China’s economy by Humphrey McQueen

Chinese Crackers (pdf, 35pp)

This article is an analysis of China’s economy by Humphrey McQueen, published in February 2011 by Surplus Value. Thanks to Jim Sharp for drawing our attention to this. I don’t currently feel expert enough to evaluate Humphrey’s detailed research and interpretations but it does strike me as well worth discussion.

25 Responses to “China’s economy by Humphrey McQueen”

  1. 1 Arthur

    Humphrey has certainly been working hard!

    There’s an impressive collection of snippets tending to reinforce the idea that China is headed for a major crash.

    I found it hard to separate the quoted analysis accompanying the factoids from Humphrey’s own analysis.

    We need to actually understand the financial jargon. Not sure to what extend Humphrey does as he makes little attempt to explain it.

    Anyway its certainly a worthwhile read, even though basically a stream of impressions with some hints of perception rather than a coherently reasoned theoretical synthesis. That sort of partly processed raw material is certainly a necessary step towards developing any synthesis so its great to see Humphrey working at this.

  2. 2 steve owens

    In the mid 1990’s I went to see Humphrey McQueen give a talk at Trades Hall Adelaide, me being a long time admirer of his work. After the talk we gathered around him and someone asked him about China. He answered that he thought that there must be a collectivist memory imbedded within the Central Committee that would eventually move against the pro Capitalist elements. As I mentioned it was the mid 90’s and I felt like someone had slapped me in the face. I left trades hall thinking that Humphrey knew both so much and so little.
    His work Chinese Crackers seems to be a collection of anti chinese economy snippets without any real direction except that we shouldn’t be surprised if the whole pack of cards comes down soon.
    I expect China to stumble but I dont think that it will be soon.
    Humphrey puts stock in the idea that a lot of the financial figures are bogus.
    I expect he is right but only because history tells us that lots of Capitalist enterprises run bogus figures and you can never pick them by their public documentation. In South Australia the accounts of the State Bank were impecable. Only later did we learn that this was because masses of bad debt were accounted for in off balance sheet companies. Enron was squeeky clean with high marks from it’s auditors until an insider leaked that sub companies worth Billions were in fact worth nothing.
    I think that the only way to make an objective assessment of the Chinese economy is to look at the figures that are reasonably reliable.
    Firstly China runs undisputed export figures of $US 1,506 trillion
    now this figure has stood up despite the Global financial crisis. In fact theres evidence to suggest that because Chinese exports target the low end of markets hard times actually boost sales as consumers downside their consumption wants.
    Secondly China has and anual savings of about $US 3 trillion. This means that when China decides to unleash its next stage of development ie internal development there will be plenty of real money to finance this.
    Just a comment on people using averages. Averages mean little in a country that is undergoing industrialistaion. Of course Chinese and Indian averages looks small compared to Japan or the USA. So what, most of the people in China and India are still scratching away at the ground. Averages look more real when you compare an industrialised province to an industrialised country.
    China is producing and selling real commodities. Banks may crash and companies may go broke but as long as China can sell it’s produce the Chinese economy will not crash. Before the GFC there were plenty of commentators who said that any downturn in the USA or Europe would have a magnified effect on China which after all was just an appendage to the “real” Western economies. Well the crisis came and went. Iceland fell, Greece looks dodgy but China keeps rolling along.

  3. 3 steve owens

    Chinese exports should read $US 1.506 trillion not $US 1,506 trillion

  4. 4 Dalec

    I think that Steve is pretty much correct. The Chinese approach to Capitalism is very very smart, here is what they are not doing vs other dying and dead Imperiums
    – China does not garrison troops in almost every country in the world
    – China is not involved in wars of Imperial Conquest
    – China has not instituted massive tax cuts for the rich
    – China imports raw materials – adds value and exports them
    -China has real assets and real savings
    As Humphrey points out there are real problems but my experience with these guys is that they are an unstoppable and rising force – for the present.

  5. 5 steve owens

    Both the Chinese and me are looking in disbelief at what the Americans are doing.
    First Bush runs up a deficit during a boom.
    He did this largely by giving his wealthy friends massive tax cuts (those that actually pay tax, check out GE)
    What economic text advises deficits during booms? The bozo the clown guide to running an economy?
    Now with a recession in the wings the tea party republicans are attempting to force a balanced budget. Surely these people have studied the great depression. It was balanced budget thinking that made it so hard on the poor. Even Rosevelt ran a balanced budget. (Even he couldn’t break from this mantra)
    How can anyone sell the Chinese the idea of democracy when its exponents in America seem to be hell bent on destroying Capitalism rather than running it in a way that at least makes sense.

  6. 6 jim sharp

    s.o.Not the 1930s – I
    Ten years after the Asian financial tail-spin and almost twenty since the Wall Street panic that reversed the 1985 Plaza Accord, central bankers are running up warning flags about the fragility of their global system. The International Bank of Settlements might be reserved about the likelihood of a crisis but it raised the stakes by using the D-word – a Depression of 1930s dimension – not just a recession like that of the late 1970s.

    That skim through the consequences leaves us with a variant on the opening question: if capitalism can indeed collapse, can it also rise again? To approach an answer we must look again at the 1930s. The conventional belief is that Roosevelt’s New Deal rescued the US. In truth, the downturn of 1938 was as steep as that at the start of the deflationary cycle. What dragged the world out of depression was global war. That gale of destruction lost some of its creative promise at Hiroshima

  7. 7 steve owens

    Jim I think that we could have another depression but as in the last depression the worst aspects can be brought on by political stupidity rather than by the internal workings of Capital be they the anarchy of production, the tendancy for the rate of profit to fall or the tendancy towards over production.
    In the 1930’s governments clung to the gold standard, put up trade barriers, balanced their budgets , refused as in Australias case to repudiate debts. Where flexability was called for governments responded with inflexability by allowing for the banking system to fail and debt deflation to rule.
    At the commencement of this crisis governments did quite well they engaged in quantitative easing to maintain a modest inflation target, they recapitalised the banks, engaged in stimulus spending and restated their commitment to free trade.
    The current problems that are getting attention are the US deficit which was entirely avoidable, low growth in the US which is running against the trend of growth for the system as a whole and the European debt dilema which is a result of a poorly managed single currency system.
    Capitalism could go very pear shaped but only if some very wrong political decisions are made. The US may default, the EU could let the single currency project fail. These things could happen some bad things already have. The US wont try to stimulate their economy any more and the democrats have accepted the “need” to balance the budget.
    Good things may happen as well. The US dollar is devaluing relative to the Chinese currency and the EU may well centralise their borrowing which will ease pressure on the periphery countries who were making a mistake when they gave up their own currency. They should have been warned by the 1992 crisis when Britain withdrew from the European Exchange Rate Mechanism.

  8. 8 Dalec

    It was the huge tax cuts for the rich that blew the US debt out. Plus of course the funding for Imperial wars of conquest that were fought on their behalf – partly as a means to directly transfer even more wealth into the hands of the US ruling class and partly as a rather neat diversionary tactic to divert attention away from the massive theft that took place at the same time; via the tax system, on behalf of said ruling class.
    Now who was the president when the tax cuts and foreign adventures blew the budget totally out of the water? Why that hero of democracy G.W Bush – hooray! Daddy was good at it too.
    The global war option would fix the problem for the US and make the rich even richer
    Problem is that a World War 3 with China as the main enemy will be difficult indeed for the US due to the fact that China has the bomb and the means to deliver it.

  9. 9 steve owens

    Dalek despite the urge to join you in saying that the wars are bankrupting the US government and score a lot of cheap laughs about the war that would fund itself (jesus the white house has some good comedy writers) I just dont think that the evidence is there yet.

  10. 10 Dalec

    Steve, US military spending during WW2 was 47% of GDP. This was while coming out of the 1930’s depression. The war and the post war boom it initiated made the US the power it was a few years ago. It also made a number of Americans very very rich. Wars don’t bankrupt economies – far from it.
    Now the US has a problem, the tax cuts and subsidies that they ripped out of the country during the Bush years, along with the wall street frauds have bankrupted the country, essential infrastructure is falling apart and the political system is in chaos. China has been the major beneficiary of this.
    One way out would be another world war, where the capitalist system adopts central planning and all those things that are essential to victory. War is very good for business.
    Only trouble is the nukes.

  11. 11 Bill Kerr

    I still don’t feel qualified to comments on China’s economy but here is another article for reference: Chinese TV Host Says Regime Nearly Bankrupt

    Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis—on the brink of bankruptcy. In his memorable formulation: every province in China is Greece …

    Firstly, that the regime’s debt sits at about 36 trillion yuan (US$5.68 trillion). This calculation is arrived at by adding up Chinese local government debt (between 16 trillion and 19.5 trillion yuan, or US$2.5 trillion and US$3 trillion), and the debt owed by state-owned enterprises (another 16 trillion, he said). But with interest of two trillion per year, he thinks things will unravel quickly.

    Secondly, that the regime’s officially published inflation rate of 6.2 percent is fabricated. The real inflation rate is 16 percent, according to Lang.

    Thirdly, that there is serious excess capacity in the economy, and that private consumption is only 30 percent of economic activity. Lang said that beginning this July, the Purchasing Managers Index, a measure of the manufacturing industry, plunged to a new low of 50.7. This is an indication, in his view, that China’s economy is in recession.

    Fourthly, that the regime’s officially published GDP of 9 percent is also fabricated. According to Lang’s data, China’s GDP has decreased 10 percent. He said that the bloated figures come from the dramatic increase in infrastructure construction, including real estate development, railways, and highways each year (accounting for up to 70 percent of GDP in 2010).

    Fifthly, that taxes are too high. Last year, the taxes on Chinese businesses (including direct and indirect taxes) were at 70 percent of earnings. The individual tax rate sits at 81.6 percent, Lang said.

    For Chinese speakers his original talk is on You Tube.

  12. 12 steve owens

    Bill a PMI of 50.7 indicates that the economy is not in recession.
    If the professor in finance says that 50.7 indicates recession I guess he must have a completely new definition of what recession means. 50.7 is indicating growth, any figure over 50 indicates growth.

  13. 13 steve owens

    Growth is slowing but not a recession

  14. 14 Steve Owens

    Bill theres also a problem with comparing sovereign risk entities like Greece with non sovereign risk entities like Chinese provinces. We should compare like with like. The real comparison is between the interest on Greek bonds ie 25%+ and the rate on Chinese bonds more in the vicinity of 3%
    I think Krugman has written about why Greece could not be compred to individual US states.

  15. 15 Steve Owens

    Rising wages a sure sign that the end is near. Not

  16. 16 Arthur

    Yes, a sharp rise in wages is usually a harbinger of impending crisis.

  17. 17 Steve Owens

    Arthur I think that you will find that real wages in the USA were in decline in the lead up to the GFC

  18. 18 Steve Owens

    May be the USA is an anomaly. May be if we look at Europe we will find a wage surge. No not there either. If you look at the bottom of page 4 you will read the following “Simply put German wage suppression rather than fiscal profligacy is at root of the crisis ….”
    So there we have it prior to the crisis in America and Europe wages in the two biggest economies were being held down.
    but Im sure you just didnt make up your argument that a sharp increase in wages is usually the harbinger of a crisis. If you can just provide an example it would put my mind at rest. Surely not making stuff up.

  19. 19 patrickm

    Steve; you are confusing 2 different problems. The GFC is a problem of indebted countries and particularly the advanced industrialized countries (PIGS and the USA etc) that also affects the non indebted countries and all holders of the un-payable debts as we have just seen in the case of the Greece write-off of 70%. These are the countries that managed to keep a boom going by extending credit to the point where the ‘music stopped’. China is a booming capitalism where the demand for skilled labor just pushed up the price of labor as happens in all capitalist booms that end in busts. China is going to bust because thats how booms end under the capitalist system. Markets become glutted and then credit gets extended. China has invested in productive capacity that has to find a paying market. Greece is not a paying market and neither is Portugal, Spain, Ireland, Italy etc and also France and Britain as they fight to stave off the same fundamental problems that Japan has been coping with for decades. – Egypt and Turkey are in deep trouble but different to Syria. – I don’t think that the USA is a real good market either!

  20. 20 Steve Owens

    Patrick there are plenty of very smart people who predict that China is just about to implode. In 1997 some very smart people predicted that China would not withstand the Asian economic melt down but it did. In 2007 some very smart people predicted that China would not withstand the GFC but it did. Here we are in 2012 and we still hear that China will implode because of various bubbles and now the clear sign of rising wages.
    Ask yourself, where does China sit on the development ladder? They have a population that is moving from the country to the city at a rate that will need a Melbourne and a Sydney to be built every year for many years to come. They have a robust industry which finds export markets even when its main trading partners are in deep trouble. Most of that trouble is now over as the USA hits 2.3% growth rates even during a period of deleveraging. Wages in China are now on the rise and people can put their wages and their impressive 35% savings rate into developing internal demand. This may well turn their terms of trade around as Chinese demand stimulates the world. Look its already happened wont that lead very smart people to have a new reason why China is about to implode.
    China has a lot of problems to overcome, not the least a transtion from totalitarianism to a free society if for no other reason than a modern economy needs free transmission of ideas. People I speak to in China complain that the government has so many filters on the internet that their internet speed is painfully slow.
    But back to my main point, I see 21C China as being similar in development to 19C USA. At that time the USA was descibed as having poor rule of law, no human rights to speak of and a vicious civil war. 19C USA suffered 15 Depressions yet that century saw the USA transformed from an economic backwater to an economic power house.
    If China falls over tomorrow I say good they will need some sort of shock to transform them into a modern free society. If they dont fall over I will say good they should continue to transform their economy along current lines.
    That China will fall into recession I am certain, when it will happen I have no idea but as I said the USA suffered 15 Depressions in the 19C but these didnt stop the development of Capitalism.

  21. 21 tomb

    Steve you say china wont fall into recession but you are certain they will and capitalism will grow in china!!!!!!! As usual you are not saying anything just writing

  22. 22 Steve Owens

    tomb Ive looked through my contributions to this thread and I cant see where I have claimed that China wont fall into recession. I have been objecting to people who pose as if they know stuff other people dont and pointing out the every claim that China is about to implode has failed only to be replaced by a new reason why China will implode. China has serious economic problems as did the US at what I think was a similar stage of development. The current Capitalist regimen in China has dragged hundreds of millions of people out of poverty. I support people moving out of poverty and my inclination is to support this process until it is complete. If during this time people arch up and demand democracy or an end to coruption then I think we should support these movements just as I support a general wage rise Im sure it didnt come without a struggle.
    What you write is a bit funny. When I started writting here I just tried to ask questions and people complained that I shoud not do that but write what I think. Now I write what I think and you say that what I write is not saying anything. May be I am an empty vessel.
    Just as sex without love is an empty vessel but as Woody Allen said its a damn impressive empty vessel.

  23. 23 Steve Owens

    While we are on the subject “demand for skilled labor just pushed up the price of labor…” like labor is just another input that just responds to the laws of supply and demand, heaven forbid that labor exert some form of pressure through class struggle.

    I know that no one else wants to discuss this but I do and that is I see the parallel between China and America in that at different times they were both large resource rich land masses that had a large number of impoverished migrants arrive who were bent on improvement, both found access to world markets and both had an ethos that was very pro education. China may well falter but the trend is clear. As famous investor Jim Rogers said in 1807 if you wanted to be at the cutting edge of world development you would go to London if its 1907 you would go to New York and if its 2007 you would go to Asia. (He has relocated to Singapore as he thinks that mainland Chinese cities are too poluted)

  24. 24 Steve Owens

    Patrick Im posting a couple of graphs one shows that the private sector in the USA is doing well. The other graph shows that debt is being reduced. Im posting this in response to your idea that economic growth is directly caused by ever increasing debt. I also have another link up my sleeve that argues that those graphs that show a steep growth in debt are in fact misleading. Tell me if you would like to see that.

  25. 25 Steve Owens

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