China - The Mother Of All Grey Swans
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to begin with, why "grey swan"? no doubt, it's a reference to Taleb's book. but what exactly do they mean? that what's happening in China is not completely foreseeable, but more foreseeable than the blackest of black swans?
let's simplify things -- if we define growth as growth in wealth, and examine if the chinese are able to pull off creating something like 10% more wealth every year than we did last year. there are two variables to this: how many people are working this year than last, and how productive are they.
I don't have time to research on this, but I am guessing workforce size reduction if it happens is going to be more than offset by China simply copying mature technologies from the West and increase the productivity of its people, as it has been doing. the wild card is projects like centrally planned bridge to no where, which looks productive but doesn't actually create things people want, i.e. wealth. But China has always (i.e. last 60 years) been a centrally planned economy, assuming the leadership doesn't all of a sudden get a lot more stupid, and given that the portion of the economy that's centrally planned is shrinking every year, I think one can even make an argument of putting on a few basis points of growth simply from the gov't playing a smaller role in the economy than before. (now of course the big stimulus package might completely skew the balance for these couple of years, but it's temporary noise that probably wouldn't reverse the trend.)
and argument of how big a village needs to be before it can be called a town is irrelevant.
No it's not when the argument for continued economic growth is that that growth will be driven by further urbanization. If the country is already much more urbanized than is held, it becomes relevant.
(I'm not saying this argument is true or not, I don't know; someone about brought up a good point of much smaller plot sizes in rural areas. Either way, it's valid to question the assumptions of the mainstream claims that China's growth will continue as it has in the past).
"and given that the portion of the economy that's centrally planned is shrinking every year, I think one can even make an argument of putting on a few basis points of growth simply from the gov't playing a smaller role in the economy than before."
That's not what I understand from observers and commentators. What I hear/read, guo jin, min tui (the state advances, the private sector retreats) is the current trend, and Chinese central leaderships wants to weather the crisis with more central control (as they need to, in order to be able to direct banks to loan out money, set growth targets for SOE's etc.) I'm interested to hear about your point of view as a local though, do you feel the grip of the state on the economic is loosening?
But even then, if you take the definition he suggests for a "city" (400 persons/km2), every single farming village in China would qualify. That's why China has a much higher population density threshold for defining urban counties.
[1] e.g. http://www.agecon.ucdavis.edu/extension/update/articles/v9n1... http://econpapers.repec.org/paper/agsaaea05/19565.htm
From my observation (with all caveats that apply to this), it seems that in the short run people are moving back out of urban areas, taking up the village life, lowering consumption. Maybe this is temporary, I don't know. I'm quite skeptic of counting on significant further urbanization as a major driver of economic growth, though.
I have been visiting China frequently in the past years. Economic aspects aside, I still find the functional high-speed trains and rise of stunning skyscrapers simply fascinating. Perhaps the engineer in me admires it.
Here in Palo Alto, it took the bickering of multiple committees 6 years to decide what to build on a dilapidated, abandoned parking lot. And in the downtown, it has taken nearly 4 years to build a short structure that now also sits empty. And high-speed rail? Forget about it.
Where I live in Sunnyvale, the light rail system is barely quicker than bicycling. This slowness, along with a well-designed road network and free parking everywhere, makes public transit useless for anyone who owns a car.
(I've worked on systems that model land use in function of economics, demographics, transport and environmental factors for almost 10 years now, my wife has a PhD on it, and so do most of the people (in those fields) I work with daily. I in no way claim to understand these processes, nobody does, but claiming to know that public transport was deliberately destroyed by special interest groups is intellectually dishonest.)
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Apparently, we've reached the threading limit and I can't reply to your comment.
I don't think it's far fetched at all to say that the most powerful industries in the US would do, could do and did their best to ensure that roads and cities were constructed in a way that favored them. So, whatever.
I hadn't heard about these streetcars; so I looked it up. Wikipedia had a fairly comprehensive (for an introduction) article on it: http://en.wikipedia.org/wiki/Great_American_streetcar_scanda... . There's a whole section in there debunking the effects of the 'conspiracy', most of which sounds like (as a whole) a much more convincing explanation. Note especially that, according to one author, "nationwide, the ultimate reach of the alleged conspirators extended to only about 10 percent of all transit systems - sixty-odd out of some six hundred - and yet virtually all the other 90 percent also got rid of trolleys (as happened with all the tramcar systems in the British Isles and France)."
I think a lot of the developmental sclerosis affecting America comes down to the relative affluence of the people impacted by development. Poor Chinese may be just as unhappy about development, but the government can simply ignore them in a way the US government can't ignore its citizens. California is one of the most affluent states; it makes sense that development in CA is particularly difficult.
Within a couple of years the old sleazy alleyways were transformed into something that could easily compete with the Stanford shopping mall.
What structure are you talking about (that sits empty)? I have watched the evolution of downtown Palo Alto for 15 years - it's certainly not perfect, but I'm glad for the two new parking garages and generally feel the growth there has been handled ok.
My comment was more directed towards the process. Every plan is considered, reconsidered, viewed, and reviewed, many times by many people. And if a decision is actually reached, some group of concerned citizens will be formed to protest it.
My first example was Alma Plaza. My second example was the structure on the corner of High and University. I actually don't know the history behind the latter, other than that it has been an eyesore for years.
Perhaps a valid argument to my disheartened view would be that an area like Palo Alto is a finished painting -- every additional stroke requires careful consideration for the risk of making a wrong one. But I do wish that our city was able to innovate as quickly as the businesses that define this area. :)
As I referenced in my other comment, a great deal of China's ability to innovate in terms of real estate development comes at the cost of what we Westerner's would perceive as social rights. If Palo Alto decides that there are too many black or poor people hanging around a certain section of town, most of us would prefer (to put it, err, lightly) that the city not just kill them, boot them out of town, or snatch the property rights of the places they frequent and bulldoze them. But such behavior is precisely what permits the process to which you're referring.
There are some "tricks" to getting things done more efficiently in Palo Alto. For example if you ask every stakeholder their opinion ahead of proposing a change, you tend to get far less reviews, protest, etc. after the fact. There are folks here who really want to be included, but many more people who are satisfied knowing their concerns have been heard.
I used to think that using Australia as a proxy, such as the AUD or some of the commodity miners would work as a means of shorting China but I'm less enthusiastic now. While there may not be demand for some of the luxury developments, there is probably adequate demand for lower level buildings.
I imagine that the state owned enterprises would shift their construction projects from luxury developments to critical/needed buildings and infrastructure, potentially keeping commodity demand stable.
Yes, there will probably be a recession or even a depression here and there, but in only a few decades time China will be much richer. The article is only a short term view, it doesn't address what China will become in 10, 20, 30 years time.
There is of course the one child policy that might negatively affect China's economy in the future. China's government is no democracy, and I don't see any reason why it wouldn't simply kill the law when it becomes advantageous to do so. After all, growth at any cost!
EDIT: Would like explanation of downvotes.
Both things will earn you downvotes.
High population does not imply or cause high wealth.
What is behind my reasoning is that the lower the standard of living, the more opportunity for economic growth. China's living standard is very low, compared to the US, therefore over the next few decades, because per capita it will still not be as wealthy as the US, it will continue to grow and become much richer than it currently is.
A quick google search reveals that this is indeed true for Canada and Indonesia. Indonesia GDP growth, ~2-3% per annum. http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Sy... Canada GDP growth, ~0-2% per annum. http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Sy...
Moreover, many say (including the author of the article), that because China's growth for the past 30 years has relied on exports and now that developed consumer countries like the US, Canada and Japan can no longer consume as much, China's growth opportunities become further restricted.
I do not believe this is the case and here is what I was really trying to say in my previous comment. China has 1200 million people and I believe that over the next few decades China will be able to grow, precisely because its consumer demand will grow, too. After all, US did it with only 200-300 million people, why can China not do it, too?
The fact that its government maybe inefficient is only a small effect on the scale of growth we are talking about. From wikipedia, China gdp per capita is ~6600 and US's is ~46000. Even if an inefficient government like China's reduces the potential productivity of the average citizen by three or four or even five times, China still has a lot of room to grow.
For more information, look at the Solow-Swan Model. http://en.wikipedia.org/wiki/Exogenous_growth_model
EDIT: The article talks about previous bubbles like Japan's. Yes, Japan was a bubble, but China isn't; At least not yet. I believe Japan's economic growth stalled because it's GDP per capital caught up with the most industrialised countries. This has not happened in China, yet, and when it does, my prediction will be fulfilled.
Converging economies leading to equality, all powered by the capitalist machine that is the global economy.