Hello Russ, <<Just five things I'd add to illustrate my point that China is a horrific overhyped model headed for a fall/major bust>>
... You are perhaps correct, but without knowing your precise definition of “horrific overhyped” and “major bust”, and thus substituting my own admittedly ‘fire and brimstone’ understanding of such terms, I feel you are unlikely to be proven spot-on.
Post-reform initiation China, after all, is a society that has survived a lost decade of national madness at the inflection pint (‘Cultural Revolution’, 1966-1976), tanks on TianAnMen Square (‘The Incident’, 1989), policemen needing to cane enthusiastic IPO subscribers with bamboo stick (‘Red Chips Crisis’, 1994), Asia financial crisis (‘Collapse’, 1997), and SARS shut-in (‘End-of-the World’, 2003) with barely a twitch of casual shrug, and then continued on its way.
If the above events are not within your prescription of ‘horrific’ and ‘major bust’, then I do not see your worse-than-what-has-already-happened scenario pan out.
If the above events are within your definition of ‘horrific’ and ‘major bust’, then what of them, except they are good short-term opportunities?
On your five points, point by point, the explanations and counter-discussions are obvious, because, with no disrespect and null disparagement, I believe you are misunderstanding the nature of the beast, and you and most on SI are doing so because you are not working where I am working.
<<1. There is very poor transparency on how much has been loaned and lost by state owned banks subsidizing export oriented production. Is this reported? I submit it's a shocker (effectively wipes out banking there), and will bite those pouring capital into the country.>>
… There are a bunch of separate issues contained in this paragraph.
The banks were, entirely and now still to a large but rapidly diminishing degree, an arm of the state’s money moving function, owned by the state, lending to the state and state-owned enterprises, paying state-owned employees, taking in state owned employees’ savings, guaranteeing such savings with state-owned printing press. This is changing. Many will lose big sums in the course of change, but many always lose big in the course of changes everywhere.
The state banks are most definitely not directly subsidizing any export entities losses other than losing on credit in the course of banking. Most export-oriented China-based companies make profit for their respective owners, be they owned by domestic Chinese, overseas Chinese or Americans, Japanese, etc.
The state banks are subsidizing export and domestic-oriented enterprises in that the government is building infrastructure, which then ‘loses’ money, but which provides inexpensive and declining cost of public utilities to all the end-users, including the export machines. This is the nature of public infrastructure investment, especially after having a 300-year pent-up demand accumulated while the society was kept busy doing non-productive and often destructive, but otherwise cleansing acts.
On biting the deluge of capital flowing into the country, yes, definitely, but what of it? How is it different in nature then the capital that flowed into Argentina or the US, except that the capital will actually result in some good as opposed to just inflated homes, bloated wages, stuffed SUVs, and depleted savings accounts?
Revolution of every kind is not a tea party, and many will be sacrificed, for the great good, and for the few astute speculators.
This is not ‘fire and brim stone’ stuff in my definition, but is ‘just is’ and to be embraced, tapped, modulated, monitored, and its destiny leveraged.
Alternatively one can invest in Amazon or General Motors or JPM or whatever else that is obvious and apparent.
<<2. You may call it low "legacy costs", but a key component of China's "comparative advantage" is the use of defacto slave labor, that establishes a false unsustainable cost structure. As wealthy as China is becoming, they should be doubling wages annually (or setting a minimum wage suitable for their situation). No excuse not too, if there's any sense of social justice in the country.>>
… I do not know about ‘slave labor’, because I see workers eager to improve their lot, by night time education and day-time overtime work …
Message 18323330
<<December 10th, 2002
… I just completed a trip with a somewhat anti-freetrader (and therefore anti-China) US businessman (factory, radio station, boxing gym owner), who, before he came on the trip, was of the belief that China's rivers had no live fish.
I quote from him as he saw what was going on with the country, economy, workers, education, officialdom, etc, 'I came, and saw Jesus'.>>
On the issue of minimum wage, it is a bad idea, it is communism in disguise, and it didn’t work before and has no reason to work again, in China or the US. Here are my early thoughts on the issue and I believe there is enough said from me on the issue as far as its applicability in China is concerned:
Message 18920537
<<May 7th, 2003
<<What would you suggest to someone in charge of financial policy making in the US?>> …
… Get rid of:… Minimum wage …>>
Message 19326254
<<September 21st, 2003
… you are suggesting that China should revisit the good old days of communism, as a solution to the world’s problems engendered by J6P’s spending habits ? … >>
<<3. Hyperstimulated speculative economic and speculative bubble: mostly from excess dollar based liquidity. China is now severely infected by the American disease (runaway credit excess).>>
… Again, a bunch of issues making up a question, and we should take each issue in turn.
China’s multilateral trade is more or less in overall balance and is in fact slipping into deficit. China is not Japan, which had and has a giant overall aggregate multilateral trade surplus that created the ridiculous bubble of USD 1,300 melons and gold flakes sprinkled on sushi rolls.
China’s bilateral trade with the US is in enormous surplus, but not by genuine economic measures as it may affect domestic liquidity, because the eventual fix is simpler than imagined, by converting the USD into assets overseas, in the form of gas fields, oil supply, minerals and what not; i.e. hold CB reserve not in the form of USD but in things.
China’s credit excess is funding, however inefficiently, infrastructure and productive assets. America’s credit excess is inflating home cost, filling the attached garages with foreign made cars, and stuffing the embedded bed chambers with China-manufactured furniture.
The credit excess disease may have the same symptoms, but the overall outcome may be quite different.
<<4. Artificial pegging of it's currency, unfair trade practices: this won't matter until the first three situations are strongly reformed.>>
All pegging are artificial, and all re-pegging at higher/lower rates are equally artificial. The only genuine measure of degree of artificiality is the gold thermometer up the Central bankers’ behind.
Unfair trade practices? A bunch of issues all mixed together.
Fact of the matter is China is buying plenty from all around the world, and the US is particularly not adapt at exporting while the US is good at satisfying export demand via local-domestic based investment.
On peg, RMB value, and US export enthusiasm, I direct you to this earlier post:
Message 19324970 <<September 20th, 2003
... the US is officially pushing for RMB float, not RMB revaluation, in the mistaken belief that should the RMB be allowed to free-float, it would appreciate.
I believe if the RMB is revalued (re-pegged at higher rate), the Asian central banks would all try to get ahead of the line in unloading their USD treasuries, and ... eventually, monetary system collapse results.
I believe if the RMB is allowed to free-float, it would actually devalue against the USD, because China can print as well as the best in the world, with 4000 years of experience and 300 years of pent-up demand.
Either way, I do not see the advantage accruing to J6P.
…
<<2) Or is it to get some deals where China buys more US made capital equipment, airplanes, etc ?>>
... the US officialdom had never been interested in China purchasing US capital equipment, with the exception of airplanes. Not even construction equipment. To wit, the embargo against the largest infrastructure project in the world, the 3 Gorges Dam, in the form of denying ExIm bank guarantees to US manufacturers.
... and so China buys Japanese, German, Swiss, Swedish, Russian, Korean, Israeli, S.African, French, and British equipment instead.
... and now, the latest, China becomes a partner to the Euro version of Global Satellite Positioning system, and all it entails later on for civilian and military contracts, etc.>>
<<5. Overheated economy relative to it's infrastructure. May be correctable in time, except for the baggage of points 1-4.>>
… this deadly ‘problem’ will become a non-problem once China has as many miles of highways as the US, as many kilo-watts of power generated per capita as Japan, as many airport capacity as Germany, and as many USD 600k homes as California.
Chugs, Jay |
