Hi Jacob, I am in Beijing now and may not be able to do many rounds in timely manner over the next few days.
<<1,3,4, and 5 are dependant on 2 happening>>
Yes, and actually more correctly, 1, 2 and 3 are co-dependent, and 4 and 5 gives the population a stake in maintaining 1, thus enabling 2, which then helps 3. I did not invent this way of looking at these matters. It is not my job. The government here explicitly discusses such matters in the open, and most folks acknowledge the truth of the co-dependency. This is the reason why the Communist Party has been able to hold on to power through ’89 and Falungong episodes and why, whether it be corruption or tax revolt or Falungong, events are pretty peaceful here, with the majority toeing the Party line.
<<Sustainable economic development, in turn, is dependant on the growth of the export-oriented private sector>>
True and false; sustainable development is dependent on privatizing most of the state-owned enterprises, encouraging formation of private enterprises. In the coastal provinces, the GDP is to a majority accounted for by private enterprises through the conversion and new formation processes. The same is beginning to happen in the inland provinces. Sustainable development in China cannot possibly be dependent on export and must be dependent on domestic sector. China is simply too big to depend on export.
China is a ‘continental economy’, and not directly comparable to Taiwan, Malaysia, Singapore, or even Japan. The structure of the Chinese economy is mostly skewed to domestic consumption, and growth of its economy is strongly dependent on domestic growth. Had China’s growth been actually dependent in the majority on export, the world would be messed up (as it is now, it is already pretty messy).
China (unlike Japan) has lots of folks (meaning just about everybody) needing to buy their first home in satisfaction of 50 years of pent-up demand. Each new home requires the ‘must haves’, from refrigerators to air-conditioners, laundry machines and of course, television and computers. Now, in embryonic fashion, even cars (along the lines of domestically produced VW Jetta, a model that was sold in the US in the late 70s to early 80s, and simpler still domestically manufactured cars of Japanese/Korean design). China is the largest manufacturer of many items, not because of export demand, but more because of domestic demand. In the cases of clothing, toys and possibly shoes, yes, China may be the largest exporter, but, simultaneously and obviously, would also be large or largest domestic consumer of such capacities.
To support the manufacturing that is required for the mostly domestic demand, there is also a 200 (two hundred) years pent-up demand for electricity, roads, water treatment plants, harbors, airports, telecommunications, …. The list simply boggles the mind; just for examples, the single, admitted largest, Three Gorges dam accounts for 50% of Norway (big hydro country) installed capacity, and there are hundreds of dams being constructed and under planning. There will be 82 new airports opened within the next 3 years, all requiring navigation/communication/safety equipment and yes, even airplanes. To enable people to get to and from work from their new homes, new metro systems are being put in. The most visible one being in Shanghai, a magnetic levitation contraction from Germany, which actually is a pilot scheme for several inter-city lines (Beijing-Tianjin, Beijing-Canton, etc). I had also noted on this thread earlier that construction of Shanghai-Tibet highway is progressing cris-crossing Beijing-Canton highway (there are at least three such highways.
China is moving up the value chain of manufacturing, and is exporting such goods in increasing quantities. Two items to note (a) China is a large consumer of tech/PC//telecommunication equipment (second/third, behind US and Japan, but over taking Japan within months in many categories), and (b) China’s export is coming at the expense of Japan, Korea, Taiwan, Singapore and EU’s export, because many of the capacity installed in China are done by companies from those regions. Some companies initially started China manufacturing to access its domestic market, some to lower the cost for their global market, but now the two flavors of investors are indistinguishable, as they incorporate China manufacturing and market into their global strategy.
<<… in turn, is dependant on the U.S. consumer (every toy I've bought for my 5 and 7-year-old children, for years, has been made in China). And current consumption levels in the U.S. are only possible with ever-increasing levels of debt (see the unsavings rate). This is an obviously unsustainable trend. So at some indefinite point in the short-to-medium term future, things will get abruptly very bad in China>>
You are right that China needs the US to keep buying, but China does not need the US to buy beyond the US’ sustainable ability to buy. A world-sized bubble in the US does no favor for the majority in the world, including China, and can only benefit to few swift footed speculators, many living in Hong Kong.
<<Can the Chinese government survive, if U.S. consumers stop buying Made-In-China toys, in the abrupt way that U.S. corporations have stopped buying Cisco routers?>>
BTW, CSCO is both a big buyer and seller in China; same for Motorola, Ericsson, etc.
My business is to help folks invest in and divest from China, and my active income is totally dependent on the flow of investment and divestment. For many reasons I have my grievances against the Communist Party and the many folks that make up its membership. However, I must admit, in the aggregate, they have done OK for the majority, and have done OK compared to what the KMT could have done. The Communist won the civil war because it had the support of the majority, and this is also why the Communist Party is still in charge, much more so than the threat of and the actual use of force. To rule China by force alone is not possible, and the party members of all folks know this. Now, the Communist Party is a misnomer, an anachronism, as far as the name goes. If I were there PR person, I would advise changing the name to, oh, say “Reform Party” or some such more accurately descriptive name.
<<I doubt China can "write off" a hundred million or so excess workers>>
I do not doubt it because they have been steadily doing so over the past 20 years, converting state workers to private workers, absorbing newly urbanized farm workers, and growing the economy at the same time.
By reading the mainline western press, one could easily believe that China is forever at the precipice (which happens to be true) and will crumple at a moments notice (which is not true and given the continental nature of the country, cannot be true).
Just as an example, it has been much reported that China’s banks will blowup due to all the bad debt. What the reporters fail to analyze is that the nature of banking in China over the past 50 years was actually a money moving function of the state, with the state owning both the borrowers and the banks, and the population’s deposits are guaranteed by the state and all the population worked for the state essentially for free. This is what happens in a poor communist economy.
I had always quipped that communism requires a lot more wealth than capitalism.
In the upcoming bank IPOs, the bad debt will be absorbed by the state, funded by the sale of state-owned enterprises that had, in many cases, been the bad debt borrowers. The cleanup is mostly an accounting entry, backed up by privatization. Given the low debt level of the state, no serious private source bridge loans will be required for the IPO or conversion.
A natural question than arises, “if it is so easy, than why the wait?”. China lacks trained non-engineering people (lawyers, accountants, real bankers, etc) and the banks were not ready. Over the past 10 years, literally tens of thousands of lawyers, bankers and accountants have been cycled through the US, Britain, Japan, Hong Kong, Argentina to learn, funded by the governments and the institutions and the Chinese themselves. Laws and institutions have been adapted, and in some cases copied. Pilot schemes tried out in select cities, experiences analyzed. The banks are nearly ready.
The reform of each and every sector has been cautiously methodical, because only one chance to succeed in a given elapse of the equation of time. Now, in thinking about the nature of the problem the Chinese government faces, think about the sectors that must be concurrently reformed: Legal, Education, Finance, Tax, Health, Social Services, Pension, Insurance, …
How far down the list do you suppose the reform of the political structure will be … yup, pretty far, and by the Russian and Indian experience, necessarily so.
Do you suppose that political structure reform is on the list at all … again yup, because the resultant home owners will demand it.
It would be wrong to think of China as simply another potential Russia, Japan or India. It is perhaps more realistic to think of China as the US in 1920 or slightly earlier.
In comparison, when Singapore boasts how brilliant it has been in setting a development model, or when Japan trumpets the economic miracle, or when the US whines about yet another “national healthcare crisis”, the Chinese must seriously ROTFLTAO. Their problems are of course much bigger, far more pervasive, but simultaneously, so are the opportunities. This is where I must sing from Maurice's playbook: combine smart folks to a reforming system, interesting wealth may result.
Chugs, Jay |
