How China Fooled the World [video]
bbc.co.uk
bbc.co.uk
Yes there are random empty apartment buildings and a few absurdities like --> http://en.wikipedia.org/wiki/New_South_China_Mall.
However, overall the infrastructure they have built has put this country in a position to achieve dominant superpower status over the next century.
For example, within 5 more years the entire of Guangdong Province will be connected by high speed rail and subway - meaning 100 million people and businesses will be connected by public transit with no more than a 2 hour ride. There is already a critical mass of manufacturing capability here, and with that added layer of network infrastructure, even if labor costs rise 100% YOY to match USA and Germany in a decade, Guangdong China will still be the worlds factory.
Furthermore, the internal consumption machine of 1.3B people is undeniably ramping up now. They are spending money, the largest middle class on the planet is clearly taking shape, and lives are measurably improving all around me.
There may be a few bumps in the road but there will be no collapse.
China does have better infrastructure than say India, and its long term outlook is good. But there are definitely challenges in this and the next few years to get through.
Malls you feel wwwaaaay over-crowded today were once empty for like 5-8 years in the 90s or 80s. Google for 烂尾楼 and you'll find a ton.
the claim that infrastructure spending leads to economic prosperity/dominance sounds pretty extraordinary to me.
Isn't it what the US has been claiming all the time? With the FDR New Deal theory ?
There certainly is some truth to the long lasting piece. A country with poor infrastructure will have a very difficult time growing. What is controversial is building things either few people use or are far more expensive than they should be. On the flip side, infrastructure has to be serviced to remain viable. In addition to using money that is "borrowed" one way or the other, the maintenance cost is created as well. Easy to get carried away.
- http://www.nytimes.com/2013/09/24/business/global/high-speed...
- http://www.economist.com/news/china/21592628-china-opens-boo...
- http://www.economist.com/blogs/freeexchange/2013/09/chinas-e...
I understand you do not want to discuss it here, but can you briefly explain why this would never happen ? This is a very interesting point.
Another key dimension is to have some knowledge about the party that rules China. As an organization, it is quite efficient in some straightforward tasks. However, sometimes there are tasks that require more advanced way to organize people. Any organization has its limitation. And most organizations have very limited capability to adapt/evolve. The way to form the organization is the biggest obstacle. Once this is understood, everything becomes clear.
Sorry that I have not given a clear answer but some clues. The tools I recommend are some basic understanding of concepts in organization behavior, complex system(such as complexity theory), Austrian school economics and, of course, some history of the party, how it operated economically from its early days.
No need to get deep in the tools I listed, just have some ideas of how they perceive the world. These tools are not perfect. But with them, we may have a better view of the thing we want to know. Hope this helps.
I've been in China for 6+ years now, I have expat friends who have been here for 10+ (which is an old hand these days). We aren't incredibly divergent in our thinking. Chinese have different viewpoints, but this is primarily cultural rather than linguistic.
But if you truly want an unbiased view of China, read a Taiwanese newspaper :)
I dont think they are crazy ideas. Any country, be it US, UK, Japan or China have their own set of problems. Although I do generally agree that the Western World dont generally always understand the language and culture difference.
I suggest reading ChinaDaily often...it gives you a good perspective into what the government is thinking at least, and if you read it as a contrarian, it is good to get a heads up on what is coming when they deny something specifically (e.g. Beijing will not restrict license plates 2 months before they did).
Or are they saying "too much" Keynesism is a bad thing?
Okay, these seem to be the main differences and concerns I am getting from this vid.
1. Many loans eventually come via a shadow banking system
and so are not transparent, ie, no one know how much is
loaned and regulation is poor, this could lead to a
huge credit crunch, and China's own too big to fail
2. Some large amount of housing is speculative in nature
and kept empty as an investment and hence could be
causing an enormous bubble
3. This real estate bubble brings benefits to rich but
doesn't improve the economy for the poor
4. The boom has made the local authorities very rich and
powerful (political corruption, crony capitalism, ...)
5. The sheer size of it is unprecedented in modern
financial history
6. Citizens save too much (1/3rd of earnings). So economy
is dangerously unbalanced, fueled by debt spending and
not enough by consumer spending or shopping (41:10)
7. Investment is 50% of economy, consumption 30%, so when
investment slows down, it can't be replaced with
consumption. Credit is at a level of twice the size
of the economy.
8. State owned companies are filled with inefficiencies.
"Shaking" them up would leave huge numbers of people
unemployed.
9. There is beginning to be a fear of collapse (that
could lead to collapse.)
10. Punk Rock pointing out corruption in the system
and how the rich are getting richer.
11. Hard to see further economic reform without political
reform, yet it seems that Chinese are intent on
not reforming their political system further.
1. China needs to become more like us and consume more
themselves.Edit: see subsequent comments for a better quality video
The cost of propping up the global economy had been highly damaging to China's weak institutions if we are lucky it will recover in 20 years. If we are unlucky there will be a partial collapse.
I'd roughly estimate that the total US stimulus in all forms, from the treasury to the fed, totaled $15 to $20 trillion (some of which was repaid, eg loans to european banks, or the AIG and Fannie bailouts, or GM etc). That's two to three times the size of the entire Chinese economy.
That new federal debt paid federal salaries, contractors, welfare, social security, you name it. Those people then purchased hundreds of billions of dollars worth of Chinese goods.
"U.S. Bailout, Stimulus Pledges Total $11.6 Trillion"
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZchK...
The Fed kept the entire global financial system solvent during the crash. They lent huge sums to European banks.
"the central bank lent billions to foreign banks that operate in the U.S., including Germany's Deutsche Bank Securities, which got $290 billion in mortgage securities; London-based Barclay's, which received a $47.9 billion loan; France's BNP Paribas Securities, Switzerland's UBS Securities LLC and Daiwa Securities America, a subsidiary of one of Japan's largest brokerage houses."
http://www.foxnews.com/politics/2010/12/02/federal-reserve-l...
Neither fiscal or monetary stimulus is effective in a post industrial economy like the US.
Structural reform like patents, immigration, occupational licensing, taxes etc are where the big stimulus lies unfortunately.
You said China did the heavy lifting regarding pull the global economy out of the crash, then you say that Fed QE drove growth in emerging markets.
All that stimulus drives massive consumption, which bolsters global manufacturing. And you ignored the part where the Fed kept the entire first world solvent during the crash, that alone is more than China did.
And the US is hardly post-industrial. It's the world's largest manufacturer (yes, larger than China).
Kunming was ok 12 years ago. I'm getting old though.
I'm dreaming about moving to India, but I like my current job too much, and my next move is probably back to the states to settle down.
http://www.zerohedge.com/news/2013-11-26/chart-day-how-five-...
There are also also quirks of the Chinese property market [1] and mass media's penchant for sensationalism that might more reasonably explain the ghost city phenomena.
[1] http://blogs.wsj.com/chinarealtime/2013/09/24/chinas-ghost-c...
a) General lack of maintenance in all buildings. At the most basic level this includes keeping things clean, at a higher level fixing things when they break.
b) Air pollution causing external wear.
c) Individual was surprised when told a stadium was 6 years old. It looked decades old due to pollution and lack of maintenance. The locals were just going to build a new one to replace it.
China's economic growth will cover numerous sins. As will the oil boom in the US. But they're still sins.
Every year, for the last 20 years, many articles say that we can be sure of an imminent housing crash. Then every year they are proven wrong. This is just one more of these articles.
... Bubbles are bubbles until they pop. A lot of infrastructure in China is under utilized, and let's not even get started on empty shopping malls and apartment buildings, even here in Beijing!
Whether the government can pull off a soft landing is up for debate, but every year with people, local governments, and companies become more leveraged, not less, I think a hard landing is more likely.
Now, if that happens, this doesn't necessarily mean that the government collapses, but many of the bandits who are making out on this have gotten their money out of the country, and a correction is more likely to negative effect those who didn't really benefit in the gorging. And if that happens, the CCP (many whose relatives have already fled abroad) is going to be facing a lot of pissed off nongming.
Also, as a normal person without guanxi, you can't really get access to the sure bet industrial investments, and participating in shadow lending is very risky.
"Meet China's Housing Debt Slaves"
http://www.bloomberg.com/news/2013-02-19/china-housing-slave...
http://www.zerohedge.com/news/2013-02-20/meet-chinas-housing...
"In the meantime, some investors are increasingly alarmed by the speed at which local governments are piling on debt to pay for public works. China's state auditor said in its report on Monday that local governments had total outstanding debt of 17.9 trillion yuan ($2.96 trillion), including contingent liabilities and debt guarantees, at the end of June."
http://www.reuters.com/article/2013/12/31/us-china-debt-anal...
"A report by Nomura said Thursday that Chinese municipal debt, a focal point of major concern about the country’s economy, had grown at an alarming 39 percent clip in recent years."
http://www.nytimes.com/2013/09/27/business/global/report-war...
"China's overall debt-to-GDP ratio has sprung to over 200% from about 120% in five years. Most of this is from local governments and state-supported companies."
http://online.wsj.com/news/articles/SB1000142405270230455400...
China's corporations are drowning in debt, at 151% debt to GDP ratio, the highest basically in the major industrial world. Twice as high as America's ratio.
I'm surprised any one thought that China's "bailout" was doing anything more than kicking the can down the road? It is the end of the road now, and they get to deal with unserviceable debt. There are many options. All are ugly in unique ways. For who and when are the questions left undetermined.
The result will probably be that China's growth will at some point stall out before reaching developed world levels and they will probably be faced with some manner of serious problems at a level less than countrywide existential crisis.
Also, as to "predictions being proven wrong", remember that every year during the 2000s many people predicted that the housing market would implode and lead to a major economic crisis. They were "proven wrong" every year until it actually happened.
Chinese households might be less inclined to take on debt, but they've still managed to rack up about 30+% of GDP worth, so they are working on it.
You can lose your saving from currency devaluation. In order to pay off debt, a government can issue new currency (debt denominated in its own currency; in Eurozone countries they can only raise taxes and cut spending to pay off debt.) Your savings don't matter because there is so much more money. An old unit of currency is equal to new units.
We can't be certain of Chinese banks' liabilities but it is something you can keep an eye on in the Western press, if blocked locally ( http://www.bloomberg.com/news/2014-02-14/china-banks-bad-loa... )
If I was Chinese, I would not be too concerned as long as I did not have liabilities for my business or money deposited in a bad bank. If yes to either of these, you are at risk of losing everything.
All we can do is judge them on a case-by-case basis.
In this case, it's really hard to judge because the threat, similar to the US credit crisis, is hard to measure. China has a really sizable foreign reserve that some people think will buffer any economic crisis. However, some estimates of the shadow banking system puts it well beyond its reserves. That said, not every loan in the shadow banking system will go bad. It just means the loans were made off the books. One can reasonably assume that the lender did his work and made loans that have a decent chance of success. Also, I don't know what falls under some of the definitions of shadow banking. The Chinese have been loaning each other large sums of money for generations. This "tradition" is one of the theories put forth in the rise of overseas Chinese communities and their dominance in business in those areas. Anyways, my point is that it's not all doom and gloom. The threat is there but don't panic yet.
So no, not all of the loans will go bad. But, some go bad. First prices stop growing. No growth? Why borrow to buy? Next prices drop, and then suddenly a lot of loans that should have been ok are worth far more than the underlying assets. Then it is just a big mess.
Think of a credit bubble as a game of musical chairs. The people who borrow money at the end always lose (also the ones that lend money.)