China’s empty city

this beggars belief …..

38 Responses to “China’s empty city”

  1. 1 Dalec

    Maybe you should start whining about the COST of these projects like you did over electric vehicles.

    At least the Chinese have a modernist perspective


  2. 2 Arthur

    Overproducing entire cities is certainly pretty dramatic!

    There seems to be a lot of material recently indicating that China’s economy remains deeply unbalanced with asset bubbles and financial issues resembling those leading up to the Global Financial Crisis in other countries.

    Everything remains thoroughly unpredictable but it wouldn’t be surprising if China was at the epicentre of the next outbreak just as the US was in the last one.

  3. 3 steve owens

    Arthur you are right that everything is unpredictable, China has an economy that has lots of imbalances as does every economy that moves from poverty to maturity. So far Chinese institutions have stood up. When there was the Asian economic melt down I thought for sure Chinese banks will follow but they didn’t. When the GFC happened plenty of commentators said that China would fare worse because “China didn’t have an economy” it was just an add on to western economies, where are those guys now?
    The smart guys get it wrong, Peter Brain predicted the Asian melt down but was wrong about the consequence for Australia. Peter Schiff predicted the GFC but got it wrong about hyperinflation (so far) and Steve Keen predicted the GFC but got the Australian housing market backwards.
    Here’s to the future of which the only certainty is that it will be a surprise.

  4. 4 Arthur
  5. 5 SOWENS

    Arthur the blog you link to alerts us to the fact that China cooks its books. It’s an undeniable fact that China cooks its books however it must be remembered that its hard to find an entity that doesnt cook books. The GFC was ignigted by loan derivatives that are nothing more that representing low value assests as high value assets.(sophisticated book cooking) Enron was a massive book cooker, the Greek government is currently in trouble for cooking books. We are human we all lie and the greatest lies are told where there is the greatest incentive its not just a Capitalist desease lots of cooking was done under Stalin and under Mao.
    So to estimate the real health of the Chinese economy we need to rely on something other than Chinese governmental figures.
    The questions that we need to ask are does China supply the world with large quantities of manufactured goods? Is China penetrating new markets or retreating from markets? Is China able to invest profits into overseas ventures? If the answer is yes, yes and yes and its is, then the probability is that the Chinese economy is strong.
    I am sure that China wil be beset by problems set backs and corruption but despite this the Chinese economy is developing. If you look at previous developmental paths those taken by Japan and Korea then China still has a lot of expansion up its sleeve. Most economies that grow are hamstrung by rising wage costs and an appreciating currency. China does not yet have those pressures.

  6. 6 tomb

    china does have these pressures not sure why anyone would think they don’t. China is in the process of significant pay rises across the country. the whole world with one exception seems to be aware of the pressure on china to appreciate its economy. This is not to mention the underlying problems of artificially holding a currency undervalued. A short term bonus but a long term problem which china may be about to face.

    And no no no!!!!!!! The economy is in trouble despite massive stimulus spending. Not sure where all these emerging markets are, looking around the world for an expanding economy that could/would increase imports from china haven’t really found one of any significance. Found a heap of significant markets that are will and must cut back imports from china as can no longer afford them. Have a feeling world trade is in for a pretty rough time of it

  7. 7 steve owens

    tomb, what I mean by China not being hamstrung by wages is that China still runs a low wage system, there’s no organised labour and in other countries that developed ie Japan and Korea wages rose and then surpassed the levels of countries they were competing with there by hamstringing further development on a lower labour cost basis.
    China is under pressure to raise its currency but on the whole it has resisted these pressures.
    Maybe my wording was a bit unclear, while I agree that China is under pressure these pressures ie wages and currency valuation have yet to affect Chinese competitiveness.
    China has been penetrating new markets haven’t you seen the adds for Great Wall cars as they say in the add these cars aren’t good their great. I mean have you seen the low low prices.
    China is also making a lot of investments in Africa a place that’s set for a mining boom plus China still has a near monopoly on rare earths these will become a key resource in the worlds next development stage.
    As to emerging markets that are experiencing growth apart from China I would like to nominate India, Brazil, Indonesia and Vietnam.
    But there’s more China is penetrating the Australian car market in a time of car overproduction. That’s a pretty impressive penetration.

  8. 8 steve owens

    Sorry tomb you asked me to nominate an expanding economy that could buy Chinese goods well then I would like to nominate the EU the USA and Japan the worlds big three all of which are expecting growth this year.

  9. 9 tomb

    not sure what you are talking about. expecting growth in US europe this year, china penetrating the car market in australia because you saw some ads. china not under pressure because it has up to now resisted pressure. no organised labour in china!!!!!!!

    Japan and korea unable to expand because there currency appreciated and wages rose. Quite the opposite and look at the figures and you will see development has a direct relationship to increase valua of the currency and increased wages. Of course china would hate to be as unsuccessful as Japan and korea. The richest countries in the world have the strongest currencies and the highest wages. You condemn china to being forever a 3rd world country.

    As for Africa good luck with the boom (did anyone tell you there stimulus packages in nearly every country including India Brazil etc and countries like the UK USA etc are printing money madly and funnily enough the economies stopped falling as fast Countries don’t have stimulus packages because the economy is ok. when the stimulus stops or the printing of money turns into hyper inflation the shit will hit the fan.

  10. 10 steve owens

    tomb, the IMF estimates that the countries that will experience negative growth in 2010 are Turkey, Argentina, Ireland, Latvia, Estonia, Iceland, Georgia, Mozambique, Mauritius, Armenia, Moldova and Montenegro. Personally I think you could throw in Greece and Spain.
    I think that its pretty uncontroversial that countries on the bottom rung of development gain a boost from low wages and weak currency. My point is that China still has low wages and a weak currency.
    As to those car ads well yes that is very unscientific of me but it does seem impressive that in these times of difficulty in selling cars that China can come into Australia and offer cars that are one third cheaper than comparable models.

  11. 11 tomb

    I don’t care what the IMF says and not sure why you are such a strong disciple. The IMF doesn’t have a good track record certainly nothing to suggest ANY confidence in what they predict.

    I think it is incredibly simplistic and controversial to link development to low wages. You are suggesting that ALL of AFrica is developing as ALL of Africa has low wages. They have low wages and weak currencies because they are on the bottom!!!!!!! The mechanism that moves them off the bottom cannot possibly be the low wages and a weak currency. These are 2 problems they are trying to overcome. I.E why they are termed poor!!!!! What is a poor country if it isn’t shit pay and currency that is near worthless. How could this be a positive!!

    Those cars are not 1/3 cheaper than comparable models as there are no comparable models in australia. BTW those cars cost more in China than in oz go figure!!!

  12. 12 steve owens

    No tomb I’m saying that Africa was experiencing quite good growth rates before the GFC. I’m also saying that the big mineral developments in the future wont be in the traditional mineral producing countries Aust, Canada, USA but in greenfield sites of Africa and South America. A lot of it will be developed by Chinese capital. Low wages and weak currencies arn’t the determinants of economic growth otherwise economics WOULD stand on its head. All I’m saying is that a particular and early stage of development low wages and weak currency do make for a competitive advantage. This advantage is generally lost as the country develops because as a country develops wages have a tendency to rise as does the strength of the currency.
    If you don’t like my use of IMF figures could you please tell me who puts out reliable figures about economic growth. I agree that the IMF are suspect purely because they rely on the country in question to provide the raw data.

  13. 13 tomb

    I think we all know that 3rd world countries will eventually minerals or no minerals.
    we all know poor countries start out poor but this is not an advantage!!!!!!! (seems like you are putting an argument to keep wages low)
    And sorry no don’t know any clairvoyants that are reliable. Have to take your luck with others on that one.

  14. 14 Steve Owens

    tomb says “I think we all know that 3rd world countries will eventually…..”
    I think what tomb means is that 3rd world countries will all eventually develop.
    This is my real point. 30-40 years ago conventional wisdom was that 3rd world countries couldn’t develop.
    A country like India couldnt develop because it was penetrated by cheap imports from the developed world. India could not grow through exports because its products couldn’t penetrate developed markets because they either wern’t price competative or they were locked out through a tariff barrier. Therefore no Capital would be invested in India because there was no likelihood of making a profit.
    Third world countries were then faced with the reality that any development would come through some sort of autarky like China or through import substitution a system that left India with an auto industry but one that was doomed to churn out replicas of 1950’s British models.
    This is what is so wonderful about living in the current period a period that has seen autarky smashed, a period that has seen import substitution fall by the wayside to be replaced by a dynamic world growth economy.
    Still you may hanker for the good old days of autarky.
    So do I favour low wages well yes and no. I favour low wages over no wages and I support anyones right to struggle for higher wages.
    Even 30 years ago there were 3rd world countries that did develop Korea and Cuba but these were exceptional as they had superpower friends that wanted them as show cases. The USA pumped billions into Korea and The USSR always payed above world market prices for Cuban sugar.

  15. 15 tomb

    Hadn’t realised anyone thought 3rd world countries would NEVER develop. The development of globalisation has been ongoing and after the crash will pick up pace even faster.

    Cuba is an economic basket case!!

    Brazil taiwan singapore malasia etc on the other hand are not. don’t really understand your (real) point. Thought we were talking about China’s growth

    China’s official purchasing managers’ index fell from 55.8 in January to 52.0 last month, according to the China Federation of Logistics and Purchasing. Economists polled by Reuters had expected PMI to be 55.45. A reading of more than 50 indicates expansion.

    A breakdown of the official PMI data showed that new orders fell 6.2 percentage points to 53.7 while new export orders fell 2.9 percentage points to 50.3.

    Zhang Liqun, a government economist, said the outlook for exports would remain cautious, adding that the decline in new export orders warranted close attention.

    “China’s economy is moving from a government-led growth to an independent, sustainable development. There are still uncertain factors,” said Mr Zhang.

  16. 16 Steve Owens

    tomb as you point out any figure in the PMI above 50 is a GROWTH figure. (note there are 2 PMIs the governments and HBSC’s)

  17. 17 Steve Owens

    tomb is correct the HSBC’s PMI fell from 55.8 in January to 54.6 in Feburary.
    There’s only one explanation, capitalism in China has completly failed and the world economy is doomed, doomed I tell you.
    Or maybe the fact that Chinese factories closed for the lunar new year holiday explains 1.2 points drop in the index, yeah that would make sense because when these figures were released the Shanghai stock market rose like it was good news, poor soles they don’t even know disaster when it stares them in the face.
    The HSBC index is usually taken as more reliable than the official index that the Chinese government puts out.

  18. 18 tomb

    As usual not sure what you are raving about Steve. So you are saying that February or january every year falls because of the lunar holiday!!!!!! Well just have a look. Assume you know little about the lunar holiday.

    Didn’t read anywhere that the shanghai stockmarket rose on the back of these figures. Where did you get that?

    The fact that capitalism has problems and china also has problems doesn’t mean it is the end of capitalism or china you can relax. Ignoring figures and making up stories hoping capitalism will just sail through this won’t work either.

  19. 19 steve owens

    Tomb, Lots of Chinese businesses closed for a week to celebrate Chinese new year which from memory was Feb 14th.
    The PMI for Feb was released March 1st The results for the Shanghai stock market index at close of trade Feb 26th= 3041.69,
    March 1st= 3054.55 March 2nd= 3060.96
    As you can see the index numbers were released and the market rose on the day and on the following day. The stock market numbers are reasonably accessible they are hardly a state secret.

  20. 20 tomb

    Steve everyone is aware of this information!!! You try to make it sound like it is news and your simplistic conclusions are facts once again you need to check the figures from past years and also say where you got the information regarding the market increase and those figures.

  21. 21 steve owens

    tomb I fail to comprehend. The figures I cite are from the Shanghai stock exchange index. (its a publicly available index)
    I’m sorry if “everyone” is aware that the PMI has been over 50 for the last 12 months.(showing growth in the Chinese economy)
    I’m sorry if you mistook the Feb drop from the record Jan figure as significant when it clearly isn’t.
    I’m sorry that you criticize me for relying on IMF figures when you rely on Chinese government issued figures.(the whole point of the stuff Arthur linked to was that Chinese government figures are unreliable)

  22. 22 tomb

    well sorry steve will go back to grade 3 english for you. The stock exchange figures aren’t the problem you are. you say they are linked to the government data you think is not reliable. where do you get this from it makes no sense you don’t trust them so why do you think the stock market does AGAIN where did you get this rubbish from?
    Again the february figures drop YOU say is because of the holiday but they have the holiday every year so go back and check out the figures to see if your meanderings are true or just off the top of your head simplistic assumptions like the other comments you made on this issue.

  23. 23 steve owens

    I have read many articles that make the point that the Chinese new year holidays distort the PMI.
    Anyone can read these articles simply by doing an Internet search by typing PMI and Chinese New Year into their search engine

  24. 24 tomb

    Assume you won’t do it then and also assume they distort october and may but of course one would need to look at the historical data to know how distorted

  25. 25 steve owens

    Tomb I am in no position to do what you ask.
    You ask me to do an historical analysis of the Chinese PMI and the effect that the Chinese new year holidays have on it.
    What I have done is address the point you made. Your point was that the fall in the February PMI was a significant indicator that the Chinese economy was in trouble.
    I have merely pointed out that many articles attribute the fall to the effect of the holidays (that this year occurred in Feb).
    I pointed out that on the two days following the release of the index the Shanghai stock exchange rose.
    My other point was that the index despite falling was still indicating that the Chinese economy is growing.
    Seeing that I have no intention of conducting the historical analysis that you demand I guess we are done unless you are intending to provide the historical analysis yourself.

  26. 26 Bill Kerr

    I haven’t been following the chinese economy discussion closely but it does sound like the Chinese Premier, Wen Jiabao, is worried:

    “The unemployment rate of the world’s main economy is still high, some countries’ debt crises are still deepening, and the world’s commodity prices and exchange rates are not stable, which are most likely to become the cause of any setback in the economic recovery,” Mr Wen said yesterday in Beijing’s Great Hall of the People.

    “The shock of the global economic crisis on the Chinese economy in some degree imposed on our development model, which cannot be changed in a short time and needs our constant efforts.”

    Mr Wen is now attempting the delicate balancing act of withdrawing the massive stimulus of government funding and state-sponsored bank lending which totalled 12 trillion yuan ($1.92 trillion) last year while trying to fend off inflation and proceed with structural economic reform.

    As part of its efforts, China is also trying to marshall the forces of its steel sector to fend off a massive hike in iron ore prices that could now be as much as 90 per cent….

    China has been under increasing pressure to allow its currency, the renminbi, to appreciate, removing the effective peg to the US dollar that has been in place for more than a year since the financial crisis gripped the world.

    Two days ago, US President Barack Obama ratcheted up his rhetoric, urging China to appreciate its currency, saying a “market-oriented” exchange rate was “an essential contribution to that global rebalancing effort”.

    Mr Wen fired back yesterday, saying the renminbi was not undervalued and a country’s exchange rate policy “should depend on its national economy and economic situation”.
    Chinese Premier Wen Jiabao warns of double-dip recession

    I read some of the comments following the article. Many of them are predicting a double dip recession.

  27. 27 steve owens

    Bill I think that the Chinese government is playing a high risk game. There’s always the potential for a double dip but that would only be a minor problem compared to a trade war which is the real risk. The Chinese should pull their heads in because they would loose the most in a trade war much more than from the inflation which they claim to be fighting and more than the double dip which still remains as only an outside chance.

  28. 28 steve owens

    Bill it will all come to a crunch in about one months time as that’s when the US Treasury will formally rule whether China is a currency manipulator. If the answer is yes (and I think that’s a fair bet) then that will trigger trade sanctions.

  29. 29 tomb

    Bill I think the interesting thing about that speach was wen jiabao saying that stability was the key. While the descisions may not be economically sound their main concern was political stability and with out growth they would struggle to maintain control. They were less concerned about inflation than maintaining stability.

    I think you are correct most analysts worth listening to predict a double dip which seems rather obvious.

    Not sure if I would call it a double dip if the only thing stalling the continued drop was and is the massive stimulus packages in place. Just a continuation of the original crisis.

  30. 30 steve owens

    Tomb I was thinking no don’t laugh I was thinking about our PMI problem. You argued that the Feb figures showed a deep malaise in the Chinese economy. I argued that the Feb figures could be explained by Feb being a month shortened by the new years holiday.
    Well if your right March should also be a bad month where if I’m right the figures should return to close to the Jan figure.
    What do you say will March resolve the issue?

  31. 31 Bill Kerr

    found some other commentaries about china’s economic problems in a blog which sometimes refers favourably to austrian economics, so take it with a grain of salt, but I can’t see anything wrong with the commentaries from my not very well informed vantage point (there are other china articles on the same blog, they keep up a regular commentary):
    China cornered by inflation, bubbles and rich-poor gap

    That is where the dilemma lies. As long as the yuan is pegged to the USD, the Chinese government cannot control inflation (see Why is China printing so much money?). But the yuan has to be pegged to the USD in order to keep the Chinese exports competitive so that American consumers can fill in the wide gulf between Chinese investments and domestic consumption. By not allowing the yuan to appreciate, the Chinese government shows that at least for now, they fear unemployment and excess capacity more than inflation. … But there will be a day when they have to tackle the inflation problem

    April 15th deadline re. china USA currency issue

    Currently, the US is in the midst of a generational shift in culture/mindset from borrowing to saving. That is, in economic terms, the US private sector is de-leveraging. The symptoms of de-leveraging will be asset price deflation, economic stagnation, rising unemployment and so on, which will be counteracted by increase in government debt and spending (which itself is limited by market’s confidence in government debt)… In contrast, the Chinese are postponing their pain by going further into debt (i.e. policy of inflation and force-feeding of credit into the economy). This result in an illusion that America is suffering while China is ‘prospering’ .. But the mob wants to find a scapegoat to blame for their woes. It so happens that the most convenient scapegoat is China (specifically, China’s policy of artificially holding its currency down) because at this point of the cycle, China is looking very good. It is perceived that this policy worsen America’s unemployment rate

  32. 32 tomb

    China warned of growing ‘land loan’ threat

    By Geoff Dyer in Chongqing

    Published: March 28 2010 18:27 | Last updated: March 28 2010 18:27

    The Guanyinxia forest stretches up to the mountains north-west of the big central Chinese city of Chongqing. Most is protected land. “Our purpose is mainly preservation – not to make money,” says Liu Siyang, Communist party secretary of the government bureau that manages the forest.

    Yet the same forest has a double life in the commercial world. It has been used as collateral by a company controlled by the local government forestry bureau to help secure a Rmb300m loan it took out last year from a state-owned bank, which was then spent on infrastructure projects in Chongqing.

    Deals such as this are leading analysts to look more closely at local government finances in China. Some are beginning to warn that not only is China’s debt position much worse than advertised but that the banking system could also be heading for a big problem if many of these loans turn sour.

    “This will eventually require a massive bail-out from the budget and the foreign exchange reserves,” says Victor Shih, an academic at Northwestern University in the US.

    Over the past year China has pulled off a feat that seems remarkable in an era of commonplace double-digit budget deficits. The economy grew 8.7 per cent after the government launched a huge stimulus programme, yet the debt-to-gross domestic product ratio has barely budged from its modest level of about 20 per cent.

    The catch is that most of China’s stimulus came not from conventional fiscal spending but from bank loans issued by state-owned financial institutions. New loans last year more than doubled to Rmb9,600bn, equivalent to nearly a third of GDP.

    Local governments have only limited opportunities to borrow money, but they can set up special investment companies, such as the one operated by the Chongqing Forestry Bureau, which can use public land as collateral to raise loans. Officials have privately admitted that a significant chunk of last year’s bank loans went to these investment companies.

    Such companies were pioneered in the early part of the last decade in Shanghai and Chongqing but there are now more than 8,000 across the country.

    While the banking regulator puts local government debt at Rmb6,000bn ($878bn €655bn £590bn), Mr Shih estimates it is nearer to Rmb11,400bn, with another Rmb12,700bn of loans committed over the next few years. If these loans are included, he estimates, China’s debt-to-GDP ratio was 71 per cent at the end of 2009 and will be 96 per cent by 2011.

    “The notion that there is not any leverage in the Chinese real estate market is false,” he says. “That might be the case for people buying houses, but local governments are leveraged in a big way.”

    How much of these debts will go bad is guesswork. Mr Shih reckons the companies owned by big cities such as Beijing and Shanghai will be fine, but smaller towns and rural districts could struggle and that non-performing loans might reach Rmb3,000bn.

    Huang Qifan, mayor of Chongqing, has also raised concerns. “For the Chongqing municipal government, there is no debt problem at all,” he said last week. “But we should pay more attention to some district governments.”

    There are reasons not to fear the worst. A large part of the potential bad debts are from commitments to lend over the next two years. A portion of those loans cannot be halted without leaving half-built bridges, but the government is already taking some pre-emptive steps, warning banks to reduce lending to local governments and pledging to slow new infrastructure projects.

    In the medium term, Beijing is discussing two reforms that could help. Ha Jiming, an economist at China International Capital Corporation, says the auth­orities could significantly expand the municipal bond market, providing a more stable financing channel. Officials are also examining a property tax to boost local government revenues .

    Finally, the local governments can make up for losses at their investment companies by selling land.

    Yet, as the Guanyinxia forest indicates, not all of the land used as collateral is commercially viable. And the volumes could become huge. Stephen Green, an eco­nomist at Standard Chartered in Shanghai, estimates that the collateral used to back loans issued to these investment companies is equivalent to three times all the land sold over the past five years.

    “It is hard to see how this game can continue without an unhappy ending,” says Mr Green.

    “If land values fall or the market stagnates . . . this game can never be brought to a successful close.”

    Additional reporting by Yang Jie

    Copyright The Financial Times Limited 2010.

  33. 33 steve owens

    So Geithner blinks and the US decides not to officially label China a currency manipulator. Well the problem has been deferred rather that solved as the US will now seek to resolve the issue in multi lateral forums.
    Poor old Krugman he was keen on a trade war, personally I preferred the cautious position adopted by the Economist magazine contributors. Even Krugman said that it was reasonable to oppose the declaration on the basis that a trade war could be a lot worse than the problem being addressed still the truth is that China IS a currency manipulator but you didn’t hear that from the US Treasury Dept.

  34. 34 Bill Kerr

    In The Weekend Australian (December 18-19), Niall Ferguson outlines the previous 5 centuries of the Wests ascendancy over China and then goes on to describe the current situation and the coming shift to China’s ascendancy. I’ll supply an extract below. The whole article is available of Ferguson’s website although it has a different title: In China’s Orbit. Ferguson is about to publish a book titled, Civilisation: The Rest and the West:

    if the ‘Chinese don’t take actions’ to end the manipulation of their currency, Obama declared in New York in September, “we have other means of protecting US interests”

    The Chinese Premier, Wen Jiabao, was quick to respond: “Do not work to pressure us on the renminbi rate. Many of our exporting companies would have to close down, migrant workers would have to return to their villages. If China saw social and economic turbulence, then it would be a disaster for the world.”

    Such exchanges are a form of pi ying xi, China’s traditional shadow puppet theatre. In reality today’s currency war is between Chimerica – as I’ve called the united economies of China and America – and the rest of the world.

    If the US prints money while China effectively still pegs its currency to the dollar, both parties benefit. The losers are countries like Indonesia and Brazil, whose real trade weighted exchange rates have appreciated since January 2008 by 18 percent and 17 percent respectively.

    But who now gains more from this partnership? With China’s output currently 20 percent above its pre crisis level and that of the US still 2 percent below, the answer seems clear. American policy makers may utter the mantra that “they need us as much as we need them” and refer ominously to Lawrence Summer’s famous phrase about “mutually assured financial destruction”

    But the Chinese already have a plan to reduce their dependence on dollar reserve accumulation and subsidised exports. It is a strategy not so much for world domination on the model of Western imperialism as for re-establishing China as the Middle Kingdom – the dominant tributary state in the Asia Pacific region

    If I had to summarise 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 geo political dividend”
    – middle kingdom re-emerges to claim its place on the global stage

  35. 35 tomb

    Bill I think the important thing here is

    The Chinese Premier, Wen Jiabao, was quick to respond: “Do not work to pressure us on the renminbi rate. Many of our exporting companies would have to close down, migrant workers would have to return to their villages. If China saw social and economic turbulence, then it would be a disaster for the world.”

    It is a tinder box and has to keep growing. I doubt if the strategy mentioned exists but rather the 4 mores are a natural result of the economic situation, just as inflation which he seems to have conveniently neglected to mention. I must also say that the first 3 mores are not significant and the 4th one is negligible.

    It is a mistake to confuse the size of China, in all aspects, with economic strength. China is nowhere near Europe, Japan or America. China is a developing country in a similar position to India. Development is very uneven between rich and poor and country and city.

    They need to appreciate the currency but can’t afford the short term pain. I assume they will appreciate it as they are moving to have it develop as an international currency.

    I don’t have time now to develop this but the political and economic situation in China may not be what it appears.

    Will try to get the link to work and read the full article.

  36. 36 tomb

    This article in the official chinese newspaper relfects the concern regarding the political and economic situation in China. The author was a high ranking official who has now retired. The advertised 2012 transformation of the party to younger cadres sees jostling for positions and jostling by factions which brings out some of the concerns.

    A different road forward
    By Yu Yongding (China Daily)
    Updated: 2010-12-23 07:55
    Comments(3) PrintMail
    Large Medium Small

    Painful adjustments needed to sustain advancement in the face of anemic innovation, slow tech upgrades and social tensions

    China’s per-capita income, at $3,800, has surpassed the threshold for a middle-income country.

    But even as economists and strategists busily extrapolate its future growth path to predict when it will catch up to the United States, the mood in China became somber and subdued in 2010. Indeed, Premier Wen Jiabao sees China’s growth as “unstable, unbalanced, uncoordinated and ultimately unsustainable”.

    Economic growth, of course, has never been linear in any country.

    Throughout history, there are countless examples of middle-income countries becoming stuck in that category for decades or eventually falling back to low-income status. The Nobel laureate economist Michael Spence has pointed out that after WWII, only a handful of countries were able to grow to a fully industrialized level of development.

    China’s progress over the past three decades is a successful variation on the East Asian growth model that stems from the initial conditions created by a planned socialist economy. That growth pattern has now almost exhausted its potential. So China has reached a crucial juncture: without painful structural adjustments, the momentum of its economic growth could suddenly be lost.

    China’s rapid growth has been achieved at an extremely high cost. Only future generations will know the true price. The country’s investment rate now stands at more than 50 percent – a clear reflection of China’s low capital efficiency.

    There are two worrying aspects of this high rate. First, local governments influence a large proportion of investment decisions. Second, investment in real estate development accounts for nearly a quarter of the total.

    Some local governments are literally digging holes and then filling them in to ratchet up the GDP.

    Consequently, there are simply too many luxurious condominiums, magnificent government office buildings and soaring skyscrapers. Hotels in China’s provincial cities make five-star establishments in Western capitals looked shabby.

    China has become one of the world’s most polluted countries. Dust and smog choke its cities. All of the country’s major rivers are contaminated. Although progress has been made, deforestation and desertification remain rampant.

    Drought, floods and landslides have become commonplace. Relentless extraction is quickly depleting China’s resource deposits.

    With China’s trade-to-GDP ratio and exports-to-GDP ratio already respectively exceeding 60 percent and 30 percent, the economy cannot continue to depend on external demand to sustain growth.

    Unfortunately, with a large export sector that employs scores of millions of workers, this dependence has become structural. That means reducing China’s trade dependency and trade surplus is much more than a matter of adjusting macroeconomic policy.

    After decades of rapid expansion, China has become the workshop of the global economy. The problem is that it is no more than a workshop. A lack of innovation and creation are the economy’s Achilles’ heel.

    For example, in terms of volume, China has become the world’s largest car producer, churning out 17 million vehicles this year. But the proportion of models developed by domestic carmakers is negligible.

    In an era of rapid technological progress, creativity and innovation, the global economic landscape can change rapidly. Without a strong capacity for innovation and creativity, even a giant has feet of clay. And when a giant falls, many get hurt.

    While China’s living standards have dramatically risen over the past 30 years, the gap between rich and poor has sharply widened.

    Income distribution has remained skewed in favor of the rich for too long, and the government has failed to provide decent public goods. With the contrast between the opulent lifestyles of the rich and the slow improvement of basic living conditions for the poor fomenting social tension, a serious backlash is brewing.

    If China fails to tackle its structural problems in time, growth is unlikely to be sustainable. Any structural adjustment is painful. But the longer the delay, the more painful it will be.

    China’s strong fiscal position today gives it a window of opportunity. But that window will close fast, because beneficiaries of specific reform policies have morphed into vested interests, which are fighting hard to protect what they have.

    What the public resents most is the collusion between government officials and businesspeople, described by the respected Chinese economist Wu Jinglian as “capitalism of the rich and powerful”.

    Breaking this unholy alliance will be the big test for China’s leadership in 2011 and beyond. Under China’s current institutional arrangements, meritocracy is a prerequisite for good governance.

    But meritocracy has been eroded by a political culture of sycophancy and cynicism. So, once again, the dialectics of economic development has brought political reform back to the fore.

    China’s rise has generated admiration, envy, suspicion and even outright hostility in some corners of the globe.

    No matter how often Chinese leaders repudiate any hegemonic ambition, wariness about China’s intentions will remain.

    That is understandable: the rise of new powers has always disrupted the established international order.

    When this new power is a nation of 1.3 billion people living under an alien political system and ideology, its rise is bound to cause even more uneasiness.

    Fortunately, because of globalization, China’s rise is in everyone’s interest, as is the rise of other emerging economies.

    China should and will play a more active role as a major global stakeholder in such areas as climate change, global imbalances and reforms of the international monetary system. Needless to say, reciprocity will be necessary.

    Yu Yongding, president of the China Society of World Economics, is a former member of the monetary policy committee of the Peoples’ Bank of China, and a former Director of the Chinese Academy of Sciences Institute of World Economics and Politics.

    Project Syndicate

    This is a link to an article about some of the internet responses to inflation and house prices.,dwp_uuid=9c33700c-4c86-11da-89df-0000779e2340.html#axzz18zuBfVm7

  37. 37 Bill Kerr

    “In August, China’s largest energy company reported that an extraordinary 65.4 million residences have not consumed any electricity in the past 6 months, a fairly big clue that they lie empty”

    – The Binge to End Them All by Johan Norberg, The Weekend Australian, Jan 1-2, 2011

  38. 38 tomb

Leave a Reply