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Comment by onlyrealcuzzo | Hacker News Reader

Why is it an alarm bell if China is still growing at basically the fastest rate in the world? Is China's inflation super high that it needs a faster growth rate than other countries for some reason? China's population growth is quite low, so I don't see why it would need a faster rate of growth.

I'm always confused why people make such a big deal of China growing at ONLY 5% a year. If the US grew at 5% this year, we'd be dancing in the streets!

Edit: Thanks for the comments, you guys are amazing!

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Because China has a few long-term problems it's trying to grow its way out of:

* A baby bust left over from the introduction of the one-child policy, at which point its dependency ratio will skyrocket to levels unmatched in any other industrialized country. One phrasing I've heard is that China needs to get rich before it gets old

* Environmental damage that takes money to reverse (that is, to reverse while maintaining living standards). Environmental damage in the sense of damage to the urban environment that industrial workers live in, not just to wilderness areas - unbreathable air, toxic rivers, etc.

* A large rural population whose urbanization is unstoppable, and whose urbanization needs to be supported by jobs and housing to avoid the kind of slums you see in e.g. Brazil or Nigeria and attendant civil disorder. Which brings us to:

* An autocratic political system whose popular legitimacy is built on economic growth, and whose popularity will (in the eyes of the people running it) collapse if it can't deliver truly spectacular economic results.

I understand anther part is, they can't afford to have unemployment either, especially in the restive uighur and Tibet regions.

Having millions of unemployed young men, without a political channel to air their grievances would surely spell trouble for the regime there...

Freakonomics has a chapter about the Romanian government being overthrown approximately 20 years after abortion was outlawed.

Environmental damage that takes money to reverse (that is, to reverse while maintaining living standards). Environmental damage in the sense of damage to the urban environment that industrial workers live in, not just to wilderness areas - unbreathable air, toxic rivers, etc.

It’s also a matter of being able to grow enough food for 1.3 billion people, and in the absence of that, experience extreme dependency on foreign sources of food. Part of that is down to local pollution and mismanagement, but part of it also a matter of global climate change and desertification. It’s hard to be a superpower if you depend on your geopolitical opponents to feed you.

Reminds me of how the Soviet Union having to import simple wheat

To add to that cheerful thought, the Saudis are in serious trouble too politically, as their oil runs out.

So is Japan, as its population ages.

So is the US. So is Europe, although arguably to a lesser extent.

There's a possibility we're in for a perfect storm where a lot of very bad things happen all at once financially, just when we need to be spending money to mitigate climate change.

China's economy is different than western economies. You have the second industrial revolution style, ultra-competitive businesses, and then you have state-owned enterprises that basically exist to keep people employed and usually are financial stinkers that require implicit or explicit subsidy.

There are all sort of wacky machinations from the financial side of things that make Chinese numbers different than the west. You don't really know the quality of loans held by banks, etc. That type of crap gets buried in hyper-growth, and everything is wonderful until you cannot hide under growth. The US experienced this effect when it became time to pay the piper in 2008.

The first caveat is that China's numbers are not the same quality as the numbers from open economies; while perhaps not entirely fabricated, they are certainly tainted by influence and non-standard accounting and reporting practices designed to make the CCP look good.

More importantly, the key here is the trend. When there is both a large overhang of debt, and simultaneously slowing growth, that is a recipe for trouble. If the scale and scope is minor, it can possibly be managed into a 'soft landing'.

If not, it could easily get out of control, and spiral into a liquidity crisis for that economy, and since there are so many links between economies, spread overall.

The real question is whether this is just a blip in a very large and noisy environment, or if it is the crumbling of some critical supporting bricks in their economic edifice?

> Why is it an alarm bell if China is still growing at basically the fastest rate in the world?

How much is that growth due to spending loans on non-productive investments? Building ghost towns also contributes to growth.

I speculate that most of the growth is due to the urbanization of the population.

China's population isn't growing... But it's urban population is exploding[1]. Any other country that was seeing a 5% YoY adult population growth would be expected to see at least 5% YoY GDP growth.

Why would China be any different?

[1] And city dwellers in China sure as hell aren't living on a dollar a day. They are living nearly-first-world lifestyles.

The problems with Chinese real estate is twofold: - cities don't have the authority to raise revenue by introducing local taxes, but they can sell land to developers, thus fueling and endless growth (because as the city grows so does the need for more revenue) - due to the big imbalance of male-female ratio a lot of males have to compete, and since real estate is among the best forms of long term wealth store, a lot of flats are just empty but are held by men courting women (and the prices skyrocket of course due to this, which of course make the land sell-off an even more ephemerally lucrative thing; oh and usually families and friends give money so young men are able to afford these insane real estate prices, meaning the pressure is even greater to get married, stay employed, and repay the debt, etc.)

> The problems with Chinese real estate is twofold: - cities don't have the authority to raise revenue by introducing local taxes, but they can sell land to developers, thus fueling and endless growth (because as the city grows so does the need for more revenue)

It works the exact same way in the US, except instead of making money from selling land (Since they don't own it), cities make money by selling subdivision rights (Which let the developer turn fallow land into houses.)

Eventually, once the spigot of subdivision and upzoning cash runs out, property taxes are raised to cover any steady-state city budget shortfalls. The same thing will happen in China.

The system's not that different.

Incorrect. Localities can and do levy property taxes, which is where they get most of their ongoing funding (sometimes they levy local sales taxes as well). One-time impact/development fees usually go to building up the initial infrastructure needed to support those developments. They aren’t windfalls that can be used for running services in any ongoing way.

I’m not aware of any city that can actually sell subdivision rights? Property is bought and sold privately, the only leverage a locality has is in zoning and permitting (which is automatic unless exemptions are required, then many cities try to push in affordable housing requirements).

This is nowhere near the same as it works in China. Land transfer fees are the primary income of many localities after what the central government shares with them in VAT and income taxes.

Zoning and permitting are the subdivision rights that I'm talking about.

The trick is to zone the city as "X houses per acre", where X is a number that is not particularly profitable to develop. Then, hand out exemptions to developers, in lieu of cash. "Pay us $500,000, and we will change the rules, to let you make $1,500,000 in extra profit. Oh, and also, build out all the infrastructure that will service the area you're developing."

This is exactly how it played out in my village, and was a crystal-clear, above-board process. It was also one of the reasons that our property taxes were as low as they were.

>[1] And city dwellers in China sure as hell aren't living on a dollar a day. They are living nearly-first-world lifestyles.

This depends tremendously on the city. For Shanghai this may be true-ish, but there's much greater variation between Chinese cities and e.g. US cities.

Now take the lifestyle difference between NYC and Mobile, AL, but double it. Then multiply NYC lifestyle (e.g. income) by like ~0.6 (incomes are like ~0.3, but COL is a fraction of NYC excluding housing so the living standard gap is smaller than implied by incomes) to get Shanghai -- so use that as a baseline, but with the variation from the previous sentence. That's imo roughly what Chinese living standards are like (having been to Chinese cities of varying prosperity).

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