended - they built MORE infrastructure to support.
That is awesome. Thank you for the info.
When a company like Crane Pumps goes out of business because cheaper imports take over its market, all that information (the paper plans from past pump designs) probably gets lost forever. Once the company folds, these small cities all over the country cannot replace their old pumps and instead have to upgrade the system to make it compatible with a new pump model.
I wonder if global trade economists account for that additional cost to the customers when the old domestic supplier goes away.
Drainage in the USA is also a magnitude better than in china. I'm sure hey could use upgrades, and I'm sure there is a bias to showy projects, but it is nothing compared to what happens in the guo.
That's how much of China's GDP is dependent on exports to the US.
A significant paycut as it were, but hardly fatal.
(If they were to stop exporting to us, it would hardly be a fatal blow to us either. There is just not as much there in terms of percentage of GDP as everyone seems to think.)
Basically, china cuti off trade with the USA would be a North Korea style action.
What you're suggesting is essentially reverse-sanctions, and that would be a foolish move.
The economic "essentials" based on innate human needs are water, food, shelter (housing and clothes), and - in today's world - energy. The US has plenty of resources, space, and people to produce all four of those at home.
If China decided to shut down all manufacturing such that we would stop receiving all of our consumptive goods, electronics, etc... The US would take a hard look at what it really needs as a people and then decide to load balance its needs across both itself and other countries.
What would need rebuilt is all the infrastructure for automating supply chains, and such an aggressive economic move would be highly likely to unite the American people in a singular cause against their new economic foe.
Eventually. Not immediately. Factories and supply chains and aren't built over night.
The US would take a hard look at what it really needs as a people
Or, much more likely, its people would flood the streets in anger and demand a return to normalcy.
In the mean time, black markets and therefore crime would explode.
Huge swaths of the economy, depending on Chinese imports in their supply chain, would cease to function. Unemployment would surge, throwing even more angry bodies onto the streets and even more desperate bellies into the Jail cells.
Fringe political movements would capitalize and the US would face an existential threat to its democratic heritage.
Skilled workers and those with large amounts of capital would quietly leave for greener pastures in the EU and stable parts of South America and Asia, making recovery that much more difficult.
At least, that's what typically happens when trade wars create extreme shortages of key goods and services (we have a lot of data points on this). Perhaps the USA is exceptional, but I wouldn't count on it...
ABCD in Japan prior to ww2.
Chile prior to Pinochet. Chile is agriculturally rich but suffered food shortages none the less.
Neither is exactly this scenario but there are enough similarities to suggest likely outcomes. People don't typically "toughen up and deal with" severe and abrupt changes to availability of common household items, and even countries with the potential for self sufficiency often have painful transitional periods.
So ya, we do toughen up, and no, china doesn't have much leverage over the west at all, even less than the Middle East.
The US also has multiple trade partners around the world. China does not hold a monopoly on US imports. If anything, it's more of a final assembly point for many things, and the US could do more business with southeast Asia.
On top of that, the usual workings of supply and demand would make it quite profitable to divert $STUFF from another economy to the US. Heck, if China still traded any goods the rest of the world at all, firms in the rest of the world could just sell us back many of the exact same goods, with a competitive markup for the indirection, unless and until China puts a complete stranglehold on all its trading partners' deals with the US.
It'd be bad, but at worst it'd be more like 2008 bad than 1930s bad. People did "flood the streets" a little back then, of course (our friends at Occupy Wall Street). It was pretty easy to ignore, though.
Now, if we want to talk of the disruptions associated with an outright war, that's another matter, but we'll also have to worry about the war, which will likely be far worse.
I'm reading A World at Arms (https://www.amazon.com/World-Arms-Global-History-War/dp/0521...) at the moment, and what has struck me most so far is what a mistake the Axis made underestimating American manufacturing mobilization.
Today, I'm not sure if we could ramp up actual production as quickly.
i want to argue the opposing side of this a little. i would argue that present-day America is actually extremely difficult to unite.
i don't believe the imagined "aggressive economic move" would unite the American people. "the American people" is just a diverse bunch of competing economic actors and political interest groups operating inside US geographical boundaries.
WWII is the last thing that really united "the American people" to the extent that you describe, and that was characterized by direct acts of war resulting in human fatalities (e.g. u-boats sinking ships in the Atlantic, Pearl Harbor, bombing raids on our British ally, etc).
a purely economic move like that is a lot less likely to unite the American people than an actual military attack. what's more, today, even real American human fatalities don't unite America. when the San Bernardino attacks happened, half the country was arguing for more gun control laws and the other half was screaming "Islamic fundamentalism." going to a larger event, did even 9/11 unite "the American people" in a way comparable to WWII? if it did, it didn't last long.
when i try to understand why, say, Apple, does its manufacturing in China, i read from various sources that it's not just cheaper labor, but also the availability of a very large number of engineers on short notice and the ability to build factories way, way faster -- no bureaucratic red tape and far fewer environmental reviews and roadblocks. i don't see a way to match that in the US system. a lot of people really love environmental protection laws.
i don't see where something as low-intensity and undramatic as "an aggressive economic move" by China would be enough to unite the people in an effort to repeal environmental laws and motivate sociology and psychology majors switch to EE and CS.
There are always options if the country is rich enough. The USA could redevelop manufacturing relatively quickly or even lean more heavily on Bangladesh, India, and Vietnam. All china would get out of it are newly developed competitors.
Meanwhile, within months, the US would have all its cheap shit imported from Thailand, Vietnam, Mexico--even Japan and Korea. We have enough retail reserves that aside from slight price increases on some inessential goods for a few months, likely nothing else would happen.
China, OTOH, would likely never recover from having all of its revenue generating export goods evaporate to other countries in SE Asia and elsewhere.
http://www.tradingeconomics.com/country-list/government-debt...
The question of which country loses more if the US and China stop trading probably doesn't need to be answered; both countries would lose so much that it won't happen abruptly.
It's no different with China. The world can't afford to let their economy collapse, and so they won't. This isn't Russia we're talking about here, who for all intents and purposes is completely isolated outside of providing arms to the world, space launching (although that reliance is quickly going away), and cheap natural gas to Europe. If/when their economy collapses again, it will have almost no effect on the western world. If China collapses, we're all in trouble.
My memory is that other parts of the world had their own economic problems at the same time as the US housing crisis and were paying the US government for the privilege of owning US treasury bonds (rates were 0 ish for quite a while).
On the other side of it, shrugging does seem to have been the standard external response to the currency crisis in Zimbabwe.
*ruined is a bit strong, but it had a serious impact
Yes, the other developed economies which have largely given up on developing and embraced stagnation instead. It's not the greatest situation, especially if you're unfortunate enough to be young.
If China is done being the world's manufacturing state then inflation is going to go crazy and we'll experience something a bit like what we did with the 1973 oil crisis, except with manufactured goods. It would be a good time to set up a repairs shop.
If China is just done being "America's manufacturing state" then we'll see inflation but probably not as extreme - goods could still be shipped to "neutral" states and then shipped on.
In all likelihood if such a breakdown does occur it will form part of a tit-for-tat including shipping blockades, sanctions and proxy wars.
in reality the bank will force you into bankruptcy, seize all your assets because they're at the top of the payback list, and blacklist you from ever running a business or borrowing money again.
in other words, you lose.
You'd be surprised. People have recovered from such "bankcrupcies" time and again, including the current POTUS.
It's not a cliche. It's reality. If you loan someone an insane amount of capital and are dependent on a return on that capital to keep your bank solvent, you are now dependent on them (e.g. "To Big to Fail") for your own business to not collapse. Interestingly enough, you can only extend credit to someone if you consider them an equal, at least at first. Removing this equality is how you can turn a person into property.
Debt and guilt are the same word in many languages (such as German) and debt has a large moral social construct attached to it (which is why people are hesitant to walk away from debt, even when the value of a house exceed what they'd pay on a load).
I highly recommend reading the book Debt the First 5,000 Years. It's the most comprehensive book I've read on the history of money, debt and slavery. They are all very closely related, and it will change the way you look at states, money and markets.
[citation needed]
China doesn't operate as some charity receiver for the west.
In fact it's the opposite, the west uses china for its hard labor and manufacturing tasks, and gets back products at a cheaper rate than itself can produce.
There's no "world's willingless to fund it" involved, there's that the world pays China $20 and gets back goods it packages and resells to its people (e.g. from Apple to Lacoste) as $50 and $100 goods.