China’s State-Driven Growth Model Is Running Out of Gas | Hacker News Reader

China’s State-Driven Growth Model Is Running Out of Gas

wsj.com

For those who have not followed US media coverage of China, this a very enlightening piece : The Land that Failed to Fail.

https://www.nytimes.com/interactive/2018/11/18/world/asia/ch...

I recall the New York Times, WSJ, and particularly Bloomberg from 2011 to 2014 have run uncountable number of articles unanimously, unequivocally predicting the collapse of the Chinese economy. I really hate to use the word "western media bias", but if you look at the facts, it's hard to see otherwise.

Don’t underestimate what media can do.

One could argue that’s the power of media. If media publishes uncountable number of articles, sure investors and politicians will follow.

Obviously there are more than one reason on the table.

One being nobody wants too much power at Chinese hand and many countries are just worried about it. (This alone can have a lot of valid and invalid reasons)

Second is of course now some other countries are following a similar strategy to compete. Like India and a few other countries in East Asia.

Third, one strategy doesn’t scale forever.

And perhaps many more.

Oh, I agree. Media like NYTimes and Bloomberg have enormous influence over the sphere of finance and investments. They have and will continue to exert equal and probably more influence on how US money is invested overseas. But that does not alter the fact that they've been wrong about China all these times.

On the topic of scaling (or more appropriately down-scaling) the Chinese model, I'd love to read some serious academic/scholarly papers about that. Like Western capitalism currently in practice here (i mean US), the Chinese model certainly has its limitations. There is zero chance, I mean absolute zero probability that China could grow at 6+% forever. But the fact that a country of 1.2 billion population has emerged from dire poverty just some short 50 yrs ago into one of the most vibrant economies in the world is a fact that's truly inspiring.

This is one of those examples, as in predicting the stock market, where the majority opinion is always wrong.

Now China’s censorship of foreign “news’ makes sense.

cached version: http://archive.is/AFbNg

How's China going to solve its housing bubble? Because we've heard about that building up, but there seems to have been no solution. Just because it hasn't blown up yet doesn't mean it won't.

Anyone can predict a bear market... the trick is when.

You can't really predict a 'when' if the government controls the economy. But I would say that a 'when' doesn't matter much if it happens at some point.

The Chinese government is really smart about it. From what I understand, it goes at follows: the price bubble will not burst if real estate market has little to no transactions. The trick is to limit the number of eligible buyers with policies, so that the price can only go up.

It's really genius if you think about it. Chinese housing market is NOT a free market, and the government is the biggest player (and judge) in it. If it is made-up from the beginning, how can it collapse?

Well, unless the government collapses first.

And The Economist. Can’t forget The Economist’s constant and sustained death knelling over China’s economy over the years.

I just file all these away along with the other 8447372 similar articles predicting the imminent collapse of China.

Can you pls post some links. I'm a die-hard collector of these articles.

https://www.economist.com/search?q=china%20economy%20falling

They are mentally filed away, so I don't have them off-hand sorry :)

But it was largely due to their lack of credibility on China that I had to unsubscribe. Open up any Economist article on China and you'll quickly see what I mean.

It's like practical fusion, always 5-10 years away. The reasoning appears to be that since the Chinese refuse to follow the western consensus, their economy must then collapse.

In fairness, the examples we have of communist economies have all eventually collapsed, although it took many many decades for the USSR to do so.

China, so far, hasn't collapsed. Does that mean there's something fundamentally different about it that avoids the fate of the USSR, Venezuela etc? Maybe. But it's not like "fails to be capitalist, will collapse" is totally specious reasoning. It's just extrapolation from past example.

In its China coverage, The Economist often comes across as ZeroHedge with better writing. There's a collapse always right around the corner.

Leave it to the NYT to show us the evils of the NYT, I guess.

But isn't it all about timing? You could have said a similar thing about articles predicting the end of the 2000s-era growth in the US up until 2007-2008. They're so obviously wrong until they're not.

If you buy one lottery ticket everyday from the day you're born until the day you die, you may win it big, if you're lucky.

The author of that piece, Philip. P. Pan, wrote one of the most remarkable books I've read on China: Out of Mao's shadow - https://www.amazon.com/Out-Maos-Shadow-Struggle-China-ebook/...

It's a gem for those seeking to understand - and distinguish between - China, the country and its people, and China, the State.

We'll see I guess. "Big news" is often about China collapse. I like to look for "small news" that not many people pay attention but they show a bit different picture. Picture of China moving slowly and patiently in many directions to make sure collapse will not happen and that nobody (that is US) can stop China economy development.

It is worth to read about huge investments in many African countries and generous credits Chinese government is giving away. In fact, the only missing piece is a big oil producer that will agree to abandon trading oil in US dollars (Iran is a candidate, that's why US suddenly started pushing on sanctions against it.)

It is worth to read about new routes from China to Europe. Right now there is an operation train connection between China and Poland (Slawkow) that uses wide rail (https://euterminal.pl/en/). Another train connection like this will be available soon to Vienna.

A few days ago final agreement was made to built a highway that would connect China and Berlin.

Chinese investors own almost whole harbor in Piraeus, Greece.

And so on. For me it looks like a plan to be able to trade with Africa, Europe without risk that US can stop this somehow. I would not underestimate China, although, personally, I am not very happy about China expansion, as their political system is truly horrible and against human dignity as I perceive it.

This video from last year was pretty eye opening to me. Shows uninhabited "new" ghost cities completely crumbling. There's no underlying value to the property bubble going on over there and the scale seems mind blowing.

https://youtu.be/XopSDJq6w8E

wow! Quality has a lot to do but also a house no one lives in has a tendency to be run down. A small thing that can be noticed on day one will ruin everything after 3 years of rain, wind, snow etc.

Now their GDP will increase again, if they start repairing the ghost houses ;)

Actually, most buildings constructed in the last 10 years in big cities are expected to only last 20-30 years before being razed and redone. Chinese construction technique leverages cheap surplus uneducated labor, so they overbuild on concrete to compensate, meaning the buildings will fall apart faster anyways.

The officials see this as a feature: real estate is just a huge jobs program, and the fact that they have to do it again just means more jobs on the future. Incidentally, the same construction techniques are used in India for the same reason, and hence are exported to Singapore and the Middle East so they can leverage Indian migrant construction workers

Only tangentiao related but funny story. While visiting a college campus in China in 2012 our tour guide remarked about one of the dorm buildings... "This building is very old! Built in the 1980s!". I thought that was funny after growing up in New England.

I grew up in New England, visited historic sites like the Jamestown, Colonial Williamsburg, Castillo de San Marcos. I went to France and stayed in a house that was older than all of them, went to England and drank in a pub yet older.

Time is relative.

My first trip overseas was to the UK, during university, as a term abroad kind of thing. One night, some of my peers and I went round the pub, and I got to talking with an older local. I commented that it was a strange and perspective-shifting thing to be around human structures so old, "which we don't have back in the States".

He offered the counterpoint of, e.g., Chaco Canyon as something even older.

Time is indeed relative. That kind of perspective-check is awesome.

It's the same in Japan, homes aren't made to last, you're only expected to get a few decades out of them. My Japanese friends in Sydney always found it bemusing that I lived in a 100+ year old house. It was hard for them to fathom doing that, even with renovations. The newer the better.

Except in Kyoto, at least...

https://realestate.co.jp/forsale/listing?order=4&page=19&bui...

I live in a HDB in Singapore and they are rock solid buildings. Way better than any of the apartment buildings I've lived in in the west. They are designed to be inhabited for 99 years (the length of the leasehold). I wouldn't be surprised if many are capable of lasting much longer.

Singapore mostly uses concrete, and it will crumble without the requisite maintenance (much faster than a western wooden, brick, or steel building). Overbuilding using cheap unskilled labor makes the maintenance problem worse, but not insurmountable.

Not at all. first, real estate is the essential part of a grand urbanisation plan along with other infrastructure developments. second, concrete and steel buildings definitely last longer than plaster and wood built ones in U.S.. It's just U.S. people spend a lot of time maintaining their house...I think it's not economically sensible. The time spent on house maintenance and repair could be more valuable in productive activities.

Yes! One side is the job program. And second is also because ordinary Chinese look at it as an investment. They also buy houses in EU for the sake of investment and leave them empty. So much in fact major EU cities are going to add empty house tax.

> The officials see this as a feature: real estate is just a huge jobs program, and the fact that they have to do it again just means more jobs on the future.

And in the meantime they're scratching their heads trying to figure out why their tertiary sector isn't growing.

>>Actually, most buildings constructed in the last 10 years in big cities

what cities? In China? I hard about that but frankly in Eastern European countries the aim to last 100 years. Same in USA AFAIK. Properly prepared concrete last quite a long time, if protected from the elements.

These are buildings put up by migrant workers, so properly prepared is relative. They make a trade off, it works for them.

It's all concrete, they don't use wood.

> There's no underlying value to the property bubble

Feels just like home :)

ADVChina is really entertaining. I'm not sure how reliable they are, but my impression has been pretty favorable so far.

its the only digestible news source for geopolitical stuff I can watch AFTER a day of intense programming.

A lot of "ghost cities" that were reported on in the Western press are now thriving communities. Although some major property development schemes do end up becoming white elephants (particularly in the poorer north), most "ghost cities" aren't abandoned, they're just in the process of becoming occupied. Properties in China are normally sold as a bare undecorated shell, which makes new developments look derelict to western eyes. Clearly many of these projects are of dubious quality, but that problem is by no means unique to China.

https://blogs.wsj.com/chinarealtime/2013/09/24/chinas-ghost-...

https://www.theguardian.com/money/2017/apr/02/new-build-home...

https://www.bbc.co.uk/news/business-47826166

> Clearly many of these projects are of dubious quality, but that problem is by no means unique to China.

The cases I saw were more than dubious quality, the houses have completely fallen apart in only 2 years, there's definitely some "get rich quick" resell scam business going on in some places.

I really don't understand property prices at all. There's a new Trump Tower coming up in Gurgaon, India. There is nothing around it but other large towers and empty land. Yet all the apartments in these towers are already priced in the $400,000+ range - money that even a Google software engineer in India would need 20+ years to save.

I was in China last month. Running out of gas is not exactly the analogy I would’ve chosen to describe the most thriving economy I have ever seen.

As a side note, I have visited many companies while there and the Tencent HQ was the most awe-inspiring building, leaving the Bay Area architecture and building amenities looking incredibly dull.

How much of China did you see? You could not gain a meaningful understanding of even a much smaller country from visiting a single city. E.g. NYC is not America, so Shenzen is not China.

I saw Beijing, Shanghai, Shenzhen and collaterally, Hong Kong and it was for business. Yes there were things I saw that showed the inherent poorness of the population but the overwhelming power of the industrial ecosystem and overall progress of the country despite “zero privacy” was breathtaking.

I have been talking with local about the privacy thing which was super interesting but it’s off topic here.

The two are not necessarily the opposite of each other, I remember visiting Japan for the first time after hearing Japan had been in a relative economic slump for near decades, at the time I recall thinking "if that's what economic slump looks like I'll take some of that...".

In retrospect it's possible to see a thriving economy as the apex of a bubble but almost impossible to determine that at the time. The thing about China is though, it has had a phenomenal level of growth for a very long time, one would think this cannot go on forever and at some point their system must be tested by a real recession.

Funny comment I saw on Twitter: you know things are really bad in China when even their own made-up figures aren't great

Maybe a fun fact.

A Chinese colleague of me was telling me how much money is going out with every wave of western media coverage on China’s future. They become worried and they invest abroad by buying assets or sending their children.

Then I saw some articles blaming Chinese buyers causing housing market issue in other parts of the world like Sydney, London, and Vancouver.

Remind me how everything is connected and how hard is to see the consequences of other actions.

I don't honestly blame them. Getting money and people out of a country is always going to be easier in the good times than the bad.

China collapse has been predicted by china expert for at least 2 decades. I don't understand why people can still be this delusional at this moment.

This is my strong takeaway on China economy articles- most are enormously wrong in their predictions, and not simply in a few random details; fundamentally they have been wrong about the China system collapsing for years and years and years.

I mean, sure, some day things will change substantially - change happens and the decades of doomsays will claim they were right all along. But that's stopped clock thinking. :-/

Every time I read about China I never know it's just western propaganda or not (true vice versa ofc)

There's never a crisis until the crisis actually hits.

Till then make ad revenue off clicks on the future crisis.

Nowadays, it's not only "China" but "anything". You should always question if the author has a political agenda to push.

OTOH I've read for years about the impeding housing bubble bursting or that the rally of the stock market has to end in a crash soon.

You can be fundamentally right but still be wrong for years to come.

That works both ways, just look at some of the commenters on this page and their history to see the other side at work.

China's GDP is growing at 6.3%. What was the last time the US grew at even close to that rate?

Do you trust the statistics coming out of the Chinese Communist Party?

I’ve been seeing the same article here rehashed since I was in elementary school over 20 years ago.

I trust CCP statistics as much as I trust western reports about China. Which is to say, not at all.

China probably isn’t as rich or powerful as it projects, but it’s also clearly not as weak and fragile as American media has been hoping all these decades.

That's unwise, you can call the US Bureau of Labor Statistics (BLS) up and ask them how they arrived at their numbers. In the UK you can go on field trips with the Office of National Statistics (ONS) to watch them measure inflation. It's materially different.

Data messaging is a legitimate and well established study and practice

> China's GDP is growing at 6.3%.

It's not clear to me the extent one can trust the official numbers from China.

Would you like to provide some evidence to the contrary for that or just a general "It's probably not true"?

You could say the same about Western government debt that's creatively accounted, unemployment rates which avoid underemployment/participation and inflation which desperately needs to remain low to keep bond rates from bankrupting public balance sheets.

China has been cooking the books on their GDP for years: https://geopoliticalfutures.com/china-admits-its-statistics-...

I'm talking about this figure. Asking for evidence to the contrary that it's not 6.3%. If so what do you think it is? 3%? 2%? Perhaps 6.1%?

https://www.bloomberg.com/news/articles/2019-01-25/china-s-l...

Newer research says it could be half the 6.3%.

https://www.brookings.edu/wp-content/uploads/2019/03/bpea_20...

https://www.scmp.com/economy/china-economy/article/2189245/c...

Thanks, which page or figure on the Brookings pdf should I be looking at?

Try page 1:

"China’s national accounts are based on data collected by local governments. However, since local governments are rewarded for meeting growth and investment targets, they have an incentive to skew local statistics. China’s National Bureau of Statistics (NBS) adjusts the data provided by local governments to calculate GDP at the national level. The adjustments made by the NBS average 5% of GDP since the mid-2000s. On the production side, the discrepancy between local and aggregate GDP is entirely driven by the gap between local and national estimates of industrial output. On the expenditure side, the gap is in investment. Local statistics increasingly misrepresent the true numbers after 2008, but there was no corresponding change in the adjustment made by the NBS. Using publicly available data, we provide revised estimates of local and national GDP by re-estimating output of industrial, construction, wholesale and retail firms using data on value-added taxes. We also use several local economic indicators that are less likely to be manipulated by local governments to estimate local and aggregate GDP. The estimates also suggest that the adjustments by the NBS were insufficient after 2008. Relative to the official numbers, we estimate that GDP growth from 2008-2016 is 1.7 percentage points lower and the investment and savings rate in 2016 is 7 percentage points lower."

Oh I think you may be right. They might have been understating their GDP. I remember few yrs ago Bloomberg wrote a piece explaining why the Chinese bureaucrats have incentives to under-report.

Here are a couple western think tanks who evaluated recent Chinese economic stats - CSIS in particular comprehensively reverse engineered Chinese GDP reporting from ground up- and concluded China is (1 trillion USD) larger than official numbers purports to be.

Whole "Appear weak when you are strong, and strong when you are weak” Sun Tzu thing.

Broken Abacus? A More Accurate Gauge of China's Economy https://www.youtube.com/watch?v=vOxIJMjZOUo&

Louis-Vincent Gave: China- myths, propaganda and realities | SKAGEN New Year Conference https://www.youtube.com/watch?v=w9hFAlqKmfM

My own government in Australia has the official unemployment rate which is contradicted every time with independent analysis by a well-known multinational firm. Not fractions of a percent either, full percentage points difference.

Argue about pennies all you want. China are eating up more and more of world GDP. In 1998 they produced 3% of the worlds total output. Choose whatever source you want to see where it is now.

Either people can wake up to it or continue consuming media pleasantries that make them feel better.

The Fed has been talking about U6 since before Yellen took the chair. The Fed's entire dovish stance on interest rates was publicly predicated on low labor force participation being unaccounted-for slack.

The unemployment rate vs labor force participation has been a part of Presidential debates since 2012, and also figured in the 2010 Congressional elections.

If you want to know more about how U.S. government debt is accounted for, the various Federal Reserve websites are informative, if a bit dry.

The China growth rate is probably not far from the truth, but there is not much public data published to back it up. It's reasonable to be skeptical. I think there's reason to believe that their actual growth rate is higher in some years and lower in others, as an artifact of the difficulty in getting accurate numbers.

I'm curious about your comparison of China to the United States. It seems like a whataboutism argument, which isn't really to the point of the topic.

> if a bit dry

That's part of the problem. Journalists avoid a deep dive into the nitty gritty that might muddy the narrative. Of course economists discuss this and are more aware of it than any other group. But how stats are presented (marketed?) on the outside should be of concern to anyone caring about their own democratic system where this stuff sways millions of votes.

> seems like a whataboutism argument

It's tiring to see this said here. Quite sure it's not tolerated much lately as a singular/only response either. It is ingrained human nature to compare others, particularly those with similar traits. To shut down discussion with a single word is incredibly disingenuous and unhelpful to modern discourse.

Give me 10 mins and I can tell you 100 things the US does far better than China. I really doubt the same claims of whataboutism would be made in the opposite direction.

Don't let nationalism cloud your judgement friend. It's a big wide diverse world with a bunch of viewpoints.

> whataboutism

Fair enough, it's a term that is only accurate if the arguer is employing deception. You were not. You genuinely didn't know about labor participation being a large part of the public discourse for the past 9 years.

China is still doing well. You don’t need official numbers! Just look at Chinese tourists if you live near a tourist destination. They travel more than any time and they spend a lot. While this is not anything like a real economic metric, it is a reflection of what is happening there.

you are right. probably China has always been under reporting their growth rate as the hide your strength strategy. It's inexplicable that China's GDP from construction is smaller than that of U.S., given that China is undergoing an infrastructure build up at a scale that human race has never seen.

Bear in mind GDP can be manipulated yet true at the same time.

If the government tweaks regulations, lending criteria and does other things to trigger huge spending on building pointless ghost cities, that will legitimately increase GDP because GDP is just summing up "stuff being done". There's a very subtle but deeply embedded assumption in western talk about GDP: that high GDP indicates a lot of useful things are being made and sold. But in a hard-left economy like China that correlation is weak; it's possible for lots of people to be doing things that aren't useful.

1984, 7.23% :)

Plus, you really trust the number which come from CCP?

So nearly 40 years ago, many here weren't even born.

Do you trust Bloomberg? https://www.bloomberg.com/news/articles/2019-01-25/china-s-l...

Take a look around "中國 GDP 灌水", lead to this latest research claim that China's GDP has been misrepresent after 2008.

CITE: Relative to the official numbers, we estimate that GDP growth from 2008-2016 is 1.7 percentage points lower and the investment and savings rate in 2016 is 7 percentage points lower.

Ref: https://www.brookings.edu/bpea-articles/a-forensic-examinati...

I'm well aware of the history, thanks for the link. We are in a comment section of an article on this latest print and I was responding to a comment which says it doesn't trust the official figures.

Provided evidence to the contrary.

Do you think this GDP number is wrong and if so by how much?

I think given China’s population growth, if the GDP doesn’t grow 6%, its considered a recession for them.

> given China's population growth

Their population growth is lower than most of the West, some argue it even contracted last year. Why is everyone on this site so wildly misinformed about the largest country on Earth? Is this a US thing?

https://www.nytimes.com/interactive/2019/01/17/world/asia/ch...

The detriments of the one child policy are well documented. Positive growth and negative growth both inform on the overall birth rate.

Also, largest country on Earth? I do believe China is #4 after Russia, Canada, and the US in terms of SquareKM.

Wiki says China is the third largest, after Russia, Canada. US is the fourth.

https://en.wikipedia.org/wiki/List_of_countries_and_dependen...

One-child policy is long gone though. A two-child policy exists perhaps for some. The article does an excellent job summing up the demographic hurdles they face.

I personally think any country that can economically prosper without resorting to unsustainable population growth or environmental damage should be congratulated on the world stage.

China is managing to do one of those things.

Technological advancement should be the focus of developed nations wanting to thrive without taking the easy gdp heroin hit of over-populating, which is essentially unaccounted future debt heaped upon younger generations.

It is normal for Americans to think that other countries don't matter. That's why they're missing the point that China is already the richest country in the world and it is growing at double the pace of the US.

Even the second most powerful man in China does not trust official GDP figures. See https://en.wikipedia.org/wiki/Li_Keqiang_index

China seems to have found a workable system. It's not Marxist. It's not entirely capitalist. It's not democratic. But it has done pretty well.

Arguably, China has a more effective system of capital investment than the US does. The financial sector in the US is sort of a self perpetuating money machine, only vaguely connected to actually making stuff. (The biggest use of corporate debt is stock buybacks, for example.) That's not the case in China.

The US doesn't have an explicit industrial policy because the political system is too gridlocked to run one. China does. So does Japan, although less so than in the days of MITI. (The US does have an industrial policy, expressed through the tax code: services good, manufacturing bad. Borrowing good, dividends bad. Those are probably backwards.)

Can someone tell me how the WSJ arrived at $13,888.96 for China's GDP per capita in 2018? Did they just make it up?

I hate pseudo accurate numbers like this. Saying it’s likely $13-14k makes more sense to me

It's probably a roundish estimate multiplied by an exact exchange rate to USD.

I wonder if they still teach significant figures in schools.

EDIT: It also seems high unless they're using some sort of purchasing power adjustment.

Did they edit the article? Now it says:

> per-capita gross domestic product of $14,000 to $18,000 a year

China is a fascinating experiment of modern state capitalism. But it is also reliant on globalism, and a recession crisis will be felt globally.

The globe is reliant on globalism, china is not unique in this case.

The Wall Street Journal declares state Communism a failure.

> Based on household surveys, the poverty rate in China in 1981 was 63% of the population. This rate declined to 10% in 2004, indicating that about 500 million people have climbed out of poverty during this period. [1]

> As of June 2016, the IMF warned the United States that its high poverty rate needs to be tackled urgently by raising the minimum wage and offering paid maternity leave to women to encourage them to enter the labor force.[21] In December 2017, the United Nations special rapporteur on extreme poverty and human rights, Philip Alston, undertook a two-week investigation on the effects of systemic poverty in the United States, and sharply condemned "private wealth and public squalor", declaring the state of Alabama to have the "worst poverty in the developed world".[22] Alston's report was issued in May 2018 and highlights that 40 million people live in poverty and over five million live "in ‘Third World’ conditions."[23]

[1] https://en.wikipedia.org/wiki/Poverty_in_China#Poverty_reduc...

[2] https://en.wikipedia.org/wiki/Poverty_in_the_United_States

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