AMPONTAN

Japan from the inside out

China’s got problems of its own

Posted by ampontan on Friday, September 23, 2011

MUCH of the discussion of China in the business and financial section of the American media these days consists of teeth-gnashing laments over their trade deficits with and indebtedness to the emerging global power. People have recently been made aware that the Chinese hold so much American government debt that interest payments on the debt will be large enough to completely fund the People’s Liberation Army by as early as 2015.

The view from Asia, however, offers a different perspective. Japanese journalist Miyazaki Masahiro provided a brief description of that view recently, and here it is in English.

*****
The dramatic change in Chinese trade patterns: The drastic decline in the trade surplus

The Chinese trade surplus is growing with the United States and the EU, but that country has a large deficit with resource-exporting countries. Their deficit with Australia is roughly equivalent to their recent surplus with the U.S.

China imports coal, natural gas, minerals, rare earth metals, and other natural resources from Australia. The unfavorable trade balance for China is about to reach $US 40 billion. They also have deficits with Canada, Brazil, and other resource-producing countries.

The Chinese import core parts, components, and high-tech products from Japan, Taiwan, and South Korea, and their deficit with those countries remains unchanged. It is close to $US 30 billion with South Korea alone. The trade deficit with Japan is said to be a constant, but it has somewhat improved to roughly $US 22 billion. Japan continues to import vegetables, grains, seafood, as well as processed food products from China.

Chinese foreign exchange reserves are several times greater than their trade surplus, and direct investment in the country amounts to more than $US 100 billion. The influx of speculative investment is also thought to be several times greater than the trade surplus.

Meanwhile, the trade surplus remains unchanged with the countries of the EU, particularly Great Britain, France, and Italy. The surplus with the U.S. is greater than $US 30 billion, and about $18 billion with India.

Overall, however, the pattern of rising national wealth fueled by trade surpluses is undergoing a dramatic change. Attention will be focused in the future on the contours of the curve in the distortion that occurs during the structural transition from an export-oriented nation to an import-dependent nation.

Regardless, the age in which China was the world’s factory with cheap labor is assuredly coming to an end.
(end translation)

*****
Meanwhile, Gordon Chang asks in Forbes: How can China save Europe when it’s defaulting on its own debt?

He explains:

About 85% of Liaoning province’s 184 financing companies defaulted on debt service payments in 2010 according to a report from the province’s Audit Office. The report also noted that 120 of these borrowers, de facto government agencies, operated at a loss last year.

Since 1994, provinces and lower-tier governments have not been permitted to issue bonds or borrow from banks. Despite the strict prohibition, their debt has skyrocketed as local officials incurred obligations through LGFVs, local government finance vehicles. The central government’s National Audit Office said these companies, at the end of last year, had taken on 10.7 trillion yuan of debt. No one, however, knows the true amount of LGFV indebtedness, and some have calculated the real amount to be more than double the official figure.

Due to a combination of circumstances:

China’s debt-fueled growth is slowing fast, probably faster than official GDP figures indicate…Xu Lin, a senior official at the National Development and Reform Commission, says there is no need to “panic,” but there are plenty of reasons to think that China’s economy is already landing hard. And a hard landing will soon cause LGFV defaults around the country, which will roil banks. Fitch early this month put China’s local-currency debt on downgrade watch due to concerns about bank asset quality and general concerns about financial stability.

*****
Then there’s the Chinese real estate bubble. Said the Wall Street Journal earlier this summer:

AFTER years of housing prices gone wild, China’s property bubble is starting to deflate.

That’s a relative term, of course:

Beijing has one of the most expensive real-estate markets in the world relative to the income of its citizens.

Calculations based on Soufun data show that in the opening months of 2006 an average-price new apartment in China’s capital would cost around $US100,000 — the equivalent of 32 years’ disposable income for the average resident.

By 2011, the average price had more than doubled to $US250,000, but relatively modest increases in income mean it would now take 57 years of saving for the average resident to cover the cost.

Why are falling prices a problem?

Residential prices are heading downward in some major cities, damping some undesired real-estate speculation but raising the prospect that the Chinese economy may slow more rapidly than anticipated with profound consequences for global growth.

Some countries have market risk, some have currency exchange risk, and some have inflation risk. As always with China, however, there is honesty risk:

A number of analysts think official data, which has continued to show a slight rise in prices, understate the slowdown as the government can affect the numbers by pressing developers to withhold or add high-value properties to the market depending on what it wants the data to show.

*****
Everyone in the United States and Europe sees and hears the Big Train coming round the bend, but those governments seem intent on finding ways to stay lashed to the tracks instead of fleeing or derailing the locomotive. Now, some people are taking notice that the Chinese might be tied to the same tracks themselves.

Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati | Yahoo Buzz | Newsvine

12 Responses to “China’s got problems of its own”

  1. Marellus said

    Ampontan.

    Here is another perspective. This was written in 2006, and sadly, the author has passed away. I have also reproduced and edited the entire text, because of so many eye-sores in the original.

    We are all now aware of the emergence of China as a world economic force. The purpose of this article is to examine the real motivations of China and India.

    The Chinese had the advantage of watching what happened to the Japanese. The Japanese found that when you messed with America in a war, you lost. However, the Japanese backed off and, without any natural resources and only a limited population, they mounted a second attack upon the United States of America in the arena of economics. They rose from nowhere to become the second largest economy in the world.

    But the one thing the Japanese did not have was a population large enough to accomplish what the United States had done in the same circumstances. When the United States began to produce things, they not only exported them initially, the only exports were limited ones to Europe, but they had an internal consuming economy, courtesy of no lesser personage than one Mister Henry Ford. The Japanese did not have that critical mass and therefore never achieved the status of number one economic power; they accomplished their economic power from export alone.

    The Chinese observed this and observed yet another phenomenon: the Russians. After the fall of the Wall in 1989, Russia chose to change its government before it changed its economy. That didn’t work.

    The Chinese knew by the end of Mao’s reign that their system would not work for the long term; they began to make minor modifications. Then, having observed both the Japanese and the Russians, they allowed minor pockets of free enterprise to flourish within China. They established the so-called state-owned enterprises (SOE) where they would compete in the world economy. The socio-political system that established the SOE’s kept them from being full-blown successes, but they realized their potential. When the 90’s arrived, Japan was on the decline, and the United States was becoming involved as the world’s only superpower. There opened a door and the new regime in China, that wishes to maintain political power, said ; OK, we have an opportunity. We have the cheapest labor force in the world and we have the world’s largest single source of power outside the sun (for those of you who don’t know, I refer to the Three-Gorges Dam).

    With the new, post-Mao people in charge, the Chinese still want to maintain their position of power. They set up a two-pronged offensive. First, the economy must be raised to a level of generating internal consumption. You do that by establishing a strong export business and building revenues. While you are building revenues, you’re building average annual income of your citizenry and constructing the infrastructure to mass production. You are involving the citizens in the economic process. You are creating, in essence, a new middle-class. China has announced something we would have called a WPA. They are building 85,000 kilometers of six-lane super highways over a 30-year period. They are building twenty-five atomic generating stations. They don’t have to worry about the EPA. They have many advantages which we do not have. They are exploiting every one of these advantages to its utmost. They are well on their way to achieving their primary goal of generating capital through export. At the same time they are building infrastructure to support what will become the largest economy in the world and they will have the consumers to support that economy.

    Someone brought up the point that there are places where the cost of labor may be lower than in China. That is a true statement, but to utilize low-cost labor, you must have some infrastructure. Let’s take an example: Bangladesh. The labor is cheaper in Bangladesh, but there is virtually zero infrastructure where that low-cost labor could be put to use. Also, the government of whatever country we might be talking about, must be motivated to make use of this cheap labor. Right now all arrows still point back to China and India.

    China already is the number one steel producer in the world (2004: 340 m tons, 2005: 400 m tons.) The Chinese purchased 70% of all cement in the world. They are the second largest importer of petroleum in the world. In the past eighteen months, they have gone from selling no microchips to the world to being well on their way to an announced goal of 20% of the market. And they will get there. China said they would sacrifice profits to take market share. In that statement is contained the essence of what this paper is all about.

    In the western world, we are driven by the motive of profit. You must make a profit on steel; you must make a profit on automobiles, etc. Both China and India have a different desire: their main motive is employment for the people. When the people are happy, the leaders keep their job. That’s what this is all about. It doesn’t make any difference what you call yourself, as long as you tell everybody else what to do. You can call your system communist, call it anything you want; as long as the guys running it have the power and keep it, they don’t care what you call it.

    Here we see an entirely different motivation for what the Chinese are doing versus what we are doing. They have no need to make a profit. What they need is capturing more market share and putting more of their people to work. China has a virtually unlimited workforce. There are a total of 1.3 billion people recognized to live in China. Recently, I have spoken to a gentleman engaged in international commerce, who is not a US citizen, who just spent 2 years in China. He informed me that the Chinese population is somewhere between 1.7 and 1.9 billion people. The government removed the one-child policy approximately eight months ago. I would expect that we’ll see a new baby-boom in the maternity wards of China over the next 90 to 120 days.

    While things are now good in China, they are getting better. The people are happy, the leaders are happy, they will continue this policy, and they will expand this policy. General Motors and General Electric are running to China to build plants to take advantage of this situation. They think that they will export low-cost products back to the United States and make the profit. Once those plants are firmly established, the Chinese will know how to operate them. It would be a simple thing to impose an export tariff tax and take away the profits of General Motors, or General Electric, or the Philips Corporation of Holland.

    Without the profit motivation, General Motors may say, We’ll take our stuff and go home. But you won’t take the concrete and steel that you built. And if you think you’ll take the machinery home, I suspect that you had better think again. You will be arrested for removing property that is not to be removed under the contract that you originally signed. And I think GM and GE will examine their contracts and find out that their equipment, once placed, cannot be removed.

    So, what happens to the rest of the world, those of us who do have the profit motive? Simply, if there are no profits, our corporations will cease to exist. Not all will cease to exist, but those that are engaged in high employee cost, or in manufacturing of items that are in direct competition with China, such as automobiles, steel, aluminum, light bulbs, television sets, etc. If you make it in a factory, you’ll probably be out of business. This is a very sour note to the rest of the world’s economy, for some time to come.

    The only surefire investment opportunity for others in this no-profit world of tomorrow is to have the things that the Chinese must purchase, things that they don’t have: oil, natural gas, copper, certain grades of coal, all of the base metals such as zinc, lead, and in particular uranium. Uranium will be in great demand. The other main class of items they will need is agricultural (7% or the world’s agricultural land, 24% of the world’s population.)

    It is best to purchase companies that are not based in the United States to participate in this hard asset investment world. My personal choice is Canada. Australia offers some opportunities. Bond investors should only consider bonds in Canada and New Zealand (New Zealand for an entirely different reason, I might add.) Australia has U.S. type problems and although they have enormous natural resources, some of those problems may complicate their bond picture. Canadian and New Zealand currency will rise dramatically against the U.S. dollar.

    The rising cost of energy and the falling value of our dollar in world markets will present another problem for citizens of the good ole USA. Our energy cost will soar beyond belief. Therefore it is mandatory that you have investments in those areas where you’ll have extreme increased cost. Look at Blake’s rule no. 3: The world runs on oil. And you have to own some of that oil !

    The Chinese government plans to build a pipeline from Iran to China, passing through some of the “-stans”, the former Russian republics. Not long ago, the Shanghai Co-operation Council (SCO, whose members are Kazakhstsan, Kyrgyzstan, Tajikistan, Usbekistan, Russia and China) has agreed and signed a pact of mutual defense – demonstration of this alliance took place August 18 to 25, 2005 (when peace mission 05 was conducted.) The SCO members also agreed to ask the US to withdraw their troops from their new military bases in Central Asia, and to set a time table to this effect.

    When you combine these facts with the rising protectionist atmosphere in the US congress, where they have introduced legislation to erect 27% import tariffs against Chinese goods , and we all know that tariff wars lead to a more dire potential than a no-profit economy ; it introduces the potential of armed conflict.

    When you cut off a nation’s supply of petroleum as we did in 1941 it provokes war.

    When I started to write this epiphany, I could see the potential for massive world investment disruptions. Unfortunately, politicians begin to blame other countries for their problems at home. Once they have convinced the voting public that ; It’s not my fault. It’s so-and-so’s fault, it then leads to retribution against the cause. That is when the flames of war are fanned. What I thought was going to be a dire economic prognostication has turned into a suggestion of WW III.

  2. toadold said

    As stated you can’t trust mainland China’s statistics. However, as mentioned, the external indicators mentioned are indicating bad news. For example China is pulling back or copper purchases and the price of oil is actually dropping and the demographic bomb is starting to worry the head that fear the loss of the Mandate of Heaven.
    South Korea and Japan still innovate and have copyright protection. China…..forget it.
    A Chinese gentleman told me the feeling is starting to be one of entrapment. Every effort to think up a way to change the system meets economic, cultural, or political interests that fear any change. He says the examination system is based on memory not intelligence but if you try to put tests of creativity into the system you give the advantage to children of the wealthy who can afford better education in “creativity.” The poor see being able to memorize and barf back as within their means. So they end up stuck with it. The boat sinks but all fear move and rock it even to plug the leaks.

  3. Harry said

    “The Chinese had the advantage of watching what happened to the Japanese.“

    And their property bubble is much bigger than ours.

    不動産価格、1週間で1割超下落 中国経済、凋落の最終局面に
    http://www.sankeibiz.jp/macro/news/110915/mcb1109150849031-n1.htm
    http://www.sankeibiz.jp/macro/news/110915/mcb1109150849031-n2.htm
    http://www.sankeibiz.jp/macro/news/110915/mcb1109150849031-n3.htm

    【中証視点】中国不動産投資信託に危機、国内大手の資金繰り悪化
    http://headlines.yahoo.co.jp/hl?a=20110923-00000015-scn-cn

    中国の地方債務8割が返済不可能か―2012年に危機?
    http://headlines.yahoo.co.jp/hl?a=20110922-00000007-scn-cn

    “We have the world’s largest single source of power outside the sun (for those of you who don’t know, I refer to the Three-Gorges Dam).“

    They ignore risks of collapse and environmental costs.

    “They established the so-called state-owned enterprises (SOE) where they would compete in the world economy.“

    They crowd out small private enterprises that provide jobs and make or break the economy.

    資金・原材料・人材の不足による中小企業の倒産、中国北部にも蔓延―中国メディア
    http://headlines.yahoo.co.jp/hl?a=20110920-00000014-rcdc-cn

    “China has a virtually unlimited workforce.“

    No, it does not.

    “The Chinese population is somewhere between 1.7 and 1.9 billion people.“

    So, their most basic stat is wrong.

    “We’ll see a new baby-boom in the maternity wards of China over the next 90 to 120 days.“

    NO.

    “The people are happy, the leaders are happy,“

    There are riots everywhere.
    中国・広東省で土地収用に抗議し、村民1000人が暴動
    http://headlines.yahoo.co.jp/hl?a=20110924-00000000-scn-cn

    中国の都市と農村の貧富差は世界最大=都市部重視の経済・社会政策に原因―中国誌
    http://headlines.yahoo.co.jp/hl?a=20110921-00000023-rcdc-cn

    That Market Analyst knows nothing about China.

  4. Marellus said

    @Harry

    “The Chinese had the advantage of watching what happened to the Japanese.“
    And their property bubble is much bigger than ours.

    Indeed, but their bust won’t lead to deflation like in Japan.

    The financial problem for China from a balance sheet perspective is that some lenders cannot repay borrowers because their nominal income stream (either from profit or labor) is too low. This is because the efficiency of capital has not been what it should have been in order to fulfill all financial contracts. Now, there are two solutions to fix the balance sheet. One could allow for bankruptcy or renegotiation of debt until all (rewritten) contracts can be honored. A different idea is to “rewrite” financial contracts by increasing the rate of inflation. How would this work?

    Let’s assume that the Chinese central bank (PBoC) decides to help debtors by increasing the money supply. At the same time, the government decides to let public sector wages increase. This is classic expansionary policy straight from your economics textbooks (IS/LM chapter, shift of LM and IS outwards). However, in the textbooks the understanding of Keynes is flawed. No inflation results because we are in a liquidity trap (if your textbook says so, congratulations! Most do not.) China, however, is not in a liquidity trap. Inflation is very likely to rise when wages rise, accompanied by a rise in money supply.

    The consequences for balance sheets are clear. Nominal incomes will rise, which will allow more debtors to repay their debt, which is of course nominally fixed. The creditors will get their money back, but the purchasing power of that money will have decreased. This outcome is preferable to that of a financial crisis, which would have resulted from not inflating the economy, so capital owners should accept it as the better outcome. From an economic point of view, inflating comes with lower transaction costs than renegotiating all debt contracts and might therefore be the superior solution. Since debt contracts are all “changed” in the same way, it might also be more just.

    Inflation is a more likely (and better) outcome.

    “We have the world’s largest single source of power outside the sun (for those of you who don’t know, I refer to the Three-Gorges Dam).“
    They ignore risks of collapse and environmental costs.

    Then you must say that environmentalism is scientifically rigorous, socially fair and is not inimical to economic growth. And when you have demonstrated this, try and convince the Chinese. I’m sure they’ll listen.

    “They established the so-called state-owned enterprises (SOE) where they would compete in the world economy.“
    They crowd out small private enterprises that provide jobs and make or break the economy.

    A Nobel Economist disagrees. And it’s not Krugman. Sorry.

    Fogel also discusses how the current method used in measuring statistics like GDP and income severely underestimate growth because they do not take into account improvements in the quality of output. For example, despite the invention of antibiotics and modern surgery, an hour of a doctor’s time today is considered worth the same amount as a doctor fifty years ago. He cites research that says the official growth in GDP of 2% annually for the past century in the US should really be around 3.6%.

    The implication is that the growth may be dramatically understated in China, more so than in the United States. One example is how changes in life expectancy affect growth. From 1950 to 2000, life expectancy at birth increased from 40.8 to 71.4 years. This is an increase of about 0.18 years of life expectancy annually. Studies of the value of a statistical life year find that the value of an additional year of life in China is about 3.5 times per capita income.

    Therefore, the value of the unmeasured improvements in life expectancy alone are high enough to raise the rate of economic growth by about 60% in this period. Therefore, if the true growth of GDP between 2000 and 2040 becomes 13% instead of 8%, then the true size of the Chinese economy in 2040 will be about 6 times the size of the measured economy. Such dramatic changes in life expectancy did not occur in the US, so their omission there is not as critical. Of course, both the United States and China similarly neglect changes of quality in their measurements, so the relative ranking of the two economies is changed significantly.

    Fogel also believes that some of the problems the detractors discuss aren’t as important as they think. One major problem is that banks have many bad loans with inefficient SOEs that aren’t being paid off. Fogel says that this problem is long-standing, and although these inefficient firms are a drag on the economy, China still had a growth rate of 8% the past twenty years. Also, as the economy becomes more market-based, the burdens of these firms will gradually diminish as they are phased out.

    “China has a virtually unlimited workforce.“
    No, it does not.

    But its cohort of 20-to-40-year-old-people is the largest in the world. It stands at 400 million people. And this cohort is educated. And this cohort is homogeneous in language. And this cohort is patriotic. The population of the US is about 400 million now. What can you tell me about their cohort of 20-to-40-year-old people ?

    And yet they can throw their weight around :

    If I had to summarize China’s new grand strategy, I would do it, Chinese-style, as the Four “Mores”: Consume more, import more, invest abroad more and innovate more. In each case, a change of economic strategy pays a handsome geopolitical dividend.

    By consuming more, China can reduce its trade surplus and, in the process, endear itself to its major trading partners, especially the other emerging markets. China recently overtook the U.S. as the world’s biggest automobile market (14 million sales a year, compared to 11 million), and its demand is projected to rise tenfold in the years ahead.

    … Growing overseas investment in natural resources not only makes sense as a diversification strategy to reduce China’s exposure to the risk of dollar depreciation. It also allows China to increase its financial power, not least through its vast and influential sovereign wealth fund. And it justifies ambitious plans for naval expansion. In the words of Rear Admiral Zhang Huachen, deputy commander of the East Sea Fleet: “With the expansion of the country’s economic interests, the navy wants to better protect the country’s transportation routes and the safety of our major sea-lanes.” The South China Sea has already been declared a “core national interest,” and deep-water ports are projected in Pakistan, Burma and Sri Lanka.

    Finally, and contrary to the view that China is condemned to remain an assembly line for products “designed in California,” the country is innovating more, aiming to become, for example, the world’s leading manufacturer of wind turbines and photovoltaic panels. In 2007 China overtook Germany in terms of new patent applications. This is part of a wider story of Eastern ascendancy. In 2008, for the first time, the number of patent applications from China, India, Japan and South Korea exceeded those from the West.

    “The Chinese population is somewhere between 1.7 and 1.9 billion people.“
    So, their most basic stat is wrong.
    “We’ll see a new baby-boom in the maternity wards of China over the next 90 to 120 days.“
    NO.

    Most population statistics are inferred via surveys. A sensus is needed.

    “The people are happy, the leaders are happy,“
    There are riots everywhere.

    Indeed. But the Chinese Government is not constrained by Human Rights in subduing them. And who would stop them ? Europe ? They need help financially. And the USA is getting there.

    That Market Analyst knows nothing about China.

    And you do ?!

    How will you interpret this then ?

    One of the things that matters is political leadership. We are in an environment where many of the developed countries have relatively progressive leaders, whether it be Barack Obama in the US, David Cameron in Great Britain, or Angela Merkel and Nicholas Sarkozy, all of whom are challenging some of the traditional assumptions.

    Since Junichiro Koizumi, who was Japan’s prime minister from 2001 to 2006, that doesn’t seem to have been the case. Do you see a change in that respect, where there will be a new generation of political leadership in Japan that will tackle some of the issues you’re talking about?

    I’d like to think so, but it’s hard to see it coming. It’s visible when I talk to some of my Japanese students. The younger generation chafes at many of the rigidities of Japanese society. One can imagine a new era in Japanese politics. The trouble is that the demographics odds are stacked against young people in a way that is unique to Japan.

    If you just look at the way Japan is aging between now and 2050, a huge proportion of Japanese society is going to be 65 or over in the next few decades, and that creates a real obstacle to radical reform.

    The elderly are conservative with a small “c,” and sometimes with a large “C.” They are also very dependent on certain revenue streams from their government. It’s hard to get them to vote for radical changes — for example, for a system of state or corporate pensions — any more than it’s easy to get turkeys to vote for Christmas, or for that matter for Thanksgiving,.

    There is a problem in Japan, which we’ll see in other Western countries as the years pass. You can get a critical mass of obstruction and opposition to radical fiscal reform. The elderly would rather take that chance. They would rather gamble that their nominal claims will not be eroded by inflation. Fear of inflation in Japan is unsurprisingly pretty much at an all time low. The Japanese have not seen inflation for a long time.

    For that reason, I will be surprised if we get a big change in Japanese politics.

    Or more anecdotally :

    A few years ago I had a lesson with a board member of a Japanese government bank. I was thinking how old style the government seems to be, so I was surprised when he said that he thought the number one obstacle to change, growth, and future planning in Japan was not the government, but a lack of desire on the part of Japanese voters for real, fundamental change.

    Things were too comfortable he said, and unless some major economic or natural disaster occurred to really expose the vulnerability and unsustainability of the system here, people would go on believing that the parental, “normal and safe” status quo would go on indefinitely, and remain relatively apathetic towards making any deep adjustments.

    A thousand years ago China had the Sung Dynasty. It was a dynasty of commerce and innovation. Quite similar to the Han Dynasty a thousand years before that. This new dynasty of China will follow in their footsteps. A new Sung-type Dynasty then.

    And Japan will head into the historic obscurity that is the Heian period, until a new type of Shogunate revitalizes the country.
    —————
    M:

    I was surprised when he said that he thought the number one obstacle to change, growth, and future planning in Japan was not the government, but a lack of desire on the part of Japanese voters for real, fundamental change.

    Anyone who has paid attention to Japanese national elections for the past decade knows this is crap. “A board member of a Japanese government bank”? A Financial Ministry bureaucrat? Unless one knows who this man is, and what his views of government are, this is worthless.

    The Japanese have not seen inflation for a long time.

    The Americans haven’t seen it in 30 years, which is long enough in today’s world.

    Most population statistics are inferred via surveys. A sensus is needed.

    Harry’s right about the Chinese baby boom. They have similar demographic problems as others do, plus a one-child policy. As one commentator noted, “The West got old after it got rich. The Chinese will get old before they get rich.”

    Things were too comfortable he said, and unless some major economic or natural disaster occurred to really expose the vulnerability and unsustainability of the system here, people would go on believing that the parental, “normal and safe” status quo would go on indefinitely, and remain relatively apathetic towards making any deep adjustments.

    How does this make Japan different from any other country?

    China recently overtook the U.S. as the world’s biggest automobile market (14 million sales a year, compared to 11 million), and its demand is projected to rise tenfold in the years ahead.

    I’ve uploaded stuff here before about entire cities and shopping centers that people aren’t using, complete with videos. There are also suspicions that the Chinese are building fleets of cars and parking them unused.

    We are in an environment where many of the developed countries have relatively progressive leaders, whether it be Barack Obama in the US, David Cameron in Great Britain, or Angela Merkel and Nicholas Sarkozy, all of whom are challenging some of the traditional assumptions.

    This is f*cking hilarious. What traditional assumptions would those be? Global governance and social democracy don’t work? Political leadership requires competence?

    Then you must say that environmentalism is scientifically rigorous, socially fair and is not inimical to economic growth. And when you have demonstrated this, try and convince the Chinese. I’m sure they’ll listen.

    I think they’ve already made up their minds. For them, I’m sure the green energy business is just another way to make money.

    But its cohort of 20-to-40-year-old-people is the largest in the world. It stands at 400 million people. And this cohort is educated.

    Not all of it is.

    And this cohort is homogeneous in language.

    Not all of it is.

    The population of the US is about 400 million now.

    That’s only off by about 100 million.

    This is worth reading on its own, but especially for the crack about Chimerica and the observation about the questions asked in the US presidential debate.

    – A

  5. toadold said

    Harry
    You are so right. That Three Gorges Damn is a scary thing. The rumor mill says the Chinese are worried about what they call “tofu” construction on it. It is showing cracks and they are having to patch it already. If the drought ends and you get a heavy rainfall upstream and then an earthquake there is a fear that it could break up. Kiss off the power generators and count up the bodies down stream if that happens.

  6. Marellus said

    Ampontan.

    You didn’t go after Niall Ferguson or that Fogel fellow though. And yes, my stats were wrong on the USA. Mea Culpa . My thesis is this : China is grinding an axe, and Japan is a chicken that believes it can shed some weight by loosing its head. What’s yours then ?
    ————
    M: No time to go after everyone. Not sure what your thesis means. Big government and big business may be sticking their necks out, but they people sure don’t want to. I don’t have a thesis as such, because there are too many known unknowns and unknown unknowns. Well, other than that the Chinese want to reassert their old regional hegemony and extend it this time.

    – A

  7. Marellus said

    Ampontan.

    And how must the leadership (in industry and government) of Japan respond to this ?

    And how will the leadership (in industry and government) of Japan respond to this ?

    I sense a dichotomy full of unknowns here.

    But I think the situation is that those who must, will not … and those who will, must not … for compelling but frivolous reasons.

  8. Harry said

    “Inflation is a more likely (and better) outcome.“

    When they are increasingly angry about it. All those real estate tycoons may like it. Others may revolt. There is a speculative bubble of graves. They bemoan the fact that life is hard and death is even harder.

    Komatsu is now having trouble getting paid for excavator sales in China. Since local governments have no reason to stall the building spree, I suspect LGFVs have begun to fail.

    If inflation speeds up, there is a risk of stagflation.Taiwanese electronics makers may replace Chinese workers with Japanese robots or get out of China. SMEs say their business conditions are worse now than in 2008.

    I trust lay people in China and some foreign observers than that economist.

    “And when you have demonstrated this, try and convince the Chinese. I’m sure they’ll listen.“
    They are convinced and demonstrating against polluters and could get violent.

    “This cohort is homogeneous in language.“
    No.

    “historic obscurity that is the Heian period“
    Never heard of 国風文化? Try again.

  9. Harry said

    Toadold, I know of ”okara”construction, but ”tofu”may be a better word. Their officials tend to let old dams fail ”naturally”rather than fix or rebuild them, causing floods in rural areas. I want to believe that is not the case here, but I also hear that that huge dam may have caused landslides and even earthquakes. Their engineers opposed the project, but Beijing did not listen.

  10. Marellus said

    @Harry.

    Here is the Heian period . And compare this with the with the Song Dynasty.

    History comes in cycles, and the thousand year cycle is a powerful one. WD Gann was the first to notice this.

    So there will be a repeat of the Song Dynasty in China, and Japan is headed towards a new Heian Period. And that means that China will prosper, and Japan will plod on into some kind of Kamakura Shogunate. But not for some time yet.

    While on one hand the Heian period was indeed an unusually long period of peace, it can also be argued that the period weakened Japan economically and led to poverty for all but a tiny few of its inhabitants.[citation needed] The control of rice fields provided a key source of income for families such as the Fujiwara and were a fundamental base for their power. [12] The aristocratic beneficiaries of Heian culture, the Yokibito (“Good People”) numbered about five thousand in a land of perhaps five million. One reason the samurai were able to take power was that the ruling nobility proved incompetent at managing Japan and its provinces.

    As to the rest of your economic polemics regarding China, there are three ways to deal with excessive debt in an economy :

    1) Inflation.
    2) Deflation.
    3) An upward revaluation in the price of gold.

    Whatever domestic debts the Chinese Govt has can be paid back in gold at a certain price. How will they do this ? They just tell the Central Bank to be the buyer-of-last-resort of gold at that inflated price. Any inflation can be sterilized by bond dealings then.

    And China is buying gold.

    What is Japan doing ?
    ——-
    M: Harry is, IIRC, Japanese, so I don’t think you need to be uploading quotes from Wikipedia about the Heian period for him. Particularly ones that make bald assertions about events more than 1,000 years ago followed by (citation needed).

    I also recommend you look at the Wikipedia editorial on the masthead of this page and read the John Derbyshire article at the link.

    – A.

  11. Marellus said

    Ampontan.

    You’re the reason they invented Maalox … I give up.

  12. […] China’s got problems of its own (ampontan.wordpress.com) LD_AddCustomAttr("AdOpt", "1"); LD_AddCustomAttr("Origin", "other"); LD_AddCustomAttr("theme_bg", "ffffff"); LD_AddCustomAttr("theme_text", "333333"); LD_AddCustomAttr("theme_link", "0066cc"); LD_AddCustomAttr("theme_border", "5581C0"); LD_AddCustomAttr("theme_url", "114477"); LD_AddCustomAttr("LangId", "1"); LD_AddCustomAttr("Autotag", "business"); LD_AddCustomAttr("Tag", "news"); LD_AddCustomAttr("Tag", "sri"); LD_AddCustomAttr("Tag", "asia"); LD_AddCustomAttr("Tag", "business"); LD_AddCustomAttr("Tag", "china"); LD_AddCustomAttr("Tag", "chinese"); LD_AddCustomAttr("Tag", "economy-of-the-peoples-republic-of-china"); LD_AddCustomAttr("Tag", "european-crisis"); LD_AddCustomAttr("Tag", "european-union"); LD_AddCustomAttr("Tag", "foreign-direct-investment"); LD_AddCustomAttr("Tag", "united-states"); LD_AddSlot("wpcom_below_post"); LD_GetBids(); Rate this: Share stuff:TwitterLinkedInFacebookEmailMoreRedditStumbleUponDiggPrintLike this:LikeBe the first to like this post. […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

 
%d bloggers like this: